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Musharraf's Last Act?
General Musharraf appeared on the national scene on October 12, 1999, when he ousted an elected government and announced an ambitious "nation-building" project.
Many Pakistanis, disillusioned with Pakistan's political class, remained mute, thinking that he might deliver.
The September 11, 2001, terrorist attacks on America brought Musharraf into the international limelight as he agreed to ditch the Taliban and support the United States-led war on terror.
Musharraf clamped down on some religious militants operating inside Pakistan and also on those fighting Indian forces in Kashmir.
As a result, Pakistan was rewarded with American financial assistance and arms.
In furtherance of his re-alignment, Musharraf sent the Pakistani army into the tribal areas bordering Afghanistan for the first time since Pakistan's independence.
Operations there against Taliban and al-Qaeda forces brought mixed results.
Although the US viewed Musharraf as an agent of change, he has never achieved domestic political legitimacy, and his policies were seen as rife with contradictions.
For example, he made alliances with Islamist political forces (who in 2004 voted for constitutional changes legitimizing his position and actions). At the same time, he sidelined moderate, mainstream political leaders while claiming that he stood for "enlightened moderation."
A series of ill-planned military operations in the tribal areas further complicated the situation in the volatile border region.
Last March, Musharraf took his boldest step, removing the Chief Justice of the Supreme Court, Iftikhar Chaudhry.
To the surprise of many, the country's legal community organized a nation-wide movement to restore the Chief Justice to his post.
Hundreds of thousands of ordinary people demanded the rule of law and the supremacy of the constitution, emboldening the judiciary and changing the country's political dynamic.
In a historic ruling that Musharraf had little choice but to accept, the Supreme Court itself reinstated the Chief Justice in July.
Subsequently, the energized judiciary continued ruling against government decisions, embarrassing the government -- especially its intelligence agencies.
Government officials were held accountable for actions that were usually beyond the reach of the law, ranging from brutal beatings of journalists, to illegal confinement for "national security."
Musharraf and his political allies tried to adjust to this new reality, but their patience ran out when the Supreme Court took up petitions against Musharraf's decision to run for president.
According to the constitution (originally promulgated in 1973 by an elected parliament), a serving military official cannot run for an elected office.
Musharraf was not ready to give up his military post, but also wanted to be a civilian president.
While he announced that he would leave his military position "if" he was elected president, his track record of reneging on his promises haunted the judiciary.
The proceedings of the court over the last few weeks made Musharraf jittery. The decision of the 11-member bench might easily have gone against him.
Legally cornered, Musharraf has now decided to abandon constitutionality, removing the leading judges of the Supreme Court and provincial high courts and putting curbs on the media.
Lawyers, human rights activists, and political leaders have since been arrested.
There is widespread public resentment in response to these moves.
Rather than taking responsibility for the deteriorating security situation (as evidenced by regular suicide bomb attacks) and the increasing Talibanization of the tribal areas, Musharraf has tried to blame the judiciary and media.
To be sure, in some cases, judicial activism was obvious (though within the realm of constitutional law), and the media also made mistakes; but by no stretch of the imagination can these be linked to religious extremism or support for militancy.
It is unlikely that Musharraf's latest gambit will succeed, as his popular support is at its lowest ebb.
Pakistan's armed forces -- repeated targets of suicide bombers -- have become demoralized.
It is difficult to imagine them standing with Musharraf should civil conflict erupt.
Nor can a weak, embattled, and disoriented Musharraf be expected to fight Islamic militancy effectively or bring political stability to Pakistan.
Opposition political parties are drawing closer together, and former Prime Minister Benazir Bhutto, despite progress in her power-sharing negotiations with Musharraf, has strongly condemned his actions.
Human rights bodies, media associations, and lawyers' organizations are expected to defy the emergency, which will pit them against the security forces.
Terrorists may also benefit by attacking a preoccupied army and political forces aligned with Musharraf.
In the event of sustained protests and potential violence, top military commanders may decide to send Musharraf home -- a decision that would not be unprecedented in Pakistan's chronically turbulent history.
The Making of a Murder in Pakistan
Instead, Bhutto had to pay with her life for courageously challenging extremists of all stripes -- from Al-Qaeda and Taliban to the country's religious political parties and military hardliners.
As heir to Zulfikar Ali Bhutto, the legendary democratic leader who was hanged by General Muhammad Zia-ul-Haq's government in 1979, Benazir emerged as a symbol of resistance at a young age -- but languished in jails and exile in the 1980's.
Z. A. Bhutto's legacy was empowerment of the impoverished and defense of ordinary people's rights amid feudalistic politics and military rule.
Rather than bowing to the military junta, he embraced the gallows.
Hours before his hanging, Benazir was allowed to see her father for the last time, writing in her autobiography: "I told him on my oath in his death cell, I would carry on his work."
She largely lived up to the promise.
Her first stint as prime minister (1988-90) was brief and disorganized.
Lt. Gen. Hamid Gul, the former Inter-Services Intelligence (ISI) chief, confirmed that he sponsored an alliance of right-wing political parties to stop her from getting a parliamentary majority.
Information about Pakistan's nuclear program and ISI operations in Afghanistan were out of her domain.
Her second term in office (1993-96) was longer and better, but her government again fell early, owing to charges of mismanagement and corruption.
In reality, machinations by the intelligence agencies also played a part.
The military had developed an entrenched distrust of her, given her position as a popularly supported pro-Western leader who wanted peace with India.
After almost a decade in self-imposed exile, Bhutoo's return to Pakistan in October gave her a fresh political start.
Pakistan had changed, as military dictatorship and religious extremism in the north played havoc with the fabric of society.
A tentative arrangement with Musharraf, together with Western support -- particularly from the United Kingdom and the United States -- eased her return, which hundreds of thousands of people welcomed, though terrorists greeted her with a string of suicide bombings.
Bhutto's contacts with Mushararf's military government drew criticism, but she remained adamant that a return to democracy was possible only through a transition in which Musharraf would give up his military post, become a civilian head of state, and conduct free and fair elections.
To the dismay of some democratic forces, Bhutto stayed the course even after Musharraf imposed emergency rule on November 3 and removed the country's top judges to ensure his re-election.
Indeed, she even persuaded other important political leaders to participate in the planned January 8 election, which she viewed as an opportunity to challenge religious extremist forces in the public square.
She seized that opportunity by bravely traveling throughout the country, despite serious threats to her life, arguing for a democratic and pluralistic Pakistan.
