Doug Saunders

It’s official: among the weapons Europe will try to deploy in its last-ditch effort to save its currency will be a “Robin Hood tax,” a miniscule fee on stock-market trades and other financial transactions.

That, at least, is was what José Manuel Barroso, the president of the European Commission, proposed in his “state of the union” speech to the European parliament on Wednesday morning. He was endorsing a draft directive issued by the Commission last week and strongly endorsed by the continent’s two largest economies, France and Germany.

Read post in The Globe and Mail

See also “A Tobin tax? The outré is back in”

But the micro-tax, widely known as a Tobin Tax after its inventor, the economist James Tobin, is just as likely to divide Europe into deeper divisions and intractable feuds.

With the possibility of a Greek insolvency and a wider collapse of euro zone debt looming, Mr. Barroso and his colleagues are pulling out all the stops. He called for unity around a six-point plan, to be voted on by all the euro zone’s 17 parliaments this week, to boost the bailout fund to 440-billion euros in order to prevent the Greek collapse from causing a run on the debt of the far larger economies of Spain and Italy.

The European Tobin tax would be a small part of this. It has been endorsed strongly by the finance ministers of France and Germany, and the smaller economies on the continent are likely to back it. And Christine Lagarde, the former French finance minister who now heads the International Monetary Fund, is an outspoken advocate of such a tax. And software billionaire Bill Gates gave the tax his endorsement on Friday with a report suggesting it could aid international development.

But the elephant in the room is Britain, home to the highest volume of euro-denominated trading, whose current Conservative-Liberal government is firmly opposed to a transaction tax – as are the United States and Canada. When it was proposed at the Toronto G20 summit last year, it quickly sank. Last week Britain’s finance minister George Osborne suggested that Britain would veto the tax unless it was allowed an opt-out.

Without Anglo-American banking, the thinking goes, a Tobin tax would be pointless, because banks and traders would simply move their transactions to the tax-free side of the Channel and the Atlantic.

To forestall such a possibility, the European Central Bank is attempting to pass a policy requiring financial clearing houses that handle more than five per cent of the market in euro-denominated products to do their trading inside the 17-member euro zone (a great many are located in London). But this is unlikely to fly.

Would entire industries move abroad to avoid such a small tax? Well, many institutions nowadays depend on high-frequency trading, in which transactions are conducted more than 10,000 times per second: The fees would add up. Given that a huge chunk of international trading moved from New York to London in the 2000s as a result of Washington’s arguably less burdensome Sarbanes-Oxley regulations, the risk of capital flight is real.

Or is it? As Financial Times columnist John Plender argues this morning, Britain already has a Tobin tax, the 1694 stamp duty, which has “signally failed to prevent London’s ascendancy in international finance.” And, he notes, it could cause banks to switch from speculative interbank high-speed transactions to more productive and useful longer-term investments in corporations and households.

Indeed, it is the British who have actually studied the workings of Tobin taxes the most. A major review of the implications released this year concluded that “a Tobin tax is feasible and, if appropriately designed, could make a significant contribution to revenue without causing major distortions. However,” the research report notes mordantly, “it would be unlikely to reduce market volatility and could even increase it.”

Original Article

When Spanish Prime Minister Jose Luis Rodriguez Zapatero went to bed on Sunday, he may well have picked up his Cervantes and turned to its climactic passage. It occurs when Don Quixote realizes that his bold efforts at heroism have not transformed Spain or caused anyone to love him, but have produced only heartbreak:

“The fact is,” he says to his squire Sancho, “that I was born to be an example of misfortune, and the target and mark at which the arrows of adversity are aimed and directed.”

Read post in The Globe and Mail

If Greece is the financial black hole of Europe’s economic crisis, Spain has become its centre of political symbolism. It must have been with an allegorical eye that Barcelona decided to hold its last-ever bullfight on Sunday, for the next day would mark a stark transition from the bullish buoyancy of the Zapatero era to a more bearish, austere period of anxiety and panic.

