American symbolic power projection: Syria as a response to the Palestinian blunder

After its diplomatic near-isolation in the recent UN vote to give observer status to Palestine, and with the Iranian crisis still unresolved, the United States will strive to reestablish its symbolic leadership role in world affairs by promptly recognizing the Syrian rebels as the legitimate government of the embattled country, thus opening the door to greater involvement in the ongoing, bloody civil war.

Face-saving and symbolism do matter in international relations, especially when it comes to great or hegemonic powers whose privileged position of dominance seems threatened, such as today's United States. The recent UN General Assembly vote on Palestine, in which the US joined just seven other nations apart from Israel (most notably Canada, the Czech Republic and a bunch of Pacific microstates) in trying to deny the Palestinian Authority 'non-member observer status' (and everything it entails). Even America's 'special partner', the United Kingdom, abstained, together with schadenfreude obsessed Germany. This abrupt show of diplomatic near-isolation will probably have further consequences for the geopolitics of the Middle East.

With the Iranian nuclear crisis still far from being resolved -- an Israeli strike has never been off the table -- and the upcoming North Korean satellite/ballistic missile test, perfectly timed to defy America's chief allies in the region -- Japan holds an early general election on December 16, while South Korea will have its presidential election on December 18, with the first anniversary of Kim Jong-il's death sandwiched right in between --, the Obama administration, with the political reassurance that only four more years in office can bring, will probably seek to reaffirm its wounded symbolic leadership in global affairs by heightening its involvement in yet another crisis involving the Arab world, Syria's civil war, namely by openly backing the rebels via their recognition as the legitimate government of the country.

The time also seems right for geopolitical reasons, as America's two major strategic rivals, China and Russia, remain mired in the process of reaffirming their political, economic and military supremacy in their immediate neighborhoods: China with its much-commented squabbles and dangerous nationalistic discourse on the South and East China seas, and Russia with the still latent conflict in the South Caucasus and Georgia, its suspicious political union with Lukashenka's Belarus and the Soviet-era throwback Customs Union, so far including just Belarus, Kazakhstan and Russia, with Kyrgyzstan set to join soon. Indeed, Russia's comprehensive bid to consolidate its power within the former Soviet area even includes a highly symbolic proposal to recreate the former Soviet soccer league, which has reportedly been well received by relevant clubs far West of Moscow.

Therefore, despite China and, above all, Russia's staunch support of the Assad regime both for economic (arms sales, anyone?) and geostrategic reasons (Syria's Tartus naval base is the last Russian military base outside the former Soviet Union), opposition could be handed with the usual mix of diplomatic sticks and carrots -- any deal could be sweetened by offering to withdraw outstanding minor WTO trade suits with China and proposing further cooperation with NATO via minor concessions on existing differences to Russia.

We should not expect, however, an unilateral decision: in order to offset Chinese and Russian reticence, the Obama administration should seek agreement by and coordination with its NATO allies. That should not prove overly difficult: the oft-dissident France already broke the diplomatic ice barely two weeks ago by being the first Western state in recognizing the coalition of opposition groups as the legitimate Syrian government, immediately prompting questions about if and when the rest of the West would follow suit. The next step, NATO agreeing on stationing Patriot missiles along the Turkish border with Syria, is just around the corner, with strong support from Germany, the Netherlands and, of course, the U.S.

The main question marks behind this move would be related to the presence of chemical and biological weapons in Syria and El Assad's Foreign Ministry's recent threat to use them in case of 'external aggression' and, obviously enough, to the rebels themselves and the future of Syria in case the current dictatorial government is toppled. Not enough is known about these 'freedom fighters', who are thought to include several subgroups of jihadists among their ranks. Moreover, the widespread optimism that accompanied the 2011 Arab Spring revolutions has already fizzled, and for good reasons: Tunisia is mired in a deep economic crisis and (violent) political turmoil; there is still no semblance of normality in Libya, more than one year after Gaddafi's death; and Egypt's President elect, Mr. Morsi, has just passed laws granting himself total immunity and quasi-dictatorial powers, while the Muslim Brothers were busy drafting a constitution enshrining the Sharia as the main source of law in the country, prompting widespread violent protests that could spark a civil war.

Potential risks, however, will not deter the U.S. from making this diplomatic move. Only strong, combined opposition form China and Russia added to a lukewarm response by Washington's allies could put the brakes on a decision that will suppose a tactical reaffirmation of American symbolic supremacy in world affairs, even if its strategic outcomes are still far from certain.

Explaining the unreliability of surveys in the 2012 Catalan elections

Somehow deviating from the original purpose of this blog, this post will focus on the possible explanations behind the lackadaisical victory obtained by CiU in the recent Catalan elections, which was not predicted by any of the numerous pre-election surveys and polls. I argue that there is no single reason behind this major surprise, but a whole combination of factors making all predictions worthless.

Recent results in the Catalan regional elections pose a very interesting challenge for anyone interested in political science and voting dynamics, as well as with the predicting power of surveys and polls. This time, it's nothing like the usual 'Gallup against the world' issue, but outcomes remarkably deviating from all polls, predictions and expectations (including those of the candidates themselves!)