One can understand why religious extremists like Al-Qaeda and Taliban would target her, and the government claims that it is impossible to defend against a suicide attack.
But Bhutto was reportedly killed by a sharp shooter before the terrorist blew himself up.
So, in the eyes of Pakistan's people, and especially of Bhutto's supporters, the intelligence services, either alone or in collaboration with extremists, finally decided to eliminate her.
Whether or not the government was involved, the fact remains that Pakistan has lost a desperately needed leader.
With Pakistan's future in the balance, the West's help and support will be crucial, but that means recognizing that Musharraf is not the only leader who can resolve Pakistan's myriad problems and manage the war on terror.
On the contrary, by nurturing the current environment of instability and uncertainty, Musharraf himself must be regarded as one of Pakistan's biggest problems.
Exorcising Musharraf's Ghost
Unlike Iraq and Afghanistan, democracy is not new to this 60-year-old state, but ethnic cleavages, weak institutions, and religious extremism in the North are perennially destabilizing.
And, while the new government settles in and establishes its priorities, the West, especially the United States, must reassess the impact of its past dealings with Pakistan.
Pakistan's new prime minister, Yousaf Gilani, is a seasoned politician and, more importantly, has Sufi family roots, which is a good omen because of the Sufi tradition of tolerance.
Gilani unequivocally declared in his inaugural address that fighting terrorism is a top priority, and his first decision was to release from house arrest judges deposed by Musharraf.
The respite from the horrendous spate of suicide bombings since the new government assumed power is similarly heartening.
But the honeymoon period is coming to an end.
Already, in Gilani's hometown of Multan, rioters attacked government offices and banks to protest electricity disruptions.
A couple of well-known opposition politicians, a chief minister and a federal cabinet minister of the previous pro-Musharraf government, were publicly thrashed, raising doubts about government control over law and order in the country.
So far, Musharraf has accepted his diminishing stature quietly -- though he has few other options.
The new political leadership, both inside and outside the parliament, has been carefully avoiding a head-on collision with the president.
Interestingly, in the midst of the political transition, Musharraf embarked on a week-long visit to China to lobby for construction of an oil and gas pipeline between China and the Persian Gulf that would be routed through Pakistan.
The deeper question raised by this proposal is whether Musharraf meant to convey a message to the US that Pakistan's priorities were shifting.
The revival of democratic politics in Pakistan will undoubtedly effect Pakistan-US relations.
Pakistan's military links with America appear to remain on a sound footing, so the strategic alliance with the US is likely to continue, perhaps with some nuanced differences over how to fight the "war on terror."
But Pakistani politicians are bound to be influenced by domestic public opinion, which is generally critical of US policies.
Nevertheless, long-term US interests in the region will be better served if Pakistan's democratic forces successfully establish themselves.
A proposal in the US Senate to increase development and education aid to Pakistan could help in winning the hearts and minds.
Meanwhile, President George W. Bush has said that "if another September 11-style attack is being planned, it probably is being plotted in Pakistan and not Afghanistan."
Whether this American intelligence assessment is based on credible information is unknown.
American election-year politics may also be behind this assertion.
But it is significant that Bush decided to voice this view during Pakistan's political transition.
Pakistan must take this view seriously, regardless of Bush's motivations.
The new government should quickly devise a policy to deal with terrorism.
Recent months have seen dozens of suicide bombings and other terrorist activities -- the price of Pakistan's own past blunders, as well as those of the West.
Afghanistan is a prime example, as is the failure to settle the Kashmir imbroglio with India.
Both failures have strengthened domestic terrorist groups.
Pakistan's government appears to be preparing to talk to some of the extremists in the tribal areas, introduce political reforms, and redouble development efforts.
But reference to "talks" makes the West uncomfortable.
American officials have likened this strategy to negotiating with terrorists, and point to a previous round of negotiations that did nothing to stop violence in the tribal areas.
But the new leadership wants to distinguish between al-Qaeda terrorists and religious conservatives and disillusioned Pashtun youth within Pakistan. After all, the victory of the secular Awami National Party (ANP) in Pakistan's North-West Frontier Province is a strong indication that people there have rejected religious political forces and violence.
This window of opportunity can be expanded through dialogue and reconciliation with those who are ready to disavow extremism and militancy.
The new Pakistani government needs to explain this to the West in order to keep its support.
The US, meanwhile, should end direct military strikes in the area, even if these are conducted with the knowledge and cooperation of Pakistan's military.
Force has never worked with the Pashtun tribes, and there is no evidence that this has changed.
There are real signs that the new government is considered a credible partner in the tribal areas.
It needs to be given time to find a way out of the endless cycle of violence. 
Pervez Musharraf's Long Goodbye
The potential charges are serious: conspiring to destabilize the government that was elected last February, unlawfully removing the country's top judges in November 2007, and failing to provide adequate security to Benazir Bhutto before her assassination last December.
Allying himself with the Bush administration has increased his unpopularity, especially following missile attacks by the United States in Pakistan's tribal areas.
Despite earlier differences on how to deal with Musharraf, Pakistan's leading political parties are now united against him.
Feuding between the Pakistan People's Party, led by Benazir's widower, Asif Ali Zardari, and the Pakistan Muslim League (N), led by former Prime Minister Nawaz Sharif, had given Musharraf a chance to regain some standing after his allies were defeated in the February elections.
American reluctance to abandon Musharraf -- together with prolonged electricity shortages, which made the new government appear incompetent -- also raised his hopes.
Musharraf may be counting on the army, his primary constituency, to bail him out of this crisis.
Though such support remains a possibility, it is unlikely that the army leadership will extend itself on his behalf.
Though a protégé of Musharraf, the army's chief of staff, General Ashfaq Kayani, is a professional soldier for whom the army's institutional interests are more important than the political interests of his former army boss.
Kayani has repeatedly declared that the army will not interfere in political affairs, and that the parliament and constitution are supreme.
Even if the army is tempted to step in on Musharraf's behalf, it has been chastened by political developments during the past year.
The entire legal community arose to demand restoration of the country's judges and reinforcement of the rule of law.
The public's demand for free elections and the resulting creation of a democratic government have forced the military to accept the public will.
The army has also paid a heavy price for Musharraf's approach to the war on terror. Suicide bombers have struck repeatedly at military installations and personnel around the army's headquarters in Rawalpindi.
An increase in deadly attacks on army convoys in the Pakistan-Afghanistan tribal areas has also pushed the army away from Musharraf.
