Cyprus And Its Own "Grexit": A Roadmap for Greece?

Greek deputy finance minister Dimitris Mardas reassured the finance world last week that Greece would in fact meet an April 9th deadline to repay a 450 million euro IMF loan instalment on time, after comments his superior had made on television were construed by many to suggest that the country was actively considering renegading on its debt.  It did little to help already skittish investor confidence, and reignited speculation amongst many financial journalism outlets on a potential "Grexit" that is now to be expected whenever the newly installed anti-austerity government in Greece pokes its creditors in Brussels and Berlin in the eye.  But while the fracas unfolded in Athens, across the Mediterranean an unlikely and largely unheralded success story quietly wound down Monday.

in late 2012, the Cypriot government was in trouble.  Facing an over leveraged banking system exposed to (perhaps ironically) the stumbling Greek economy and an overheated real estate market, the subsequent downgrade to "junk" status of the country's debt meant that Cyprus was suddenly unable to turn to global equity markets in order to finance the stimulus and rescue packages needed to save its faltering economy.  Facing a looming default, in March of 2013 the Cypriot government agreed to a rescue package with the "troika" (the IMF, ECB, as well as the European Commission and Eurogroup representing the EU) consisting of a 10 billion euro bailout as well as strict reforms meant to forcibly instill confidence in the Cypriot banking system as well as the creditworthiness of the government.  The portion of reforms aimed at preventing a large scale exodus of money from Cyprus's banks are known as "capital controls", and were implemented in the hopes of buying more time for efforts to recapitalize the country's banking system and prevent panicked runs on the banks, which would most likely have resulted in a collapse of the system.  Initially quite strict (withdrawals from personal accounts were limited to 300 euros per day, and transfers to foreign banks were severely limited as well), the restrictions on the Cypriot euro were gradually lifted as the banks were further stabilized and confidence was slowly restored.

The measures were never popular, with leftist parties opposed to the package floating alternatives ranging from a reduction in the size of the military, a corporate income tax increase, and even outright nationalization of the banking sector.  A common theme among many opponents was resistance to what many believed amounted to EU-imposed austerity, championed by technocrats in Brussels who were only interested in preserving their economic and political union and cared little for the average Cypriot.  A blog attached to The Economist even went so far as to call the package "unfair" and "self defeating", arguing that the high political cost of such austerity preconditions for bailouts made them impractical if the EU hoped to maintain the goodwill of its constituent states.  Others worried that the implementation of such harsh measures would push Cyprus into the arms of Russia, from whom it had already received substantial financial aid.  Ultimately, it was not an easy road to recovery in Cyprus; the country's significant community of wealthy Russians who had stashed their wealth there had to be placated, and the first parliamentary vote on an assistance package failed amidst widespread protests.  And yet last month, two years removed from the bailout, a Bank of Cyprus official referred to the capital controls as "irrelevant", suggesting that the country's top economists were now confident enough in the state of the recovery that they were considering doing away with the last of the monetary restrictions first put in place two years ago, a milestone they quietly fulfilled earlier this week.

Cypriot president Nicos Anistasiades heralded that admittedly largely symbolic day as indicative of "the full restoration of confidence in our banking system and the stabilization of the economy of Cyprus."  And he's not wrong in asserting that significant progress has been made.  The flow of money within the country is now unhindered, the country has resumed borrowing (paywall) and the economy is finally expected to return to growth in 2015 after three years of recession.  While decisive action on the part of the ECB and Cypriot lawmakers no doubt played an important role in staving off a default and subsequent exit from the Eurozone, capital controls were imperative in allowing the structural issues within the economy (the banking sector's debt obligations at one point were nine times greater than the size of the Cypriot economy) to be resolved.  Despite initial public backlash, Cyprus today is in markedly better condition than Greece.  While the full extent of Greece's sovereign debt issues mean that capital controls, should they be implemented, would be in place for potentially much longer than they were in place in Cyprus, they present a more desirable alternative to the "Grexit" as a means of quarantining the country's financial troubles until a deal finally resolving the crisis is struck (or the ruling Syriza party in Greece is voted out), as opposed to continuing to simply bankroll the Greek government while subjecting it to austerity measures which are doing little to improve the long term viability of the country's economy.  But given how the Bank of England has all but thrown in the towel when it comes to Greece, it remains to see how much appetite remains amongst the EU's other core economies, especially Germany, for continued support in order to stave off a Greek default, especially given the latter's penchant for creative schemes aimed at alleviating its strict bailout conditions.  Barring a significant change in tune from the government in Athens however, its looking highly unlikely that a currency quarantine will be given a chance to help rectify the country's long running debt issues.    