According to all pre-election polls, performed by news outlets and official sources apiece, the ruling party, Artur Mas’ Convergence and Union (CiU), would at least repeat the results it obtained in 2010, with 62 seats out of the 135-strong parliament. However, when it was all said and done, CiU was again the prevailing force, but only took 50 seats. Talk about a bitter victory.

How could such a reversal of sorts happen? Why did not just one, but all polls fail to reflect this fiasco? The answer obviously lies in the extraordinary high number of undecided voters reflected by all polls, up to an average 30% of the respondents. Let's imagine a survey with a sample of 1,000 respondents. Given that the number of potential voters in Catalonia hovers around 5 million, this combination would normally produce results with a 4-5% margin of error and a 99% confidence level, meaning that we should be 99% sure that the results will be the ones obtained, within a +/- 4-5% range.

However, if 30% of respondents report being undecided, only 700 real answers will be given. If, out of those 700, 330 report their intention to vote for CiU, projections will assign this party almost half the seats in the Parliament. In fact, even a lower number should suffice, as the Catalan voting system, a modified version of the d'Hondt method, strongly overrepresents the less populated, more rural provinces of Girona, Tarragona and Lleida, traditional CiU strongholds. In other words, the number of undecided voters practically equaled that of CiU-leaning respondents, thus making any projections wildly unreliable: if 30% of the sample are unable to give what we should consider a statistically valid answer, the reliability or validity of any such survey should be seriously doubted.

Or shouldn't we? Despite reporting relatively high levels of undecided voters, such pre-election polls tend to get the results fairly right, both thanks to the overgenerous  margin of error or projected bracket we obtain when taking all the major polls combined (in this particular election, CiU was projected to obtain anywhere between 60 and 70 deputies, a a +/- 8% margin of error) and to the fact that undecided voters usually end up distributing their final choices in a rather regular and predictable pattern across the whole political spectrum – barring major campaign breakouts or breakdowns. Even if the campaign was a especially vicious one, there was only a very modest downward trend for CiU results in polls published up until the very end of the 2-week campaigning period. In short, nobody was able to predict what was actually coming. Beside the inordinate number of undecided voters, what are the reasons behind this highly unusual predictive breakdown?

First – and maybe foremost – the record-breaking turnout, which reached 70% of the electorate, benefited left–wing parties, all of them obtaining far better results than initially predicted. The biggest gains went to the Republican Catalan Left (ERC), a pro-independence left-wing party who collected thousands of votes of disaffected former CiU voters. Even the Socialist Party (PSC), despite taking a hard beating, ended up with 20 deputies, up from the predicted 16-18. The green-socialist party Iniciativa per Catalunya Verds (ICV) went from 10 to 13 seats, and even the radical anti-capitalist, pro-independence popular movement CUP took home 3 wholly unexpected deputies. The fact that CiU has lost just 90,000 votes (or 7.5% of the total votes they obtained in 2010) but 12 deputies (nearly 20% of the previous total), while left-wing parties collected an extra 531,000 votes (going from a mere 447,000 in the 2010 election to 978,000 now, more than double) tells the whole story here.

A second reason is the newfound strength of the so-called 'hidden vote': namely, people who are ashamed to acknowledge they support unpopular political options, such as anti-separatist parties in Catalonia. Social polarisation due to the mainstream pro-separatist discourse set up the breeding ground for an unusually high number of hidden votes: the populist Ciutadans (C's) wildly beat all projections by tripling its representation, going from 3 to 9 deputies, while Mariano Rajoy's People's Party (PP) also did well, gaining an extra seat despite the tough austerity, centralising policies coming from Madrid. In the case of C’s, their explosive rise – which was only partially predicted in the surveys – demonstrated that the PSC was indeed a 'mixed bag' until now. Its power base in the Barcelona area industrial towns, mainly made of former internal migrants and their working-class offspring, deserted en masse. Some went for the alternative socialist option, ICV, but most undecided former socialist voters, and also some traditional CiU voters – scared off by its newfound separatist thrust – switched to Ciutadans.

Finally, last-minute hardball tactics by the right-wing Madrid press, wholly supported by relevant figures of the PP-controlled central government and highlighted by the leak of an alleged police report incriminating Artur Mas, Home Affairs Minister of Catalonia Felip Puig and CiU patriarch and former President Jordi Pujol, also played their part. Despite the still unclear validity (or even existence) of this document, it surely scared off many undecided voters who might be leaning towards CiU, believing in Mas' rhetoric, but were definitely disappointed at even the rumors tying his name to a further corruption scandal – something all too common when it comes to Spanish and Catalan politics, including CiU. Most of these disappointed people moved left to ERC, seen as a more genuine pro-independentist, clean force, but some others moved to the populist C’s or even the PP.

To sum up, an unusually high number of undecided voters in all pre-election polls combined with an unusually high turnout and the unexpectedly uneven allocation of the votes of those undecided citizens – which massively opted for left-wing, pro-independence ERC, ICV or CUP or populist, anti-separatist C's – shattered all predictions. Right-wing parties, such as CiU and the PP, traditionally enjoy a strong, loyal base of supporters: this army of loyalists always comes handy, but it can also fall short of breaking the bank, especially when turnout is unusually high. Austerity, recession, unemployment, dirty politics and miscalculations did the rest.