Though the army has reaped a financial windfall from US military aid, and has targeted many foreign militants allied with al-Qaeda in the region, its performance against Pakistani militants has been mixed at best.
Consequently, the prestige of the Taliban and other militant groups operating in the area has grown.
In this context, the army, seeking to avoid sole responsibility for reverses, wants a popular government to take charge of policy. No such government can emerge if the elected parties are unseated.
Nevertheless, there are signs of disagreement on important matters between the government and the army.
The military recently blocked a government move to place Pakistan's infamous intelligence service, the ISI, under the control of the interior minister rather than the prime minister.
Musharraf backed the military's opposition to this reform, gaining some gratitude from military commanders.
During Prime Minister Yousaf Raza Gilani's recent visit to the US, President Bush repeatedly said that his administration supports Pakistan's democracy, a policy since reiterated by Secretary of State Condoleezza Rice.
This indicates that the US will not back Musharraf in any confrontation between him and Pakistan's democratic forces. Most Pakistanis hope so.
Musharraf must assess what will be his legacy.
Rather than trying to face down impeachment and prolonging the crisis, he should recognize that Pakistan cannot afford more instability, and that giving up honorably will bring him some respect.
For the sake of argument, even if Musharraf faces impeachment and by some stroke of luck is saved from being thrown out of office, his future will be bleak.
In March 2009, the current ruling coalition will gain more seats in the Senate, and the government would almost certainly try to impeach him again.
Moreover, any attempt by Musharraf to dislodge the government by using his constitutional authority would trigger another election, the results of which would not be much different from the vote in February.
It is time for Musharraf's friends in the West to press him to serve his country one last time, by avoiding confrontation with his country's democratic forces and calling it quits.
South Asia at War
Regional conflict, involving all of the region's states and increasing numbers of non-state actors, has produced large numbers of trained fighters, waiting for the call to glory.
Within both India and Pakistan, economic disparities and a sense of social injustice have created fertile ground for conflict.
The use and abuse of religious fervor, whether "jihadi" or "Hindu fundamentalist," are striking at the roots of communal harmony across South Asia.
Much of the current trouble can be traced to Afghanistan, whose tragedy could never have remained confined within its designated borders.
The dynamics of the region changed when the Afghan freedom fighters of 1980's were converted into "mujahidin" through a criminal enterprise in which both the West and the Muslim world happily participated.
Pakistan, always insecure about India, became the hub of this transformation.
The West thought it had moved on after the fall of the Soviet empire, but the region -- and increasingly the global community -- continues to pay a heavy price for this unholy project.
The ills of two decades in South Asia can be attributed to the Afghan jihad years: the rise of the Taliban, the dominance of Pakistani-sponsored religious fanatics within the Kashmir freedom movement, and the eventual spread of sectarian conflict within Pakistan.
In Afghanistan, Pakistan's military and intelligence agencies sought "strategic depth" against India.
Moreover, they wanted payback for India's role in supporting the revolt in the 1960's and 1970's that led to Bangladesh's independence from Pakistan.
India is not blameless here.
It was pursuing a two-pronged strategy -- making the argument that all was well in Kashmir (a blatant lie) and supporting ethnic confrontation in Pakistan.
Violent intelligence wars between Pakistan's Inter-Services Intelligence (ISI) and India's Research and Analysis Wing (RAW) have become a brutal reality in South Asia.
Lashkar-e-Taiba (LET, Army of the Pure), a Pakistan-based militant outfit supporting insurgency on the Indian side of Kashmir, was a product of these years.
According to Indian investigators, this group is implicated in the Mumbai attacks.
Pakistan's clampdown on its offices throughout the country essentially confirms this conclusion, though Pakistan is publicly demanding more evidence.
LET was the armed wing of an Ahle-Hadith organization, a South Asian version of Saudi-style fundamentalism, whose purpose was to hit Indian forces in Kashmir.
Though the group was banned by former Pakistani President Pervez Musharraf after the terrorist attacks on the United States of September 11, 2001, some of its operators went underground and others joined Jamaat-ud-Dawa (JuD, Party of Proselytizing) -- an organization that runs religious educational centers and charities.
Given its established linkages with Pakistan's intelligence outfits, the group was never targeted strongly.
In fact, it was even involved in rescue operations on the Pakistani side of Kashmir after the devastating 2005 earthquake there.
What Pakistan's military strategists failed to realize was that groups like LET and JuD had local agendas as well -- converting Pakistan into a theocracy.
Hafiz Saeed, the founder of LET and currently the head of JuD, once proudly argued that: "We believe in the Clash of Civilizations, and our Jihad will continue until Islam becomes the dominant religion."
JuD, along with many other like-minded groups, radicalized thousands of young Pakistanis.
Through its web and print publications, it also routinely challenged the teachings of the Sufi mystics who originally brought Islam to South Asia by promoting pluralism and love for humanity.
Even while demanding strong action against JuD, India must recognize that Pakistan is itself a victim of terror.
Any military confrontation with Pakistan will only empower Pakistani radicals.
India also needs to look inward, as anti-Muslim violence in Gujarat and the activities of Hindu fundamentalist groups have potentially created recruitment opportunities for Muslim extremists within India.
An amicable resolution of the Kashmir conflict will only help improve peace prospects in South Asia.
For Pakistan, a concerted and sustained effort against all extremist groups operating in the country is necessary.
Militants of all stripes must be decommissioned completely and transparently.
Equally important for Pakistan is to expand and reform its public education system and improve basic services so that radical groups cannot lure young people into their educational and welfare networks.
Otherwise, the status quo can gravely threaten Pakistan's -- and South Asia's -- future.
The Fight for Pakistan's Soul
For now, the Taliban are on the run, some with shaved beards and some in burqas , to avoid being recognized and thrashed.
The reason is simple: increasingly, people across Pakistan support the army's action.
This support persists despite the terrible humanitarian cost: more than 1.5 million internal refugees.
This round of fighting was preceded by a negotiated calm, as the government sought to quell militants in Pakistan's tribal areas by striking a deal with the Taliban leader, Sufi Mohammad.
The deal, which instituted a version of Sharia law in the region in exchange for a commitment that militants would lay down their weapons, was blessed by the comparatively liberal Awami National Party (ANP), which governs the North-West Frontier Province (NWFP), where Swat is located.
But the Taliban's assurances of a lower profile were upended by two incidents that exposed its real face.
