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NightWatch 20111116


For the Night of 15 November 2011

North Korea: Comment: The leadership appears desperate to obtain hard currency and to pay bribes in return for loyalty, a longstanding practice. Its latest gimmicks are to open the country to limited and supervised tourism from China and to open a luxury goods department store in Pyongyang for the party elite.

The limited expansion of tourism represents a North Korean-controlled effort to exploit the infrastructure that South Korean capitalist enterprises built in eastern North Korea. Chinese and North Korean enterprises have taken possession of the facilities that South Korean firms built and are attempting to operate them.

North Korea is a stunning, small piece of the planet that possesses unique physical beauty, flora and fauna. It is a natural attraction for tourists.   Somehow aesthetics never have seemed to influence the thinking of the Stalinist Kim family. The Kim leadership always valued exploitation of natural resources and mining over tourism.

As for the luxury goods only available to Party cadres, that is a leadership method of rewarding loyalty that had been reserved mostly for the Army corps commanders, to safeguard against a military coup against the Kims. The application of this practice to the Party means Kim expects a lot from the economic technocrats. Economic prosperity in 2012 depends on the skills of the technocrats, not the army corps commanders.

North Korea also wants to show the world that it has a modern, high-end department store.

India-Pakistan: Indian Prime Minister Singh and Pakistani Prime Minister Gilani agreed on a preferential trade agreement and fast-track bilateral trade conducted on a most favored nation basis, after meetings last week on the sidelines of the South Asian Association for Regional Cooperation summit in the Maldives. They also agreed to ease visa requirements.

Comment: Indian Prime Minister Singh is the primary driver in improved relations. He has chosen to work with the civilian government in Islamabad, Pakistan, instead of exerting pressure on it.

Indian relations with Pakistan were cordial during the Musharraf era because, as the former Chief of Army Staff, he could order the army and security apparatus to control the Kashmiri and Punjabi militants.

The civilian government under Gilani has had less success in using the security forces to restrain Pakistan-based, anti-Indian terrorists. Nevertheless, India's Singh government has continued to pursue cross-border stability, rather than the more destabilizing alternative policies that characterized some of his predecessor governments.

Indian initiatives to reassure Pakistani leaders that Pakistan confronts no threat from India have been major assets for Pakistani Prime Minister Gilani in coping with internal terrorism threats. If the Pakistani civilian government fails, it will not be because of Indian pressure.

Iran-Russia: For the record. Russian Foreign Minister Lavrov said Russia considers the use of sanctions against Iran as exhausted. He also said the threat of sanctions or airstrikes excludes the possibility of a negotiated solution. He said neither isolation nor confrontation works with Iran, adding that Moscow is actively working with Iran and that Tehran should be invited to join the P-5+1 talks. Lavrov said the latest report on Iran's nuclear program did not contain any new information but merely confirmed the issues for which Iran has not yet provided explanations.

Comment: Lavrov's comments look like settled Russian positions, but his assertion that neither isolation nor confrontation works looks prescient. The middle ground is engagement, which has proven extraordinarily difficult to establish in a fashion that achieves substantive results.

Turkey-Iran:  A senior Iranian official recently said Iran is willing to share its nuclear technological capability with neighboring, friendly countries, which could include helping Turkey build an atomic power plant.

For years Turkey has tried to build a nuclear power plant, but no Western country has been willing to help, the official said, adding that this is true for other countries in the region. Iran is also willing to cooperate with Brazil in the nuclear field, he said.

Comment: Energy policy provides a basis for an expansion of Iranian influence and presence in the Middle East and Brazil.

Syria: Opposition Syrian National Council chief Burhan Ghalioun said the Syrian opposition wants to overcome the current Syrian crisis on its own without any outside interference and especially without foreign military interference.

Comment: Ghalioun's comments are interesting because the Syrian National Council is made up of outsiders. The Syrian uprising morphed when it switched from advocating reform to advocating government overthrow. This metamorphosis also occurred in Tunisia and Egypt.

Syria-Arab League: The League voted to suspend Syria in an emergency meeting in Cairo on 12 November. Of the 22 members only Yemen and Lebanon voted against the suspension and Iraq abstained. The League also called on its member states to withdraw their ambassadors from Syria, and said it supports sanctions on the Syrian regime and would talk with the Syrian opposition.

