Pepe Escobar: From Minsk to Wales, Germany is the key

From Minsk to Wales, Germany is the key

Published time: August 28, 2014 09:27
 
Ukraine's President Petro Poroshenko (L), Russia's President Vladimir Putin (top centre R) and Belarus' President Alexander Lukashenko (3rd R from Putin) meet with high-ranking officials and presidents from Kazakhstan and the European Union in Minsk, August 26, 2014.(Reuters / Alexei Druzhinin)

Ukraine’s President Petro Poroshenko (L), Russia’s President Vladimir Putin (top centre R) and Belarus’ President Alexander Lukashenko (3rd R from Putin) meet with high-ranking officials and presidents from Kazakhstan and the European Union in Minsk, August 26, 2014.(Reuters / Alexei Druzhinin)

 
The road to the Minsk summit this past Tuesday began to be paved when German Chancellor Angela Merkel talked to ARD public TV after her brief visit to Kiev on Saturday.

Merkel emphasized, “A solution must be found to the Ukraine crisis that does not hurt Russia.”

She added that “There must be dialogue. There can only be a political solution. There won’t be a military solution to this conflict.”

Merkel talked about “decentralization” of Ukraine, a definitive deal on gas prices, Ukraine-Russia trade, and even hinted Ukraine is free to join the Russia-promoted Eurasian Union (the EU would never make a “huge conflict” out of it). Exit sanctions; enter sound proposals.

She could not have been more explicit; “We [Germany] want to have good trade relations with Russia as well. We want reasonable relations with Russia. We are depending on one another and there are so many other conflicts in the world where we should work together, so I hope we can make progress”.

The short translation for all this is there won’t be a Nulandistan (after neo-con Victoria ‘F**k the EU’Nuland), remote-controlled by Washington, and fully financed by the EU. In the real world, what Germany says, the EU follows.

Geopolitically, this also means a huge setback for Washington’s obsessive containment and encirclement of Russia, proceeding in parallel to the ‘pivot to Asia’ (containment and encirclement of China).

It’s the economy, stupid

Ukraine’s economy – now under disaster capitalism intervention – is… well, a disaster. It’s way beyond recession, now in deep depression. Any forthcoming IMF funds serve to pay outstanding bills and feed the (losing) creaking military machine; Kiev is fighting no less than Ukraine’s industrial heartland. Not to mention that the conditions attached to the IMF’s ‘structural adjustment’ are bleeding Ukrainians dry.

Taxes – and budget cuts – are up. The currency, the hryvnya, has plunged 40 percent since early 2014. The banking system is a joke. The notion that the EU will pay Ukraine’s humongous bills is a myth. Germany (which runs the EU) wants a deal. Fast.

The reason is very simple. Germany is growing only 1.5 percent in 2014. Why? Because the Washington-propelled sanction hysteria is hurting German business. Merkel finally got the message. Or at least seems to have.

The first stage towards a lasting deal is energy. This Friday, there’s a key meeting between Russian and EU energy officials in Moscow. And then, later next week, it will be Russian, EU and Ukrainian officials. The EU’s energy commissioner, Gunther Oettinger, who was in Minsk, wants an interim deal to make sure Russian gas flows through Ukraine to Europe in winter. General Winter, once again, wins any war.

(L-R) Kazakhstan's President Nursultan Nazarbayev, Russia's President Vladimir Putin, Belarus' President Alexander Lukashenko, Ukraine's President Petro Poroshenko, High Representative of the European Union for Foreign Affairs and Security Policy Catherine Ashton, European Commissioner for Energy Guenther Oettinger, European Commissioner for Trade Karel De Gucht pose on the sideline of a summit in Belarus' capital of Minsk on August 26, 2014. (AFP Photo / Kirill Kudryavtsev)

(L-R) Kazakhstan’s President Nursultan Nazarbayev, Russia’s President Vladimir Putin, Belarus’ President Alexander Lukashenko, Ukraine’s President Petro Poroshenko, High Representative of the European Union for Foreign Affairs and Security Policy Catherine Ashton, European Commissioner for Energy Guenther Oettinger, European Commissioner for Trade Karel De Gucht pose on the sideline of a summit in Belarus’ capital of Minsk on August 26, 2014. (AFP Photo / Kirill Kudryavtsev)

Here, essentially, we have the EU – not Russia – telling Ukrainian President Petro Poroshenko to stuff his (losing) ‘strategy’ of slow-motion ethnic cleansing of eastern Ukraine.

Moscow has always insisted the Ukraine crisis is a political problem that needs a political solution. Moscow would accept a decentralization solution considering the interests – and language rights – of people in Donetsk, Lugansk, Odessa, Kharkov. Moscow does not encourage secession.

Poroshenko, on the other hand, is your typical Ukrainian oligarch in a dance of oligarchs. Now that he’s on top, he does not want to become road kill. He might, if he relies on ‘support’ by the neo-Nazis of Right Sector and Svoboda, because then there will never be a political solution.

The Empire of Chaos, needless to say, does not want a political solution – with a neutral Ukraine economically tied to both the EU and Russia; economic/trade integration across Eurasia is anathema.

It’s all about NATO

In parallel, every EU diplomat with a conscience – well, they do exist – knows that the non-stop hysteria about the Russian‘threat’ to Eastern Europe is a Washington-peddled myth designed to boost NATO. Secretary-General Anders ‘Fogh of War’ Rasmussen sounds like a scratched CD.

It’s hardly a secret in Brussels that larger EU powers simply don’t want permanent NATO bases in Eastern Europe. France, Italy and Spain are forcefully against it. Germany is still sitting on the wall, carefully weighing how not to antagonize both Russia and the US. Needless to say, the Anglo-American “special relationship” badly wants the bases, supported by the hysteria unleashed by Poland and the Baltic states – Estonia, Latvia and Lithuania.

So Fogh of War is on a predictable roll, talking “rapid reinforcements”, “reception facilities”, “pre-positioning of supplies, of equipment, preparation of infrastructure, bases, and headquarters” and “a more visible NATO presence.” This graphically proves, once again, that the Empire of Chaos couldn’t give a damn about Ukraine; it’s all about NATO expansion – the key talking point next week at the Wales summit.

The no-holds-barred neoliberal asset-stripping, wild privatization and outright looting of Ukraine, disguised as loans and ‘aid’, is now unstoppable. Yet gobbling up Ukraine’s agriculture and energy potential is not enough for the Empire of Chaos. It wants Crimea back (that future NATO base in Sevastopol…). It wants missile defense deployed in Poland and the Baltics. It would even love regime change in Russia.

And then there’s MH17. If sooner rather than later is proved the Empire of Chaos fooled Europe into counterproductive sanctions based on the flimsiest ‘evidence’, German public opinion will force Merkel to act accordingly.

Germany was the secret behind the Minsk summit. Let’s see if Germany will also be the secret behind the Wales summit. In the end it’s up to Germany to prevent Cold War 2.0 getting hotter by the day all across Europe.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.

Pepe Escobar is the roving correspondent for Asia Times/Hong Kong, an analyst for RT and TomDispatch, and a frequent contributor to websites and radio shows ranging from the US to East Asia.

