French Government Reluctant to Cut Spending

French prime minister François Fillon in Paris, June 28, 2010
French prime minister François Fillon in Paris, June 28, 2010 (British Embassy)

While French president Nicolas Sarkozy is promoting fiscal consolidation across the European Union, his own government seems reluctant to cut spending. Its latest austerity package is almost entirely composed of tax increases with a mere €1 billion in spending reductions.

Prime Minister François Fillon unveiled €12 billion worth of additional deficit reduction measures last week in an effort to reduce his administration’s €95.7 billion shortfall — from equaling 7.1 percent of gross domestic product to 5.7 percent by the end of the year.

Sarkozy aims for a deficit equaling 3 percent of GDP in 2012, which would comply with the fiscal maximum enshrined in the eurozone’s Stability and Growth Pact, but the current outlooks suggests that the French government will face a 4.6 percent shortfall during election year.

The new deficit reduction package largely consists of revenue increases, including higher consumption tax rates on liquors, tobacco and soft drinks as well tax hikes on high incomes and capital gains.

Fillon has also said to favor ending a tax deduction on capital gains for the sale of second homes — an unpopular measure in a country where many urban middle-class families own vacation retreats in the countryside.

France was among several European nations to hastily announce additional austerity measures this month when markets called into question France’s creditworthiness which is currently rated AAA by all major credit rating agencies. At nearly 84 percent of GDP, France’s public debt is formidable but not much higher than Germany’s at 79 percent.

Germany, however, has boasted solid economic expansion unlike France which had to adjust its growth forecast from 2 to 1.75 percent this year and next — and even those projections are deemed optimistic by independent observers. Nearly one out of ten French workers is unemployed and industrial output contracted by 1.6 percent this summer.

The tax increases that came out of Paris last week are not likely to spur job growth. Instead, they will add to regulatory uncertainly already prevalent in France where the state accounts for more than half of the national economy and continues to dominate entire industries including electricity, postal services and railways. The private labor market is burdened with rigid regulations that exacerbate unemployment and undermine France’s competitiveness within the eurozone.

President Sarkozy made some attempts at deregulating the French economy after he came to power four years ago but in the wake of the 2008 financial crisis, he appeared to abandoned laissez-faire and complained that nothing had “gone to labor” in the preceding decade when bankers supposedly enriched themselves at the expense of the working man.

The rhetoric from the socialist opposition has been all the more vehement. Ségolène Royal, who lost the 2007 presidential election to Sarkozy, suggested last week that stock options and speculation on sovereign debt should be banned. Arnaud Montebourg, a younger presidential hopeful, has called for “deglobalization” and wants to prohibit banks from “speculating” with their clients’ deposits.

Other presidential candidates like Martine Aubry and François Hollande want to bring down the pension age back to sixty after it was raised to 62 by Sarkozy this year. Like a majority of leftists voters, they are opposed to the notion of spending cuts altogether and would rather balance the books with tax hikes alone.

On the other end of the political spectrum, the Front national, which was polling at roughly 17 percent of the vote earlier this year, is similarly critical of “global liberalism” under the leadership of Marine Le Pen. Her protectionist economic policy seems part of an attempt to appeal to blue-collar voters.

The far right could well steal crucial votes from Sarkozy’s centrist conservative party in elections next year, allowing a socialist contender to emerge as the inevitable victor from a runoff against Le Pen.

Iran Sues Russia for Canceled Arms Sale

Presidents Dmitri Medvedev of Russia and Mahmoud Ahmadinejad of Iran meet in Tajikistan, November 19, 2010
Presidents Dmitri Medvedev of Russia and Mahmoud Ahmadinejad of Iran meet in Tajikistan, November 19, 2010 (Presidency of Iran)

In an apparent escalation of a dispute over the purchase of an air defense system, Iran filed suit against the Russian Federation with the International Court of Arbitration in Paris, hoping to either force Moscow to sell the military hardware to Tehran after all or pay reparations.

The Russians reneged on an agreement to sell surface to air missile systems to Iran last year after international sanctions prohibited arms sales to Iran. The country is suspected of developing nuclear weapons in violation of its obligations under the 1968 nonproliferation treaty.

Russian president Dmitri Medvedev stopped defense contractor Almaz-Antey from selling the S-300 system in 2010 and banned the sale of virtually all military hardware to the Islamic Republic along with it, implying a shift in Russian policy away from Iran with which it had previously cultivated relations and shared nuclear technology.