Comment: The vote is worth noting because the only two non-Sunni Arab governments in the League - Lebanon and Iraq - did not vote for the suspension. Lebanon and Yemen voted against the suspension and Iraq abstained. All others voted in favor of the suspension

The vote pattern shows that the vote against Syria was part of the Sunni Arab governments' effort to stop the spread of the Shiite heresy among the Arabs. International political policy became intertwined with Islam-driven political policy. The Sunni governments and kingdoms have now made clear that they want the Alawites overthrown in Damascus and replaced by a Sunni leadership, regardless of other policy considerations.

Kenya-Israel-Somalia: For the record. Israel will increase its support for Kenya's battle against Somalia's Islamist insurgents, officials said, in a move which drew threats of fresh attacks from the militants' al-Qaida-linked leadership.

Tunisia: For the record. Islamist Ennahda Party won 89 of 217 seats in the Tunisian National Constituent Assembly, according to the official results released on 14 November. The Congress for the Republic won 29 seats; the Popular Petition won 26 seats; Ettakatol won 20 seats; the Progressive Democratic Party won 16 seats; and the Democratic Modernist Pole won five seats.

According to the electoral commission, the turnout for the election was 54 percent. The assembly will hold its first meeting on 22 November. The Islamists will form the first government since the overthrow of President Ben Ali in January.

Greece: The new Greek coalition government that is headed by Lucas Papademos, former European Central Bank vice president, was sworn in 11 November. Evangelos Venizelos remains deputy prime minister and finance minister in Papademos' three-party-team.

Greek officials must provide a signed, written letter to their European partners that Greece is committed to reforms to reduce its debt, a European Commission spokesman said on 15 November. The letter must be convincing and be upheld by all political parties, regardless of future elections, the spokesman said.

Comment: Under the threat of default and expulsion from the Eurozone, Greece now has a new government that must swear in writing to do what European bankers demand and do so regardless of the outcome of future elections. This is the direction of European democracy, if the European Union survives.

Germany: For the record. A spokesman for Chancellor Merkel told the press last week that the German government is not pursuing plans for a smaller eurozone, and its policies are focused on stabilizing the region as a whole.

Germany will push a plan to boost EU powers to ensure a future for the euro, German Chancellor Angela Merkel said on 14 November at a party conference of Merkel's Christian Democratic Union. The plan will call for "more Europe" in key areas, including amending EU treaties to permit mandatory supervision over eurozone debtors and a more binding Stability Pact, which would empower the European Court of Justice to take action against budget offenders, potentially through a cost-cutting commissioner.

Merkel wants this measure approved quickly, analysts report. Germany also wants the European Union to become a political union, which would transfer more sovereign rights to the European Union and require an amendment to Germany's constitution.

Comment: Faced with the choice, the German political leadership appears to have doubled down on the European Union and the Eurozone. This looks like a potentially catastrophic decision that key EU members might not support.

Italy: President Giorgio Napolitano on 13 November asked Mario Monti, a former member of the European Commission, to form a government. The leader of Prime Minister Berlusconi's People of Liberty party said that the party would support a Monti government for only as long as it could fulfill its mandate to push through measures to help reduce Italy's $2.6 trillion public debt and increase growth to keep Italy competitive.

The new Cabinet will be presented to the President on 16 November.

Comment: European Union demands for austerity to repay government debt have changed governments in Greece and Italy. High finance and sovereign debt are altering notions of sovereignty. Both of the new governments are characterized by men who have experience in international finance and who favor the European Union. The political game looks tailored to stabilize the banks more than the countries. The outlook is for more civil disorders.

European Union (EU): Last week, European Commission Vice-President for Economic and Monetary Affairs Olli Rehn said: "Growth has stalled in Europe, and there is a risk of a new recession. While jobs are increasing in some member states, no real improvement is forecast in the unemployment situation in the EU as a whole.

The key for the resumption of growth and job creation is restoring confidence in fiscal sustainability and in the financial system and speeding up reforms to enhance Europe's growth potential. There is a broad consensus on the necessary policy action. What we need now is unwavering implementation. On my part, I will start using the new rules of economic governance from Day one."

Annual gross domestic product (GDP) growth in 2012 is expected to be 0.6 percent in the European Union and 0.5 percent in the eurozone. Growth in 2013 is expected to remain at 1.5 percent in the European Union and 1.3 percent in the eurozone. Unemployment will remain at around 9.5 percent with headline inflation predicted to fall back below 2 percent in 2012.

Comment: If Rehn's estimate is close to accurate, China stands to suffer substantial losses because Europe is one of its largest customers. Europeans are likely to have less money to buy Chinese goods. The prospect of recession in Europe would explain China's refusal to become further ensnared in Europe's financial disorder.

End of NightWatch for 15 November.

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