Russia's Love Affair With Europe's Far Right

A Cossak confronts a demonstrator (Associated Press)

Russia under President Vladimir Putin has forged an unusually aggressive foreign policy, a fact widely circulated in Western news media.  What has received little coverage outside of think tank and NGO circles however, is the full extent to which Putin and his inner circle have consolidated power within the country.  While military expenditures have increased significantly since Putin first took office in 1999, it has been accompanied by brutally effective asymmetrical tactics, which although successful at resolving internal conflicts like in Chechnya, have eroded civil liberties and subverted the democratic process to such a degree that in some aspects Russia now resembles North Korea as a crony-capitalist kleptocracy masquerading as a democracy.  Why has nothing or nobody, neither domestic nor otherwise, been able to put a significant dent in Putin’s seemingly imperial and authoritarian ambitions?

The 1990s were a tumultuous time for the then-nascent Russian Federation.  Still smarting from the breakup of the Soviet Union, which many blamed on the weakness of final Premier Mikhail Gorbachev, and plagued by civil strife, many in the country were understandably not optimistic about the future.  Radical privatization (dubbed “shock therapy”) of the Soviet era economy by Western-backed President Boris Yeltsin, whose supporters were pushing for rapid implementation of free market reforms, had resulted in the now infamous “cash for shares” fire sale of state-controlled assets at a fraction of their value to a small group of Soviet era political elite.  Global recession in 1998 exacerbated Russia’s economic woes, and brought the ruble to the precipice of collapse.  Yeltsin’s government underwent a period of significant political turmoil, with Yeltsin appointing several Prime Ministers in quick succession.

This was the scene in Russia when the world was first introduced to Vladimir Putin, then a largely unknown politician with roots in the foreign intelligence community.  Yeltsin spoke very highly of the technocrat-turned-Prime Minister, once even proclaiming Putin his heir presumptive.  Almost as if he was making good on a promise, Yeltsin abruptly resigned not much later, making Putin Acting President.  And so began a stranglehold on power which is now entering its 15th year.  During his time in office Putin has proven himself a master at populist politics, deftly weaving a network of support amongst seemingly disparate segments of Russian society.  By embracing revered institutions such as the military and Orthodox Church and tapping Russia’s proud military tradition, he has been able to propagate a myth that the country is under attack from a Western conspiracy; that the economic hardships of the 1990s was the result of seeking rapprochement with the West.  Putin has cast himself as a defender of the proverbial “Motherland” from foreign meddling, a theme increasingly prevalent in almost every facet of Russian policymaking today.  A “gay propaganda” law pushed through the Duma last year included clauses which seemed to insinuate that the Russian government viewed same-sex rights activists as foreign agitators.  Liberal minded opposition media outlets are regularly accused by what are likely Kremlin-backed “internet trolls” of parroting the American line. Conflating the fiercely nationalistic rhetoric of his supporters with “patriotism” has allowed Putin to virtually silence his opposition and justify actions within the purview of his agenda which otherwise would not be deemed acceptable.  Much like how the Cold War was a clash of ideologies, Putin has framed cold relations with the west, domestically at least, as a clash of values.  His brand of “leadership” has been lauded on Fox News, and provided as a contrast to President Obama’s purported weakness.  His methods have proven successful in stifling dissent and sending his popularity domestically soaring, but have left Russia isolated as the Kremlin’s foreign policy goals have alienated the West.  And yet for years Putin has quietly championed a policy that is only now beginning to bear fruit.

A peek inside the conference. (Associated Press)

What may turn out to be an auspicious day for Russian foreign policy began in decidedly unsexy fashion on a dreary Sunday last month.  The inaugural Russian Conservative Forum kicked off as leaders of North American and European right wing parties gathered at a Holiday Inn in downtown St. Petersburg to ostensibly advance the brand of global conservatism.  And yet there was quite possibly nary a discussion of conservatism to be had.  Delegate after delegate tripped over themselves to declare their disgust with the supposed “European” and “American” way of life, and all of its homosexual, multicultural, globalized trappings; it was no coincidence that each party was essentially parroting Vladimir Putin’s agenda.  While his name was not attached to the meeting, it was hard to ignore the influence his United Russia party exerted over the proceedings.  The assembled parties were an array of distasteful ideologues which included Greece’s borderline neo-Nazi Golden Dawn and Italy’s Forza Nuova, amongst the more vanilla attendees.  Guests at what amounted to a fascist pep rally also included Holocaust deniers, Nazi sympathizers, and a Russian skinhead notorious for beheading a puppy in the name of publicity.