Dmitri Gorenburg speculated here last year that the decision was been made in order to remove roadblocks to the Russian purchase of sensitive military technologies from the West, including the Mistral helicopter carrier from France and unmanned drone aircraft from Israel.

Gorenburg suspected that the Russians might have envisioned the S-300 as a potential bargaining chip from the start, to be used against the United States in the event of bilateral discord. Canceling the deal would have been a gesture of goodwill toward the West.

Publicly, Moscow has cited United Nations sanctions as reason to cancel the weapons sale. The Iranians insist that existing sanctions do not cover the S-300 however but only prohibit trade in conventional weapon systems, including tanks and warplanes.

The S-300 system is important to Iran as its deployment could hinder Israel’s ability to conduct airstrikes against suspected nuclear sites in the country. Israel unilaterally destroyed nuclear facilities under construction in Iraq and Syria in 1981 and 2007 respectively and has repeatedly threatened to launch military action if Tehran comes close to finalizing a nuclear weapon.

On Jobs, Obama Likely to Disappoint

President Barack Obama meets with advisors in the Oval Office of the White House in Washington DC, June 8
President Barack Obama meets with advisors in the Oval Office of the White House in Washington DC, June 8 (White House/Pete Souza)

Barack Obama has promised to make job creation the priority during the remainder of his first term in office but supporters of the president who hope that he might announce bold new initiatives in a speech next week to curb unemployment are likely to be disappointed.

At the very least, the Democrat will probably call on Congress to extend unemployment benefits and a payroll tax cut to sustain consumer spending and invest in infrastructure construction to get people back to work.

Republicans, who control half the legislature, are unlikely to support further government action to stir growth even as members of the president’s party like to see just that. Without bipartisan support, another stimulus cannot be enacted.

The original $825 billion stimulus was passed when the jobless rate stood at 8.2 percent. With unemployment now over 9 percent — and much higher when including the millions of Americans who have only been able to find part-time work — Democrats want government to invest more in infrastructure and “green” technologies to create jobs.

Republicans, who won a majority in the House of Representatives in last fall’s midterm elections, blame the Obama Administration’s state activism for undermining business confidence and holding the recovery back. They insist that for the private sector to add jobs to the economy, government should do less, not more. Their emphases is on reducing public spending to balance the federal budget. Washington currently borrows more than $3 for every $10 it spends.

President Obama touted his original stimulus as a major investment in infrastructure, promising, in 2009, that it would “put Americans to work […] upgrading roads and railways as part of the largest investment in infrastructure since the creation of the Interstate Highway System half a century ago.” This summer, he had to admit that “shovel ready” was not as shovel ready as he had expected though. Major construction projects have yet to be undertaken and his intention to subsidize clean energy manufacturing and fuel efficient cars has drawn criticism from conservatives who would rather his administration allowed more drilling for oil and natural gas.

Whatever the president says, it will set the stage for a national debt about the future of the economy, one that is likely to define the 2012 general election.

In Congress, Democrats and Republicans will have to work together to identify at least $1.5 trillion in deficit reduction over the next ten years as part of this month’s agreement to raise the nation’s legal debt limit. Obama suggested in advance of that deal that he might be open to a “grand bargain” with Republicans that would reform public pension and health support programs — the biggest spending hurdles — as well as the federal tax code to boost revenue. Democrats are reluctant to change entitlements however and Republicans remain adamantly opposed to raising taxes, claiming that it would negatively impact investment and undercut a still fragile recovery.

Republican presidential hopefuls have already taken aim at Obama’s apparent lack of a clear growth strategy. Former China ambassador Jon Huntsman will unveil his own plan to create jobs in New Hampshire on Wednesday while frontrunner Mitt Romney is set to deliver a speech competing with the president’s next Tuesday. One day later, the Republican candidates debate in Florida.

India Needs a Naval Diplomacy

Five hundred years ago this year, the Portuguese admiral Afonso de Albuquerque captured the Strait of Malacca and established supremacy for his country in the East Indies. Although Portugal couldn’t project power into the Asian hinterland with its limited military resources, it was strong enough to dominate a number of active trading outposts, including Goa in India and Macau in China. From these positions, the Portuguese managed, for a while, to control the European trade with South and East Asia. Today, a great power may aim to do the same.