First, private news channels broadcast across the country a video clip recorded on a cell phone of the public flogging of a 17-year-old Swat girl.
This gave the public a stark sense of what Taliban justice really meant.
Then, Mohammad was interviewed on GEO TV, where he explained his political views.
According to Mohammad, democracy is un-Islamic, as are Pakistan's constitution and judiciary, and Islam bars women from getting an education or leaving their homes except to perform the Hajj in Mecca.
Religious conservatives were stunned.
Leaders of the religious parties rushed to denounce Mohammad's views.
The Pakistani media revisited a famous comment by Mohammad Iqbal, the poet-philosopher who devised the idea of an independent Muslim state in Pakistan.
"The religion of the mullah," he said, "is anarchy in the name of Allah."
Still, it's not over until it's over -- and in the short term a lot depends on the state's capacity to hold the Swat area and re-establish civilian institutions there.
And, even if the state succeeds, re-asserting control over Swat will only be the first step.
The Taliban is spread throughout the NWFP and the Federally Administered Tribal Areas.
"Punjabi Taliban" militants from the fighting in Kashmir against India continue to shuttle between the Punjab heartland and the Northwest Territories, posing another serious challenge to government authority.
In the long-term, however, what really matters is whether the Muslims of South Asia will be able to roll back the spread of Talibanization altogether.
The answer to that question lies within the various Muslim communities of the region, not just in Pakistan.
Afghanistan faces an election later this year.
A clear and transparent vote will make a real difference in establishing the credibility of the Afghan government.
In Pakistan, the democratic transition, after years of military rule, is still not complete.
There is much hope, though, in the vibrancy of the Pakistani media, as well as in the energy that the legal community generated last March in restoring deposed Chief Justice Iftikhar Mohammad Chaudhry to his seat on the Supreme Court.
Then there is the Pakistani army, the country's "super political party."
To a large degree, Pakistan's relations with India, Afghanistan, and the United States depend on the military.
Army commander Ashfaq Kiyani has shown no interest in taking over the state, as his predecessor, General Pervez Musharraf, did.
But the army must accept its subservience to Pakistan's political leadership.
The army command must finally recognize that repeated military interventions have not served the country well.
Most significantly, in the face of martial law and political assassination, Pakistanis have not given up their dream of democracy.
A living example of this is Afzal Lala, a Pashtun politician associated with the Awami National Party who, despite all the threats from the bloodthirsty Tehrik-e-Taliban Pakistan, remained in Swat through the recent fighting.
Democracy will be decisive because it generates investments in education, health, and economic empowerment that reward ordinary voters.
Talibanization gains ground when people lose faith in the capacity of the modern state to improve their lives.
While poor law enforcement needs urgent attention, counter-terrorism is never solely a military affair.
Financial pledges from the US and the "Friends of Pakistan" consortium (the European Union, China, and Japan) are important, but when it comes to investing wisely in development projects, Pakistan's track record is nothing to be proud of.
Effective oversight from donors and Pakistan's private sector will be critical.
Only one condition should be imposed on aid for Pakistan: the first money should be spent on rebuilding all the bombed-out girls' schools in Swat. If need be, the army should guard these schools around the clock.
Cradle of Contradictions
The American-led invasion of Iraq was supposed to begin a process of transformation across the Middle East.
Syrian poet and political analyst Ammar Abdulhamid suggests that a thaw - if not quite change, then perhaps its precursor - is now occurring in Syria.
Life in Syria has never been simple.
The realities, meticulously hidden under a veneer of homogeneity, have always been too complex for even the most discerning of scholars.
The peaceful coexistence between the country's myriad ethnic, religious, and tribal groups is the result of a complex layer of concessions, compromises, tacit agreements, and other pragmatic arrangements perfected over the centuries.
Over the last few months, life has become even more complex, as both the country's ruling elite and civil society advocates seem more bewildered than ever about the country's future.
Each group is focused on determining its particular privileges while preserving the territorial integrity and national unity of a country growing increasingly fractious and fragile.
These developments, of course, follow from the US-led invasion of Iraq, which turned a vague and distant threat into an imposing neighbor whose intentions towards Syria's Baathist regime are anything but friendly.
Consequently, the need for drastic change in the structure and style of a previously reality-impaired regime has finally begun to sink in.
As a result, Syria's various political power centers have embarked on a desperate search for a vision to promote change yet allow the existing order to survive.
Because Syria's rulers have neither the ability nor the know-how to produce such a vision, civil society has been granted some leeway for action.
Clearly, this expansion of civil society's operating arena may even turn into open opposition to Syria's rulers.
The point is to allow for some debate to take place in the hope of producing the sorely needed vision of change.
This will give the outside world the impression that serious change is taking place and that the regime should be given the time to see it through.
Crackdowns, detentions, and illegal trials thus exist hand in hand with a growing tolerance for creative initiatives.
Over twenty NGOs have been formed in the last few months.
Many are charities and often include on their advisory boards one or two members with clear government connections (the daughter of a minister or an army general, or, in a couple of notable instances, the President's wife).
Even so, this development is still significant by Syrian standards, as independent initiatives are traditionally frowned upon.
Of real significance here is the press service, All4Syria (www.all4syria.org), created by the Syrian engineer Ayman Abdul Nour.
The service contains an electronic newsletter that includes Syria-related reports and articles gathered from a variety of sources, often including comments by opposition figures at home and abroad.
In its way, All4Syria has provided an indirect conduit for dialogue between government and opposition, which may not have taken place otherwise.
Although All4Syria's Internet site was recently blocked for unspecified reasons, the newsletter continues to be circulated and Mr. Abdul Nour moves in his usual circles unmolested.
I have been involved with the launch of another initiative, the Tharwa Project (www.tharwaproject.com), which I have long envisioned as one way for the Arab region to address its problems with religious and ethnic minorities.
Although regional in scope and with a colorful international board of advisors, the Tharwa Project (Tharwa means wealth in Arabic) is based in Damascus and will be run from there.
The launch of the Tharwa Project one month ago inadvertently coincided with Kurdish riots that rocked northern Syria.
This, together with the prominence of the advisory board (which includes well-known Egyptian sociologist Saad Eddin Ibrahim, French expert on political Islam Gilles Kepel, and Flynt Leverett, a Brookings Institution Fellow) and the sensitivity of minority rights in general, combined to give the Project national, regional, and international notice.
So far, Syria's authorities have not reacted to the Tharwa Project.
It's probably still too early in the game for that.