Mao’s (lack of) family planning skills: how China’s untimely population growth is coming back to haunt the dragon

Famously enough, Deng Xiaoping, when asked about Mao Zedong’s legacy, asserted that the Great Helmsman had done 70% right and 30% wrong. Although Deng was credited for far more precise policies and on-the-spot quotes during his fruitful leadership years, it might be time for current and upcoming Chinese leaders to update this dubious percent distribution due to Mao’s terrible, nation-mortgaging family planning skills. In other words, China’s population exploded too early, and this might well be the main cause of today’s economic ills in the most dynamic world economy in the last 3 decades.

The basic reasoning goes like that: facing a much-anticipated economic growth slowdown, partially due to global economic tensions and instability both in the EU and the US, the Chinese economy badly – according to some analysts, rather desperately – needs to boost internal consumption and, therefore, lower the savings rates of much Chinese citizens, which hover above 50% of total disposable income.

One way to boost consumption would be, obviously enough, to increase total disposable income of Chinese workers and middle-income families, which, by all estimates, is relatively low in comparison with other countries with similar per capita GDP. However, this would probably suppose a death knell for the still developing Chinese economy, transitioning from an export-focused, labor-intensive, low-added value model to a hi-tech, added value model. In other words, raising salaries further – i.e. apart from persistent inflationary pressures – would mean a sudden loss of competitiveness for an economy which still exports its way to growth and which is facing increasing international pressure to keep revaluating its undervalued currency, the yuan. In other words, this is not the way Chinese political and business leaders are keener to follow.

What else can they do, then? Not much, indeed. The Chinese public was already heavily incentivized towards consumption by financial sector regulations that offered them a real negative return on their savings: while inflation was running well above 6% a year, interest rates for saving accounts have been capped below 3%. This also explains why many middle-class Chinese resorted to buying property, thus fueling an investment-led bubble that is now set to deflate, if not to explode, as prices reached unsustainable levels and the value of the investment decreased.

This undervaluing of savings has indeed allowed Chinese banks to fuel their almost uncontrolled lending practices vis-à-vis state-owned enterprises (SOEs), in a Chinese-way variant of the unchecked lending that caused massive leveraging in huge Korean chaebols by the mid-90s and subsequently fueled the massive Asian financial crisis of 1997-1998. Although China’s economy is far less exposed to foreign capital (prone to flee when the going starts getting rough) and strict capital controls make it difficult for local money to suddenly exit the country, the way most profits from undervalued private savings have been reused might not have been the wisest possible.

Sure enough, doling out credit to SOEs – including development companies headed by local and regional party leaders – meant fast profits for both the banks and the local, regional and national politicians behind both the banks and the SOEs. However but not reforming the currently inexistent social security net can have severe consequences for a country that has been unable to solve a legacy problem from the Mao era: China might be reaching a demography-led point of no return.

Let’s go back to the starting point: why do Chinese people save so much if their options are limited and real return on investment is even negative? As argued in a recent blog post on the ills of Chinese SOEs with the rather explicit title The Macroeconomics of Chinese Kleptocracy, poor and even middle-income Chinese want to be sure they will have enough money not to starve when they are old. 

China, a traditionally Confucian society, has always emphasized and relied upon the filial piety paradigm, according to which sons and grandsons would care for the elderly when necessary. Based on that, China could progressively scrap its social security net starting from the end of the Mao era without much initial social or economic backlash: although the one-child policy had already been implemented, the demographic trends still allowed for a massive marginal growth in working-age population – a growth which will be totally over by 2015.

However, current Chinese society is mostly based on inverted pyramid families (not to mention the alarming lack of young females due to culture and policy-led infanticide), in which one can find just one child with up to four grandparents. Obviously enough, current and future elders can no longer rely on filial piety alone to feed them (or pay for their medicaments), so they save as much as they can to compensate for the lack of old-age pensions, efficient public healthcare and other social safety measures that indirectly fuel consumption and discourage excessive saving in most developed countries. As long as future prospects of a more relaxed retirement do not come to reality, most Chinese will keep saving their hearts out.

Should, therefore, the Chinese government hasten to create even a limited version of European, East Asian (think Japan’s or South Korea’s) or U.S.-style welfare states? That should have probably been the answer, but it might be already too late for two reasons: global context, both thanks to structural factors and issues related to the current conjuncture, and demographic pressure.

As previously argued, marginal demographic growth of working-age population is grindingly coming to a halt, thus putting extra pressure on the flows of impoverished rural immigrants willing to work for low wages at export-oriented factories. Added to that, the increasing and otherwise unstoppable technologization and digitalization of China’s manufacturing sector – for instance, Foxconn, the huge electronic component maker, will 'hire' a million mechanical arms between 2012 and 2013 – and the necessary transition to a knowledge-based, greener economy can also severely hurt a country with a big chunk of its population still suffering from poverty or relatively low incomes – even if per capita GDP at purchase-power-parity already stands at $8400 (2011 data; source: CIA World Factbook), China’s income inequality is extremely high, and rising, with a GINI index of  48 (2009 data; source: CIA World Factbook), making it the 27th most unequal country worldwide.