Fonte: Russia Today

TRNN: The Islamic State, Assad, and the Contradictions Faced by the US in Syria Investigative journalist Patrick Cockburn says the U.S. will need to work with Syria and Iran to defeat ISIS, thereby reversing its policy towards Assad

JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.President Barack Obama has authorized the military to conduct surveillance flights over Syria. With U.S. airstrikes already happening in Iraq against extremist group The Islamic State, these surveillance flights are being seen as a possible prelude to attacks on the Islamic State in Syria. But where the twist comes in is that the Islamic State in Syria is fighting to topple Syrian President Bashar Assad. That has been the very same objective of the U.S. for the past two years. So now that ISIS seems to be the most imminent threat, will the U.S. coordinate with Assad to bring ISIS down? And what role has the U.S. played in creating the rise of this fanatic group to begin with?Now joining us to help answer some of these questions is our guest, Patrick Cockburn. Patrick is an investigative journalist who has been a Middle East correspondent since 1979 for the Financial Timesand presently works for The Independent. He also has a new book out called The Jihadis Return: ISIS and the New Sunni Uprising. And he joins us now from Ireland.Thanks for being with us, Patrick.PATRICK COCKBURN, JOURNALIST, THE INDEPENDENT: Thank you.DESVARIEUX: So, Patrick, there are so many contradictions in this story. Let’s try to work out some of these contradictions. First explain the U.S.’s objectives in Syria. And how did it come to be that they are now fighting the very same forces that they once supported?COCKBURN: Yes. It’s something of a diplomatic disaster. The U.S. supported the opposition to President Bashar al-Assad to weaken and replace him over the last three years. But over the last year and a half, the main opposition has been jihadis, al-Qaeda type organizations, and over the last six months it’s been the Islamic State, ISIS, which the U.S. is fighting in or were helping the Iraqi government and the Kurdish government fight in Iraq. So in one country they’re supporting the government against ISIS, in Iraq, and in Syria they’re doing exactly the opposite, they’re opposing the government, which is fighting ISIS. And I don’t think this contradiction can go on very long. I think soon they’ll have to decide whose side they’re on.DESVARIEUX: Yeah, and that’s a good question, because there are consequences depending on which side they choose, because if they look to topple Assad, that benefits ISIS. If they look to attack ISIS, that helps Assad. So it seems like quite a mess. What would you suggest they do?COCKBURN: Well, there’s no doubt in my mind that the great threat to both these countries is ISIS, which is a very horrible, in many ways fascist organization, very sectarian, kills anybody who doesn’t believe in their particular rigorous brand of Islam. They killed last week a single tribe that opposed them. They killed 700 members. Another 1,500 have disappeared. So these are big-scale massacres. So I think they should oppose ISIS. But they need to do it effectively, which means that they have a parallel policy with the Syrian government, which they’ve been trying to overthrow. I don’t think they’re going to have a U-turn in that policy, because it would be to humiliating. But covertly I think that they’re shifting their ground. They need to prevent Assad’s government falling to ISIS.DESVARIEUX: Yeah. And the drumbeats of war are really getting louder here in the United States, Patrick. I’m going to pull up an example of Secretary of Defense Chuck Hagel. He was recently asked at a press conference about whether ISIL posed a 9/11 threat. Here’s his response.~~~CHUCK HAGEL, U.S. SECRETARY OF DEFENSE: ISIL is as sophisticated and well funded as any group that we have seen. They’re beyond just a terrorist group. They marry ideology, sophistication of strategic and tactical military prowess. They are tremendously well funded. Oh, this is beyond anything that we’ve seen. So we must prepare for everything. And the only way you do that is you take a cold, steely hard look at it and get ready.~~~DESVARIEUX: “Get ready” you just heard Secretary of Defense Chuck Hagel say. So what should we be potentially getting ready for, Patrick? What is the U.S.’s real interest in getting potentially back into Iraq and now Syria? You said something about covert operations. But is it possible that we could even see boots on the ground there?COCKBURN: You know, this means so many different things. You know, at one point it meant a few years ago in Iraq that there were 150,000 American soldiers in Iraq. That was awful lot of boots. I don’t think we’re going to see that again or anything like that. I don’t think we’ll see that in Syria. But will there be American airstrikes in Iraq [incompr.] on a more extensive basis? I think there will. Will the same things happen in Syria? It’s really quite likely, because it’s absurd to combat ISIS in Iraq but not on Syria, because ISIS can then get back over the border. It’s effectively abolished the frontier.And this is a pretty big place now that they rule. ISIS rules an area which is bigger than Britain, bigger than the state of Michigan. It has a population of 6 or 7 million people. So this isn’t something that can be easily contained, and it’s very difficult to eliminate.DESVARIEUX: And, Patrick, at the end of the day, what’s this all about? I mean, whose interest is it, really, to defeat ISIS?COCKBURN: Well, I think that this is a rather extraordinary organization. It combines extreme religious fanaticism with military efficiency. It’s won a lot of victories during the summer, and pretty extraordinary ones. There are 350,000 soldiers in the Iraqi army, or there used to be, and they were attacked by two or three thousand members of ISIS in Mosul, and they disintegrated. This caught everybody by surprise. I mean, everybody, including myself, knew the Iraqi army was pretty bad, very corrupt, but I don’t think we expected it just to disintegrate in a single day’s fighting.In Syria they’re also getting stronger and stronger. It doesn’t get reported much because it’s so dangerous, as we saw with poor James Foley, for any journalists to go there. But they’ve been advancing westwards. They’ve won three or four victories, overrun Syrian army bases in the last few weeks, without anybody paying much attention.So this is an expanding organization which could quite soon rule territory right from the Iranian border to the Mediterranean.DESVARIEUX: So is it fair to say, I mean, Iran has a vested interest too to defeat ISIS?COCKBURN: It certainly does. I mean, in Iraq, there’s a rather extraordinary combination of people who previously were confronting each other and certainly didn’t like each other, like the U.S. and Iran, various factions in Kurdistan, various politicians in Baghdad, Saudi Arabia, Turkey. All these people have been brought together by a single factor, which is fear, fear of ISIS. It’s a very frightening organization. And all these countries, I think, are now rather frightened by what they see.DESVARIEUX: So, Patrick, in your book you speak of what could be done to end all of this. You write, quote,

“Given that the insurgency is not dominated by ISIS, JN, and all other al-Qaeda type groups, it is unlikely that even Washington, London, or Riyadh now want to see Assad fall. But allowing Assad to win would be seen as a defeat for the West and their Arab and Turkish allies.”