It is not surprising that this gathering was reminiscent of “Communist International”, an association of communist parties founded as an instrument of Soviet control over international communism back in 1919, a period of hostile relations with the West.  Internationally isolated, Lenin and his bolsheviks turned to the forum as a means of finding support and allies abroad.  While the first congress was attended almost exclusively by Soviets and had few foreign delegates, the organization soon came to be recognized as the face of international communism.  Reports indicate that today Russia is engaging in a similar campaign of currying favour amongst ideologically friendly parties not just in neighbouring countries but in western Europe as well.  Confirming what various reports and papers say, the French right wing party Front National admitted to taking a roughly 9.5 million euro loan from a state controlled Russian bank.  The FN went on to make unprecedented gains in last year’s European Parliamentary elections, forming a substantial pro-Russia bloc within European Parliament, a decent return on investment.  Under Putin, the Kremlin has sought closer relations with an array of far right political parties, from Hungary’s Jobbik to Austria’s Freedom Party, to Belgium’s Vlaams Belang.  Many backed Russia’s 2008 invasion of Georgia, and last year declared the referendum on Russian annexation of Crimea legitimate which begs the question; why would such fiercely nationalistic parties seemingly contradict themselves by unquestionably following the lead of another country?

 The answer has less to do with fascism, Russia, or even conservatism and more to do with political marginalization and hatred of a U.S and EU pecking order they feel their own countries are beholden to.  Hence the defiant policymaking and disdainful regard for both displayed by Vladimir Putin has won him many admirers amongst Europe’s far right, and made Kremlin funds much more effective at achieving its goals.  Having smartly nurtured such parties for years, rampant anti-EU sentiment amongst many Europeans over the past year or so mean that Moscow is just now beginning to cash in on its far right strategy.  As these parties increasingly score significant victories at the polls, actions like further Russian sanctions or even renewal of current ones might eventually become quite difficult.  Russia didn’t create Europe’s far right but Moscow cultivating vocal allies willing to sing Russia’s praises in European Parliament and legislatures across the continent is a classic case of my enemy’s enemy is my friend.                

Ukranian Redux

Aftermath of the offensive at Donetsk's airport

Earlier this summer I wrote about how Russia's role in the Ukrainian crisis had escalated to the point where the two countries were in a de facto state of war.  Since then various geopolitical events have threatened to overshadow the ongoing insurgency in eastern regions of the country, but a recent renewal of an offensive against rebels in Donetsk thrust the spotlight back on both the region and Russian interference in it.  In fact, some of the images and videos coming out of Mariupol, which was first attacked this past summer but has seen renewed fighting in recent days, are a disturbing insight into daily life under what is almost certainly Russian bombardment.

  

This dashcam video purports to show the driver narrowly escaping an artillery strike.  The truck in front was not as fortunate.  Other videos by residents clearly convey what seems to be a city under siege. (Update: As of the 25th of January, the video has been removed due to copyright)
   

There is increasingly strong evidence that the western sanctions regime and plunge in oil prices have done little to impede Russian ambitions in eastern Ukraine.  As the New York Times wrote:

"With the appearance in recent weeks of what NATO calls sophisticated Russian weapons systems, newly emboldened separatist leaders have abandoned all talk of a cease-fire."

  As my previous post on the subject stated, it is very likely that the Kremlin is backing insurgents in hopes of asserting some degree of influence over the eastern and southern regions of Ukraine, host to the roads which serve as Russia's only land-based lifeline to Crimea.  A successful push along the southern coast would at best allow Russia to annex a swathe of territory which extends to breakaway regions of Moldova, or more plausibly, de facto Russian hegemony over the aforementioned territories within the framework of a federalized Ukraine.

Further implicating the Russian government were images released by the Ukrainian government which purported to show documents taken from captured Russian mercenaries.

