As you will see from this note from the marketing dept, of which I post an extract below, The Economist is looking for suitably important-sounding people to appear in an upcoming marketing video. If anyone meeting the description below is reading this blog (and also reads The Economist) and would be willing to spend a few minutes talking to camera about why they like the Economist I would be most grateful if they could get in touch with me at
edwardlucas(a tsign) economist.com
We are planning to do some video interviews with some of our more prominent readers and need a little help in identifying them.
We have two types of people we are trying to find:
a) top people of the ilk that have appeared on previous films - business leaders, heads of government, noteable entrepreneurs, etc; and
b) people who haven't made it yet but who are likely to do so within the next ten years.
Thursday, December 21, 2006
As you will see from this note from the marketing dept, of which I post an extract below, The Economist is looking for suitably important-sounding people to appear in an upcoming marketing video. If anyone meeting the description below is reading this blog (and also reads The Economist) and would be willing to spend a few minutes talking to camera about why they like the Economist I would be most grateful if they could get in touch with me at
The devil you know
WESTERN strategy for toppling the authoritarian and murderous regime in Belarus is roughly this: “Have meetings, give the opposition money, have more meetings, give more money”.
You have to be pretty optimistic to think it is working. For two of the best-known opposition leaders, Alyaksandr Milinkevic and Michail Marynich, a photo-opportunity with President George Bush on the fringes of the NATO summit this month may have been a morale booster. Protests in support of another main opposition figure, Alyaksandr Kazulin, who has just finished a hunger strike, were inspiring. But they did not rock the regime. The big question is how best to exploit the widening split between the Belarusian leader, Alyaksandr Lukashenka, and his Kremlin counterpart, Vladimir Putin.
One paradoxical result of Mr Lukashenka’s eccentric and paranoid rule over the past 12 years has been to entrench a Belarusian national identity. It may be a perverse and retrograde one, it may have a strong Soviet whiff about it in places. But it is there, and support in Belarus for a planned merger with Russia has collapsed. That creates the potential for a real two-way row.
A trade war is under way already. Russia is telling Belarus to hand over half the national gas infrastructure to Kremlin-crony Russian companies, or else Russia will double the price that it charges Belarus for gas. Next year, presumably, Russia will bargain for the rest of the Belarusian system. Recently Russia started blocking imports of Belarusian sugar. The always flimsy tent of the Russian-Belarusian Union, which was supposed to accommodate the two countries in a marriage of equals, is so tattered as to seem beyond repair.
The current nonsensical arrangement whereby Russia and Belarus share a free trade zone without free trade, under a supranational authority with no authority, can’t last. Russia no longer wants to subsidise its backward neighbour. But nor does it want, at least right now, the trouble and expense of toppling the regime and swallowing Belarus whole.
The two countries share a free trade zone without free trade, and a supranational authority with no authority
As ties with Russia turn from cool to icy, the Lukashenka regime is desperate to find new friends: Iran, Azerbaijan, China—anyone who can help temper the cold wind from the Kremlin. Belarus is even putting out feelers westwards, albeit rather clumsy ones.
So far, these have been firmly rebuffed. The West doesn’t think about Belarus very often. When it does, it wants to isolate the regime, not befriend it.
But unofficially, people are talking about a new approach, variously described as “more astute” and “more realistic”: that the West should stop trying to isolate Mr Lukashenka, and instead offer him a deal.
Let's see who's more cynical now
At its most cynical, this would mean leaving the old brute in power, but as a Western ally rather than a Kremlin one, creating a kind of Azerbaijan on Europe’s eastern fringe. A slightly cleaner variant would be for the West to buy Mr Lukashenka out, offering immunity and a dignified retirement in exchange for a peaceful transfer of power and eventual democracy. A third option would be to keep political ties frozen, at least for now, but to try to boost trade, investment and cultural links.
For the West to deal with Mr Lukashenka at all would be seen as betrayal by the Belarusian opposition, whose moral case is overwhelming. These are good people who have been beaten, and jailed, and seen their loved ones murdered. The West would be saying to them, in effect: “Sorry old chap. Given the geopolitics, it’s too good a chance to miss.”
There’s another problem too. Capricious, paranoid and devious, Mr Lukashenka is not a reliable dealmaker.
At this moment, shunning Mr Lukashenka’s approaches feels virtuous, and could well be right. But events in Belarus are unfolding remarkably quickly. There may soon come a time when thinking wishfully on the sidelines will look the worst option, not the best.
Wednesday, December 20, 2006
Eastern European spies
From The Economist print edition
Spy scandals in eastern Europe reveal some damaging hang-ups
WHEN spooks start mattering, democrats start worrying. Eastern Europe has shed the planned economy and one-party rule. But the intelligence and security services still have disproportionate influence. Indeed, it seems to be growing.
In Poland reform of the military-intelligence agency, the WSI, has been the main achievement—critics would say the sole one—of the government in the past year. A commission charged with the job claims that the WSI was actively involved in influencing the media and business (particularly arms-trading and property), as well as government itself. The WSI has now been broken up into a military-intelligence and a counter-intelligence service. Some 300 Soviet-trained officers have been fired.
Across the border in Lithuania another scandal is blazing in the security service, the VSD. A top Lithuanian spy posted to Belarus, Vytautas Pociunas, was found dead in mysterious circumstances—an event that some link to feuds within the VSD over freight contracts. A muck-racking newspaper which published supposedly inside information about the VSD was raided. A parliamentary committee wants the VSD chief, Arvydas Pocius, to go. He has suspended his service's two top counter-intelligence officers, claiming that they “pose a threat to national security”.
Making sense of all this is hard. But one thread stretches back to the removal in 2004 of Rolandas Paksas, a president whose unfortunate choice of friends led Lithuania's allies to worry about the country's future. Mr Paksas was impeached after the then VSD boss, Mecys Laurinkus, told Lithuania's parliament about the president's Russian-related antics. That success may have made the VSD big-headed.
It is hard to find an ex-communist country in eastern Europe in which the intelligence and security services are depoliticised and uncontroversial. In Bulgaria the director of the department responsible for secret communist-era archives, which lawmakers have voted to open, was found dead at his desk in November, shot with his own gun. The authorities' delay in announcing the death, which leaked out in Brussels, prompted accusations of a cover-up. Two other senior figures committed suicide in October.
Romania's communist-era Securitate has proved the most pervasive and resilient, with extensive business and political connections. President Trajan Basescu recently sacked his intelligence chiefs in a row over the escape of a suspected triple agent who was also an arms-dealer and kidnapper (just another dull day in the Balkans). The president's critics wonder how, in communist times, he wangled a plum job abroad, in Antwerp, without help and encouragement from his or a foreign-intelligence service, something over which the files are oddly silent.
A common feature here is the weakness of eastern Europe's politicians and public institutions, which often fail to counteract the influence of those linked to the past. The old regimes of eastern Europe did not disappear in a sea of flags and euphoria in 1989. Many senior figures relabelled themselves, their money and their power—and are still doing nicely under the new system. It helps that decades of totalitarian rule leave people easily spooked. Few believe that the men in raincoats are under proper legal and political control.