So what are your predictions here? How do you see this all being resolved?COCKBURN: I think it’s difficult to predict, because it depends on some very important decisions in Washington and elsewhere about where they stand. They are responsible for quite a lot of what has happened. In Iraq we had al-Qaeda in Iraq, which had become a force after the U.S. invasion of 2003. This had been reduced in strength by the U.S. and the Iraqi government about seven or eight years ago. But as Iraq was becoming more peaceful, uprisings started in Syria in 2011, which were backed by the U.S. and its allies. And that led to war in Syria, to the civil war in Iraq starting again. And it was in this crucible that ISIS moved from being a quite small, marginal organization to being an extremely powerful one. It was really the result of miscalculations about the long-term outcome of the war in Syria that led to ISIS’s present victories and the creation of their caliphate.DESVARIEUX: The Independent quoted Prime Minister David Cameron as saying that cooperation with Iran will be necessary to deal with ISIS. Do you agree?COCKBURN: Yes. I mean, it’s a strange situation, because the Iranians are very frightened by what’s happening, because ISIS used to be an organization they were fighting is Syria and Damascus, a long way away. Now ISIS is taking towns that are 20 miles from the Iranian border. So they want to defeat it. So they have a parallel policy with the U.S.But it’s difficult, certainly, for the U.S. to then have a U-turn and say, the Iranians that we used to demonize, that we said were our great enemy in the Middle East, now suddenly they’re our pals, they’re our friends. Similarly with Damascus. So I think it’s difficult for them to make a U-turn, though it’s necessary for them to do so and do so pretty quickly, without being humiliated. And so a lot of what they do they may try to do covertly.

August 27, 14

Fonte: The Real News Network

40 Central Banks Are Betting This Will Be The Next Reserve Currency

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As we have discussed numerous times, nothing lasts forever – especially reserve currencies – no matter how much one hopes that the status-quo remains so, in the end the exuberant previlege is extorted just one too many times. Headline after headlines shows nations declaring ‘interest’ or direct discussions in diversifying away from the US dollar… and as SCMP reports, Standard Chartered notes that at least 40 central banks have invested in the Yuan and several more are preparing to do so. The trend is occurring across both emerging markets and developed nation central banks diversifiying into ‘other currencies’ and “a great number of central banks are in the process of adding yuan to their portfolios.” Perhaps most ominously, for king dollar, is the former-IMF manager’s warning that “The Yuan may become a de facto reserve currency before it is fully convertible.”

The infamous chart that shows nothing lasts forever…

Nothing lasts forever… (especially in light of China’s recent comments)

 

As The South China Morning Post reports, Jukka Pihlman, Standard Chartered’s Singapore-based global head of central banks and sovereign wealth funds (who formerly worked at the International Monetary Fund advising central banks on asset-management issues), notes that:

 
 

At least 40 central banks have invested in the yuan and several others are preparing to do so, putting the mainland currency on the path to reserve status even before full convertibility

The US dollar remains in charge (for now)…but

 
 

The US dollar is still the world’s most widely held reserve currency, accounting for nearly 33 per cent of global foreign exchange holdings at the end of last year, according to IMF data. That ratio has been declining since 2000, when 55 per cent of the world’s reserves were denominated in US dollars.

 

The IMF does not disclose the percentage of reserves held in yuan, but the emerging market countries’ share of reserves in “other currencies” has increased by almost 400 per cent since 2003, while that of developed nations grew 200 per cent, according to IMF data.

As SCMP goes on to note, the rising popularity of the yuan among central bankers is probably mainly due to Beijing’s extremely favourable treatment of them as it has sought to encourage investment in the yuan.

 
 

For example, central banks enjoy preferential treatment in the qualified foreign institutional investor category, both on the size of the quota and the length of the lock-up period. The QFII quotas given to central banks are not publicly known, but some of those announced by investing central banks are up to 10 times larger than others in the programme and, most importantly, free of any capital controls.

 

“Central banks and sovereign funds have special treatment,” Pihlman said. “They have the ability to invest in a way that any other investor does not have. When it comes to convertibility, there is nothing formally out there, but it is fully convertible.”

As Pihlman explains, things are accelerating…

 
 

Pihlman said “a great number of central banks are in the process of adding [yuan] to their portfolios”.

 

The [yuan] has effectively already become a de facto reserve currency because so many central banks have already invested in it,” he said. “The [yuan] may become a de facto reserve currency before it is fully convertible.”

 

The central banks more likely to add yuan holdings in the future were the ones with “strong trade linkages to China” and those which had relatively large levels of reserves which could consider diversifying more for return-related reasons, he said.

 

The [yuan's] convertibility may be already there for central banks in a way that has got them comfortable to start investing in the currency,” Pihlman said.

We leave it to a former World Bank chief economist, Justin Yifu Lin, to sum it all up…

 
 

“the dominance of the greenback is the root cause of global financial and economic crises,”

It appears the world is beginning to listen

 Fonte: Zero Hedge

Foreign Affairs: Mearsheimer “Why the Ukraine Crisis Is the West’s Fault. The Liberal Delusions That Provoked Putin”

nato-map

Foreign Affairs 

Why the Ukraine Crisis Is the West’s Fault

The Liberal Delusions That Provoked Putin

By John J. Mearsheimer

According to the prevailing wisdom in the West, the Ukraine crisis can be blamed almost entirely on Russian aggression. Russian President Vladimir Putin, the argument goes, annexed Crimea out of a long-standing desire to resuscitate the Soviet empire, and he may eventually go after the rest of Ukraine, as well as other countries in eastern Europe. In this view, the ouster of Ukrainian President Viktor Yanukovych in February 2014 merely provided a pretext for Putin’s decision to order Russian forces to seize part of Ukraine.

But this account is wrong: the United States and its European allies share most of the responsibility for the crisis. The taproot of the trouble is NATO enlargement, the central element of a larger strategy to move Ukraine out of Russia’s orbit and integrate it into the West. At the same time, the EU’s expansion eastward and the West’s backing of the pro-democracy movement in Ukraine — beginning with the Orange Revolution in 2004 — were critical elements, too. Since the mid-1990s, Russian leaders have adamantly opposed NATO enlargement, and in recent years, they have made it clear that they would not stand by while their strategically important neighbor turned into a Western bastion. For Putin, the illegal overthrow of Ukraine’s democratically elected and pro-Russian president — which he rightly labeled a “coup” — was the final straw. He responded by taking Crimea, a peninsula he feared would host a NATO naval base, and working to destabilize Ukraine until it abandoned its efforts to join the West. 

Putin’s pushback should have come as no surprise. After all, the West had been moving into Russia’s backyard and threatening its core strategic interests, a point Putin made emphatically and repeatedly. Elites in the United States and Europe have been blindsided by events only because they subscribe to a flawed view of international politics. They tend to believe that the logic of realism holds little relevance in the twenty-first century and that Europe can be kept whole and free on the basis of such liberal principles as the rule of law, economic interdependence, and democracy.

But this grand scheme went awry in Ukraine. The crisis there shows that realpolitik remains relevant — and states that ignore it do so at their own peril. U.S. and European leaders blundered in attempting to turn Ukraine into a Western stronghold on Russia’s border. Now that the consequences have been laid bare, it would be an even greater mistake to continue this misbegotten policy.

U.S. and European leaders blundered in attempting to turn Ukraine into a Western stronghold on Russia’s border.

putin obama

THE WESTERN AFFRONT

As the Cold War came to a close, Soviet leaders preferred that U.S. forces remain in Europe and NATO stay intact, an arrangement they thought would keep a reunified Germany pacified. But they and their Russian successors did not want NATO to grow any larger and assumed that Western diplomats understood their concerns. The Clinton administration evidently thought otherwise, and in the mid-1990s, it began pushing for NATO to expand.