Mr. Zapatero, who has transformed Spain like no other leader since Franco’s demise, became Europe’s ultimate unwitting victim, a Quixotic figure whose lance has proven useless.

Unlike Greece, Spain’s crisis is not one of government spending or debt: On the contrary, Mr. Zapatero was a master of the art of fiscal restraint. Until the very end of the 2000s, his governments ran budget surpluses and had one of Europe’s lowest levels of debt; he cut taxes, removed red tape from business and oversaw a long period of economic growth and full employment.

Like other members of Europe’s new free-market left (like Gordon Brown in Britain and Gerhard Schroeder in Germany), he used this fiscal and economic buoyancy to change his country dramatically. Gay marriage was legalized and women’s rights, including to abortion, were extended in this formerly Roman Catholic nation; millions of immigrants arrived; separatist-leaning Catalonia gained some autonomy; a radical peace was sought (and all but won) with the Basque rebels.

But throughout the decade, currency imbalances were piling up in Europe’s periphery. If Greeks experienced this imbalance in the form of spiralling government debt, the Spaniards (like the Irish) experienced it in the form of a massive, private-debt-fuelled real-estate bubble. When it popped at the end of 2008, it placed Spain’s famously robust banks in jeopardy, and Madrid was forced to intervene: First with a 50-billion euro rescue in October, 2008, and then, six days later, with a 100-billion euro fund.

The collapse was wreaking its toll: Unemployment quickly shot up from near-zero rates to more than 20 per cent, and this loss of tax revenue, combined with the huge cost of rescuing the banks, shifted Madrid into the red.

Within months, Mr. Zapatero was forced to reverse his tax cuts of 2006, 2007, and 2008. In 2010, there were large-scale privatizations and spending cuts, and this August Mr. Zapatero tried to reassure markets by passing — after only two days of debate — a constitutional amendment requiring balanced budgets.

On Thursday, in his final act, Mr. Zapatero pushed through the legislature a new law placing a special short-term tax on the very wealthiest citizens of Spain — exactly the sort of tax he had abolished a few years earlier.

By now, the Spanish newspaper El Pais was referring to his government as “The legislature of sudden shocks.” Mr. Zapatero’s golden years are forgotten, banished to a past that, to many Spaniards, seems like an odd dream. Opposition leader Mariano Rajoy, who will campaign on a platform of lower taxes, smaller government, even more austerity and a more socially conservative society, stands to win a long-sought victory.

His will be a more humble and quiet Spain, without as many acts of bold and unpredictable jousting. After eight years on the edge of their seats, Spaniards seem to be preparing for a less exciting era.

Original Article

New York

The Middle East crisis returned this week to its place of birth in New York City. The United Nations statehood resolution by the Palestinians is dangerous, impractical and possibly the only way to create a secure life for Israel and its neighbours.

Using a UN General Assembly resolution to make an end run around potential negotiations and create a Palestinian state is not a new idea, of course. It’s exactly what was done in 1947, under strikingly similar circumstances, and the resulting Palestinian state became known as Israel. That experience taught us a lot about the hazards of statehood by declaration from above – and about its occasional necessity.

Read column in The Globe and Mail

Read also “The Canadian who Created the Middle East Crisis”

The creation of a Jewish homeland was one of the first acts of a UN that had just been formed in the face of the unprecedented genocidal atrocity and refugee crisis that made Israel’s birth a tragic necessity. It was done at the General Assembly, without the approval of the Security Council, with a sense of urgency.

We should beware of precedent. Resolution 181 of 1947, let us not forget, seemed like a fairly simple matter but ended up producing more than 60 years of trouble. It was meant to create one multiethnic nation with two internal states, one Jewish majority and one Arab majority – a “partition with economic union,” to borrow its subtitle.

That plan was ruined within days, as Arab nationalists launched a war on the embryonic Israel, and radical Jewish nationalists pushed Arabs out of their homes and into the dwindling bits of Arab-designated territory.