Added to that, while the current number of Chinese over 65 years of age is still relatively low for developed country standards, it is no longer so for a developing country devoid of a social safety net. Moreover, the problem is set to dramatically increase in the coming decades, with a projected XX% of the population over the age of 65 by 2050 – i.e. before China, even if generous growth rates are somehow maintained, reaches an economic development level comparable to that of richer countries.

Unemployment benefits for future out-of-job low-skilled factory workers, old age pensions for a growing mass of elderly people, healthcare benefits for an increasingly restive population of rural immigrants residing in cities without the corresponding urban hukou and other much-needed reforms might pose a very serious, growing economic burden for the Chinese state, especially in the midst of a probable global double-dip recession mostly affecting its key economic partners.

Bad timing? Probably. Bad policy choices? Maybe. In any case, major blame should not be put upon sheer luck or the often-maligned one child policy, which indeed was a desperate measure aimed at stopping undue demographic pressure on a country whose natural resources are already stretched to the maximum. Rather, blame should rest upon Mao Zedong’s belief that the key element for national survival in a time of political unrest lay upon a huge population not only helped fuel China’s Communist chaos, but also created an untimely time bomb whose consequences might be dearly felt in the next few years.

While it is undeniable that China’s explosive birthrates and subsequent rural healthcare improvements in the 50s and the 60s set the basis for the economic surge of the 80s and the 90s – again, this massive marginal growth in working-age population, – the explosive growth it helped create might have also sown the seeds of future demography-led stagnation and crisis.

Obviously enough, only time will tell how events will truly unfold. China’s low public debt and deficit levels, as well as its massive foreign exchange reserves, standing at $3.3 trillion at the end of 2011, give ample maneuverability to the Government in case it decides to do something about China’s most pressing economic problem. However, and independently of the route taken by the future caste of Chinese leaders, in case Deng Xiaoping counted Mao’s family planning policies within his 70% positive decisions, it is about time that his successors recalculate the Mao-era plus/minus ratings and start implementing social-based reforms before it might be truly too late.

The (wicked) rationale behind Spain’s tomato (a.k.a. bailout)

I could not resist starting out by somehow reusing Time’s ingenious header on Spain agreeing to receive up to €100 billion from its European partners: You Say Tomato, I Say Bailout: How Spain Agreed to Be Rescued.

The Men in Black, the troika representatives that so much scare Cristóbal Montoro, Minister of the Treasury, and a still bragging President, Mariano Rajoy, are indeed coming to town. Tough conditions will mostly be imposed on bailed out banks, as Angela Merkel herself asserted on June 12: the Spanish case is different from Greece’s or Portugal's. Technically, however, it should not be too different from the Irish situation, the main difference being that Ireland is a tiny country which could be bailed out and bullied and Spain is too big to fail, i.e. too big to bail out. Despite Dublin's plans to raise the issue during the next meeting of eurozone finance ministers, to be held June 21, the Irish Government's wishes will probably be quashed by the structure of Spain's bailout. We will not delve into that, however, as the scope of this post is quite different: we shall discuss the rationale behind the whole bailout/credit idea, which is only starting to get revealed.

It is also noteworthy that timing of the demand was astutely planned, although it ended up backfiring due to the clumsiness of the Government's PR strategy: just one day before Spain’s much-heralded debut in the football EURO 2012, as the reigning World and European champion vying to restore Spanish pride, and with Rafael Nadal all set to conquer his 7th Roland Garros title. The plan was clear: millions of Spaniards would fall into the government trap and quickly forget the implications of the measure, even downplaying that the President, the same person that was hiding until media and political pressure was too high to overcome, would briefly come out on Sunday morning to assert that the so-called “credit line” was a triumph of his Government and that he was ready to fly to Poland because “the problem had been solved.” Thank you, Mr. President, said most Spaniards… as well as international investors, which rewarded Spanish (and European) transparency with further rises of Spain’s sovereign debt risk premium, pushing interests of 10-year bonds to 6.8% on June 12, a 13-year high or a level never seen since the Eurozone was established (update: the rate climbed up to 7% just two days later).

We could spend a lot of time discussing the not-yet revealed details of the bailout package, with its speculated 3-4% interest rate for a 15-year credit to be satisfied by the Kingdom of Spain (i.e. 3-4 billion euro of extra deficit just in yearly interest payments) which, in its turn, will lend the money to needy banks at a 8.5% interest rate (a prohibitively high rate for troubled banks, meant to force them into selling assets), and the direct policy implications it might have, including VAT rate and other tax increases, extra spending cuts, speeding-up the planned progressive raise of the retirement age, etc. However, I believe that many media outlets have already explained all the kinks about the yet-to-be bailout package itself. Worthy and useful explanations can be found here (in Spanish), here and here.

In any case, no media outlet so far seems to explain the rational argument sustaining this bailout and why it could well be enough -- and why not. To put it shortly, it all hangs on restarting the housing market after the (too) slow bottoming-out process it has been undertaking for the last 4 years.

The key issue here is something which was already pointed out in the aforementioned Time Magazine article: this package will only cover the banks’ losses for 2012 and 2013, but not what is causing those losses. Those losses are caused by enormous quantities of money having been lent to construction industry companies and speculators during the boom years, accepting as collateral the very houses or apartment blocks they were building. Once the market crashes, development companies are struck with unsellable housing units, which are thus absorbed by the banks that find themselves unable to obtain monetary repayment of their loans.