The first round of enlargement took place in 1999 and brought in the Czech Republic, Hungary, and Poland. The second occurred in 2004; it included Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, and Slovenia. Moscow complained bitterly from the start. During NATO’s 1995 bombing campaign against the Bosnian Serbs, for example, Russian President Boris Yeltsin said, “This is the first sign of what could happen when NATO comes right up to the Russian Federation’s borders. … The flame of war could burst out across the whole of Europe.” But the Russians were too weak at the time to derail NATO’s eastward movement — which, at any rate, did not look so threatening, since none of the new members shared a border with Russia, save for the tiny Baltic countries.

Then NATO began looking further east. At its April 2008 summit in Bucharest, the alliance considered admitting Georgia and Ukraine. The George W. Bush administration supported doing so, but France and Germany opposed the move for fear that it would unduly antagonize Russia. In the end, NATO’s members reached a compromise: the alliance did not begin the formal process leading to membership, but it issued a statement endorsing the aspirations of Georgia and Ukraine and boldly declaring, “These countries will become members of NATO.” 

Moscow, however, did not see the outcome as much of a compromise. Alexander Grushko, then Russia’s deputy foreign minister, said, “Georgia’s and Ukraine’s membership in the alliance is a huge strategic mistake which would have most serious consequences for pan-European security.” Putin maintained that admitting those two countries to NATO would represent a “direct threat” to Russia. One Russian newspaper reported that Putin, while speaking with Bush, “very transparently hinted that if Ukraine was accepted into NATO, it would cease to exist.”

Russia’s invasion of Georgia in August 2008 should have dispelled any remaining doubts about Putin’s determination to prevent Georgia and Ukraine from joining NATO. Georgian President Mikheil Saakashvili, who was deeply committed to bringing his country into NATO, had decided in the summer of 2008 to reincorporate two separatist regions, Abkhazia and South Ossetia. But Putin sought to keep Georgia weak and divided — and out of NATO. After fighting broke out between the Georgian government and South Ossetian separatists, Russian forces took control of Abkhazia and South Ossetia. Moscow had made its point. Yet despite this clear warning, NATO never publicly abandoned its goal of bringing Georgia and Ukraine into the alliance. And NATO expansion continued marching forward, with Albania and Croatia becoming members in 2009.

The EU, too, has been marching eastward. In May 2008, it unveiled its Eastern Partnership initiative, a program to foster prosperity in such countries as Ukraine and integrate them into the EU economy. Not surprisingly, Russian leaders view the plan as hostile to their country’s interests. This past February, before Yanukovych was forced from office, Russian Foreign Minister Sergey Lavrov accused the EU of trying to create a “sphere of influence” in eastern Europe. In the eyes of Russian leaders, EU expansion is a stalking horse for NATO expansion. 

The West’s final tool for peeling Kiev away from Moscow has been its efforts to spread Western values and promote democracy in Ukraine and other post-Soviet states, a plan that often entails funding pro-Western individuals and organizations. Victoria Nuland, the U.S. assistant secretary of state for European and Eurasian affairs, estimated in December 2013 that the United States had invested more than $5 billion since 1991 to help Ukraine achieve “the future it deserves.” As part of that effort, the U.S. government has bankrolled the National Endowment for Democracy. The nonprofit foundation has funded more than 60 projects aimed at promoting civil society in Ukraine, and the NED’s president, Carl Gershman, has called that country “the biggest prize.” After Yanukovych won Ukraine’s presidential election in February 2010, the NED decided he was undermining its goals, and so it stepped up its efforts to support the opposition and strengthen the country’s democratic institutions.

When Russian leaders look at Western social engineering in Ukraine, they worry that their country might be next. And such fears are hardly groundless. In September 2013, Gershman wrote in The Washington Post, “Ukraine’s choice to join Europe will accelerate the demise of the ideology of Russian imperialism that Putin represents.” He added: “Russians, too, face a choice, and Putin may find himself on the losing end not just in the near abroad but within Russia itself.”

 

CREATING A CRISIS

Imagine the American outrage if China built an impressive military alliance and tried to include Canada and Mexico.

The West’s triple package of policies — NATO enlargement, EU expansion, and democracy promotion — added fuel to a fire waiting to ignite. The spark came in November 2013, when Yanukovych rejected a major economic deal he had been negotiating with the EU and decided to accept a $15 billion Russian counteroffer instead. That decision gave rise to antigovernment demonstrations that escalated over the following three months and that by mid-February had led to the deaths of some one hundred protesters. Western emissaries hurriedly flew to Kiev to resolve the crisis. On February 21, the government and the opposition struck a deal that allowed Yanukovych to stay in power until new elections were held. But it immediately fell apart, and Yanukovych fled to Russia the next day. The new government in Kiev was pro-Western and anti-Russian to the core, and it contained four high-ranking members who could legitimately be labeled neofascists. 

Although the full extent of U.S. involvement has not yet come to light, it is clear that Washington backed the coup. Nuland and Republican Senator John McCain participated in antigovernment demonstrations, and Geoffrey Pyatt, the U.S. ambassador to Ukraine, proclaimed after Yanukovych’s toppling that it was “a day for the history books.” As a leaked telephone recording revealed, Nuland had advocated regime change and wanted the Ukrainian politician Arseniy Yatsenyuk to become prime minister in the new government, which he did. No wonder Russians of all persuasions think the West played a role in Yanukovych’s ouster.

For Putin, the time to act against Ukraine and the West had arrived. Shortly after February 22, he ordered Russian forces to take Crimea from Ukraine, and soon after that, he incorporated it into Russia. The task proved relatively easy, thanks to the thousands of Russian troops already stationed at a naval base in the Crimean port of Sevastopol. Crimea also made for an easy target since ethnic Russians compose roughly 60 percent of its population. Most of them wanted out of Ukraine. 

Next, Putin put massive pressure on the new government in Kiev to discourage it from siding with the West against Moscow, making it clear that he would wreck Ukraine as a functioning state before he would allow it to become a Western stronghold on Russia’s doorstep. Toward that end, he has provided advisers, arms, and diplomatic support to the Russian separatists in eastern Ukraine, who are pushing the country toward civil war. He has massed a large army on the Ukrainian border, threatening to invade if the government cracks down on the rebels. And he has sharply raised the price of the natural gas Russia sells to Ukraine and demanded payment for past exports. Putin is playing hardball.

THE DIAGNOSIS

Putin’s actions should be easy to comprehend. A huge expanse of flat land that Napoleonic France, imperial Germany, and Nazi Germany all crossed to strike at Russia itself, Ukraine serves as a buffer state of enormous strategic importance to Russia. No Russian leader would tolerate a military alliance that was Moscow’s mortal enemy until recently moving into Ukraine. Nor would any Russian leader stand idly by while the West helped install a government there that was determined to integrate Ukraine into the West. 

Washington may not like Moscow’s position, but it should understand the logic behind it. This is Geopolitics 101: great powers are always sensitive to potential threats near their home territory. After all, the United States does not tolerate distant great powers deploying military forces anywhere in the Western Hemisphere, much less on its borders. Imagine the outrage in Washington if China built an impressive military alliance and tried to include Canada and Mexico in it. Logic aside, Russian leaders have told their Western counterparts on many occasions that they consider NATO expansion into Georgia and Ukraine unacceptable, along with any effort to turn those countries against Russia — a message that the 2008 Russian-Georgian war also made crystal clear.