One answer may be to start from scratch, with new recruits, something that Poland is now considering. Estonia, whose small, British-trained intelligence service is widely seen as one of the best in eastern Europe, did this in 1992. It also has a rule that politicians must never be spied on. “Such cases are for the voters to judge,” explains an official, sternly.
Friday, December 15, 2006
Problems you did not know you had
From The Economist print edition
WHAT better to give for Christmas than a book that explains how to wrap presents, carve the turkey and wash up afterwards? That is doubtless the aim of the chirpy Rosemarie Jarski, a former au pair and author of this compendium of household and other advice.
Books filled with commonsensical tips on life and how to live it are numerous and mostly bad, with Martha Stewart's snobby and fiddly lifestyle guides being among the worst. Shirley Conran's 1975 “Superwoman”, with its advice to stop fussing, to buy proper equipment and household chemicals, and to concentrate on fun, was one of the best. “Life is too short to stuff a mushroom,” she famously said.
Ms Jarski's book would make Ms Stewart wince, and Ms Conran cheer. It is utterly unambitious in the kitchen department: the reader learns how to cook pasta, boil vegetables, make tea and carve meat, and little else. But that plain fare is leavened with titbits of knowledge of the world outside the kitchen that even the savviest reader may lack: for example, the terminology and etiquette of sushi, or the way that smelly books can be de-odourised with bicarbonate of soda (how they become smelly is not explained). Ms Jarski's recommendations for descaling a shower-head in situ are truly ingenious.
This is a wisely constructed menu. A list of tips, however necessary, aimed solely at the most dimwitted or ignorant readers would be too shameful to give, or to read. The trick is to provide the most basic information about life (for example, a solemn page on the correct use of lavatory paper: how to hang it and, worse, how to use it) in a format that looks amusing and stimulating for the general reader.
Ms Jarski's assumption—probably correct—is that skill in dealing with chores and household management does not travel as easily between generations as it once did. A mixture of convenience food, life on the hoof, indulgent parents and sulky teenagers means that, for example, students newly living away from home as they start university may be blessedly ignorant of the simplest domestic tasks. A book that unstuffily explains the basics of tidiness, hygiene and organisation may be surprisingly useful.
There are three weaknesses. Some of the advice is wrong, or incomplete. Lemon juice or vinegar is a much handier way of removing chewing gum from fabric than the eucalyptus oil that the author recommends. Second, some of the tips (making beeswax furniture polish) would have seemed arcane even 50 years ago and give a whiff of borrowing from other, older authorities. There is a suspicious lack of acknowledgments, let alone a bibliography. Third, the tone is so relentlessly bright that even the most laid-back reader may end up wanting to hurl the book into a pile of dirty laundry and retire to an unmade bed with a takeaway meal.
As for those parcels? The advice is excellent, if a bit demanding. Use foreign comics as unusual wrapping paper, or use a furoshiki cloth, Japanese-style (try a napkin, scarf or handkerchief). Less originally: put irregular-shaped presents in boxes to make them easy to wrap neatly.Tying the Perfect Parcel: Everything You Should Know How To Do.
By Rosemarie Jarski.
New Holland; 304 pages; £9.99
Eastern Europe's stars
The dynamic duo
From The Economist print edition
Europe's booming Baltic corner
DOUBLING your living standards every six years would seem a breakneck pace of growth even in east Asia. In Europe it is unheard of. But two Baltic countries, Estonia and Latvia, are growing at 11.6% and 10.9%, respectively. This speed is unexpected. Of 13 forecasts looked at last year by the European Bank for Reconstruction and Development, the highest for Estonia was 6.4%; even Estonia's own central bank reckons that the long-term growth rate is only 7-8%.
The pair's high growth is an exceptional product of good luck and good policies. Both countries are stable, business-friendly and cheap, and lie close to large, rich markets. They have flat taxes, cleanish government, balanced budgets and stable currencies pegged to the euro. Foreigners like all this: Estonia is Europe's biggest recipient per head of foreign investment.
Consumption is soaring in both countries, as is credit. Estonia will see money-supply growth of 33% this year; in Latvia mortgage lending rose by 90% in the year to October, and credit-card lending doubled. That reflects the rise of a western-style financial industry that lends in a way yet to develop in most of eastern Europe. “Foreign banking is a big reason for our success,” says Andres Lipstok, governor of Estonia's central bank.
Can the good times last? Signs of a property bubble abound. The authorities want to tighten banks' lending. If a crash came, its effects should be contained by outside ownership of banks (99% in Estonia, and 80% in Latvia): foreign shareholders, not local taxpayers, would suffer if loans went bad. Both countries have huge current-account deficits (17.9% of GDP in Latvia and 12.5% in Estonia). But for poor economies trying to catch up on 50 years of development missed under communism, a thirst for imported technology is commendable. Balance sheets are strong—indeed, Estonia has no net foreign debt.
The bigger worries are twofold. Even as the Baltic hot rods scorch across the tarmac towards European living standards, they lack any brakes. Monetary policy cannot contain inflation (their currency boards give the two countries no independent control over interest rates). Fiscal policy works in theory but not in practice: Estonia already runs a big budget surplus, and Latvia is not far behind.
Mart Laar: a star turn still to come
Wages are spiralling thanks to a boom in labour-thirsty industries such as construction, retail and tourism. Both countries are struggling to integrate Soviet-era immigrants, so importing more labour from the east is hugely unpopular. But tempting back the many locals—especially 100,000-plus Latvians—who have moved to work abroad is tricky. Latvia's president, Vaira Vike-Freiberga (herself a returned émigré), says it is not just the money: Latvians find that foreign bosses and colleagues treat them more kindly and respectfully than their compatriots do, and public services such as health care and transport are better abroad.
So far, soaring productivity growth has masked the labour market's tightness. But that will not last. The big task for both countries is to move to an economy based on brain not brawn. That requires a liberal immigration regime—at least for skilled foreigners—and a transformation of the calcified, self-satisfied education system. Neither is yet in sight: in both countries, smugness rules.
Latvia's coalition government, closely tied to local big business, shows little appetite for reform. Estonia, which has a parliamentary election in March, looks more hopeful. Its star politician, Mart Laar, is now leading the opposition after a break evangelising for the flat tax that he introduced when prime minister in 1994. His party slogan is “happiness does not lie in money”. That would once have been laughable. Now it sounds quite good.
An excess of conscience
Estonia is right and Amnesty is wrong
AMNESTY International used to be an impartial and apolitical outfit, focused on the single burning issue of political prisoners. Your correspondent remembers its admirable letter-writing campaigns during the cold war on behalf of Soviet prisoners of conscience such as Jüri Kukk, an Estonian chemistry professor. He died in jail 25 years ago with the hope—then not widely shared—that his country’s foreign occupation would eventually end.
It did. Since regaining independence in 1991 Estonia has become the reform star of the post-communist world. Its booming economy, law-based state and robust democracy are all the more impressive given their starting point: a country struggling with the huge forced migration of the Soviet era. The collapse of the evil empire left Estonia with hundreds of thousands of resentful, stranded ex-colonists, citizens of a country that no longer existed.