But the Project seems to represent the type of activity that can help produce visions for change.
Some in the Syrian government could be aware of this.
Nevertheless, fourteen civil society activists who attempted to organize a special meeting to address the realities of the Kurdish issue in Syria recently received various sentences on charges of working to undermine national unity.
The authorities clearly wish to control the extent of the thaw in Syria's political culture.
But even as such crackdowns continue, more private independent initiatives are bubbling to the surface.
For my colleagues and me, this is the time for hard and continuous work to expand the space of popular participation in the country and region.
We can deliver no judgment at this stage as to where things might be heading.
Everything and anything seems possible.
Still, it is tempting to think that Syria is witnessing a new beginning, and the end of an era whose sins we all bear.
Is Dialogue with Iran and Syria Worth It?
Advocates of the Iraq war lacked an understanding of the complexities on the ground to wage an effective war of liberation and democratization.
As a result, their policies merely ended up eliminating Iran's two major regional rivals: the Taliban and Saddam Hussein's regime. This presented Iran with a golden opportunity to project itself as a regional hegemon, and Iran's leaders are unlikely to let this opportunity slip away.
Advocates of dialogue with the Iranians and their Syrian allies, like former United States Secretary of State James Baker, labor under the delusion that they can actually reach an understanding that can enable a graceful US exit from Iraq and help stabilize that wounded country.
The delusion is based on two false assumptions: that the Iranians and the Syrians can succeed in Iraq where the US has failed, and that the international community can afford to pay the price of ensuring their cooperation.
True, Syria and Iran are playing a major role in supporting Iraqi insurgents, and Syria is still encouraging the trafficking of jihadists and weapons across its borders with Iraq.
But the idea that these activities can be halted at will is naïve.
For one thing, the interests of the Shia communities in Iraq and Iran are not the same.
Iraqi Shia have never accepted Iranian dictates, and many took part in Saddam's war against Iran in the 1980's.
After all, the Iraqi Shia are Arabs, and if they are now willing to coordinate their activities with their Persian counterparts, their main goal will always be to secure an independent course as soon as possible, even while they carry on with their internecine disputes within Iraq.
Iran is in no better position than the US to convince them to resolve their differences.
President Basher al-Assad of Syria faces a similar dilemma.
Although he has opened Syria's border to jihadists and has allowed Saddam's supporters to operate freely there, that choice may not be entirely his.
Syria's aid to Saddam in maneuvering around the United Nations' oil-for food program brought Iraqi money to inhabitants of the border region, who have always been closer in customs, dialect, and outlook to their Iraqi neighbors than to their fellow Syrians.
In the absence of government investment, local inhabitants' loyalty went to Iraqi Baathists who helped improve their lot.
Indeed, even local security apparatuses have been unwilling to comply with dictates from Assad and his clique to seal the borders.
In these cirumstances, neither Syria nor Iran seems capable of delivering anything but mayhem in Iraq.
What, then, would the proposed dialogue between the US and these states achieve other than continue to empower their corrupt yet ambitious regimes?
The story gets more complicated when one considers the UN inquiry into the assassination of former Lebanese Prime Minister Rafiq al-Hariri.
Assad wants nothing more than to see this affair forgotten -- and the proponents of dialogue think that they can give him what he wants in the hope of breaking Syria's alliance with Iran.
But that is merely another erroneous (not to mention amoral) assumption.
The alliance between Syria and Iran dates back more than two decades, and was explicitly reaffirmed by the two ruling regimes as recently as January 2005.
Indeed, the two regimes are now joined at the hip. Assad's recent refusal to attend a summit in Tehran with his Iranian and Iraqi counterparts was a mere tactical move designed to appeal to the proponents of dialogue.
In fact, Iran has invested hundreds of millions of dollars in Syria, and annual bilateral trade tops a billion dollars.
Irani's growing influence over the Syrian security apparatus is well established, and Iran is funding an effort to create Syrian Shia militias to compensate for Assad's sagging support in the army and in the minority Alawite community.
Assad cannot turn his back on all of this.
No deal would be sweet enough, even if it included the return of the Golan Heights.
For Assad and his supporters, survival is more important than sovereignty.
Still, to read the well-known names of commentators and policymakers who are recommending engaging Syria and/or Iran is a testament to how inconsequential and cut off the Western powers have become from the realities on the ground in the world's most turbulent region.
That, it seems, is the price of their arrogance.
Defending America's "Freedom Agenda"
Coming close on the heels of the Annapolis conference, which brought together representatives from all Arab states -- including Syria -- and Israel, many observers regarded our meeting as a signal of the Bush administration's refusal to normalize bilateral relations with Syria or strike any deals or bargains with its regime.
Indeed, these views may not be far off the mark.
For, while talking to us, Bush did not try to mask his disdain for Syria's rulers, and he rejected the possibility of direct talks or any improvement in relations.
As such, the "positive body language" that Syria's ambassador to the United States, Emad Moustapha, said he detected during his brief encounter with Secretary of State Condoleezza Rice during the Annapolis meeting was outweighed by Bush's negative verbal language during our meeting.
And we all know where the buck stops.
For our part, we underscored the worsening human rights situation in Syria.
Indeed, no sooner did our meeting finish, and with the world commemorating International Human Rights Day, the Syrian regime launched a massive campaign of arrests and intimidation directed against some of the country's most prominent dissidents.
Though many were freed within hours, some remain in jail.
This episode also highlights the need for continued emphasis on human rights and democracy promotion.
Whatever the cause of these shortcomings, the lesson that US and Europe policymakers should draw is that the objective -- facilitating democratization and modernization -- remains valid, despite the need for a change in tactics.
Gaza's Crushed Childhoods


Ayman works very hard in school and dreams of a future career. But, with 47 students in his cramped classroom and double shifts the norm, his learning environment is very stressful. Home is no refuge: the recent incursion into Jabalia was 200 meters from where Ayman lives. The shooting and shelling so terrorized his five-year-old sister that she still wakes up screaming at night.

Ayman's experience is all too familiar in Gaza's crowded, crippled neighborhoods, where those who are least to blame for the troubles are suffering the most.
Indeed, among Gaza's 840,000 children -- of which 588,000 are refugees -- Ayman's story is luckier than many. Since the recent escalation of violence that began last month, at least 33 Palestinian boys and girls have been killed and many more injured or maimed -- caught in the crossfire, shot in their living rooms, or struck by explosions in their own backyards. On February 28, four children playing soccer were hit by a missile, which dismembered them so completely their own families could not identify their bodies.