Officials from the United States and its European allies contend that they tried hard to assuage Russian fears and that Moscow should understand that NATO has no designs on Russia. In addition to continually denying that its expansion was aimed at containing Russia, the alliance has never permanently deployed military forces in its new member states. In 2002, it even created a body called the NATO-Russia Council in an effort to foster cooperation. To further mollify Russia, the United States announced in 2009 that it would deploy its new missile defense system on warships in European waters, at least initially, rather than on Czech or Polish territory. But none of these measures worked; the Russians remained steadfastly opposed to NATO enlargement, especially into Georgia and Ukraine. And it is the Russians, not the West, who ultimately get to decide what counts as a threat to them.

To understand why the West, especially the United States, failed to understand that its Ukraine policy was laying the groundwork for a major clash with Russia, one must go back to the mid-1990s, when the Clinton administration began advocating NATO expansion. Pundits advanced a variety of arguments for and against enlargement, but there was no consensus on what to do. Most eastern European émigrés in the United States and their relatives, for example, strongly supported expansion, because they wanted NATO to protect such countries as Hungary and Poland. A few realists also favored the policy because they thought Russia still needed to be contained. 

But most realists opposed expansion, in the belief that a declining great power with an aging population and a one-dimensional economy did not in fact need to be contained. And they feared that enlargement would only give Moscow an incentive to cause trouble in eastern Europe. The U.S. diplomat George Kennan articulated this perspective in a 1998 interview, shortly after the U.S. Senate approved the first round of NATO expansion. “I think the Russians will gradually react quite adversely and it will affect their policies,” he said. “I think it is a tragic mistake. There was no reason for this whatsoever. No one was threatening anyone else.”

The United States and its allies should abandon their plan to westernize Ukraine and instead aim to make it a neutral buffer.

Most liberals, on the other hand, favored enlargement, including many key members of the Clinton administration. They believed that the end of the Cold War had fundamentally transformed international politics and that a new, postnational order had replaced the realist logic that used to govern Europe. The United States was not only the “indispensable nation,” as Secretary of State Madeleine Albright put it; it was also a benign hegemon and thus unlikely to be viewed as a threat in Moscow. The aim, in essence, was to make the entire continent look like western Europe.

And so the United States and its allies sought to promote democracy in the countries of eastern Europe, increase economic interdependence among them, and embed them in international institutions. Having won the debate in the United States, liberals had little difficulty convincing their European allies to support NATO enlargement. After all, given the EU’s past achievements, Europeans were even more wedded than Americans to the idea that geopolitics no longer mattered and that an all-inclusive liberal order could maintain peace in Europe. 

So thoroughly did liberals come to dominate the discourse about European security during the first decade of this century that even as the alliance adopted an open-door policy of growth, NATO expansion faced little realist opposition. The liberal worldview is now accepted dogma among U.S. officials. In March, for example, President Barack Obama delivered a speech about Ukraine in which he talked repeatedly about “the ideals” that motivate Western policy and how those ideals “have often been threatened by an older, more traditional view of power.” Secretary of State John Kerry’s response to the Crimea crisis reflected this same perspective: “You just don’t in the twenty-first century behave in nineteenth-century fashion by invading another country on completely trumped-up pretext.”

In essence, the two sides have been operating with different playbooks: Putin and his compatriots have been thinking and acting according to realist dictates, whereas their Western counterparts have been adhering to liberal ideas about international politics. The result is that the United States and its allies unknowingly provoked a major crisis over Ukraine. 

BLAME GAME

In that same 1998 interview, Kennan predicted that NATO expansion would provoke a crisis, after which the proponents of expansion would “say that we always told you that is how the Russians are.” As if on cue, most Western officials have portrayed Putin as the real culprit in the Ukraine predicament. In March, according to The New York Times, German Chancellor Angela Merkel implied that Putin was irrational, telling Obama that he was “in another world.” Although Putin no doubt has autocratic tendencies, no evidence supports the charge that he is mentally unbalanced. On the contrary: he is a first-class strategist who should be feared and respected by anyone challenging him on foreign policy. 

Other analysts allege, more plausibly, that Putin regrets the demise of the Soviet Union and is determined to reverse it by expanding Russia’s borders. According to this interpretation, Putin, having taken Crimea, is now testing the waters to see if the time is right to conquer Ukraine, or at least its eastern part, and he will eventually behave aggressively toward other countries in Russia’s neighborhood. For some in this camp, Putin represents a modern-day Adolf Hitler, and striking any kind of deal with him would repeat the mistake of Munich. Thus, NATO must admit Georgia and Ukraine to contain Russia before it dominates its neighbors and threatens western Europe. 

This argument falls apart on close inspection. If Putin were committed to creating a greater Russia, signs of his intentions would almost certainly have arisen before February 22. But there is virtually no evidence that he was bent on taking Crimea, much less any other territory in Ukraine, before that date. Even Western leaders who supported NATO expansion were not doing so out of a fear that Russia was about to use military force. Putin’s actions in Crimea took them by complete surprise and appear to have been a spontaneous reaction to Yanukovych’s ouster. Right afterward, even Putin said he opposed Crimean secession, before quickly changing his mind. 

Besides, even if it wanted to, Russia lacks the capability to easily conquer and annex eastern Ukraine, much less the entire country. Roughly 15 million people — one-third of Ukraine’s population — live between the Dnieper River, which bisects the country, and the Russian border. An overwhelming majority of those people want to remain part of Ukraine and would surely resist a Russian occupation. Furthermore, Russia’s mediocre army, which shows few signs of turning into a modern Wehrmacht, would have little chance of pacifying all of Ukraine. Moscow is also poorly positioned to pay for a costly occupation; its weak economy would suffer even more in the face of the resulting sanctions.

But even if Russia did boast a powerful military machine and an impressive economy, it would still probably prove unable to successfully occupy Ukraine. One need only consider the Soviet and U.S. experiences in Afghanistan, the U.S. experiences in Vietnam and Iraq, and the Russian experience in Chechnya to be reminded that military occupations usually end badly. Putin surely understands that trying to subdue Ukraine would be like swallowing a porcupine. His response to events there has been defensive, not offensive.

A WAY OUT

Given that most Western leaders continue to deny that Putin’s behavior might be motivated by legitimate security concerns, it is unsurprising that they have tried to modify it by doubling down on their existing policies and have punished Russia to deter further aggression. Although Kerry has maintained that “all options are on the table,” neither the United States nor its NATO allies are prepared to use force to defend Ukraine. The West is relying instead on economic sanctions to coerce Russia into ending its support for the insurrection in eastern Ukraine. In July, the United States and the EU put in place their third round of limited sanctions, targeting mainly high-level individuals closely tied to the Russian government and some high-profile banks, energy companies, and defense firms. They also threatened to unleash another, tougher round of sanctions, aimed at whole sectors of the Russian economy. 

Such measures will have little effect. Harsh sanctions are likely off the table anyway; western European countries, especially Germany, have resisted imposing them for fear that Russia might retaliate and cause serious economic damage within the EU. But even if the United States could convince its allies to enact tough measures, Putin would probably not alter his decision-making. History shows that countries will absorb enormous amounts of punishment in order to protect their core strategic interests. There is no reason to think Russia represents an exception to this rule.