And so it stood, a refugee crisis begat by a refugee crisis, for decades. From 1993 onward, when the Palestinians first recognized Israel, the path to resolution has been largely agreed on by all parties, defined by a 1967 UN resolution: Using the ceasefire borders of the Six-Day War as a starting point, Israel will cease settlements on the Palestinian side, the Palestinians will recognize Israel’s sovereignty and renounce violence, and a border will be worked out.

That plan has come tantalizingly close to fruition twice in the past 15 years, scuppered largely by Israeli domestic politics. So there are risks in the decision by Palestinian Authority president Mahmoud Abbas to sidestep that plan – or, more optimistically, to nudge it along – by asking the world’s leaders to recognize the Palestinian proto-state. His declaration could trigger a border war or attacks against the half a million Israeli settlers on Palestinian lands or the 1.3 million Arab citizens of Israel.

But it may be the best way to a more secure and prosperous life for both Israel and its Arab neighbours. On the Palestinian side, it could have the considerable advantage of marginalizing and effectively ending the relevance of Hamas, the extremist party that has ruled the rump territory of Gaza since 2007. Hamas leaders, who are deeply opposed to a two-state solution, are sputtering with outrage at Mr. Abbas, whose humiliations at the negotiating table were the source of Hamas’s power. But this is the sort of symbolic victory on the world stage that Hamas could never deliver, and a statehood-bound Palestine vanquishes them to a dim past.

Israelis also recognize that a clearly defined Palestinian state is the only way they’ll be able to turn their country’s extraordinary economic, educational, technological and cultural resources into the basis for a secure life and a prosperous region. The Jerusalem Post found this week that 69 per cent of Israelis feel strongly that Israel should accept the statehood declaration if the UN passes it.

They understand something that their government apparently doesn’t. It’s something that was best expressed 21 years ago by the late Rabbi Arthur Hertzberg, one of the sharpest scholars of Israeli-Palestinian politics. In an even darker moment, when all-out war in the region seemed likely, he suggested that perhaps a fully agreed-on peace settlement shouldn’t be the immediate goal, but rather just a tentative declaration of statehood.

“It would perhaps help if everybody would stop thinking about a definitive settlement,” he wrote, suggesting, instead, a provisional two-state beginning, “subject to periodic rethinking and negotiation.” It would be ugly, but it would achieve the most important thing for Israel.

“Israel’s very life depends on making peace with the Palestinians,” he said, “and thus opening the door to the Arab world as a whole. For its own sake, and for the sake of the world, Israel must soon join in helping the people in the entire region to achieve more decent lives.” That is even more true in today’s fast-changing Middle East.

Original Article

From the moment he stepped off his jet in Cairo Tuesday night to find thousands of Egyptian fans shouting “God is great,” this was far more than a routine visit by a foreign leader.

Recep Tayyip Erdogan, the Turkish Prime Minister, toured the newly liberated capitals of Egypt, Tunisia and Libya this week with the sort of popularity usually reserved for pop stars. He is polling as the most popular politician, by far, in virtually every country of the Middle East, and for the revolutionary generation who turned to the Middle East’s only Muslim democracy for inspiration, he is a conquering hero.

Read article in The Globe and Mail

But it is exactly those sort of imperial analogies that have Westerners worried about Turkey’s new assertiveness. It has become popular to call Mr. Erdogan’s tactics “neo-Ottoman,” after the Turk-led Muslim empire that conquered much of Europe, the Middle East and north Africa between the 14th and the 19th centuries. The worry is that Turkey is now turning away from its European roots – after being shunned by the European Union in its bid for membership – and using the power vacuums to its south to link up with the region’s Islamist parties and form a network of Islamic power to threaten the West.

It is a misleading analogy, mistaking Mr. Erdogan’s bold but self-interested mission for some sort of Islamic imperialism, but it is a popular and understandable one.