Some countries might have deported them. That was the remedy adopted in much of eastern Europe after the second world war. Germans and Hungarians—regardless of their citizenship or politics—were sent “home” in conditions of great brutality.
Instead, Estonia, like Latvia next door, decided to give these uninvited guests a free choice. They could go back to Russia. They could stay but adopt Russian citizenship. They could take local citizenship (assuming they were prepared to learn the language). Or they could stay on as non-citizens, able to work but not to vote.
Put like that, it may sound fair. But initially it prompted howls of protest against “discrimination”, not only from Russia but from Western human-rights bodies. The Estonians didn’t flinch. A “zero option”—giving citizenship to all comers—would be a disaster, they argued, ending any chance of restoring the Estonian language in public life, and of recreating a strong, confident national identity.
They were right. More than 100,000 of the Soviet-era migrants have learnt Estonian and gained citizenship. In 1992, 32% of the population had no citizenship. Now the figure is 10%.
In 1990, before the final Soviet collapse, your correspondent tried to buy postage stamps in Tallinn using halting Estonian. The clerk replied brusquely, in Russian, “govorite po chelovecheski” (speak a human language). That was real discrimination. Estonians were unable to use their own language in their capital city. Now that’s changed too.
Reasonable people can disagree about the details of the language law, about the right level of subsidies for language courses, and about the rules for gaining citizenship. Nowhere’s perfect. But Estonia’s system is visibly working. It is extraordinarily hard to term it a burning issue for an international human-rights organisation.
Yet that is what Amnesty International has tried to make of it. It has produced a lengthy report, “Linguistic minorities in Estonia: Discrimination must end”, demanding radical changes in Estonia’s laws on both language and citizenship.
Amnesty's report echoes Kremlin propaganda in a way that Estonians find sinister and offensive
The report is puzzling for several reasons. It is a bad piece of work, ahistorical and unbalanced. It echoes Kremlin propaganda in a way that Estonians find sinister and offensive. But most puzzling of all, it is a bizarre use of Amnesty’s limited resources. Just a short drive from Estonia, in Belarus and in Russia, there are real human rights abuses, including two classic Amnesty themes: misuse of psychiatry against dissidents, and multiple prisoners of conscience. Yet the coverage of these issues on the Amnesty website is feeble, dated, or non-existent.
Amnesty seems to have become just another left-wing pressure group, banging on about globalisation, the arms trade, Israel and domestic violence. Regardless of the merits of their views—which look pretty stale and predictable—it seems odd to move to what is already a crowded corner of the political spectrum. To save Jüri Kukk and other inmates of the gulag, people of all political views and none joined Amnesty’s campaigns. That wouldn’t happen now.
Friday, December 08, 2006
The fog of the “new cold war”
And guess who's winning, so far
LIKE analogies involving the second world war, the “new cold war” is not a phrase to use lightly.
Or maybe at all. Russia is not now seeking military domination of Europe. It is not a one-party state. Nor does it claim to be the embodiment of an ideological success story. The once-towering edifice of Marxist-Leninist ideology is as ruined as social credit or syndicalism. An exposition of “sovereign democracy”, as the Kremlin now grandly calls its scheme of things, would barely fill a postcard, let alone a textbook.
To compare all this to the Soviet Union of Leonid Brezhnev's era may look not only insulting, but absurd. The West’s differences with Russia seem mere nuances when set against the gulf between the modern world and the suicide bomber.
But to argue only that the old cold war is dead and gone is to risk missing the point. Whatever we end up calling it, a new period of deep-seated rivalry is approaching—and perhaps has already begun. As in the mid-to-late 1940s, such things take a bit of time to sink in.
Point one: Russia is different. Whether you think of it as Gazpromistan, or as Kremlin Inc, the Russian state now is as inelegant a creature as ever it was in communist times. It is an authoritarian bureaucratic-capitalist arrangement in which a squabbling elite, drawn largely from the security services, extracts enormous rents from raw materials, steals some, and uses the rest to vie for power, spouting nationalist and sometimes xenophobic rhetoric to maintain popularity.
In short, it turns wealth into power, and then power back into wealth. At home—and abroad.
Point two: Russia is a threat. The Soviet cocktail of communism and imperialism was a hard sell. Especially towards the end, it meant poverty and dictatorship, plus foreign domination. Russia’s main weapons now are more subtle and potent: cheap gas, and money for the right people. The orgy of greed and moral myopia in Moscow in the past 15 years has shown that lawyers, accountants and bankers are willing to forget professional ethics for huge fees.
Russia’s main weapons now are more subtle and potent: cheap gas, and money for the right people
Politicians can lose their bearings, too. Imagine that Helmut Schmidt, the German chancellor until 1982, had not only been great chums with Brezhnev, but in his final months of office had pushed through huge government loan-guarantees for a project that would increase his country's energy dependence on the Soviet Union. And then, as soon as he was out of office, he had taken a lucrative post running that same project.
Fanciful? That is what Gerhard Schröder did with the planned Baltic gas pipeline. Even if it is never built or used, it shows that Russia can brazenly co-opt a Western politician, and expect only a whimper of protest from others. The West is all the weaker for its addiction to wishful thinking. Surely it is better to negotiate and compromise with Russia, than have a messy and costly confrontation?
Even now, money can’t buy everything. So there’s always murder. A veteran Kremlin-watcher in Moscow wrote to your correspondent recently: “Anna Politkovskaya was killed to warn Russians against criticising the Kremlin, especially in Western media. Alexander Litvinenko’s murder was to warn defectors. The only question now is: 'who is next?'”
Surely the Kremlin is not that brazen or brutal? Maybe. But few have won money in recent years underestimating the brazenness and brutality that lurk beneath those onion domes. We face a systemic rivalry based on conflicting values and clashing geopolitics. Not a cold war, perhaps, but it’s getting chilly.
Saturday, December 02, 2006
“Nyet faktov, tolko versii” [No facts, only theories] is a Russian saying that captures perfectly the difficulty of trying to fit the attempted murder of Yegor Gaidar, a former prime minister, together with the poisoning of Alexander Litvinenko (a defector from Russia’s FSB security service) and the shooting of Anna Politkovskaya, a campaigning journalist.
They could hardly be more different. The other two were outspoken figures who already lived in fear of their lives. Mr Gaidar was widely respected in Moscow: at most a moderate critic, at least in public, of Vladimir Putin’s regime. Unlike most retired Russian politicians, he cared little for personal wealth: his energies were devoted to his free-market thinktank, where his rotund figure and beaming smile contrasted with his spartan office: undecorated, when I last visited, except for a pile of economic journals and a solitary holiday postcard.
Though he privately deplored the loss of political freedom in Russia in the past six years, Mr Gaidar was happiest discussing the arcane details of economic policy. Admittedly, many ordinary Russians loathed him, blaming his tough free-market policies in the early 1990s for the loss of their savings and the collapse of the Soviet-era economy. But few in the Kremlin would agree. Most rich and powerful Russians regard him as a hero, whose liberalisation of prices began Russia’s recovery from the planned economy.
What could someone like that—a cerebral, establishment figure—have in common with Mr Litvinenko, a shadowy ex-spook who publicly accused Mr Putin of paedophilia, and Ms Politkovskaya, a journalist whose incendiary articles regularly described the Russian president and his aides as war criminals?