Western leaders have also clung to the provocative policies that precipitated the crisis in the first place. In April, U.S. Vice President Joseph Biden met with Ukrainian legislators and told them, “This is a second opportunity to make good on the original promise made by the Orange Revolution.” John Brennan, the director of the CIA, did not help things when, that same month, he visited Kiev on a trip the White House said was aimed at improving security cooperation with the Ukrainian government.

The EU, meanwhile, has continued to push its Eastern Partnership. In March, José Manuel Barroso, the president of the European Commission, summarized EU thinking on Ukraine, saying, “We have a debt, a duty of solidarity with that country, and we will work to have them as close as possible to us.” And sure enough, on June 27, the EU and Ukraine signed the economic agreement that Yanukovych had fatefully rejected seven months earlier. Also in June, at a meeting of NATO members’ foreign ministers, it was agreed that the alliance would remain open to new members, although the foreign ministers refrained from mentioning Ukraine by name. “No third country has a veto over NATO enlargement,” announced Anders Fogh Rasmussen, NATO’s secretary-general. The foreign ministers also agreed to support various measures to improve Ukraine’s military capabilities in such areas as command and control, logistics, and cyberdefense. Russian leaders have naturally recoiled at these actions; the West’s response to the crisis will only make a bad situation worse. 

There is a solution to the crisis in Ukraine, however — although it would require the West to think about the country in a fundamentally new way. The United States and its allies should abandon their plan to westernize Ukraine and instead aim to make it a neutral buffer between NATO and Russia, akin to Austria’s position during the Cold War. Western leaders should acknowledge that Ukraine matters so much to Putin that they cannot support an anti-Russian regime there. This would not mean that a future Ukrainian government would have to be pro-Russian or anti-NATO. On the contrary, the goal should be a sovereign Ukraine that falls in neither the Russian nor the Western camp.

To achieve this end, the United States and its allies should publicly rule out NATO’s expansion into both Georgia and Ukraine. The West should also help fashion an economic rescue plan for Ukraine funded jointly by the EU, the International Monetary Fund, Russia, and the United States — a proposal that Moscow should welcome, given its interest in having a prosperous and stable Ukraine on its western flank. And the West should considerably limit its social-engineering efforts inside Ukraine. It is time to put an end to Western support for another Orange Revolution. Nevertheless, U.S. and European leaders should encourage Ukraine to respect minority rights, especially the language rights of its Russian speakers. 

Some may argue that changing policy toward Ukraine at this late date would seriously damage U.S. credibility around the world. There would undoubtedly be certain costs, but the costs of continuing a misguided strategy would be much greater. Furthermore, other countries are likely to respect a state that learns from its mistakes and ultimately devises a policy that deals effectively with the problem at hand. That option is clearly open to the United States.

One also hears the claim that Ukraine has the right to determine whom it wants to ally with and the Russians have no right to prevent Kiev from joining the West. This is a dangerous way for Ukraine to think about its foreign policy choices. The sad truth is that might often makes right when great-power politics are at play. Abstract rights such as self-determination are largely meaningless when powerful states get into brawls with weaker states. Did Cuba have the right to form a military alliance with the Soviet Union during the Cold War? The United States certainly did not think so, and the Russians think the same way about Ukraine joining the West. It is in Ukraine’s interest to understand these facts of life and tread carefully when dealing with its more powerful neighbor.

Even if one rejects this analysis, however, and believes that Ukraine has the right to petition to join the EU and NATO, the fact remains that the United States and its European allies have the right to reject these requests. There is no reason that the West has to accommodate Ukraine if it is bent on pursuing a wrong-headed foreign policy, especially if its defense is not a vital interest. Indulging the dreams of some Ukrainians is not worth the animosity and strife it will cause, especially for the Ukrainian people. 

Of course, some analysts might concede that NATO handled relations with Ukraine poorly and yet still maintain that Russia constitutes an enemy that will only grow more formidable over time — and that the West therefore has no choice but to continue its present policy. But this viewpoint is badly mistaken. Russia is a declining power, and it will only get weaker with time. Even if Russia were a rising power, moreover, it would still make no sense to incorporate Ukraine into NATO. The reason is simple: the United States and its European allies do not consider Ukraine to be a core strategic interest, as their unwillingness to use military force to come to its aid has proved. It would therefore be the height of folly to create a new NATO member that the other members have no intention of defending. NATO has expanded in the past because liberals assumed the alliance would never have to honor its new security guarantees, but Russia’s recent power play shows that granting Ukraine NATO membership could put Russia and the West on a collision course.

Sticking with the current policy would also complicate Western relations with Moscow on other issues. The United States needs Russia’s assistance to withdraw U.S. equipment from Afghanistan through Russian territory, reach a nuclear agreement with Iran, and stabilize the situation in Syria. In fact, Moscow has helped Washington on all three of these issues in the past; in the summer of 2013, it was Putin who pulled Obama’s chestnuts out of the fire by forging the deal under which Syria agreed to relinquish its chemical weapons, thereby avoiding the U.S. military strike that Obama had threatened. The United States will also someday need Russia’s help containing a rising China. Current U.S. policy, however, is only driving Moscow and Beijing closer together. 

The United States and its European allies now face a choice on Ukraine. They can continue their current policy, which will exacerbate hostilities with Russia and devastate Ukraine in the process — a scenario in which everyone would come out a loser. Or they can switch gears and work to create a prosperous but neutral Ukraine, one that does not threaten Russia and allows the West to repair its relations with Moscow. With that approach, all sides would win.

Fonte: Foreign Affairs

] http://www.foreignaffairs.com/articles/141769/john-j-mearsheimer/why-the-ukraine-crisis-is-the-wests-fault

 

US Courts Defend Rights of Vulture Funds Over Argentina

 

Michael Hudson and James Henry discuss an approaching July 30 deadline that could see Argentina put in a partial default by American banks and courts -   July 23, 14

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay.

The U.S. Supreme Court’s refusal to review a case in which vulture funds sued to make the Argentinian government pay them 100 percent of the value of bonds, which they purchased for a fraction of the face value, let stand a lower court ruling requiring the bonds be paid in full. Reuters reports that Aurelius Capital Management, one of the lead holdout creditors seeking to settle with Argentina over sovereign debt payments from its 2002 default, said on Monday the government faces a new crisis on July 30 unless it engages in serious negotiations. Argentine officials and the holdout investors met separately, with a court-appointed mediator on Friday emerging from his offices after five hours of discussions with no resolution and no further talks scheduled. Both sides have ramped up the rhetoric to explain why they are, on one level, equal to eager to negotiate and, on another, at pains to show why the other side is not engaging. Quote:

“‘Absent a deal, Argentina’s next sovereign debt crisis will start on July 30. There is still time to avoid that outcome, but only if the Argentine government commences serious discussions with us immediately,’ Aurelius said in a statement.

“The firm said that together with other holdout creditors, it has offered to meet with the government anytime, anywhere, but has been rebuffed.

‘Argentine officials refuse to meet with us or even negotiate with us directly. Sadly, this approach gambles with the livelihoods and futures of the Argentine people.’