"The National Security and Defence Council recently reported that Ukrainian artillery destroyed a column of Russian mercenaries near Donetsk airport and detained more than 10 of them" 
- Sheila Casey, State Department attache for Ukraine  

Despite strong words from the United States government, there doesn't seem to be a clear path forward.  With the United States and its allies slowly escalating their role in the fight against ISIS, there just doesn't seem to be much of an appetite for substantial action against the Russian government.  That said however, European Union economic sanctions on Russia come up for renewal soon, and if there was talk about easing them before, such talk is now gone.  Latvia and other eastern European states, citing a negotiated ceasfire signed in Minsk which was broken by rebels early last week, are in some cases now pressing for even harsher sanctions.  All the while, open warfare rages in the cities of Eastern Ukraine.  Some more photos of the recent devestation which left at least 30 dead:

 

Marie Le Pen and the NYT's Chickenhawk Stance on Free Reporting

Yesterday, readers of the op-ed section in the New York Times may have been surprised to see one of the published pieces was written entirely in french.  It was on that day that Marie Le Pen joined the ranks of countless other culturally significant (and make no mistake, controversial) figures to have been able to publish opinion pieces in such a storied paper.  While La Pen and her resurgent Front National party have been the beneficiaries of significant coverage in the EU, North American audiences for the most part are unaware of the stunning redressing of far right politics she may be on the cusp of accomplishing in France.

Established in 1972 as an amalgamation of various radical French nationalist groups, the Front National was, from its conception, a party predicated upon the principles of "pure" French identity and the rejection of non-European immigration.  While most of its policies actually aligned with those in the mainstream right, it was the party and its leader Jean-Marie Le Pen's (Marie Le Pen's father and the party's only other leader) virulent xenophobia, antisemitism and seeming fondness for dictatorial right wing regimes which drew the frequent condemnation of French politicians of all stripes.  In fact, his outrageous antics were enough that after the FN came in 2nd in the 2002 elections, the senior Le Pen essentially solidified his role as the figurehead of far right sentiments in the French political consciousness.  That a man who once referred to the occupation of France and subsequent deportation of Jews and other targeted groups during WWII as "not particularly inhumane, even if there were a few blunders, inevitable in a country of [220,000 square miles]" was very nearly elected to the Élysée Palace is a frightening reminder that a slumbering nationalist beast exists in French politics to this very day, threatening a groundswell nearly every election cycle.

If the elder Le Pen is considered the spiritual center and figurehead of the FN, he has largely conceded the brain to his daughter Marie.  Upon taking the reigns from her father in 2011, she embarked upon an ambitious redesign and airbrushing of the party's platform in the hopes on increasing its electoral chances, a gamble which so far seems to be working.  Riding a wave of Europskepticism among the EU's wealthier nations, the party has captured 23 seats in European Parliament, and has taken control of councils and mayoral offices in mainly industrial cities which have borne the brunt of the most recent economic crisis.  Even though her party only currently holds three seats in the National Assembly, many party faithful are confident Le Pen will indeed be President in 2017.  But no one has been fooled into thinking that the core message has changed; in the aftermath of the shootings in Paris two weeks ago Jean-Marie Le Pen told the Huffington Post "I am not Charlie Hebdo, I am Charlie Martel."  Martel of course, was a Frankish (de facto) king among whose many accomplishments was the successful repelling of Islamic invaders from North Africa.  Poor historical analogies aside, the racist and borderline fascist origins of the policies which continue to guide the Front National today were enough that Nigel Farage of UKIP, himself no stranger to accusations of racism, blasted Le Pen's party as "antisemetic" and "racist".

And so we arrive at Le Pen's editorial.  In it, she seems to imply that the government shied away from labelling the attack on Charlie Hebdo's offices an act of Islamist terror, a patently false accusation.  Both Le Pen and her party may seem repellent and their policies and rhetoric harmful to efforts to integrate Muslim migrants fully into French society, and yet publishing her piece was not where the Times stumbled.  While it is not surprising that the FN and other far right groups are seizing upon this opportunity to label the government as soft on Islamic terror, and laying responsibility for the attacks at the feet of Muslim immigration, it is surprising that the editorial staff at the New York Times felt that giving La Pen a soapbox with which to extol her agenda of Islamaphobia and xenophobia was of value as news, especially in light of another editorial decision at the paper to not publish the cover of Charlie Hebdo's first edition since the shooting.  In a blog post a week later, NYT Public Editor Margaret Sullivan wrote that in her opinion, the cartoon depicted on the cover, despite its potential to offend a minority of readers, was not gratuitously offensive nor was it devoid of news value.  And yet, it was shelved to avoid "offending Muslim sensibilities".