The most terrifying explanation is that the Kremlin, or some other powerful faction in Russia, is systematically intimidating every kind of critic. Ms Politkovskaya because she was their best-known critic in the media, both at home and abroad. Mr Litvinenko because he was a defector. Mr Gaidar because his brainy liberal views undermine the Kremlin’s authoritarian and incompetent rule.
But it is puzzling that the poisoning was unsuccessful. Was this just a warning, or was it bungled?
Mr Gaidar, his daughter and his friends all say that they do not think Mr Putin’s Kremlin is behind the poisoning (if that is indeed what it was). British security officials are hedging their bets. They think that a “rogue element” of current and former FSB officers is at work.
If so, what do they want? Are they doing what they think Mr Putin will like? Are they trying to undermine him. Or perhaps to force his hand?
One of Mr Gaidar’s closest friends, Anatoly Chubais, now runs Russia’s giant electricity company, UES. He is publicly loyal to the Kremlin, but privately says he is increasingly worried that bad government is starving the country of investment. “It was a miracle that we kept the lights on last winter. And this winter will be even harder,” he confided recently to a visitor.
He believes that the murders “perfectly correspond to the interests and the vision of those people who are openly talking about a forceful, unconstitutional change of power in Russia.”
One possibility is that hardliners want to force Mr Putin from power, and replace him with someone more decisive and forceful, who will overtly rebuild the Soviet empire, rather than doing it behind the scenes as at the moment. But that seems unlikely. Mr Putin is the most popular politician in Russian history. It would be hard find anyone to replace him.
Alternatively, it could be an attempt by hardliners to force him into their camp. If relations with the West deteriorate sharply, then Russia’s only option will be to abandon any pretence of democracy and retreat into an alliance with rogue states such as Iran. But that hardly seems likely either. Russia has cultivated good relations with European countries such as France and Germany, in order to squeeze the countries inbetween such as Poland and the Baltic states. Why abandon that tactic when it is working so well?
The Kremlin’s own line is that the whole thing is got up by enemies of Russia, chiefly Boris Berezovsky, the London-based billionaire who was closely linked to Mr Litvinenko. Both men believe that the Kremlin blew up apartment blocks in Moscow in 1999 in order to blame them on Chechen terrorists, and create a public panic that would ease Mr Putin’s path to power.
One clue is that the Russian constitution says that Mr Putin has to stand down as Russian president in 2008. Inside its red walls, the Kremlin is abuzz with intrigue about how to manage this “problem”. One option is to change the constitution, to allow a third consecutive term. Another is to ignore it—by declaring a state of emergency—and third is to bypass it, by shifting Mr Putin to another job, and installing a figurehead as president. Somewhere in this maze of intrigue may lie the answer to the serial murders of Russia’s critics.
But the only thing that is really certain is that we do not know the truth. Russia’s security services are masters in the art of “maskirovka” [camouflage]. Whether the aim is to manipulate opinion in Russia or abroad, or to intimidate critics, or something else, enough false clues will be strewn that we are unlikely to see what is really going on until it is too late.
Edward Lucas is central and eastern Europe correspondent of The Economist.
Friday, December 01, 2006
Bad, but was it wicked too?
From The Economist print edition
BOMBING German cities into a wasteland was terrible: anyone reading Jörg Friedrich's book, now published for the first time in English, will be in no doubt of the cultural destruction and human suffering that it caused. For many Germans, the experience of reading the unvarnished awfulness of their own, their parents' or grandparents' wartime experiences was cathartic. The translation will fill a gap in contemporary understanding in the English-speaking world of what happened in the air in the second world war. Mr Friedrich deserves credit for both his diligence and his descriptive powers.
For all that, the book is flawed. Many bad things happen in wartime and countries that start wars often experience the worst of them. Its implicit thesis is that the allied bombing campaign was a vindictive and unprovoked attack on a country that itself adhered scrupulously to the rules of war. That is not something a reputable historian would argue. The author's outrage, and the sarcastic and melodramatic prose that this fuels, dims any understanding of the context in which Winston Churchill and his air chiefs decided that the air onslaught on German cities was the best (or least bad) course of action, and stuck to this even when the cost, to both bombers and bombed, became increasingly awful.
With the benefit of hindsight, bombing smashed neither morale nor war production. But wartime leaders do not have the benefit of hindsight. The bombing proved dreadfully mistaken. But had it worked, it would have ended the war more quickly. It was not wicked or without reason.
Mr Friedrich seems to assume that the allied commanders always knew that they would win the war, and decided to accelerate victory for their own brutal reasons. Yet the truth is that the allies were not at all sure they would win, even once Stalin's huge army had begun to march westwards. Hitler's propaganda machine was boasting about new secret weapons which would change the course of the war. That proved to be vainglory. But there was no way of knowing this until the very end—and until that time came, it was vital to defeat Hitler as completely and as quickly as possible.
There are other weaknesses too. The book is badly translated, to the point that readers who do not know German will find some passages baffling. Worse, Mr Friedrich's desire to puncture Anglo-American self-satisfaction comes perilously close to suggesting that the Germans were right to defend Nazism, and the allies were wrong to attack it.
Thursday, November 30, 2006
A nervous night for NATO
Vladimir Putin almost gatecrashes a summit
THIS week’s NATO summit in Riga never looked like having much to grab the headlines. Enlargement was off the agenda. The best that NATOniks could hope for was the promise of a rapid reaction force, more troops for Afghanistan, and—perhaps most importantly—the symbolic gains from holding the event in the capital of a once-captive nation.
But for a perilous 24 hours disaster loomed. The whole summit looked in danger of being knocked off course, or at least upstaged. The Russian president, Vladimir Putin, had decided to come to Riga as well. Not technically for the summit, but at the invitation of Jacques Chirac, who proposed to celebrate his 74th birthday by having dinner with his Russian counterpart and with any other national leaders who might care to attend. Latvia’s president, the queenly Vaira Vike-Freiberga, had ignored her own diplomats and agreed to host the meeting.
It was hard to imagine a bigger show-stealer. There could be no clearer display of the Franco-Russian connection that has debilitated NATO’s decisionmaking. The dinner would be an advertisement for the number of NATO members that put their ties with France or Russia ahead of their solidarity with the alliance. It would be a triumph for Russia’s divide-and-rule policy towards the Baltics (punish one, ignore another, flatter the third).
Rumours and explanations swirled amid the stale canapes and lukewarm wine. Version one (put around by the French) held that this was a Russian stunt: Putin had asked Chirac to arrange it, and so insistently that it would have been rude to decline. Version two: Chirac loathed NATO and wanted to undermine it. Version three: Chirac had nobody to celebrate his birthday with at home, and wanted to use the summit as a backdrop.
Normally staid diplomats were spitting tacks. Latvia’s foreign ministry was having institutional apoplexy. Suggestions that the president’s vanity was matched only by the weakness of her advisers were met with growled assent rather than the usual pained denials. One optimistic Latvian, in charge of his country’s image, jotted down a new marketing slogan: “Latvia: where presidents go to party”. More rumours sprouted: Putin’s delegation wanted to come without visas; Latvia had denied them visas; Latvia was holding out for a bilateral meeting before the birthday dinner and Russia was saying no.