“In 2012, U.S. District Judge Thomas Griesa in New York awarded the holdouts $1.33 billion plus accrued interest in a case based upon the pari passu, or equal treatment, clause used to sell the bonds originally in 1994.

“Without a deal, Latin America’s No. 3 economy risks tumbling into a new default on July 30″.

Now joining us to talk about all of this first of all in Buenos Aires in Argentina is James Henry. James is a leading economist, attorney, investigative journalist. He’s written extensively about global issues. He served as chief economist at the international consultancy firm McKinsey & Company.

And also joining us from New York is Michael Hudson. He is a distinguished research professor of economics at the University of Missouri-Kansas City. His upcoming book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

Thank you both for joining us.

MICHAEL HUDSON, ECONOMICS PROF., UMKC: Good to be here.

JAMES S. HENRY, SENIOR ECONOMIST, TAX JUSTICE NETWORK: You’re very welcome.

JAY: So, Michael, don’t you feel better about the whole debt crisis, knowing that Aurelius is so concerned about the fate of the Argentine people?

HUDSON: Well, this has really divided the world into two halves. The ruling that’s under judge Griesa’s judgment today basically prevents not only Argentina but any country that’s issued bonds in the New York market from ever writing down or renegotiating the debt. Seventy percent of the sovereign bonds of governments throughout the world are issued in New York (about 22 percent are in London). And for those 70 percent, you’re going to have countries like Greece and others, Latin America in the 1980s, that have to write down the debts. If you don’t write down the debts to something that can reasonably be paid, they’re going to have to end up looking like Ireland or Greece. They’re going to be imposing a decade of austerity on themselves. And no country is going to commit financial suicide. So Judge Griesa has apparently told the Argentines, come to New York to negotiate under the rules that I’ve said, which are different from all the other countries’ rules. And there is no possible way that Argentina can obey his orders without essentially committing suicide for the economy.

JAY: Right. Okay. James, let me see if I just have the basic fact base correct. On July 30, Argentina was supposed to pay interest payments to the 90 percent of bondholders that agreed to the restructured debt, which I think was something like about $0.30 on the dollar. But about 10 percent of the bondholders refused to restructure. These vulture funds then bought these bonds at a fraction of the face value, but then sued to get paid the entire amount. And the judge has actually said they should get the entire amount. Now, on July 30, the judge says they can’t make their payments to the restructured bondholders until they pay off this $1.8 billion or something to the vulture funds. Is that–do I have it right?

HENRY: Yeah. Essentially, the vulture funds like Elliott, which is a Cayman Island-based fund, in 2008 they bought whatever Argentine bonds, restructured bonds they own or $48 million. And today they’re claiming not only the $1.3 billion that Griesa awarded them, but, beyond that, interest that’s accumulated since then. So the total for Elliott and the immediate parties, holdouts, is something like $1.65 billion–quite a profit compared with the $48 million they invested five years ago.

In addition to that, Argentina has another $15 billion of holdouts that it believes would come in if this kind of behavior holds up. And those people are already beginning to file suit.

On the other hand, since they have on the order of $140 billion of debt that they have restructured, including $80 billion that was restructured 2005 and 2010 at a 40 percent discount, if they have to now go back and put themselves back in essentially deeply in debt to pay these vultures, it just stands on the head.

Basically, we have no mechanism for handling country debt the way we do for private sector bankruptcy. And the IMF tried to suggest a system back in the early 2000s. The world just didn’t go for it. As a result, we have this cockamamie system where a New York judge is making rulings based on sort of 19th century concepts of contract law. And he only has jurisdiction in this case because Argentina is one of four Latin American countries–unlike Brazil–that has decided to choose the Southern District of New York, one of the Wall Street safe havens in terms of the federal judiciary, as the location for ruling on all of these cases with respect to Argentine foreign debt.

It has a history of ruling against debtor countries. It’s totally repealed the doctrine of champerty, which is a doctrine of the law that says that you can’t go out and buy somebody’s debts up and then just take them to court and sue just because you’ve become a creditor. But the judges in the Southern District of New York tossed that out in the late ’90s. And this is one of a series of vulture cases where companies like Elliott have been going around the world, countries like Panama and Nicaragua and Peru, and basically leveraging the fact that they have friendly judges in the Southern District of New York like Judge Griesa.

JAY: James, do we know how much interest these bonds–in ’94 when they were first issued, how much interest they were paying?

HENRY: Well, the bonds have paid variable interest depending on the time of the year. In 2001 they got up to 15 percent interest.

But if you go back to the sordid history of the Argentine debt, that’s the other thing that’s really quite disturbing here. As of 1976, Argentina had a total foreign debt of $18 million, 17 percent of GDP. The military came in in ’76 with U.S. government support, established a junta. By 1983, the debt had soared to $48 billion–by a factor of seven. And no one has ever audited that debt. There’s–and, interestingly, there’s a U.S. legal doctrine called odious debt which says that if you have a debt that’s contracted by a military dictatorship, it doesn’t necessarily have to be honored. We invoked it with respect to Cuba in 1898. It had acquired a lot of loans from Spain, and nobody could account for where they were. But this odious debt doctrine had never been applied to Argentina.

Interestingly, the other thing is that this choice of jurisdiction was originally chosen by this military junta back in 1976. Martínez de Hoz, the finance minister at that point in time, a very conservative guy, decided that Argentina would waive its sovereign immunity for purposes of all this debt that it was beginning to accumulate and allow the United States and the Southern District of New York to be the [siphus (?)] for all of these cases. So those two very fundamental changes made by, essentially, a military government, first of all blowing up the debt out of proportion, and then relocating the judiciary outside of Argentina, is very important for what we’re seeing all the way forward to 2014.

JAY: Right. Michael, it seems to me a little ironic or something. You know, you pay, you earn 10, 12, 15 percent. I mean, the reason you’re earning those kinds of money on government bonds is ’cause you’re acknowledging risk. If there’s no, ever, a risk of default, then why should you be paying? You could /ˈpeɪbi/ inflation, but not any more. So, I mean, the judge is saying there should be bonds that can pay high rates of interest, but there should be no risk.

HUDSON: That’s–there should not be any suffering as a result of risk. In other words, anybody can buy a discounted bond, and you have Third World countries always paying a premium over what the United States government has to pay, just like you have companies paying high for junk bonds. Essentially, Argentina was like a junk-bond country.

The history that was just said is very important. You had the U.S.-backed military dictatorship that ran the debt up into 1983, but then, in 1989, you had another neoliberal takeover with the Washington Consensus, and they adopted the U.S. dollar as their basic monetary reserves and tied their money supply to the dollar. That essentially drove the country into debt because it brought on an economic collapse by 2002. That’s why the government was voted out and why the Kirchners came in. So you have a destructive neoliberal government coming in, driving the country into debt, ’cause that’s what neoliberals do.

And then, 2002 (and it was just mentioned), the IMF said, look, we’re going to need something like the Bank for International Settlements was set out to do in 1929, to settle German reparations (obviously, Germany couldn’t pay the reparations that it had to). We have to have some international forum to decide how much a country can pay without imposing austerity and depression on its population, ’cause every country’s sovereign. That’s why they call it sovereign debt.