This has been happening since 2008. Banks were reluctant to devaluate all those housing assets in their balances, hopeful to sell them at still overinflated market prices. However, as more and more loans are souring and both individuals and companies default on their payments, institutions whose exposure to the housing boom was higher -- the paradigmatic case is that of Bankia, but the cases of CatalunyaCaixa and CaixaNovaGalicia, among others, should not be forgotten either -- find themselves unable to satisfy the huge capital amounts the Spanish government, in a rare display of realism, recently asked them to set aside to hedge against housing-related credit losses. Then, hell breaks loose: the much-feared bailout ensues.

However, today’s rescue is only a first step. As already mentioned, it will cover short-time losses, but not potentially sour loans maturing later on. There is one key point to consider: although it has been modestly falling in the recent months (for obvious reasons: people are not buying houses and, therefore, not applying for new mortgages, and credit is scarce for businesses), overall private debt in Spain (including both companies and households) is still in excess of €2 trillion, i.e. 200% of Spain's GDP. Plus, government debt will be close to 90% of GDP by the end of 2012, assuming the bailout reaches the mark of €100 billion and counts against overall Spanish debt -- an instance already confirmed by Eurostat. According to the much-discussed IMF report on the Spanish banking sector, direct lending for construction projects still amounted 37% of GDP (or approximately €400 billion) by the end of 2011, slightly down from 42% of GDP in 2009. This figure neither includes the share of loans given to auxiliary companies providing construction-related services (plumbing, materials, etc.) nor the many mortgages held by unemployed or underwater homeowners. In other words, if the economy is not restarted somehow, and soon, a bailout amounting to just 5% of overall private debt will clearly not suffice.

Enter the strategy hidden behind the bailout plan, which is only starting to be revealed in the Spanish press: housing prices are going to continue to fall, and probably quite sharply. Banks hold up to 200,000 unsold housing units, according to IMF estimates. They must start substantially cleaning their balances as soon as possible (i.e. before a fresh round of sour loans appears by 2014 and they need to ask for a second European bailout), and this fresh capital injection, which they are eventually supposed to repay with hefty interest, will help them become more flexible in rating their assets and start writing out bad debt accumulated in their books. The latter has not taken long in materializing: Spanish banks have just accepted discounts of up to 45% in liabilities (news item in Spanish) accumulated by Sacresa, a former residential development giant, which had accumulated up to 1.8 billion euro in debt when it filed for bankrupcy protection almost two years ago. The former will soon be pretty visible: banks will offer plenty of houses and apartments at heavy discounts, be it 25% or even more.

The question is: who is going to buy? Unemployment hovers around 25%, and youth unemployment surpasses the dramatic 50% mark. Household debt is at dangerously high levels for a recession-stricken economy, and many families are still underwater from buying their homes at pre-2008 prices. One bet would point at foreign investors and families wishing to own a second home in sunny, tapas-rich and tourist-friendly Spain. High-end Russian tourism is booming, especially in the Catalonia region. However, the bulk of the empty property the Spanish market has to offer is not truly oriented at high-end foreign investors, and not even to middle-class families. Moreover, given the current state of the world economy, mired in uncertainty, as well as the probable economic slowdown that will even strike countries such as Germany or China, counting just on foreign money would maybe be too risky a bet. In other words, a sudden reversal of international capital and investment flight from Spain is probably not in the works. You can definitely bet on it, but you cannot count on it at all.

A second, more plausible bet would focus on local money, namely undeclared income that now the Government will try to funnel into the banks and housing markets via a (shameless) fiscal amnesty: you just deposit your undeclared income in any bank account, pay a 10% flat tax rate, fill out an online form… and you are done. In a country in which black economy accounts for up to 20% of GDP, such a move can help recapitalize cash-stripped banks and revitalize investment in property after due discounts are applied to already-devaluated prices. At least, that is the plan. A plan, however, that looks more like a bet with not much hedging -- such capitals can also be invested otherwise, or even be funneled away from shaky Spanish banks -- and which is also terribly unfair for law-abiding taxpayers. .

Moreover, a clear, rational objection to this plan can easily be made: the housing market will not be brought again into life unless credit is given to families and private investors. However, lending will be scarce while labor market instability continues: in other words, banks are not ready to accept the risk levels they happily accepted until 2007. Labor market instability will not disappear unless jobs are created, and not destroyed, as it is the case right now. However, fresh jobs will not easily be created because Spain built a whole generation around the construction industry, and now suffers from undereducated youth and long-term unemployment of a big mass of non-qualified workers. Then, is construction the answer? Should we enter a never-ending loop of housing booms and crashes?

Growth through business-friendly policies and a workforce ready for the challenges of today's global, knowledge-based economy should be the obvious way out of a crisis for a developed nation as Spain. But the current debt situation might be too desperate to follow this path, which requires patience and heavy investments. Severe budget cuts in education (which amounted to 4.9% of Spain’s GDP but will be cut to just 3.9%, all in the context of a falling GDP and thus way below of European and OECD averages) and research budgets (including painful statements, such as those by Carmen Vela, Spanish Secretary of State for Research, who asserted that there are too many researchers in Spain and that the focus is rather on quantity than on quality) are sadly showing the way forward: betting on a housing-based stabilization of the financial sector and see what happens next.