This isn't a question of journalists having the ability to publish whatever they wish, but rather one of them being restricted in their ability to best illustrate and convey stories they deem newsworthy.  For example, Executive Editorial Editor Dean Baquet's decision to not include the more graphic of the Mohammad cartoons because they were of little worth with regards to advancing understanding of the story at hand (The shooting at Charlie Hebdo's offices) was perfectly justified.  If asked to defend the publication of Marie Le Pen's editorial, the editors at the Times will no doubt point to the long history of people writing controversial and potentially inflammatory things in its op-ed pages over the years, and how ideas and speech, regardless of how morally reprehensible they may seem, should be publicly aired, lest they quietly fester on the fringes much like most of the radical policies the FN espouses; and they would be absolutely correct.  There is no doubt that op-eds critical of Marie Le Pen's views have been published, and will continue to be published.  Her policies will be subject to critical analysis and challenged based on their adherence to facts, versus distortion of them.   What the New York Times should apologize for however, is the double standard it adhered to when it decided that publishing an editorial possibly damaging to religious relations in France was alright, but that a story about a cartoon with the potential to inflame some readers could be neutered to appease that minority by removing an image of the cartoon itself.

No one should harbour any delusions that this cowardly attack in Paris two weeks ago was remotely justified, or that jihadis deserve to not feel insulted.  To suggest so would be to equate those who perpetrate such acts of terror with those who peacefully practise Islam, those who owe no more of a condemnation of terrorism than the rest of us.  The only ones who owe the people of France and generally anyone horrified by such acts anything are those who suggested that the perpetrators' actions were in any way justified.  It is Pope Francis, and those who marched in Tehran and Beirut under the banner "I am not Charlie" who owe a condemnation of radical Islam to us, and not to a rank political opportunist like Marie Le Pen and her ilk.

Why OPEC is Prolonging Cheap Oil (And Why It May Backfire This Time)

In the face of falling oil prices, OPEC found itself under the market's microscope.  News that the cartel was holding production steady at 30 million barrels per day and revising production for 2015 lower to 28.9 million barrels did little to placate volatility-averse traders, who in turn sent US treasury bonds further south, the Dow Jones (DJIA) plunging nearly 300 points and generally had a negative impact on everything from the Canadian Dollar  (CAD) to the Norwegian Krone (KR).  By almost any metric, the markets were affixed on commodities, and specifically fossil fuels.

Seemingly serving as a reminder of just how beholden we are to the black gold, oil played a role in numerous geopolitical developments this past year.  From the thawing of relations between Cuba and the United States to the NATO and EU sanction regime meant to punish the Russian economy, 2014 saw fossil fuels once again take on the role of political flashpoint, furthering some agendas while hindering others.  But the reasoning behind why the Arab-dominated OPEC is dragging its less fortunate members through the mud has all to do with recapturing a near monopoly on oil production it enjoyed on oil exports before high prices drove investment towards U.S shale.

 OPEC was initially formed in 1960 by countries with substantial oil reserves in order to collectively better control the market for exports.  What they discovered during the Yom Kippur War in 1973 was that putting a vital resource under the control of a non-aligned cartel provided OPEC's Arab and Latin American member states with an "oil weapon" that provided them leverage with otherwise superior western powers.  In a move meant to punish the United States and its western European allies for supporting Israel in that conflict, OPEC agreed to an oil embargo.  The subsequent spike in oil prices and ensuing chaos led to a significant change in U.S energy policy, as the hardships experienced by both industry and consumers led to renewed efforts to conserve oil, increase fuel efficiency and develop alternatives to oil.  If OPEC's oil weapon was able to cause the United States and its allies significant economic hardship, why have they been loathe to use it since?

Former Saudi Oil Minister Sheik Ahmed Zaki Yamani perhaps stated his country's oil policy most eloquently 40 years ago when he said "''The Stone Age didn't end for lack of stone."  His prediction was eerily precinct, because the following decade saw various factors conspire to create a situation which at a glance may seem similar to the period of "cheap oil" in which we find ourselves right now.  A plunge in the demand for oil (to the tune of five million barrels per day) coupled with a rise in production in non-OPEC states created enough of a surplus that prices continued to fall, capping a 46% decline in 1986.  OPEC countries, historically known for exceeding quotas and inflating estimated reserves, responded to the successful campaigns aimed at reducing global dependency on oil by cutting production several times, by nearly half.  This did little to staunch the bleeding as non-OPEC states stepped in to pick up the slack, and as a result OPEC's market share fell from a peak of roughly 50% in the 1970s to around 30% by 1985.  While Saudi Arabia initially led the charge by throttling production, it found its less economically secure partners largely unwilling to engage in a price war at the expense of much needed revenue.  Fed up with essentially subsidizing excess production in other OPEC countries, Saudi Arabia pioneered the same strategy which it is applying here today, albeit with different targets in mind.