Ayman, his siblings, and all Gaza's children are finding their lives diminished each day -- a cruel, slow suffocation of their spirit and their dreams.
Instead of enjoying expanding horizons, they are trapped in a virtual prison, where things that every child should be able to take for granted are instead being taken away: the right to play, to go to school, to have enough to eat, to have light to study by at night, and to feel safe in their own homes.
The weight of one of the world's longest-running conflicts is resting on their thin shoulders, crushing their childhood and inflicting psychological scars that may never heal.
Palestinians were once reputed to be among the best-educated people in the Middle East; today, after years of violence, isolation, and poverty, their proud tradition of educational excellence has been shattered.
Almost 2,000 children in Gaza have dropped out of school in the last five months. Those who remain must share tattered textbooks and do without crucial resources.

The January 2008 semester exams at schools in Gaza operated by the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) found 50-60% failure rates in mathematics and a 40% failure rate in Arabic -- the children's native language. Despite this, Ayman insists, "I want to be an educated person. I want to be an engineer to build my country."


Let the world recall that Gaza's crisis is a manmade disaster. And let the world take note that conditions are worse today than at any time since the occupation began. Seventy-nine percent of Gaza's households live in poverty; eight out of ten depend on food assistance.
Almost half the labor force is unemployed; local industry has collapsed.
Water and sewage systems are failing; garbage is piling up in the streets.
UNICEF is working around the clock to restore a sense of normalcy for Gaza's youth -- developing remedial worksheets to help children keep up with their studies; creating sports and recreation programs in schools; and working with communities to establish play areas where kids can be kids in safety.
UNICEF works with partners to get water, hygiene, and medical supplies to households and health facilities.
And UNICEF-supported counseling teams are spread across the area, helping Palestinian parents and children cope with the burden of stress.
But, while UNICEF is doing all it can to comfort those in the midst of Gaza's madness, only political leaders can bring the dreadful nightmare to an end. It is time for new engagement. The siege must be lifted.
The killing of civilians has to stop, on both sides.
Palestinian and Israeli children deserve to grow up in peace. And leaders on both sides, supported by the international community, must join in the kind of honest dialogue that is the only viable path toward achieving it.
Ayman's father quietly says, "My children are my hope." The children of Gaza are a light in the darkness. They deserve a chance to shine.
Europe's Second Chance in the Balkans
The decision on Kosovo may not imply the prospect of renewed large-scale conflict, but it does raise serious questions for Europe's relations with Russia and the United States, as well as for stability throughout the Balkans.
While the US has a major stake in the outcome, EU countries obviously have the most significant interests in the region, and perhaps this time they will assume a corresponding leadership role.
For at least the next two months, the United Nations Security Council will debate a blueprint for Kosovo's future, arduously worked out during a year of "negotiations" between the governments in Belgrade and Pristina by UN envoy and former Finnish president Martti Ahtisaari.
The bluebrint provides for Kosovo's "supervised independence," maximum protection for Serb and other minorities, and a supervisory role for the EU.
Ahtisaari's proposal is an acknowledgement that no agreement between the parties is possible, and that there is no constructive alternative to Kosovo's independence.
Together with the US, the EU collectively has rallied around the Ahtisaari proposal.
But individually, a number of European countries -- Spain, Greece, Italy, Cyprus, Romania, Slovakia, and Austria -- are skeptical or negative toward Kosovo independence, which raises profound questions about the EU's resolve.
Meanwhile, Serbian Prime Minister Vojislav Kostunica is waging a tireless and remarkably effective diplomatic campaign denouncing both Ahtisaari and his proposal.
He has strengthened the position of many in Europe and elsewhere who are skeptical of challenging a country's territorial integrity or who still claim to believe in a negotiated settlement.
More worrisome is the current uncertainty about whether a shaky Europe will stand up to Russia, upon which Serbia depends to maintain sovereignty over Kosovo.
So far, the Kremlin has resolutely stated that it will accept only a settlement agreed to by both parties, in effect endorsing Serbia's position.
While conveying the possibility of a veto, Russia's current strategy is to delay a Security Council vote as long as possible by prompting a new fact-finding mission to Kosovo, which will most likely be followed by renewed insistence on another effort to negotiate a settlement.
Serbia welcomes delay in the hope that this will stimulate violence by frustrated Kosovars, thereby increasing Europe's opposition to independence and bolstering Serbia's dedication to maintaining the status quo, or, as a last resort, to partitioning Kosovo.
Some European countries apparently believe that they can maintain an EU consensus in support of Ahtisaari's plan but allow Russian foot-dragging on the grounds that delay is not unreasonable and something better may turn up with additional negotiations.
But, by adopting such a stance, they thwart their own envoy and may well stimulate the violence they profess to abhor.
History offers little consolation.
The EU's handling of relations with Serbia in the past only encouraged intransigence.
Instead of repeatedly making clear that Kosovo independence is an indispensable requirement for EU membership -- so important to Serbia's modernization and Balkan stability -- EU leaders like Javier Solana laud Kostunica as a great democratic leader.
They relentlessly but unsuccessfully pressured Montenegro's leaders to remain in a dysfunctional union with Serbia, condoned Kostunica's dubious 2006 referendum on a new constitution enshrining Kosovo as a part of Serbia, and weakened demands for Serbia's cooperation with the International Criminal Tribunal in The Hague.
Realizing Ahtisaari's proposal will depend on EU solidarity and persistence, coupled with strong American support, to manage the vicissitudes of UN debate, lobby skeptical non-permanent Security Council members, such as Indonesia and South Africa, and persuade Russia to abstain rather than exercise its veto.
Many believe that Russia will not risk its relations with Europe and the US, ultimately abstaining if Western countries hold firm.
But Russia appears to be in a Gaullist mood, and has other outstanding issues causing friction with the US and Europe.
Putin's Russia is not Yeltsin's Russia, when the West could simply shunt aside Russian concerns.
Europe is vulnerable on many fronts, particularly in view of its dependence on Russian energy, while America's weakened presidency has diminished US influence in Russia.
If Russia does veto the Ahtisaari plan, the EU's united facade will likely fracture, with many European countries refusing either to join the US in recognizing an independent Kosovo without the UN's blessing or to send a supervisory mission there.
That would open a new and tumultuous era in the Balkans, with more than Kosovo at stake.