Should we be shocked? Sad? Depressed? Yes, Spain is (sadly) different in many aspects, but not as different as we might come to think, at least financially speaking. As this invaluable article argues (written by a fund manager, nonetheless), a big problem lurking behind Spain’s problems and decisions is rather a global malaise: a warped financial system that directs scarce capital to speculative and unproductive uses, and refuses to restructure debt once that debt has gone bad. Bankia, anyone?

Incremental Intelligence Sharing for a Smarter Defense

No 21st century defensive strategy should be deemed complete and truly comprehensive unless a hitherto purely national element is included in the transnational mix pursued by NATO: incremental intelligence sharing between member states should be the icing on the contemporary security cake.

On the very first week of February, Foreign Policy magazine commentator Robert Haddick asserted that the US shift to Asia meant that NATO had some kind of now-or-never chance to reshuffle its identity, while arguing that "the alliance still struggles to define a convincing organizing principle that will be relevant in the future."

Despite recent efforts by NATO leaders to redefine the alliance's goals and improve its efficiency in face of the post-Cold War security environment, the multifaceted terrorist threat, WMD proliferation issues and a veiled arms race in emerging Asia, the alliance might be lacking a truly defining element, under which transatlantic security could dramatically be improved.

Intelligence gathering and analysis is one of the less publicized but nonetheless more important elements that give modern nation states an ultimate sense of shared community of interests, values and ideals is intelligence. Once again, fresh news serve to prove this point: the Pentagon is vying to create a brand-new espionage unit, the Defense Clandestine Service, which will focus on infornmation-gathering on high-priority areas beyond war zones. As shown by such a relevant decision by the leading member of the Alliance, as much as NATO members are planning to progressively communalize decisions on defense procurement, maintenance and training, the equation will be incomplete if intelligence is kept on a national, competitive basis.

Although such a proposal can be branded as too innovative or even utopian, an incremental approach based on an automatic spillover effect should do the trick. The creation of a NATO Joint Intelligence Center, with modest resources to start with could build confidence among national intelligence agencies acting with diligence, making benefits visible to all partners and being especially proactive in the intelligence community.

Obviously enough, intelligence officials need the power to obtain information from different sources to be effective, and the initial willingness of national officials to share information with this new body would be very limited. However, an initial coordination role could be envisaged for the new JIC, initially focusing on what we could label ‘common good intelligence,' namely information not involving classified military material whose effective sharing could help mitigate non-military risks, and including counterterrorism and cybersecurity for the whole Atlantic Community.

Such an approach is already partially being put in practice by the EU's Joint Situation Centre (SitCen), whose stated goal is providing the Council with high quality information on matters of public security. Although it might be argued that SitCen's scope is rather limited, the EU's joint intelligence initiative faces a double problem. First, the very nature of the EU's intergovernmental CSDP and its overarching parent, the CFSP, limits its field of operation. Second, the stalemate in EU-NATO relations means that many Central and Eastern European countries, as well as Atlantist countries such as the UK and the Netherlands, instead push for further NATO integration and security cooperation. Obviously enough, a NATO-led intelligence-sharing community would be able to overcome such hurdles.

In the aftermath of the 2008 financial crisis and amid an ongoing debt crisis, Western governments are increasingly urged to rationalize their defense expenditure and make the most of the precious resources available. This urgent need for efficiency is yet another reason for national governments to support intelligence pooling: resources would be shared, redundancies would be eliminated and effectiveness would be greatly improved.

This is an opportunity NATO cannot let go. The intelligence community is one of the least monolithic branches of contemporary security apparatus. Progress would eventually come along, first slowly but ideally accelerating towards a point of no return to the old status quo.

Barring any detrimental leaks or setbacks, linear and incremental achievements would generate a spillover effect, fueled by centrifugal forces inside national intelligence communities, which would progressively increase their trust levels in the supranational center and endow it with further tasks and responsibilities and, perhaps more importantly, resources and information.

In order to effectively face the asymmetric threats of a multipolar 21st century, NATO is shifting from a Cold War military and security alliance towards a more inclusive, proactive and flexible organization, with the overarching goal of providing security in a much wider sense to all citizens of the signatory countries. With intelligence sharing, NATO's "Smart Defense" initiative would be even smarter: indeed, using the smarts of the brightest intelligence minds available might well be the smartest move yet for NATO.

The U.S.-North Korea deal: what does it really mean?

A lot has already been written since the latest news on North Korea broke out on the very last day of the last month. This time, it was no false rumor of Kim Jong-un being shot dead spread on some Chinese forum, but something far more tangible: after the completion a third round of bilateral negotiations, the U.S. and North Korea announced what has already been labeled the "leap day agreement," a deal that, as U.S. Secretary of State Hillary Clinton put it, is "a modest first step in the right direction."