Normally staid diplomats were spitting tacks. Latvia’s foreign ministry was having institutional apoplexy.
The last turned out to be true. A full formal meeting with the Latvian president was too much for the Kremlin. Blaming scheduling problems, it “regretfully” announced that the trip was off.
The next morning, over stale croissants and lukewarm coffee, NATOniks picked over the ruins. France probably came off worst, at least in its critics’ eyes: self-important, destructive, unreliable. The Americans were quietly pleased: “It’s the death rattle of the Chirac era” said one. The French talked airily as if, for a great power such as their own, the odd kerfuffle was part of life's rich tapestry.
It is easy to see why Mrs Vike-Freiberga was ready to share the risk of hosting Mr Putin. No Russian leader has paid a bilateral visit to a Baltic state since the three countries regained their independence from the Soviet Union. Sealing a rapprochement with Russia would be a fine way to round off her presidency, which ends next year.
But it is also easy to see why other Balts feel paranoid. It is not only the Russians who are showing disrespect. A German spy ship was found doing sonar research on the seabed recently in Estonia’s economic zone—apparently for a Russian-German gas pipeline that has been planned with an ostentatious disregard for the countries that it bypasses. Germany dismissed an Estonian diplomatic protest as “ridiculous”. Maybe: lots of things are ridiculous. Not least the sight of France, a founder-member of NATO, so readily cosying up to a Russia that holds the alliance’s new and future members in such blatant contempt.
Monday, November 27, 2006
World Trade Organisation
The Georgian knot
From The Economist print edition
Russia's membership of the WTO is not quite a done deal
NOBODY can fault the Georgians' courage. Judgment is another matter. America has dropped its objections to Russia's membership of the World Trade Organisation—seemingly in return for support on Iran and North Korea. But Georgia, an ardently pro-Western ex-Soviet republic, has withdrawn its own agreement with Russia and is blocking the multilateral talks needed to conclude Russia's entry into the WTO. The trade body relies on unanimity, giving vetoes even to pipsqueaks—at least in theory.
Georgia has plenty to complain about: Russia subjected it to trade sanctions and raised its gas prices in protest at the public humiliation of some Russian spies. But the real issue, according to the prime minister, Zurab Nogaideli, is another one: control of commerce into two separatist enclaves that border on Russia, South Ossetia and Abkhazia. Trade (legal and illegal) flows freely.
Georgia wants these borders either sealed or run by its own customs officials. That may be reasonable in theory but it sounds fanciful in practice. The two “frozen conflicts” have remained stubbornly unthawed for a decade, and Georgia's lack of Western support has already been bleakly exposed in recent months. Foreigners are wowed by Georgia's warp-speed economic reform—which has produced double-digit GDP growth—but dismayed by its erratic and hot-headed politics and diplomacy.
America laments Georgia's tactics. It wants Russia in the WTO, which will help speed Ukraine, a country that it is trying to coax back into a pro-Western stance, along the same path. “America and the EU will stamp Georgia into the ground on this,” says a government adviser. “They seem to think that they can provoke us into supporting them,” says a top EU official despairingly.
Mr Nogaideli claims that the Kremlin is backsliding. “If Russia doesn't want to honour this agreement, they shouldn't have signed it,” he says. Georgia hopes that the many loose ends in Russia's WTO application mean that other countries too will welcome a chance to apply a bit more pressure—on pricey rail freight costs, for example.
Perhaps. But the usual outcome in trade talks is that big countries' arm-twisting is effective—and painful.
Thursday, November 23, 2006
Paying the piper
What if Russian gas runs low?
EUROPE has accustomed itself to a version of Russia and of Russian policy which goes like this: post-Soviet Russia is not only awash with oil and gas, it is using that energy wealth to promote its great-power ambitions through bullying and bribery. But what happens to the calculation if Russia is not an energy bully, but an energy beggar?
Russia reckons it will be short of 4.2 billion cubic metres (bcm) of gas next year—enough to fuel a couple of small countries. Alan Riley, a competition lawyer, argues in a report for the Centre for European Policy Studies that Russia's gas shortfall will increase to 126 bcm a year by 2010, only slightly less than Russia's annual exports to the European Union. Vladimir Milov, a gutsy former energy minister who runs one of the few independent think-tanks in Moscow, agrees.
At first sight this sounds preposterous. Russia’s gas reserves amount to 47 trillion cubic metres, a colossal amount. But like so many things in Russia, the gas industry, which means mainly a state-run monopoly, Gazprom, is as wasteful as it is wealthy. And Gazprom is so secretive that outsiders find it hard to say whether the wealth or the waste is winning.
Russia has not developed a big new gas field since the Soviet Union collapsed, and those it inherited are depleting fast. The pipes are clapped out (just over half are more than 20 years old). The compressors are so inefficient that they waste 42 bcm a year. Yet, for political reasons, the government is pressing ahead with “gasification”—the extension of gas supplies to private households. That means more domestic demand, just as supply is falling.
Gazprom's finances are notoriously murky, but there is evidence enough that revenues have long been siphoned away by intermediary companies with anonymous beneficial owners. Costs are colossal by world standards. Much money goes on activities such as yachts, property and sporting events, which investment bankers primly describe as “non-core”. Gazprom owns, for example, a large chain of hotels (remarkable, when your correspondent stayed in one, for the richness of the fittings, the indolence of the large staff, and the absence of guests).
Gas supplies are under pressure
In theory Gazprom can develop new fields. In practice it needs foreign help, but it hates to see the foreigners sharing ownership, which bogs down negotiations. The rich Shtokman field beneath the Barents sea was discovered in 1988, but exploitation has been slowed by technical challenges formidable enough even before Russia’s capricious and xenophobic investment regime takes its toll. Foreign companies might risk a billion dollars here or there in Russia, but in the present climate of uncertain property rights they are not going to commit the tens of billions needed to develop a whole new gas field.
Gazprom’s main stopgap is to buy gas from Central Asia. Leaving aside the irony that a country as gas-rich as Russia should need to import gas at all, there are particular snags here. The implied quantities are huge. Purchases from Turkmenistan are supposed to rise more than tenfold, to 80 bcm a year, by 2009—and the Turkmen gas industry is even worse-run than Russia’s own. Independent producers inside Russia might offer some relief, save that Gazprom is twitchy about allowing independents to use its pipelines. Instead, it likes to buy them up, preserving its monopoly. When that happens they tend to fall to Gazprom’s own woeful standards of inefficiency.
Already Russia is cutting back gas supplies to soft targets such as Belarus, and trying to raise prices wherever it can. Things will get worse before they get better. A badly-needed new power plant in St Petersburg is not yet running because there is no gas arriving to fuel it. If Mr Riley is right, this will be a fascinating winter, and a most uncomfortable one for some households. Will Vladimir Putin decide to freeze his own voters, or those of neighbouring countries? One choice risks provoking a political explosion, the other a diplomatic one. If you live anywhere between Aachen and Amur, do check your stocks of candles and coal.