After all, Mr. Erdogan, a former Islamist and devout believer, launched this tour after turning a minor spat with Israel, Turkey’s traditional staunch ally, into an outright conflagration. After Israel refused to apologize earlier this month for its army’s killing of nine Turkish civilians aboard the controversial aid flotilla to Gaza in May of 2010, Mr. Erdogan responded furiously by withdrawing Turkey’s ambassador, suspending its military co-operation with Israel, and freezing all trade ties with the Jewish state.

His Arab tour has been laced with fiery criticisms of Israel, glowing support for the Palestinian cause, and macho statements suggesting a military showdown: “Israel will no longer be able to do what it wants in the Mediterranean,” he told an audience in Tunis on Thursday, “and you’ll be seeing Turkish warships in this sea.” That was only one of several such alarming sabre-rattling statements, suggesting that the spat with Israel is in large part intended to send a message of solidarity to his country’s Arab neighbours.

That, combined with the warm mutual embrace between Mr. Erdogan and leaders of the Muslim Brotherhood (who tend to tell Western reporters that they see Turkey as their role model), has led some to fear that Europe’s largest Muslim state is turning to the dark side. It’s an alarming prospect, given that Turkey has Europe’s largest standing army and has become wealthy enough, from gas pipelines and industrial exports to Europe, to become a major power.

Yet most informed observers of Turkish diplomacy would say that’s a serious misreading.

“Yes, Turkey has been engaging its neighbourhood, and not just in the Middle East, and building its influence with Muslim states,” said Joshua W. Walker, a Turkey specialist who is a fellow at Harvard’s Kennedy School of Government, “but it would be a mistake to think that this is a move away from the West or from democracy or secularism. They’re making a shift from a French style of secularism to an American one, where you’re allowed to be religious and still be in government, but there’s no sign that Turkey is moving away from the West.”

Indeed, many Western diplomats, including those from the United States, quietly say that Mr. Erdogan’s eastern turn is a welcome and beneficial development – in good part because it could herald the eclipse of Saudi Arabia’s and Iran’s much more dangerous influence over the Arab states, but also because what Mr. Erdogan is doing is hardly imperial or Islamist.

His key message to Egyptians, delivered in a national TV interview, is that they should get rid of their old sharia-based constitution and become a secular state. “In Turkey, constitutional secularism is defined as the state remaining equidistant to all religions,” he said. “In a secular regime people are free to be religious or not.”

And if there was any ambiguity, he then told Egyptians that the most important thing Arabs should learn from Turkey is secularism – a word that is close to unmentionable in Egypt these days.

“I recommend a secular constitution for Egypt,” he said. “Do not fear secularism because it does not mean being an enemy of religion. I hope the new regime in Egypt will be secular. I hope that after these remarks of mine the way the Egyptian people look at secularism will change.”

That message was heard loudly across the Arab world, and provoked angry responses from the Brotherhood and other Islamist groups (who nevertheless still sought to associate themselves with the Turkish leader).

And it came alongside a number of other signs that Turkey is far from turning eastward. Just as he was falling into his feud with Israel, Mr. Erdogan struck a bold deal with the United States to use his country as the staging ground for a missile defence system that uses huge radar installations to protect against Iranian missile attacks. A senior U.S. official told the New York Times that it is “the most significant military co-operation between Washington and Ankara since 2003” and it was widely seen as part of a major boost in the country’s 59-year-old membership in NATO. At the same time, Turkey joined a major antiterrorism initiative with the United States. And its trade and political relations with European states have been growing strongly.

“If you actually examine what is happening,” says Fadi Hakura, head of the Turkey Project at London’s Chatham House, “you realize that this is the best possible situation for the United States and Europe – you have a strongly allied country that can exercise a tough position with Israel without promoting the kind of violence that other regional actors like Iran did.” In other words, Turkey may play the bad cop with Israel, but unlike Tehran, it won’t be interested in bankrolling terrorists groups like Hezbollah.

Mr. Ergdogan’s eastern thrust, accompanied by large aid expenditures across the Middle East, North Africa and Somalia, is part of a strategy engineered by Foreign Minister Ahmet Davutoglu to build Turkey’s regional influence in order to avoid the multiple crises Turkey faced before 2000 when it was surrounded on all sides by menacing, unstable authoritarian states.