Indeed, with the UN and the Western alliance in disarray, the region could fall victim to further Russian policy mischief.
Putin's Balkan Mischief
At every turn, Russia has challenged Western efforts to facilitate Kosovo's independence.  After a year of negotiations between Serbia and Kosovo, President Vladimir Putin's Kremlin rejected the UN mediator's report recommending supervised independence, prevented the Security Council from accepting that report, and insisted on three additional months of negotiations between Serbia and Kosovo -- even after compromise became impossible.
Three weeks ago in the UN Security Council, Russia again insisted that any agreement required the approval of both Serbia and Kosovo, and that further negotiations were necessary.
Russia knows that such negotiations will be fruitless, but believes that another seemingly innocent appeal for more talks would strain EU unity, which appears to be a vital goal for Putin.
Further delay might also generate violence in Kosovo and undermine international support for independence.
Putin's hatred of the Yeltsin era's "subservient" relations with the West fuels his opposition.
But the West's delay in resolving Kosovo's status permitted that opposition to gain traction.
Indeed, the West has consistently misread Russia's intentions on Kosovo.
Many claimed that the Kremlin was delaying the inevitable but ultimately would not block independence.
Now, at the eleventh hour, Russia is sticking to its obstructionist position, and its presidential election in March will likely reinforce anti-Western postures.
So what will Putin do when the United States and most European Union members recognize an independent Kosovo in the coming months without a UN blessing, as they now plan?
It is unlikely that the Kremlin would attempt another military intervention in Kosovo (their effort in 1999 to land troops at Pristina airport was a fiasco), but it has a range of options that must give the West pause.
Kremlin support has made Serbia's nationalist intransigence over Kosovo effective.
Russia has said that it will not give Serbia a blank check, but it will likely support the Serbian government's efforts to isolate and destabilize an independent Kosovo.
While Serbia has resisted partition of Kosovo, Russia would also support a Serbian proposal to partition the Serb-populated north, an effort that would open up a Pandora's box of possible partition of Serbia, Bosnia, and Macedonia.
Such a proposal could get some support in Europe and elsewhere as a seemingly appropriate compromise, even if it would destabilize the Balkans once more.
Russia will certainly continue its diplomatic efforts to persuade the world that negotiations are the only way to solve the problem, and that it cannot be solved outside the UN.
That will attract support among many UN members, including those that have major dissatisfied ethnic minorities.
Russia could also react beyond the Balkans, most obviously in the Caucasus, with its breakaway regions, particularly in Georgia.
A declaration of independence by Kosovo will likely bring a similar declaration from Georgia's breakaway Abkhazia region, which Russia could well recognize.
If Georgia takes military steps to prevent that, Russia's military would likely react with force, creating a situation that could get out of control.
While the US and the EU do not want to worsen relations with Russia, they cannot retreat in the face of Russian obduracy; security in Europe is at stake.
But they must also continue to try to preempt confrontation with Russia on all fronts.
The West should make clear to Serbia that it will react vigorously against any efforts to promote violence or partition Kosovo.
Dispatching additional NATO troops, in addition to the planned EU mission, to supervise Kosovo independence would be helpful.
Putin's Russia, which pays little attention to the rule of law, cloaks its diplomatic effort in the guise of adherence to international law, in particular UN Security Council resolution 1244, which ended the 1999 Kosovo war.
A long overdue diplomatic offensive needs to be launched to undercut Russian arguments as well as remind the world of what happened in Kosovo.
Resolution 1244 does not state that Kosovo must remain under Serb sovereignty, as Russia and Serbia insist, nor does it preclude independence.
Indeed, any reasonable reading of the resolution -- especially in the context of the conflict-ridden Balkans over the past two decades -- would acknowledge that independence would satisfy the resolution's intent and the purpose of sustaining UN supervision of the province for the past eight years.  
In the case of Abkhazia, the West should reiterate the sui generis nature of Kosovo and highlight the tremendous efforts it has undertaken there since 1999.
The world must make clear that Russian military involvement in Abkhazia is unacceptable, while also restraining Georgia's government from reacting militarily to any provocation.
How Russia reacts to Western support of Kosovo's coming declaration of independence will test how far we have progressed since the Cold War.
Through careful management of Kosovo's independence process, and attentiveness to opportunities to improve relations with Russia, the West might mitigate the worst consequences of this confrontation.
Regardless, a new Cold War might just get a little colder.
Palestine's War of Generations
Yasir Arafat may be dead, but his Machiavellian strategies linger.
Ever protective of his position as sole leader of the Palestinian people, Arafat sought to block any means by which a potential rival could challenge him.
But in protecting his position, Arafat also blocked the appointment of a successor in his lifetime.
In the first weeks after Arafat's death, that seemed not to matter.
Mahmoud Abbas, Arafat's longtime deputy and the architect of the Oslo accords, quickly secured the backing of Fatah, the PLO's core body.
A seamless transition appeared possible.
But now Marwan Barghouti, Fatah's leader in the West Bank during the current Intifada, has decided to contest Abbas for the presidency of the Palestinian Authority (PA) from his Israeli jail cell.
Facing economic stagnation and what Palestinian Authority Prime Minister Ahmed Qurei calls "the anarchy of weapons," a succession struggle is the last thing Palestinians need.
Any new leader must spur the economy, enforce the rule of law, fight corruption, unify the PA's security agencies, and preserve public safety -- and he must do so quickly or lose authority.
Abbas (also known as Abu Mazen) represents the Old Guard of Palestinian politics.
But the Young Guard -- those who led the first Intifada (1987-1993), as well as those making their names in the current Intifada -- want a share of power.
Abbas will thus need to find support within this rising generation of nationalist leaders if he is to succeed.
Resolving this generational struggle peacefully will require democratic elections within Fatah for membership of both the Revolutionary Council and the Central Committee.
The Sixth Fatah Congress, the first in sixteen years, will take place in August 2005 and will seek to reconcile the conflict between the Old and Young Guard.
Unlike Arafat and his fellow exiles, Barghouti, the most prominent leader among the Young Guard, grew up under Israeli occupation, and was arrested and detained several times.
Barghouti's popularity also stems from his refusal from the beginning to take any office in Arafat's corrupt PA and its institutions.
Although he was elected to the Palestinian Legislative Council in 1996, Barghouti's reputation soared when the current Intifada began in September 2000. His support for attacks against Israeli soldiers and settlers in the occupied territories, which he argues is legitimate under international law, has earned him immense popularity among Palestinians, but also a sentence of five life terms plus 40 years in an Israeli prison.