Monday, November 20, 2006
PUTIN'S AGENTS AND A LICENCE TO KILL
CHRIST, how I miss the Cold War, remarks 'M' in Casino Royale, as she and Bond wrestle with the complexities of terrorist finance. The way things are going, she ñ and her real life counterparts ñ might not have long to wait for its return.
The plight of Alexander Litvinenko is not a scene from a film or a story from the past. It is from London in 2006.
A city where foreign killers can stalk the streets and silence an enemy of the Kremlin as coldly and contemptuously as they killed Georgi Markov, the heroic anti-Communist Bulgarian broadcaster, in 1978.
It's not just that the KGB's old habits of disinformation and mischief-making are still with us, but that the organisation's tentacles reach as far and formidably as ever. And who better to supervise this than the taciturn, foul-mouthed KGB Lieutenant-General [actually Lt-Col--the Daily Mail promoted him] Vladimir Vladimirovich Putin (retd.)?
Litvinenko, a career security officer first in the KGB, then in its successor organisation the FSB, was a friend of dissident journalist Anna Politkovskaya who was shot dead in Moscow last month.
The two met regularly during her trips to London, sharing their concerns about the authoritarian tendencies of Putin's Russia.
But do those reach as far as murder? In the old days of the KGB, enemies of the Soviet Union were mercilessly hunted down and killed. Leon Trotsky in Mexico with an ice pick. Markov on Waterloo Bridge, with a poisoned umbrella.
Scores of others died from assassins' bullets, mysterious illnesses, convenient car crashes. But after the collapse of Communism, and the birth of a new Russia pledged to democratisation and a pro-Western stance, the grim years of the Cold War seemed consigned to history.
Now, like a zombie crawling out of the grave, the terrifying shadow of the Soviet past is again falling across Europe. Russia might have ditched Communism but the Kremlin has not lost its thirst for power, at home and abroad.
Whereas during the days of the Cold War the KGB was an arm of the Soviet state, with Putin's ascent to power the KGB effectively took over the state. The result is 'Kremlin, Inc', which combines the greed of business with the ruthlessness of espionage and the bluster of a superpower.
RUSSIA makes no secret of its willingness to use assassination against what it calls 'terrorists'. Russian agents killed Zelimkhan Yandarbiyev, president-in-exile of the breakaway republic of Chechnya, in a car bomb attack in Qatar in 2004. They were caught, convicted ñ and received a heroes' welcome when they were finally returned to Moscow.
The attempted murder of Litvinenko forms part of a grim pattern of intimidation. At home and abroad, enemies of the Kremlin tend to die in mysterious circumstances. In 2004 Viktor Yushchenko, then a candidate for the presidency of Ukraine, was poisoned, surviving with a hideously pockmarked face.
Miss Politkovskaya, a regular contributor to the foreign media, was shot dead, perhaps by those whose wrongdoing she exposed -- and perhaps also to silence those Russian journalists brave enough to criticise the Kremlin abroad. The attempted assassination of Litvinenko was a further warning to those outside Russia that criticism would not be tolerated.
That is what Boris Berezovsky, the billionaire businessman who dominated Russian political life in the 1990s -- and is now better guarded than most heads of state -- believes. Russia, he says, is practising 'state banditry'. Putin no longer cares 'in the slightest' for western disapproval. 'He thinks having oil he is free to do everything he wants. And he is correct.'
Other defectors and critics of Russia, in London and elsewhere, are nervously wondering who will be next. A past spent serving the Soviet state is no guarantee to a safe future: Putin was Litvinenko's immediate [well not really direct boss, maybe direct order on one or two occasions--EL] boss when both were in the FSB.
There are tantalising clues to the reach of the Kremlin's tentacles across the globe from mysterious, expertly-produced disinformation websites that subtly push the Kremlin line and cases such as that of the Venezuelan drug smugglers who were found to have Russian technicians building a submarine for them.
Ironically, just as the Kremlin's critics in London are being cowed, the Russian presence in Britain has never been stronger ñ with the relative safety of life here being a big reason. Up to 250,000 Russians live in Britain, ranging from illegal cleaners to plutocrats such as Roman Abramovich. The latter kind have London mansions and lavish country estates. They send their children to the best boarding schools.
Yet though they vote with their feet and their wallets for the security and freedom Britain offers, they have no desire to criticise the greed and brutality of the regime at home. 'The people who came as dissidents are the only ones to raise their voices,' says Natasha Chouvayeva, the veteran editor of Londonskiy Kurier, Britain's main Russian-language paper.
'The later ones don't really care what is happening so long as Russia is stable and good for business.'
Not that western censure presents any problem for Putin. The U.S. has humiliatingly abandoned any attempt to put Russia under pressure, in exchange for Kremlin help in influencing North Korea and Iran. France, Italy and Germany are worried only about gas, not freedom.
And that is the tragedy. The first Cold War presented a clear choice between right and wrong. In the new one, Russia is not handicapped by Communism, but fuelled by money, which trumps truth and decency every time.
Will the Kremlin ever come clean on both the crimes of the Soviet Union, and those of the regime now headed by Putin, who worked for the KGB when it unashamedly went round the world assassinating those who dared dissent?
That moment will come only when Russia is a democratic, and friendly, country, not the authoritarian kleptocratic regime of today. When that day finally comes, as Russia's friends still hope, then both 'M' and Bond can wallow in nostalgia to their hearts' content. And Litvinenko's family will know who tried to kill their beloved 'Sasha'.
Edward Lucas is Central and East European correspondent for The Economist
Friday, November 17, 2006
Russia will flex its energy muscles
A new power struggle between an increasingly assertive Russia (rich in oil and gas) and a weak-willed West will start in earnest in 2007. The big battleground will be energy.
Poland and its allies in the Baltic states will try to diversify their energy supplies, by agreeing to build a new nuclear power station at Ignalina in Lithuania, hooking up their electricity networks and accelerating their plans for a terminal on Poland’s northern coast to import liquefied natural gas. But Russia will find this little obstacle. Its cash-rich energy firms will step up their purchases of downstream firms in Europe.
Even ex-communist countries will be signing up for special deals with Russia. Hungary will increase its dependence on Russian gas; as an austerity programme bites into living standards and employment, cheap gas will be a useful lubricant. It will be a similar story with the leftist-nationalist government in Slovakia, which will face sharp disapproval from its west European neighbours because of its increasingly harsh treatment of minorities and its authoritarian ways. Friendly ties with Russia will be a welcome balance.
Farther east, Russian companies will continue to gobble up the energy infrastructure in chaotic Ukraine. In Belarus, rows with the Kremlin over energy are the most likely source of trouble for the regime of the eccentric autocrat Alyaksandr Lukashenka.
The Kremlin’s energy clout and cash pile spell doom in 2007 for plans to build new pipelines bringing non-Russian gas to Europe. Nabucco, a trans-Balkan pipeline which aims to bring Middle Eastern and Central Asian gas to Europe via Turkey’s excellent gas infrastructure, will be at the heart of the power struggle. The EU counts this as one of its top energy priorities. But without individual customers willing to sign up, and pay up, for its construction, buying more Russian gas through existing pipelines will seem an easier and cheaper option. In 2007 Nabucco will be forced to accept Russian involvement, including a hook-up to the underused Blue Stream pipeline that links Russia and Turkey.