Mr. Davutoglu’s strategy is based on what he calls a “zero problems” relationship with Turkey’s neighbours, designed to minimize expensive confrontations. Given the bellicose standoff with Israel this week, and Mr. Erdogan’s own drift back into military conflict with his own Kurdish minority (whom he’d previously spent a decade granting impressive minority rights), it’s obvious that the problems with Turkey these days are far from zero. But they might be a lot fewer than you’d think.

Original Article

London

In the month since my city exploded in flames and mob violence, much has been swept clean. The burned-out blocks in Tottenham, Croydon and Clapham have been boarded up, the glaziers have repaired thousands of smashed shop windows and the courts have tried 1,715 looters, most of them young and male.

The violence is done, for now. But what’s opened up is a rupture in the ruling classes over how the riots should be understood and confronted. Prime Minister David Cameron’s Conservative Party has spoken in three distinct and disharmonious voices.

Read column in The Globe and Mail

See also my analysis during the riots: Not Race, Not Politics, but an Explosion of Futureless Youth

The first response to the riots occurred while they were under way, when Mr. Cameron recalled the House of Commons for a rare August sitting and delivered a speech on the riots, denouncing them as the product of the “slow-motion moral collapse” of British society. “There is a major problem in our society,” he said in August, “with children growing up not knowing the difference between right and wrong.” This wasn’t about poverty or inequality, he said, but about sheer criminality. There’d need to be tough sentences, more discipline, fewer human rights, all in order to “restore a stronger sense of morality and responsibility.”

This, viewed cynically, was a summertime bid to win favour with two branches of Mr. Cameron’s party that have been alienated from the Tory mainstream since the Liberal-Conservative coalition formed in 2010: the social and moral conservatives of the backbench committee known as the Cornerstone Group; and the hard-core fans of Margaret Thatcher who insisted there was “no such thing as society” but only individuals making moral choices on their own.

But for many, this was somewhat unsatisfactory. While everyone agrees the rioters were the product of a morally challenged community prone to family breakdown, these things are a symptom, not a cause.

Something has caused thousands of Britons to enter a world where there’s nothing better to do than burn and loot, and where families don’t work. (And this was a riot of citizens, white and black, according to analyses of arrests: Almost no immigrants or their children were among those charged; in London, immigrants made up only 5 per cent of those arrested) Why do moral collapse and mass criminality seem to emerge, in strikingly similar ways, every time the economy takes a dive?

That led to the second major voice. Conservative Justice Secretary Ken Clarke, who referred to “the appalling social deficit that the riots have highlighted,” offered a larger explanation: the failure of institutions. He focused on prisons – which he said, are being used too much and are actually producing criminality, not reducing it.

Colleagues noted that an even larger problem lies in schools, which still allow – and often encourage – students to drop out at 16. As a result, a large cohort of young people – the children and grandchildren of the old English white-and black-skinned working class – have never found a place in the postindustrial economies of information and finance. And they have fallen into a set of institutions that seem almost engineered to prevent them from finding a place, tossing them into the “petty crime” grey economy, instead.

The third voice emerged this week from Work and Pensions Secretary Iain Duncan Smith, a Scotsman whose views straddle the line between the family-values Victorianism of the social conservatives and the more liberal conservatism of Mr. Clarke.

His focus was not on morality or the institutions, but on the home: Most of the rioters live in the districts that are peppered with Britain’s infamous expanses of grim postwar public-housing complexes (known as council estates). These places serve as traps: If you’re in them, you’re disconnected from the legitimate economy, without a path to a better life.

“For years now, too many people have remained unaware of the true nature of life on some of our estates,” Mr. Duncan Smith wrote. “This was because we had ghettoized many of these problems, keeping them out of sight of the middle-class majority. But last month the inner city finally came to call, and the country was shocked by what it saw.”