  Back then, Saudi Arabia's primary goal was to make it too expensive for OPEC's more undisciplined members to continue overproducing by dumping the price of oil long enough to run other producers out of business until it once again held major sway on the price of oil.  This time the ultimate goal is the same, but the Saudis are taking aim at the American shale producers whose torrid levels of production have been a large reason (along with the still-precarious economic position of Japan, China and the Eurozone) why prices have taken a nosedive over the past year (even with ongoing instability in Libya and Iraq.  And yet while Saudi Arabia was successful in reigning in its OPEC partners, it was helped at least in part by the fact that the Bush (Sr.) administration made a decision to to double down on Gulf-supplied oil, ramping up military aid to allies on the peninsula and scrapping policies which had been quite effective in reducing demand for oil.  If the United States actually declining to seriously invest in efforts to increase energy efficiency seems ludicrous, take a comparative look at Japan's efforts in the same area.  At the height of the oil embargo, Japan's energy security was even more compromised than that of the United States.  Consisting of a series of generally resource poor islands,  it both did and continues to import 92% of its oil.  At the time of the embargo, roughly 71% of the country's imports were derived from the middle east.  As such, when crisis struck Arab states labelled Japan an "unfriendly country" for its refusal to get involved in the Palestinian-Israeli conflict and slapped it with a 5% production cut.  Very vulnerable to disruptions in oil supply, it was forced to reorient its energy policy with an eye towards minimizing susceptibility of the economy to oil shocks.  As a result, Japanese energy efficiency today is such that it uses less than half the energy that the United States does to produce a dollar of GNP.

American strategic interest in the Middle East is waning

Those days of a Stockholm Syndrome-esque relationship between the Saudis and Americans with regards to energy policy are over.  From the toppling of Iran's Shah in 1979 up until the 2003 invasion of Iraq, the United States was heavily invested in the region and as such was willing to incur instability-induced spikes in the price of oil.  Following a prolonged economic recession which served as the culmination of a decades long decline in the prosperity of the American middle class as well as the election of a President who ran on a platform predicated upon extricating America from the Middle East, both the government and public no longer have the stomach nor faith in the ability of America to sort out a region so fiercely sectarian, conflict ridden and seemingly resentful of American assistance.  If President Bush's eight years in office were about Middle Eastern foreign policy, the electorate has demanded that President Obama's be about the economy.  To that end, his most highly touted legislative achievements have almost entirely served a domestic agenda, through major overhauls of healthcare policy (ACA), financial regulation (Dodd-Frank) and the Justice Department's tackling of social issues such as marriage equality and police violence.  If anything, this administration's most prominent foreign policy move was arguably its much discussed "Asia shift", which essentially served as a way for the President to fulfil his election promise to end the two wars started by his predecessor while at the same time not giving ammunition to critics who accused the Obama administration of retreating from a leadership role the United States had held since WWII.  Even when the United States has found itself inevitably dragged into one Middle Eastern conflict or another, it has been loathe to get directly involved, instead extolling the necessity of coalition building and Middle Eastern countries taking on a larger role in conflicts that involve them.

Saudi Arabia very well may stamp out frackers, and once again gain some degree of control over oil prices.  Fracking is expensive, with a break even price of around $50 per day.  Already western producers are laying off workers and slashing exploration budgets, as petrodollar economies adjust for a rough landing.  But Saudi Prince Alwaleed bin Talal agreed that the days of high oil prices are essentially over.  Electric cars are on the verge of going mainstream, and just about every country has launched ambitious plans to cut carbon emissions and increase the share of renewables in energy consumption.  Oil will continue to be an important commodity for years to come, but the point has come where countries such as Venezula, Russia, Libya and Iraq who failed to diversify their economies while prices were high can no longer hope to nearly entirely fund their governments from royalty proceeds.  The world has finally become serious about pushing alternatives to fossil fuels in a bid to cut carbon emissions, and  falling oil prices might finally topple the last big obstacle to achieving that goal.  One can only hope so, at least.    




    

Russia (Unofficially) Invaded Ukraine

As of this morning, reports have been filtering in from Ukraine that Russian forces have begun slowly entering Ukraine.  And unlike what unfolded on the Crimean Peninsula, these aren't just Russian troops with no insignias.  Vox reports that some of the assets Russia has moved into the region include "Russian artillery, Russian tanks, Russian-trained irregular forces, and even uniformed Russian soldiers".