North Korean and U.S. officials have had informal discussions since July 2011, when the two sides first met in New York. A second round of exploratory talks was held on October, and a third one had been scheduled for December, but the sudden death of Kim Jong-il resulted in their postponement. However, negotiations were already pretty advanced at that point. Even if U.S. negotiators gave no indication about possible advances at the end of the latest round and observers pointed out that North Korea was still mired in a 100-day mourning period for the death of the Dear Leader, the scene was set for a deal.

On the surface, North Korea has made some important concessions, chiefly the offer to suspend uranium enrichment at its major nuclear complex at Yongbyon and invite inspectors from the International Atomic Energy Agency, absent from North Korea since 2009, to return. Less remarkable, even if impressive in paper and somewhat reassuring for their Southern neighbors, is Pyongyang’s agreement to suspend the testing of long-range missiles or nuclear devices, as they can be easily resumed with no previous warning – as the North Koreans have already shown in the past.

In return for these concessions, the United States will provide North Korea with 240,000 metric tons of food, through regular monthly installments of about 20,000 tons of nutritional supplements, all under intensive monitoring, thus effectively resuming the U.S. role as one of North Korea’s main food donors since 1995. North Korean diplomats originally requested 320,000 metric tons of grains, but finally settled for a more modest amount in view of further paybacks down the road.

So, this is how we got there and what the deal is essentially about. We could go deeper into details, or discuss the numerous official reactions or the extremely diverse opinions of North Korea experts, scholars or mere watchers. However, a more useful approach might be answering – or, at least, trying to answer – some of the questions most observers might have about the implications of this agreement moving forward.

Will the food aid be delivered to those in need?

Most probably it will. The fact that it will consist of processed, high-protein nutritional supplements (i.e. a corn-soy blend) and not the rice and grain that the North Koreans initially demanded, coupled with the North Korean side dropping the restrictions on international monitors to supervise delivery, all but assures the 240,000 metric tons of food will be eaten by malnourished North Koreans (mostly young children and women) and not by Korean People’s Army soldiers.

However, the U.S.’ strategic goal of avoiding helping the regime and its military can be – and, in all probability, will be – indirectly bypassed. Even with credible guarantees that the shipments will not be used to feed the country’s elite or the North Korean military, or just released at the planned mass celebrations marking the 100th year anniversary of the birth of Kim Il-sung, there have been clear signals of food stockpiling by the regime, as reputed experts Marcus Noland and Stephan Haggard already pointed out by mid-2011.

Despite the budding famine experimented by the country, stockpiling of existences has become possible due to increased aid from China, which comes with no strings attached in terms of supervision: in less publicized talks, China affirmed it also discussed the provision of more food aid to North Korea just two days before the deal with the U.S. was announced. Hence the unusually frequent trips to China – up to 3 – made by an ailing Dear Leader in the months leading to his death. Now, these nutritional supplements can be used to feed the neediest while keeping stocks of grain and rice strong in order to distribute them in the days going to April 15 which, according to official propaganda, should mark the dawn of “strong and prosperous” North Korean nation.

Does this deal imply that Kim Jong-un is here to stay?

Although it is still too early to categorically affirm that – remember, the nation is still mourning, the young leader is not yet 30 and the regime stays as secretive as ever –, the passing of this agreement shows a certain degree of internal stability within the DPRK’s inner power circles. Who is really calling the shots – is it really Kim Jong-un or a ruling clique led by his uncle and his aunt? – is still unknown, but the new supreme leader’s acquiescence of the agreement should be seen as a key prerequisite to its signing, clearly showing the young man is active and ready to wheel and deal.

Moreover, this deal being the continuation and the expected result of negotiations initiated while Kim Jong-il was still alive, it is also a clear proof of the continuity ine North Korean policies, thus implying there are no major rumblings in Pyongyang.

The deal also helps establish a non-threatening external environment that will help North Korean leaders consolidate the controversial process of transferring power to the young and inexperienced Kim Jong-un. In other words, it gives the new leader and his clique time to establish themselves in power, as it considerably defuses external tensions despite not truly deactivating them.

As a leading North Korea expert from the prestigious Council on Foreign Relations already stated before the talks started, "even a modest agreement would buy time for North Korea to focus on internal affairs, as Kim Jong-un attempts to consolidate his leadership in advance of the Workers’ Party Conference to be held in Pyongyang on the 100th anniversary of Kim Il-sung’s birthday." In conclusion, the deal with the U.S. indeed does, even if incidentally, play a key role in helping Kim Jong-un stay in power during a key period for the future of the Hermit Kingdom.

Will it help improve inter-Korean relations?

As some analysts have already pointed out, another possible red flag of the agreement is the absence of a North Korean commitment to improving intra-Korean relations. However, this can easily be explained by the wait-and-see approach of the North Korean authorities regarding the political future of South Korea, due for a presidential election later this year. Pyongyang can ill-afford suddenly stooping its criticism of hardliner Lee Myung-bak as it is waiting for widespread disillusionment with Lee’s liberal policies, especially among young South Koreans, to elevate a more Kim-friendly figure to the presidency the country.