It sounds like three men looking, from different angles, at a large machine designed to turn once-hopeful families into marginal outcasts. While they argue over how to fix it, we ought to ask whether we have such machines in our own garden.

Original Article

Antwerp

To look around the elegant city of Antwerp, you wouldn’t know that Belgium has now gone longer without a government than any country in modern history.

The trains still run on time, the teachers show up in their classrooms, museums are packed, taxes are collected, welfare is paid, and the country’s F-16 fighter jets are dropping bombs in Libya - - even though Belgium has now gone a year and a quarter without a federal government, after the June 13, 2010 elections produced no majority and the feuding parties became locked in perpetual disagreement over coalition plans.

Read a shorter version of this article in The Globe and Mail

If these latest talks fail - - and the odds are no better than even, observers say - - then Belgium will return to an awkward limbo in which legislation (such as participating in the NATO campaign in Libya) is only able to pass if MPs reach a majority vote among themselves, without a government to support them - - a rare occurrence.

For some, this might sound like a libertarian’s idea of utopia: A country with nobody to raise taxes, or to slash spending, or to introduce major new government programs.

And indeed, Belgium has just managed, despite having only a largely powerless caretaker government, to post second-quarter economic growth rates - - of 0.7 per cent - - that exceeded neighbouring Germany, France and Britain. The country’s world-leading beer industry, analysts say, has remained aloft as the world drinks away its financial sorrows. And the government deficit has even been cut somewhat.

But beneath the surface, the cracks are beginning to show. Without anyone at the rudder, tiny Belgium is in danger of colliding with some of the world’s more dangerous currents, and the next few weeks could be decisive.

That becomes apparent here in Antwerp, the second largest city and the economic hub of the Dutch-speaking province of Flanders. Recent weeks have seen violent clashes between drug dealers and mainly Moroccan shopkeepers seeking to clean up their streets in the city’s poor northern districts.

Police officials here say that the drug problem escalated when the neighbouring government of the Netherlands launched a huge campaign to drive the drug trade out of Rotterdam, which for years had been the “French connection” for heroin trafficking. The drug gangs, seeing an opportunity in a weakly governed state, moved their operations an hour south to Antwerp.

“Our crime problem now requires the kind of major solution that can only come from the federal government - - but it looks like we can’t do anything until we get one,” said a police official with the Antwerp force.

And even more serious problems - - ones that cannot be solved without a government — are looming just beneath the surface in Brussels, the capital.

“We have two big problems: One is reputation, as we are being ridiculed around the world, and reputation counts for a lot. We are losing investor confidence,” said Marc De Vos of the Itinera Institute, a Brussels political think tank. “And the other is the fact that, as a country, we are standing still. We are unable to make unable to make any structural reforms, so we are falling behind other countries.”

The caretaker government has been able to pass bills to make modest spending cuts, but the country’s larger problems, rooted in demography and the European crisis, would be challenging for any country with a majority administration, never mind one with no government at all.

“There are major decisions that have to be taken,” said Yves Desmet, political editor of the Flemish newspaper De Morgen. “We have a pension crisis that is threatening to overwhelm us, for which we don’t have the means, we haven’t put aside any money, and nobody has decided how to pay all those pensions. And you have a gigantic public debt of almost 100 per cent of GDP and growing. And those decisions can’t be taken without a government with full power.”

By the end of November, Belgium will need to pass a 2012 budget - - something that is almost impossible without a full government. A caretaker regime might be able to continue existing programs and services, but the difficult work of adjusting its economy to prevent a future crisis would require a governing coalition.

Belgium will almost certainly have to raise its retirement age from 65 to 67 in order to prevent a major crisis, but this can’t even be contemplated now. It will probably have to change its labour market - - 60 per cent of all job growth has been government-subsidized, which is unsustainable.

Yet it is not at all clear that these problems can be solved, even with a government. The Flemish parties would like to seize their province’s share of the tax revenue and use it to fund their own, separate programs. Most of the French speakers would prefer it stay national. And as the country has gone through 10 attempts to form a government without success, the parties have become even more entrenched in their positions and less compromise-oriented.