At around the same time this was reported, Fox was able to report that pro-separatist forces had opened a new front in the conflict by attacking the strategically important city of Novoazovsk, a resort town of approximately 12,000 which borders Crimea.  Leaving aside questions of how a group who just a few weeks ago was on the brink of defeat in Donetsk now have the logistics and manpower to attack elsewhere, what makes this move suspect is that Novoazovsk, should it be taken would leave a clear path to Mariupol, a city through which runs a road that serves as the only land connection Crimea has (via Ukraine) with the rest of Russia. Photographs of the besieged town showed plumes of smoke rising from the eastern Ukrainian city (pictured), due to what residents described as a heavy artillery barrage.  Interestingly enough, a quick Youtube search reveals that back in March when Russia began the process of annexing Crimea, it brought along with it heavy artillery not unlike those which the pro separatist "rebels" are currently pounding Novoazovsk with.

Shelling in Novoazovsk (Associated Press)

Taken in tandem with a videos that surfaced which purported to show the ten Russian paratroopers Ukraine had claimed to have captured admitting to being Russian military personnel under orders to invade Ukraine, it should leave no doubt in the minds of NATO that there is much more to Russia's role in this conflict than the bystander it claims to be.  And thankfully, that seems to be the case.  The Canadian government has taken quite a hawkish position on seeming Russian interference in the affairs of Ukraine, culminating in sending military aid earlier this month.  It made its position on this latest incursion known immediately, issuing a tersely worded tweet earlier today:

Geography can be tough. Here’s a guide for Russian soldiers who keep getting lost & ‘accidentally’ entering #Ukraine pic.twitter.com/RF3H4IXGSp
— Canada at NATO (@CanadaNATO) August 27, 2014

Meanwhile the United States, which has has been letting Germany take the lead on Ukraine as of late, has not been totally neglecting the crisis unfolding there.  As the New York Times reported:

"Analysis by Western officials indicates that Russia is orchestrating a multipronged offensive against Ukrainian forces. Russian forces have been trying to help separatists in eastern Ukraine break the siege of Luhansk, one of the main rebel-held cities, and open a corridor to another, Donetsk, from the Russian border"

The United States role can be best described as the good cop to Canada's bad cop, with its more nuanced criticism of Russia and focus on gathering intelligence to discredit Russian claims of non-interference in the country.  In fact, earlier today the US finally broke their relative silence on Ukraine, in a statement accusing Russia of reinforcing faltering rebel efforts. "These incursions indicate a Russian-directed counteroffensive is likely underway in Donetsk and Luhansk," State Department spokesperson Jen Psaki told reporters. And so given the recent escalation in the conflict, expect an announcement soon from the President on potential military aid in the form of advisors and equipment for the Ukrainian military, as well as a possible beefing up of NATO presence within the borders of regional members.  But make no mistake, Russia and Ukraine have all but formally gone to war, with Russia seeking to strengthen its grip on the vital defence industries present in Eastern Ukraine, as well as carve out a land strip connecting it to the currently largely isolated Crimea.  Should they succeed, it would destabilize an already precarious situation in Ukraine, and would prevent a democratic government from exerting control over all of its territories.  

But interestingly enough, Russia's continued "whodunit" approach to engaging with its neighbours may be having negative ramifications for its foreign policy ambitions.  Putin's Eurasian Economic Union pet project is starting to look like an abject failure.  Despite all the transformations this conflict has undergone, its important to remember it was first ignited by then-President Yanukovych moving towards joining Putin's attempt at a counterbalance to the EU.  Since then, Azerbaijan, Uzbekistan and Turkmenistan have all been reluctant to draw themselves into Russia's sphere of influence again after seeing it's messy divorce with once-close ally Ukraine, and even those who have agreed to ascend are causing Russia significant headaches.  Kazakh fears over potential Russian aggression have lead to the severing of several mutual defence treaties, and it forging its own foreign policy route.  It blocked Armenia, a major recipient of Russian aid, from ascending, and along with Belarus refused to join Russia in banning food imports from the West.  It'll be interesting to see if in the long term the antagonism Russia is breeding ends up manifesting into something more than just a healthy skepticism of Russian intentions, but right now it is imperative that Western countries come to the aid of Ukraine before Russia is able to tear it in two.