Russia will develop its energy muscles in 2007. But it will flex them selectively. The Kremlin is keen to be seen as a reliable partner, playing by market rules. Those customers that pay on time will receive prompt deliveries. But countries and companies that challenge Russian energy hegemony will face short shrift.
Poland’s PKN Orlen, for example, which will complete its $3 billion acquisition of Lithuania’s clapped-out Mazeikiai refinery in 2007, will find itself facing a gale of financial and commercial pressure. Oil supplies from the Russian-controlled pipeline to the refinery will be erratic. The resulting fluctuations in its share price will be an excellent opportunity for Russian insider traders to make a killing—and build up their stake in the company. By the end of 2007, PKN Orlen will be trying to sell Mazeikiai, to Russian bidders. In next-door Latvia, Russia will continue to block oil transit to that country’s Ventspils terminal, again with the same end in view: acquisition of energy infrastructure at a bargain price.
Europe will also find that some of its alternative oil and gas suppliers will come into Russia’s orbit. A multi-billion-dollar arms deal with Algeria, and joint ventures in extraction and marketing, will underline Russia’s return as a major power.
That may dismay east Europeans, but Russia’s resurgence will bring juicy profits to financiers in London. Russian energy IPOs will be one of 2007’s most lively financial stories. Regulatory worries will be brushed aside. The profits will win Russia respectability—and influence. If a former German chancellor, Gerhard Schröder, can accept a well-paid directorship from a Russian-backed joint venture, why should other politicians and officials hold back?
America will worry more about Europe’s energy security in 2007. It successfully promoted the Baku-Ceyhan oil pipeline (which came onstream in the middle of 2006, connecting Azerbaijan and Turkey via Georgia); by early 2007 the gas pipeline from Baku to Erzurum in Turkey will be functioning too. But these will prove mere pinpricks in Russia’s advance.
The mood in the former satellite countries of eastern Europe is bleak. Where energy dominance is assured, political clout necessarily follows. Europe’s uneasy and reluctant adaptation to the new realities of energy politics will continue. Two decades after the Kremlin started beating the retreat from the Soviet empire, a new hegemony, based on pipelines rather than tanks, is advancing—and shows every sign of proving durable.
Sound the alarm – Nato is failing
By Edward Lucas
Nato's job, according to a classic cold war dictum, was to "keep the Americans in, the Germans down, and the Russians out". As the Atlantic Alliance prepares to gather in Riga for the most miserable summit meeting in its history, it is losing on all three fronts.
Ties between America and Europe have never been weaker. "Old Europe", as Donald Rumsfeld termed it, loathed the war in Iraq. The fiasco of the American-led occupation there vindicates those, such as President Jacques Chirac of France, who want no part in any geopolitical arrangement involving America.
Like Tony Blair's Government, the loyal ex-communist states of "New Europe" have been scalded by their pro-American stance. These new Nato members have bravely put troops into Iraq and Afghanistan – but received nothing in return. One senior politician from an east European country known for its Atlanticism says bluntly: "Until recently, this administration didn't want allies. It didn't help and it didn't listen."
America's hamfistedness and European diffidence create a vicious circle. The White House sees most Nato countries as puny and timid, spending too little on defence and unwilling to risk men and matériel where it matters. In Afghanistan, the large German contingent works as traffic wardens and social workers: their government forbids them to fight the Taliban; their attempts to train Afghan police have been disastrously ineffective. For their part, other Nato countries find America bossy and inconsiderate.
One result is that Nato struggles to operate outside Europe, in places such as Darfur, where muscular military intervention is urgently needed. Haggling has even derailed Nato's attempt to have its much-touted response force operational in time for the forthcoming summit.
Worse, the grand project of expanding Nato has stalled. This will be the first summit since the collapse of communism that will issue no new invitations to membership. That is a tragedy. Nato's enlargement has bolstered freedom and entrenched democracy across the continent. The summit in the Latvian capital is a powerful reminder: without the Nato membership they gained in 2004, the defenceless Baltic states would have been a dangerous security no-mans-land. Now they contribute to Nato – with symbolic troops, and vital electronic and human intelligence – and are anchored in the West.
The success of enlargement has proved Russia's doom-laden warnings wrong. But the Kremlin has now gained something that had eluded it since the end of the Cold War: a veto on Nato's expansion. In Ukraine, the pro-Russian ruling party that displaced the pro-Western (but deeply corrupt and incompetent) parties of the 2004 "Orange Revolution" has bluntly said that it has no interest in joining the alliance.
That, arguably, is Ukraine's own affair, though public opinion was poisoned against Nato by propaganda that portrayed it as a warmongers' cabal, rather than an alliance of successful and prosperous democracies.
Much worse is the case of Georgia, fast-reforming, ardently pro-Western, and crucially located at the crossroads of Europe and Asia. It is eager to join. But France, Greece and other pro-Russian countries say no. They swallow whole the Kremlin's bogus line that it feels its sphere of influence is being infringed. They never ask why the countries closest to Russia find its embrace so stifling.
Georgia has even been abandoned by its chief ally, America, which is desperate for Kremlin help against Iran and North Korea. It did not defend Georgia against a critical resolution at the United Nations and has dropped all objections to Russia's long-sought membership of the World Trade Organisation.
As America's power has receded, Russia's has grown. Russia does not just supply a quarter of Europe's gas. The Kremlin's monopoly of export pipelines has also created a stranglehold over supplies from Central Asia to eastern and central Europe. With oil, tanker deliveries can substitute for pipelines. With gas, a pipeline creates long-term dependency.
Russia's gas weapon is proving a far more potent means of subverting Europe than either communism or the Red Army. Murky intermediary companies spew out money for politicians, parties and officials that favour the Kremlin's line. Gerhard Schröder, who as German chancellor revelled in being Vladimir Putin's best friend in Europe, now heads – doubtless from the most honourable motives – the company building a pipeline on the Baltic seabed to link Germany and Russia.
Germany could try to get gas elsewhere – by building terminals for liquefied natural gas. Instead, it is deepening dependence on the authoritarian, kleptocratic regime in Russia. "We are the have-nots, and they are the haves," a defeatist top foreign-ministry official told bemused British visitors last week.
It is also making neighbouring countries like Poland even more vulnerable to Kremlin blackmail. When the Baltic pipeline is built, Russia will be able to supply its friends, while starving its foes. Poland, along with the Baltic states, is trying frantically to diversify sources of supply. But progress is painfully slow.
Poland's clumsy but sincere conservative rulers recently suggested an "Energy Nato" to counteract Russian power. They were laughed down. No plan with the word "Nato" in it will succeed in Europe now, they were told. Another crucial European plan, the Nabucco pipeline through the Balkans, is bogged down thanks to the passive resistance of pro-Russian governments in countries such as Hungary and Bulgaria.
Alarms should be blaring. Instead, they are tinkling. Nato advisers this week warned the alliance that Russia's next trick would be to form an Opec-style cartel with other gas suppliers, including Algeria, Libya and Iran. But that was downplayed in Brussels and Moscow.