In Monsoon (2010), Robert Kaplan characterizes the area between the Gulf of Aden in the west and Malacca in the east as the center stage of the twenty-first century. If India is to graduate from being a regional power in South Asia to a great power in the Asia Pacific, it is this pivotal ocean with its vital waterways that it should seek to control — whether directly, through hard power, or indirectly, with a soft power approach. Whatever its choices, India needs a clear naval diplomacy.

India is among few nations with the potential of being a continental and a maritime power simultaneously. Its policymakers have long concentrated on their hinterland where Pakistan loomed since independence as a natural rival. But as India’s economy is growing and its place in the world increasingly secure, it has to revive its maritime focus.

With a distinctive “Look East” policy, India boosted its trade relations with Southeast Asia. Indian naval officers regularly visited Southeast Asian countries as part of its naval diplomacy. Now, it has to extend that aim into the South Pacific if not beyond. Read more

Gül: Turkey Has “Lost Confidence” in Assad

Turkey's president Abdullah Gül speaks at a Council of Europe summit, October 3, 2007
Turkey’s president Abdullah Gül speaks at a Council of Europe summit, October 3, 2007 (Council of Europe)

Turkey’s president lambasted his Syrian counterpart in remarks that were televised on Sunday, saying that Ankara had “lost confidence” in Assad’s ability to lead his country in a period of transition. The public rebuke was the latest in a series of Turkish condemnations of the violence in Syria.

President Bashar al-Assad defies mounting regional and international pressure in his effort to repress a popular uprising that has swept his nation in recent months. After longtime dictators were toppled in Tunisia and Egypt earlier this year, Syrians, too, took to the streets to demand political change but were met by the bullets of the security forces of a regime that appeared determined to quell their dissent.

Turkey, after fostering political and commercial relations with neighboring Syria for the better part of last decade, urged Assad to reform and meet the demands of protesters in the wake of the turmoil that engulfed the Middle East this spring. When its calls fell on deaf ears in Damascus, “it marked an end to an experiment known as the ‘zero problems’ foreign policy,” wrote Peter Vine this month.

Otherwise reluctant to interfere with or even comment on the political situation in another country, Turkey’s government criticized the Syrian crackdown on demonstrations and warned its citizens that their lives might be at risk if they traveled to Syria. As Daniel DePetris observed two months ago, the Turkish prime minister was growing visibly annoyed about Assad’s violent ways. Syrian refugees are pouring into Turkey by the thousands. Turkish companies, which invested billions of dollars in Syria last year alone, are worried what might happen with their business if the unrest continues.

There is also the Kurdish question. If the Ba’athist regime fails to either appease the protesters or contain their disrupting influence on Syria’s stability, it might prove an opportunity for Kurdish nationalists on both sides of the border to reassert themselves. Turkey renewed strikes against suspected Kurdish militant targets in northern Iraq this month in what was probably not a wholly unrelated event.

Iraq, for its part, has expressed support for President Assad and urged anti-government protesters in Syria not to “sabotage” their state. Iran, a traditional Syrian ally, has also remained on Assad’s side whereas other Arab states agreed that he had lost the legitimacy to lead after King Abdullah wrote that “what is happening in Syria is not acceptable for Saudi Arabia” two weeks ago.

President Abdullah Gül went a step further this weekend when he asserted that there was “no place for totalitarian regimes and one-party governments” in the Middle East anymore. “Clearly, the leaders of these countries will take the initiative or they will be changed by force,” he added.

Egypt-Israel Relations Cool But Will Endure

Egyptians protest against Israel in Cairo, May 13, 2011
Egyptians protest against Israel in Cairo, May 13, 2011 (Mosa’ab Elshamy)

Tension between Egypt and Israel mounted in recent weeks as young revolutionaries in Cairo, apparently freed from a military regime which fostered amicable ties with the Jewish state, demanded retribution when several Egyptian security personnel were killed near the border with Gaza. Relations between the two neighbors have cooled since longtime president Hosni Mubarak was forced to resign this February. A resumption of hostilities after more than thirty years of peace seems highly unlikely though.

The unrest began exactly a week ago when seven Israeli civilians and one soldier were killed in a coordinated terrorist strike against southern Israel. Many more were wounded on a bus in the tourist resort of Eilat. The attackers had presumably tunneled from Gaza to Egypt’s Sinai Peninsula where they set up firing positions. When they fled, Israeli troops pursued them. What happened next varies with the account. In the process of killing the Palestinian militants, an Israeli helicopter or plane killed between three and six Egyptian soldiers or police. And Egyptians did not like that one bit.