Campaign Finance Reform May Hold the Key to Slowing Corporate Inversion

While corporate inversion is by no means a new phenomena (McDermott International reincorporated in Bermuda in 1982), recent comments by prominent figures in government characterizing such actions as "unpatriotic" have thrust the issue back into the spotlight.  With pressure increasingly on Congress to close the tax loopholes that allow such moves, the GOP stance on only doing so in tandem with cutting the effective corporate tax rate means that a solution may not be forthcoming anytime soon.  And as such, that leaves us with plenty of time to think of equally improbable but decidedly more creative solutions to this latest issue.

 Although technically donations to political campaigns made by foreigners are illegal, ever since 2010's Citizens United decision greatly reduced limits on political contributions, companies based outside the US have been able to effectively circumvent such laws  (I talk about just how murky US laws governing corporations have become here).  In the last full election cycle, the first since the landmark ruling,  foreign controlled subsidiaries contributed over $12 million to Super PACs on both sides, and that's just what was able to be traced.  Due to Citizens United and other subsequent rulings, political action committees (PACs) that do not coordinate with campaigns and their donors are afforded great latitude when it comes to contributions, with no limits to how much can be given to such PACs, and little in the way of disclosure laws on the part of these committees.  Major corporations didn't miss a beat, creating PACs through their American subsidiaries, and then drawing contributions from employees.  This allowed them to influence U.S elections while at the same time shielding themselves from any chance of prosecution,  But what if we could curtail foreign influence in the American electoral process while at the same time slowing or even stopping the exodus of American businesses and their tax revenues abroad?

Currently the American subsidiaries of foreign companies may make political contributions so long as the subsidiary in question is able to prove that it has funds drawn from domestic operations that equal or exceed the donated amount, as per this FEC advisory opinion (AO 1992-16):

FEC, AO 1992-16: The [U.S.] subsidiary must be able to demonstrate through a reasonable accounting method that it has sufficient funds in its account, other than funds given or loaned by its foreign national parent, from which the contribution is made.

As such when we examine recently "inverted" corporations, we see that the value of their American operations generally represent a disproportionate percentage of their total global revenue.  For example Burger King, who recently announced a merger with Canadian coffee chain Tim Hortons in order to relocate to Canada, earned less than half (48%) of revenue in 2013 from territories outside of the United States.  Burger King conducts the majority of its business in the United States through its Miami based subsidiary, and yet since its newly founded "parent company" will be based in Canada, it will only have to pay 26% income tax on revenue earned in Canada, and a rate consistent with the tax code in the country where any income that is repatriated was generated.  While robbing the federal government of tax revenues, due to a very profitable US operation Burger King, should it be so inclined could spend millions on donations to PACs supporting candidates it likes.

While Burger King remains at its core essentially an American fast food company, it's unlikely it would feel the need to drastically influence policy, aside from more favourable tax laws (nothing seems to satisfy them nowadays) and looser labour regulations.  But such loopholes present an opportunity to companies whose fortunes are largely tied to government spending and/or policy.  The defence, (which currently has strict export regulations in place) education, health, food, pharmaceuticals industries have in the past tried to influence policies that would adversely affect them (See Pfizer's own proposed inversion via merger, or the HMOs' opposition to the ACA) and if they were to merge with foreign companies, what checks would be in place to limit their influence in American politics?  By preventing subsidiaries wholesale from making political contributions, it effectively ices these "tax emigres" out of the legislative process, and helping determine where tax dollars they did not proportionally contribute go.  American corporations and the people who benefit from them the most may not have the same interests as the vast majority of Americans, but they still live and work in the country, and as such do have a stake in a healthy and robust consumer base and economy.

Preventing the American subsidiaries of foreign companies from making political contributions will not definitively solve the problem of money in politics, nor will it stop the most determined of companies from relocating abroad.  But it will make the decision a tougher one, unlike the no-brainer that it is.  Admittedly, with Republicans currently likening these companies to "economic refugees" (but judging from their response to the influx of children from Central America, they really couldn't care less about actual human refugees), the chances of anything that makes life harder for the Burger Kings and Pfizers of American commerce being passed by this Congress is infinitesimal at best.  Perhaps a more comprehensive solution including both cutting the corporate tax rate and closing these ridiculous tax loopholes would do better in coaxing businesses to return home.  Maybe recognizing the sheer size of a corporation allows it to exercise its freedoms as a person much more effectively than a single American, and putting limits on that freedom would  better check undue commercial influence in the legislative process.   But in the meantime, piecemeal legislation such as this will have to do.