Well, the United States at that time, in 2002, blocked this and said, wait a minute, other countries want an international forum, but we’re going to block the IMF from doing that, because if they do that, they’ll write down the debt, and most of the bondholders are Wall Street, and we want to get every penny these guys want, and we don’t want.

Well, ironically, after Judge Griesa’s ruling threatened to throw the whole international bond issue into anarchy, the U.S. Treasury and the government and the French government and the IMF all filed amicus brief cases with the Supreme Court, saying, if you follow Judge Griesa’s ruling, it’s so wrong it treats Argentina as if it’s a family restaurant that’s just gone broke, and now let’s carve up all the little pieces and pay off. If you treat countries like you’d treat a family restaurant, then no country is going to ever again say, we’re going to agree, if there is a dispute, to settle the rules under the laws of New York, because if you settle the laws under New York bankruptcy, you’re going to have a nutcase like Judge Griesa saying, I don’t like Argentina, Argentina doesn’t pay its debts, I’m going to make it pay all the 100 percent money it owes as if there were no risk, and all of the interest, the 15 percent, you said, compounded year after year, and all of the legal fees that–the hedge fund has gone after 900 attempts to grab Argentine property, including their Naval training vessel, ARA Libertad, and now it’s trying to grab the shale oil in Argentina, and I’m going to give you a penalties because I don’t like Argentina. So when the judge says, Argentina, send up your people to negotiate on my terms or I’ll find you in contempt of court, Argentina says, no country could possibly negotiate on your terms. We overthrew the military dictatorship. You are not going to do to us what the military dictatorship did, Judge Griesa.

JAY: Right. Right. James, why doesn’t Argentina raise the concept of odious debt? Didn’t Correa in Ecuador do that in 2008 and actually use that to restructure some of the debt there?

HENRY: Yes, they did. I mean, Raúl Alfonsín, who came to power in 1984, raised the issue of odious debt for 21 days, and then, at the end of that 21 day period, he reversed himself. That’s the last time we ever had a serious discussion of auditing the Argentine debt. So President Alfonsín must have gotten the message from international banks, who have long treated Argentina as a huge source not only of lousy lending but also capital flight, something like $300 billion of offshore private capital outside of the country.

The irony is, as Michael just said: I think this has actually been one of the most successful examples of debt restructuring that we’ve ever seen. Argentine economy performed extremely well from 2005 until 2009 after it restructured the debt, growing at 5 to 7 percent a year. It’s had some difficulties in the last three years, but nothing like what was it going through in 2000 and 2001, when you had 40 percent of the people below the poverty line, you had 18 percent unemployment, you had the neoliberal, my classmate, Domingo Cavallo, running the economy, and he blew the debt up from about $90 billion in 1999 to $144 billion by the time he left office.

JAY: James, it should also be added that it’s not just the dictators. It was the dictatorship, you could say, of the IMF and the whole restructuring that took place that preceded this default, was it not?

HENRY: Well, I think it was kind of that plus the militant neoliberal [crosstalk]

JAY: Yeah, that’s what I’m talking about. Yeah.

HENRY: –was really, you know, convertibility. Convertibility of the dollar into the peso became an iron law. If you basically say that you can’t devalue your exchange rate in order to grow the economy and you’re running budget deficits and you can’t borrow, you’ve taken away all of the levers except cutting spending, and there just wasn’t that much spending to cut.

JAY: James, just quickly (we’re getting near the end of this), July 30 is just a few days away. What do you think’s actually going to happen?

HENRY: Well, Argentina doesn’t really have a plan B. My guess is that–this is quite a complicated story. Default doesn’t automatically occur. It takes 25 percent of the creditors, in this case those who would be entitled to the $140 billion, to actually declare Argentina in default. Furthermore, many of the payments that Argentina’s making are to bondholders who are in Europe or have peso debt. About 60 percent of these bonds are actually owned by Argentinians, and they’re accepting pesos, and those have been cleared through the custodial banks that are handling those payments. It’s basically the 29 percent of the bonds that are owned by U.S. that are being paid in dollars–they’re dollar denominated–that are really the subject of a possible sort of partial default here.

I think Argentina actually has quite a bit of–it can try this notion that’s been bandied about of inviting bondholders to come in and accept payment outside of the United States in other currencies, or even in dollars in Argentina. And if it did that carefully, the value of those bonds would of course plummet, but Argentina could do what Ecuador did, which is to buy up some of the bonds at a discounted value. Maybe that would cost them less than they would have to pay to these holdouts, who have maybe $15 billion in debt.

So I think there’s not going to be a cliff here. It’s going to be a messy process, but I doubt that you’re going to see these vultures at the end of the day able to get Argentina to pay them. Now, they may well have sold–the smart money says that these guys have already essentially insured themselves, they bought credit default swaps, CDSs. And so whether or not those CDSs come due at the date of July 30 is an interesting legal question. But it may be that these vultures are really mainly interested in collecting on those credit default swaps. We’ll just have to see.

But the big picture is that Argentina is not about to go back into $140 billion in debt in order to simply satisfy people who bought their bonds for $48 million in 2000.

JAY: Michael, just a quick final word. What message does this all send to other countries around the world about how they might deal with vulture funds?

HUDSON: Well, the ruling of Judge Griesa now is a precedent for any country that tries to renegotiate its debt like Greece negotiated its debt downward. And the problem is that, as the United States argued against Greece’s ruling, saying, wait a minute, this means that no country that issues bonds in New York or has a new bank as a paying agent–and if they pay in dollars, it has to go through some New York bank–no country can write down the debt anywhere in the world.

So this goes way beyond Argentina. This is only–you have a case of the tail wagging the dog. And that’s why everybody from the U.S. government to Europe was insisting that the Supreme Court overruled Judge Griesa’s ruling. And the Supreme Court said, wait a minute, since the ruling is only local New York State bankruptcy contract law, it’s not a national law and a constitutional law, so we don’t have any ground to review it. And the other people said, wait a minute. It may be, of course, it’s local law, but we’re dealing with an entire country and international relations, and the international relations means that other countries will now shun the New York and the dollar market for bonds, and there goes Wall Street.

And the other aspect of Wall Street, as you just mentioned: many people have been speculating over how much credit default swaps have Singer’s vulture funds bought? And the idea is, okay, this is like John Paulson buying junk mortgage default swaps and making $1 billion off–believing that the junk mortgages would go bust. Well, the problem with these credit default swaps and Argentina is who’s on the other side. And the belief is that–. Who is on the other side of credit default swaps? It’s the ten largest New York banks. So Citibank, Chase Manhattan, Bank of America, they’re on the other side of these credit default swaps, and they’ll take a huge loss if indeed there is a default. So everything is just up into a potentially explosive situation.

HENRY: Paul, let me just make one more content.

JAY: Yeah, go ahead, James.

HENRY: I could say, just to end a positive note, last week not only did Argentina almost win the World Cup, but the Chinese premier came to Argentina with 200 business executives, and he is setting up a $7.5 billion project lending facility plus at $11 million currency swap facility. Chinese companies are looking seriously at investing in farms, farmland, grain production, and in the shale oil deposits that Argentina has, which are larger than the United States’, potentially.

So this country has great future, and I think it’s disappointing for the United States not to be able to behave in a more professional way toward Argentina, one that values this long-term relationship.