As a final insult, it seems that the fiscal problems will strike Belgium at precisely the moment when it forms a government - - assuming it is able to do so by 2012, which is not at all certain. In that case, the awkward years without a government may be remembered as an economic and political golden age.

“It’s not for nothing,” Mr. Desmet said, “that Belgium is the birthplace of surrealism.”

Original Article

London

As Greece teeters on the edge of insolvency this week, worries about Europe’s ability to hold its currency union together have shifted from a debt-crippled Greek economy to a German government that appears to be withdrawing from its economic responsibilities.

News on Monday that Greece is within weeks of running out of cash, and that Berlin is increasingly willing to allow Athens to fail, sent both the euro and European markets tumbling, with the German DAX down more than 2 per cent, France’s Cac falling 4 per cent and the euro falling to a 10-year low against the yen.

Read article in The Globe and Mail

Also read my detailed report from Düsseldorf on Germany’s inward turn

Greece is preparing last-ditch emergency measures this week, including a one-shot property tax, in a desperate bid to prevent an insolvency when the country runs out of cash in mid-October, and appears unlikely to meet the conditions for its next emergency loan.

Berlin has chosen this awkward moment to become embroiled in a highly charged political crisis over its response.

The shift was signalled on Friday, when Gunther Oettinger, the top German representative in the European Union, proposed that a bureaucratic invasion force be sent from Brussels to Greece to seize the struggling country’s assets “without regard to resistance.” (Mr. Oettinger also suggested that Greece and other debtors be forced to fly their flags at half-mast in Brussels.) Berlin papers characterized the proposal as a UN-style “blue helmet” operation; Greeks likened it to Germany’s Second World War invasion.

The same day, the German representative on the European Central Bank resigned, apparently in protest against emergency bailout purchases of troubled countries’ bonds. Most economists agree that far more such purchases are needed to stabilize the euro – along with a far looser interest-rate policy, something Germany has also resisted.

Then, on Sunday, officials close to Chancellor Angela Merkel’s Finance Minister, Wolfgang Schauble, suggested the forced “drachma-ization” of Greece – removing the country from the 17-nation euro bloc and reverting it to its former currency – was a plausible solution, even though such a move at this moment would devastate Greece and its neighbours and damage European banks.

On Monday, Ms. Merkel’s Economy Minister, Philipp Rosler, said “an orderly bankruptcy of Greece” should be considered – a day after Greek Prime Minister George Papandreou stood up to 20,000 protesters and vowed to do everything necessary to keep his country in the euro.

It is now apparent that many German leaders have given up on the project of keeping the euro together. This is deeply inconvenient timing, at a moment when most economists agree that any stable solution to the euro would require a far deeper engagement by Germany and other major economies, including big initiatives to share debt and fiscal instruments with their euro zone neighbours.

“It is not very helpful if German government members start talking out loud about a Greek insolvency,” the German edition of the Financial Times warned on Monday. “Even those members of the coalition who are skeptical … should have realized by now that such debates produce exactly the opposite of stability in the euro zone.”

While Ms. Merkel made efforts on Monday to tone down the increasingly hostile rhetoric of her colleagues, the core issue remains her government’s lack of political will. It is a problem that has persisted from the beginning, when Europe issued a €110-billion bailout to Greece early last year. Germans, and sometimes also French, insist on seeing the crisis as one of irresponsible southern countries imposing themselves on their wealthy neighbours.

By choosing to punish Greece rather than helping build a sustainable economy within the 17-nation currency union, Ms. Merkel’s colleagues would be denying their own deep responsibility in the crisis.

From the beginning, Germany used the initial strength of the deutschmark to position itself as the chief exporter and lender to its poorer neighbours, creating a situation where debt and obligations were piling up in the periphery.

Greece will never be able to escape the cycle of deepening debt and austerity measures until it is able to return to economic growth, or at least to stability. Instead, the opposite is happening: Rather than contracting by 3.8 per cent this year – the number upon which bailout plans were based – Greece’s economy is projected to plummet 5.3 per cent.