So the Russians are coming, the Germans rising, and the Americans leaving. Each country seeks the best deal it can, to the detriment of its neighbours. Collective security is as badly needed as it was during the Cold War. But Nato can no longer provide it.
From The Economist print edition
Slovenia eyes a rare moment of glory
RUNNING the European Union for six months is a big job, even for a large country. For a small one, it means a rare limelight—and a huge headache. In barely a year's time, and with fewer civil servants than in a big country's foreign ministry alone, Slovenia will be running the 4,000-odd meetings and eight ministerial get-togethers of the EU presidency. With a population of 2m it will be the smallest country (not counting Luxembourg, which in effect delegates its turn to France and Germany) to lead the EU, and the first ex-communist state to do so.
Never mind the agenda—admire the scenery
The aim, says Janez Jansa, the prime minister, “is to run it smoothly”. An official is blunter: “Just not screw it up”. Luckily, Slovenian officialdom is unusually efficient for an ex-communist country and already planning hard. The incumbent, Finland (population 5.3m), is helping. So are Germany and Portugal, which hold office in 2007.
But Slovenia hands over to France, which has notoriously poor ties to the ex-communist world. Janez Lenarcic, the minister for the EU presidency, points out hopefully that Slovenia is the only European country with a statue honouring Napoleon's soldiers. They briefly liberated the country from Habsburg rule, and let schools teach in Slovenian.
That language has not so far featured much in European diplomacy; there is a scramble to find enough interpreters and translators. The real difficulty, though, is not organisation but politics. Slovenia hopes to push EU expansion to other bits of ex-Yugoslavia such as Macedonia and neighbouring Croatia. But it is unclear where it will stand in the other big debate, between market-minded liberalisers, mainly in northern and eastern Europe, and the more dirigiste economies of the centre and south. The evidence so far is that Slovenes talk like Estonians, but act like Austrians. Mr Jansa has notably failed to push through a promised flat tax, privatisation and other reforms—the people, he says, just don't want that kind of thing. Others think his government is hobbled by its cronies.
By the standards of post-communist politics, Mr Jansa, a sardonic former dissident, is something of a class act; it is easy to imagine him chairing an EU summit. But besides him and Mr Lenarcic, talent is thin. The foreign minister, Dimitrij Rupel, is oddly abrasive for someone with two decades' diplomatic experience. Asked how other ministers will guide 26 EU colleagues through intricate topics like farm-subsidy reform, diplomats in Ljubljana sigh and roll their eyes.
An uncommon current
From The Economist print edition
East European countries are struggling to join the euro. What if they give up?
ON THE surface, the ex-communist countries' economic outlook looks bright. Growth is rapid, foreign investment strong, and their economies are becoming more sophisticated, swapping labour-intensive exports for services and higher value-added products. The European Bank for Reconstruction and Development, in its annual update published this week, said that growth this year in the 29 countries it covers would be 6.2%, compared with 5.7% in 2005.
But sunny weather is a bad test of rainwear. The real question is why the new democracies are not dealing with their fundamental problems now, while outsiders are so willing to lend and invest. Inflation is too high, public finances bloated and reform slow. And the next big goal of the new and future members of the European Union—adopting the euro—is receding into the distant future.
In a forthcoming study, Susan Schadler of the International Monetary Fund and a co-author estimate (see chart) that borrowing costs in central and eastern Europe are up to a percentage point less than you would expect, given the political, economic and financial risks these countries pose. The likely explanation, she argues, is a “halo effect” from the EU. Markets see membership as a big plus, especially with euro adoption in view. In theory, all EU countries (barring Britain and Denmark, which have an opt-out) are supposed to join the common currency. Yet in practice, those that want to join have found it unreasonably difficult. And others are not sure that they want it at all.
So far only Slovenia (see article) has managed to meet the criteria for membership, which set the ratios of government deficits and debts to GDP, exchange-rate fluctuations and inflation rates. Slovenia will adopt the euro on January 1st. Lithuania (which missed thanks to inflation just 0.1% above the limit) and Estonia (arguably the soundest and most dynamic economy in the whole region) are unlikely now to be able to join before 2010.
Yet both have a foot in the euro zone already, because their currencies are pegged to the euro and backed by currency boards. The price of having only one foot in is some residual exchange-rate risk (dismantling a currency board is much easier than leaving the euro) which may add ten basis points to bond yields; the cost (around 0.2% of GDP annually) of currency conversion; and the lack of a voice in the euro area's management.
Some of the ex-communist states' economic problems stem, excusably, from success. High rates of investment in poorish countries are unlikely to be met by domestic savings alone; the resulting inflows swell the current-account deficit. Estonia's economy is growing at 12% annually. Inflation was 4.3% in mid-2006. With a budget already in surplus, it was hard to see how the authorities could have cut inflation to the required 2.6%.
But other difficulties are more troubling. Joaquin Almunia, the EU's economic and monetary affairs commissioner, lambasted the Hungarian authorities this week for a budget deficit that will reach a whopping 10.1% of GDP this year. Progress towards meeting the membership conditions appeared “disheartening”, he said.
Though Hungarians now think they may adopt the single currency only in 2013, they are still keen to do so in principle, not least because so many firms and households have borrowed cheaply in foreign currency in the expectation that membership is inevitable.
In Poland, by contrast, reluctance to join the euro is growing. Many in the ruling conservative coalition see it as an unacceptable infringement of national sovereignty. Urszula Grzelonska, the favourite to become central-bank governor next year, said this week that she had “increasing doubts”. The government has already said it wants a referendum in 2010.
In theory, Poland does not have the right to question the principle of joining the euro: the EU's new members are supposed to join once they pass the membership tests. But it can hold a vote on the timing. Swedes voted against the common currency in a referendum in 2003, though the government portrays it as a postponement, not rejection. Brussels has huffed and puffed, but can do little.
Poland would in any case struggle to meet the 3% limit on budget deficits now set for joining the euro. The European Commission is already worried by Poland's public finances. When new rules on how to count pension costs bite in April, the budget deficit will jump, it predicts, by two percentage points to 4% in 2007. The next year it will be only a shade lower. The EU is also dissatisfied with the haplessly run finance ministry, which has seen six ministers since last year's elections.
The third big central European economy is the Czech Republic. Despite dire, deadlocked politics, it has the best macro-economic position, to the point that its interest rates are 75 basis points lower than those of the euro zone. Zdenek Tuma, the central-bank governor who, wags say, runs the country in the absence of a proper government, talks warmly of the benefits of an independent monetary policy, whereby his bank sets interest rates. That will be lost if his country joins the euro area. The single currency will also require stronger public finances and a more flexible labour market, he says; adopting the euro depends on political will both for reform and integration with the rest of Europe. “If there is a club, we want to be in it,” says a top Czech.
The case for small economies joining the euro is overwhelming, But for the (relatively) bigger ex-communist countries it is more complex. National currencies bring flexibility, but also vulnerability. Westerners are beginning to feel uncertain too. The euro zone may already have too many misfits (Italy, for example, or Greece). Even if prickly Poland and sleazy Hungary could eventually massage their statistics to meet the criteria, would bringing them into the inner sanctum really be advisable?