The fact that the North Korean official statement mentions a possible resumption of the Six-Party Talks – while its U.S. counterpart does not – should not be taken as a sign of open goodwill towards its Southern and Eastern neighbors (i.e. South Korea and Japan) by the North Korean authorities. On the contrary, U.S. diplomats have repeatedly made it clear that both Koreas should strive to improve their relations before multilateral denuclearization talks can be rescheduled, and this omission from the U.S. communiqué shows no progress in that aspect has been made. From the North Korean side, the Six-Party Talks are only mentioned tied to revisiting the provision of the light water nuclear reactors promised by the U.S. more than a decade ago, and whose delivery was halted by the Bush administration. In other words, it can be easily dismissed as a mere display of self-interested rhetoric.

However, this deal can help Kim Jong-un justify his actions by saying he successfully completed an important diplomatic venture his father began. This gives reason to hope that the military provocations of 2010 – allegedly masterminded by the younger Kim – may not be repeated this year. For the time being, thus, it is wait-and-see for the two Koreas, albeit possibly a less bloody one.

Is this United States-North Korea agreement also beneficial to China?

Yes, although with some scarcely mentioned reservations and side effects.

The fact that the deal defuses international tensions and temporarily scales back the prospects of menacing – or outright violent – acts by Beijing’s bizarre friends in Pyongyang is highly valued among Chinese power circles, always craving for regional stability to foster internal growth.

However, there is some small print on the deal that should be taken into account – and sure China is already monitoring it: the official statements call for "taking steps to increase people-to-people exchanges, including in the areas of culture, education, and sports" between the two nations. Here, it does not matter who is giving: even if the experts that consider this to be an "American concession", as North Korea would reportedly be eager to break out of its international isolation and deepen ties with the United States, turn out to be right, the possible consequences for Beijing would still be there. Amidst a high-profile political campaign against – in Hu Jintao’s words, nonetheless – the "West’s assault" on China’s "culture and ideology", the U.S. is backing its reorientation towards East Asia discourse with a veiled promise to make inroads in what stands, after the opening-up of Myanmar, as maybe the last safe haven for Chinese influence in the region.

Maybe it will just turn out to be a symbolic small print addendum to the important stuff, but we cannot rule out the possible effects of this breakthrough, which apparently contradicts the regime’s ideological pillars: North Korean moral superiority towards cruel, imperialist Americans (and their servile South Korean puppets, for that matter). In case such exchanges do ever happen, they could be seen as a veiled threat to the almost exclusive Chinese influence on the Hermit Kingdom and, at the same time, as a risky (or rather desperate) political move by the Kim regime, so dependent internally on anti-American propaganda.

Anyway, does this deal mean that North Korea is halting its nuclear program altogether?

Not really: pressing the pause button does not equal pressing the stop button, and North Korea has still enough leeway to keep enriching uranium in other unknown, unmonitored facilities. While intelligence reports indicate that uranium enrichment might be taking place in at least several additional locations, the ambiguous wording in the official statements doesn’t ensure that North Korea will allow monitoring of any nuclear activities outside the 2,000-centrifuge uranium-enrichment Yongbyon complex (capable of producing a weapon's worth of highly enriched uranium every year).

Pyongyang can also keep working to improve its stockpile of plutonium-based bombs: current intelligence estimates are that the country has made enough separated plutonium to manufacture about a half-dozen such weapons. Moreover, as already mentioned before, North Korea could at any time resume testing its nuclear weapons and long-range ballistic missiles with no previous warning: it happened in the past, and it could happen again in the future. In fact, its two previous nuclear tests and three tests of medium-range ballistic missiles all failed to one degree or another, so military leaders might want to conduct more at some point to get the technology right.

Is there any realistic chance that North Korea relinquishes its nuclear capabilities at some point in the future?

Future behavior of such a hermetic regime is almost impossible to predict. However, unpredictability does not mean irrationality, and North Korea has proven to be an extremely rational – if aggressive – actor throughout the years. In other words, the North Korean regime should have extremely strong incentives and impossibly firm guarantees of non-interference in internal affairs in order to ever accept giving up its nuclear capability.

As impoverished as the country stands now, no sense of national strength and prosperity could be conveyed, even to brainwashed North Korean citizens, without the main (or rather the one and only) positive legacy of the Dear Leader and his military-first policy: nuclear weapons. Kim Jong-il, the leader that allowed hundreds of thousands of its citizens to starve to death in the 1990s, has been excused of any responsibility for this mass murder by official propaganda: he wisely chose to focus on military affairs to secure the survival of the nation and the race. Obviously enough, the joint editorial of the party and army newspapers published on January 1, 2012 vowed to continue the “military-first policy” of Kim Jong-il.

As many analysts have been pointing out ever since the toppling of Colonel Gaddafi in Lybia and the upheaval in the rest of the Arab world against authoritarian regimes, North Korea might well have increased its reluctance to ever give up its nuclear weapons. In fact, there are reasons to believe that the 2003 invasion of Iraq and the subsequent toppling of the Saddam Hussein regime prompted Kim Jong-il to accelerate the North Korean nuclear program and successfully detonate its first atomic device three years later.

Therefore, despite the undeniable progress that such a moratorium on certain nuclear-related activities represents, we should not be overly optimistic. East Asia might be a safer place for the time being, but long-term, peaceful denuclearization prospects remain dire unless the current North Korean leadership progressively turns course and decides to considerably open up the economy and the political system.