The large and patient investments required to turn Greece around would allow Mr. Papandreou to finish restructuring the economy without facing an immanent collapse. They would shore up the finances of neighbouring countries and reassure investors. And they would stabilize German banks and allow the euro’s members to find a path to stability and recovery some day.

“What was ignored for 10 years can’t be fixed overnight,” Ms. Merkel said Monday in a moment of considerable wisdom. “That means that we have to be patient.”

But, in general, large and patient investments are falling away from Berlin’s vision. The mood has turned to quick and decisive punishments, damn the consequences.

Original Article

Like most people, Mohammed Abdel Rahman remembers exactly where he was when the Twin Towers fell. He was in Afghanistan, holding a rifle, among the men who ordered and backed the Sept. 11 attacks. While he says he didn’t cheer that day, people around him were rejoicing.

The bearded Egyptian, who was later captured and tortured by U.S. forces, was a pioneering member of the al-Qaeda generation – the frustrated and pious men, mainly middle class and Middle Eastern, who took up arms, bombs and sometimes jetliners against Western governments starting in the 1990s.

Read column in The Globe and Mail

Yet, when he sat down to speak this week in Cairo’s Tahrir Square, Mr. Abdel Rahman had a different message. “My vision hasn’t changed, but the political agenda has,” he says. “Egypt now has become a free and democratic country, so I would advise young people to engage in political activities rather than taking up arms – everything has changed.”

While al-Qaeda remains an organized threat in Pakistan, Yemen and a few other corners, all indications are that the zealots who would have joined a decade ago are now turning in droves to the new democratic movements. They might want to impose a religious government on their country (an idea rejected by a majority in Egypt), but they want to do so by the ballot. A poll this year by the Pew Research Center showed that admiration for Osama bin Laden has plummeted across the Middle East in the wake of the Arab Spring, dropping by 40 per cent in Jordan and the Palestinian territories and by 20 per cent in Egypt.

There’s good reason to believe that international Islamic terrorism is a generational phenomenon, just like the wave of left-wing terrorism that swept across North America and Western Europe in the 1970s. While jihadists (mainly Pakistani now) may still have some attacks left in them, I’d be surprised if their movement exists at the end of this decade.

Al-Qaeda and its cousins were not an inevitable development. They were born out of the struggle for control of the new countries created with the dissolution of the British and French empires after the Second World War. Strongman dictatorships and tribal oligarchies became the dominant force in the region, and their rival postcolonial opponents – at first both Marxist and Islamic – were violently crushed.

A great many of the Islamists, who might otherwise have become a conservative but essentially harmless part of the domestic political spectrum, were silenced, tortured and exiled into violent extremism – directed at first against the governments of their own countries (such as the 1981 assassination of Egyptian president Anwar Sadat), then against the Western nations that seemed to be keeping those governments in power.

“When you were blocked, as we were in Egypt, you develop an attitude – you feel that your only useful means are violence, and that your enemies are those who are supporting the regime that is killing you,” says Usama Rushdy, another Egyptian ex-jihadist (he was a founder of the group that killed Mr. Sadat) who has long since renounced violence and has now joined the democratic revolution – in his case, even more dramatically, by becoming a democratic pluralist and providing backing to non-religious candidates as well as moderate Islamists.

The postcolonial years destroyed the valour of specific identity. People no longer saw any pride in identifying themselves as “Egyptian,” and even “Arab” seemed a humiliation. After 9/11, the long-discredited medieval idea of a distinct and monolithic “Islam” and “West” took hold. North American leaders bought it, and so did thousands of men who had no other useful identity.

Now, suddenly, they’re seeing themselves as Egyptians again, and as Tunisians and Libyans and Syrians. Their ideas remain alarming. But, 10 years on, they’re fighting for them in the bear pit of national politics, not in the isolated netherworld of bullets and box cutters.

Original Article