Egypt’s government lodged a formal protest with Israel over the killings, demanding an investigation. It said that it would recall its ambassador from Israel unless it received an apology. The next day, Israeli defense minister Ehud Barak apologized and promised an investigation along with a joint inquiry with Egypt into the deaths of the soldiers. Shimon Peres, Israel’s president, also expressed regret. Words were not enough for Egypt’s youth however. Thousands of protesters gathered outside the Israeli embassy in Cairo, calling for the expulsion of the envoy.

The Jerusalem Post has blamed Egypt for not securing the Sinai, claiming that asking Israel to apologize for accidentally killing Egyptian soldiers in the way of terrorists is unfair. After all, the natural gas pipeline that runs from the Sinai to Israel and Jordan has been attacked by unidentified militants five times since the start of the Egyptian revolution. The newspaper has pointed out that the terrorists, which Israel insists came from Gaza, could have come through the smuggling tunnels that connect the isolated Palestinian strip to Egypt and “must have had logistic support from one or more extremist organizations active in Sinai.”

They had to obtain vehicles, food and water as well as to set up observation points on the road to Eilat which they intended to attack.

Nevertheless, Egyptians who might otherwise oppose their military interim government were quick to agree with it when it blamed Israel entirely for the fatalities on Egypt’s side.

It is natural for them to react as such, not only because as nationalists, they mourn Egyptian deaths more than those of foreigners, but also because Egyptian politicians fell over themselves to condemn the killings as murders.

Amr Moussa, former head of the Arab League and a presidential frontrunner, was one of the first to speak out after the incident. “The blood of martyrs shed while performing their duties will not go in vain,” he commented.

Israel must realize that the day when Egypt’s sons are killed without an appropriate and strong reaction are over.

The Freedom and Justice Party, founded by the Muslim Brotherhood in the wake of the revolution, described the killings as nothing short of a “Zionist assault against Egyptian soldiers.” A joint statement released by thirteen different political parties this weekend characterized the episode as “an example of Israel’s arrogance and racism supported by America.”

After Barak and Peres had both expressed their sympathies, a high-ranking member of the National Association for Change, chaired by Mohamed ElBaradei, the former head of the International Atomic Energy Agency, called their apologies “inappropriate and insufficient” before suggesting that the Camp David Accords, which ended several decades of conflict between Egypt and Israel, should be amended or scrapped. The deputy head of Egypt’s Muslim Brotherhood said much the same.

Given these reactions, it’s little surprise that thousands of Egyptians found their way to the Israeli embassy in Cairo last week. Others demonstrated outside the home of the ambassador which was surrounded by Egyptian security forces. Young Egyptians also hacked Israeli websites, including that of the prime minister.

In these times of tension, Israel’s government has acted pragmatically. While rockets from Gaza struck Israeli targets and Israeli airstrikes pounded Gaza, the cabinet voted against a repetition of the horrendous assault on Gaza of late 2008. Prime Minister Benjamin Netanyahu and defense minister Barak both argued that now was not the time for an all out war on the territory. Among other considerations was the fear of deepening resentment among ordinary Egyptians.

Was the killing an accident? Most likely. Israel has no reason to antagonize Egypt. President Peres felt the need to express regret for the incident after the defense minister had already done so, saying that “the peace with Egypt is strategic; both we and the Egyptians have a supreme interest in preventing terrorism from running amok.” The Netanyahu government confirmed as much in its cabinet decision. Moreover, as Linda Heard points out in Arab News, the contrast between the swift apology to Egypt and the curt nod to Turkey after Israel’s killing of nine activists on the Mavi Marmara flotilla last year is telling. Israeli has a vital interest in maintaining its “friendship” with Egypt, however precarious.

Try telling that to angry Egyptian youth. The young revolutionaries hold significant power in Egypt at the moment. If enough of them demand some form of conflict with Israel, it is possible that a newly-elected civilian government will give in. Recent opinion polls imply that a majority of Egyptians favor rescinding the three decade-old peace treaty with Israel. That doesn’t mean they want war though and the military is unlikely to push for it. Since it will probably retain considerable authority after parliamentary and presidential elections this autumn, whatever some overzealous young people are calling for, an armed confrontation seems far from imminent — especially as the military has little incentive to give up the $2 billion in yearly aid it receives from the United States.

Although the young remain riled and future accidents or aggression could lead to attacks on the Israeli embassy or even the storming of its border with Egypt, it remains highly improbable that both nations would enter into a state of war any time soon.

Yemen’s Saleh Wants to Come Back Home

President Ali Abdullah Saleh of Yemen, 2010 (Presidency of Yemen)
President Ali Abdullah Saleh of Yemen, 2010 (Presidency of Yemen)

It has been a little over two months since Yemeni president Ali Abdullah Saleh was nearly killed. On June 3, shelling from tribal forces in residential neighborhods of the capital Sana’a hit the presidential palace’s mosque just as he and a number of government allies were praying there. The mortar attack killed a few of Saleh’s elite Republican Guard troops, injured several of the highest officials in his ruling National Congress Party, including the prime minister, and came close to ending Saleh’s own life. His face was burned and shrapnel was lodged close to his heart, enough to have him whisked off to Saudi Arabia for medical treatment.

Government spokesmen have issued multiple statements on Saleh’s health — so many that it is difficult to determine which ones are accurate and which ones are being used for propaganda purposes. But Saleh put an end to the confusion over his fate on August 16, when he released a videotaped speech to his tribal supporters claiming that his health was improving by the day and vowing to return to his native Yemen. In the same speech, he vowed not to resign amid threats of threats, violence and inflammatory rhetoric — even as he deployed those very tactics to subdue his opponents.

We must discuss all the available data, all the events in Yemen, and how to get our country out of the crisis. The crisis which was fabricated by some political forces to reach power. We welcome the opposition and tell them that you can reach power through ballot boxes, not through coups, statements, denunciation, insults or irresponsible speeches.

The speech is the epitome of what Saleh has represented for the past 33 years — a shrewd political survivor and manipulator. He knows how to get under the skin of his rivals, when to use threats and when to act like a consoling figure willing to reach out to his opposition. This is the same talent that fooled the Yemeni opposition, his Arab Gulf neighbors and the United States not once or twice but three times, when Saleh reneged on signing a Gulf Cooperation Council deal that would have transferred power over to his deputy within a month.

With Saleh nursing his wounds in Riyadh, responsibility for quelling the protests and hostile anti-government tribes fell to his son, Ahmed, and his oldest nephew, Yahya. The preeminent security institutions in Yemen are under the control of Saleh’s close relatives, assuring that defections from elite units will be kept to a minimum.

The ploy has worked good enough, so far. Downtown Sana’a is still full of Saleh loyalists and has been used as a sanctuary to rain rockets and shells on tribal strongholds in the capital’s periphery. Yet in a society as fragmented and armed as Yemen’s, central Sana’a is where Saleh’s influence runs out. The Hashid confederation, led by the influential Sadiq and Hamid al-Ahmar, is in no way deterred by the Republican Guard’s many attacks. In their eyes, they see the Guard maneuver as an act of desperation and a tacit admission that the influence of Saleh’s government is bottled up in the central corridors of the capital.

Southern Yemen is a rather different story. While street battles and demonstrations are as frequent there as in other parts of the country, the revolt in the southern mountains has a dangerous extremist dimension that caught the United States and its Yemeni counterterrorism partners off guard.

Militants thought to be affiliated with Al Qaeda in the Arabian Peninsula have seized Zanjibar, the capital of Abyan Province, and held on to their territory despite repeated campaigns by the Yemeni army and air force to scatter them. Government troops report militant casualties every day yet the balance of power on the ground is still the same as it was a month ago. Yemeni soldiers situated in the southern end of the peninsula have increasingly been prime targets for militant attacks, including a suicide bombing along a checkpoint last week that killed eight troops. American drone aircraft have picked up the slack, bombing suspected terrorist positions and relieving some of the stress that the Yemeni army has had to deal with.

Saleh’s return is still questionable. If Saudi Arabia were smart, they would “convince” the Yemeni president to join his Tunisian counterpart on permanent vacation in the kingdom, sparing Yemeni civilians an even greater amount of violence were he to return. Regrettably, even this prescription would not dampen the bullets from firing in the direction of anti-government forces, as Saleh’s son and nephews could easily use Yemen’s security establishment to kill off any political transition.

The United States are is once again left with few options — a testament to how versatile and people driven the Arab revolutions have become.