Whether he can be released from prison is now a source of intense speculation.
But Barghouti has begun speaking out from his jail cell on the political situation, and his presence is growing.
His decision to challenge Abbas means that the "secular" forces within the Palestinian movement may be divided at a time when rivals with a robust Islamic agenda -- principally Hamas and Islamic Jihad -- are challenging them.
Both Hamas and Islamic Jihad are highly disciplined organizations, exercising tight control over their political and military wings.
Although Hamas has been weakened by Israel's targeted assassinations of Sheik Ahmad Yassin and Abdel-Aziz Rantisi, it retains strong military capabilities and popular support ranging between 25-30%, making it the second leading faction in the West Bank and Gaza.
Hamas has declared that it will not nominate its own candidate for the PA presidency.
Hassan Yusuf, a Hamas leader who was recently released from an Israeli jail after 28 months of administrative internment, explained to Al-Jazeera that "if Hamas assumed the leadership at this time, it would be vilified and isolated by the international community, and then the people would suffer."
Although Hamas is boycotting the election, many Hamas sympathizers will vote for the candidate most committed to defending the Palestinians' core demands.
Here Hamas members are simply reiterating Arafat's views, which will continue to limit the concessions any new leader can make.
Arafat set forth a blueprint including an independent Palestinian state in the West Bank and Gaza, with East Jerusalem as its capital, and a fair and just solution to the refugee problem.
Changing leaders will in no way alter these conditions for making peace.
So the question is this: who will Palestinians, in particular the Hamas constituency, think is better able to secure these goals, Abbas or Barghouti?
That answer will most likely determine who will be the PA's next leader.
But in the end, Israel will also have to make a choice, because peace will require Israeli concessions, not just compromises from the Palestinians.
Israel must freeze its settlement activity in the West Bank and stop constructing its barrier wall on Palestinian territories.
Israel must also free Palestinian prisoners, remove all checkpoints between Palestinian villages and town, and redeploy its forces to positions held prior to September 28, 2000, in accordance with phase I of the Road Map.
Either Abbas or Barghouti would certainly meet such a demonstration of good faith with good faith of his own.
Waiting on Hamas
The original July 17 election date had put Fatah in a difficult position.
With its public image tarnished by infighting and corruption, Fatah is looking toward its August 4 convention as an opportunity to unify for the electoral campaign.
Hamas is well aware of Fatah's disarray, and accuses Abbas of postponing the legislative elections for partisan, not national, reasons.
Long the backbone of the Palestinian national movement, Fatah has been the dominant faction in the PLO.
Bolstered by the Oslo Accords and the establishment of the Palestinian Authority (PA) in 1994, Fatah's popularity among Palestinians has drained away over the past decade, sapped by charges of corruption and incompetence, as well as by the eruption of the second intifada in late 2000.
Fatah leaders are justifiably worried that their party's current unpopularity and infighting foretell a crushing defeat in the parliamentary election.
By contrast, Hamas has entered electoral politics only recently, but it is fresh from impressive victories in the recent municipal elections in the West Bank and Gaza.
It is therefore expected to perform strongly in the voting for the Legislative Council, particularly in the Gaza Strip.
None of this was acknowledged in Abbas's announcement of the election's postponement.
Abbas said that the decision came at the request of the Palestinian Central Election Commission, after the Commission declared that it could not meet the deadline, because the election law had not yet been approved.
The Commission says that it needs at least two months after the law's adoption to organize the vote.
Although the Legislative Council passed the election law in its third and final reading, Abbas rejected it, a decision that falls within his presidential prerogatives.
Abbas wants all the candidates to be included on national lists, which would allow for proportional representation of all major Palestinian factions and groups.
The Hour of Hamas
Abbas and other PA officials stress the need for "one regime, one legal system, and political pluralism."
Abbas also wants weapons in only one set of hands -- those of the Palestinian Authority.
He successfully persuaded Palestinian militants to hold their fire and show Israelis and the world that dismantling settlements need not involve Israeli-Palestinian violence.
But can he translate this achievement into an extended ceasefire, peaceful elections, and consolidated PA rule in Gaza and the northern West Bank? Failure to do so will lead to yet another defeat for the legitimate Palestinian aim of attaining a viable state.
The diffculty of the task ahead can hardly be overstated.
Hamas has launched an intensive media campaign to appropriate the Israeli withdrawal as a victory of its "armed struggle."
The campaign and its themes reflect an internal fight for control of the Gaza Strip and other PA-administered territories, and stresses Hamas' determination not to be disarmed and to continue the "armed struggle" in the West Bank.
Hamas also revealed two "military secrets" during the evacuation.
The first is a new missile named Sajil, which has a range of 15 kilometers and can reach more Israeli towns and cities.
The second is the "Qassamits," young women who are engaged in combat training.
Hamas timed these revelations with the disengagement to create the impression that its intensifying military strategy had prevailed.
According to one Hamas slogan in the streets of Gaza during the Israeli withdrawal, "Four years of sacrifices weigh more than ten years of negotiations."
Similarly, Mohamed Deif, the leader of Hamas's military wing, asserted on a recent videotape that the lesson of Gaza is that Israel can be forced out of the West Bank, Jerusalem, and Haifa.
All of this is designed to reinforce one point: the Gaza withdrawal belongs to Hamas.
A survey published on a Web site associated with Hamas claimed credit for killing 54% of all the Israelis who died as a result of Palestinians' armed struggle, and this body count is Hamas's claim to success.
In these circumstances, who will administer the evacuated areas until elections are held?
How will tax revenues be divided between those who claim leadership of the resistance and those who claim exclusive legitimacy to govern?
These are not problems that can await resolution. Someone must decide soon, for example, about the division of the land and the apartments to be built in what is already known as "Khalifa bin Zaid City," located on a former Israeli settlement in the Gaza Strip.
There is no answer yet to any of these questions.
Whereas Hamas has demanded establishment of a Palestinian administration to supervise the areas vacated by Israel, Abbas has rejected this, agreeing at most to a "monitoring committee" in which representatives of Hamas will participate.
In any case, there will be no "division of areas" until Israel withdraws completely and the ruins are cleared away.
Then the bitter political struggle will begin in advance of the elections.
No matter what happens the day after Israel's final Gaza disengagement, one cannot escape the fact that Hamas's military options have diminished greatly.
Construction of the separation wall on the West Bank has made it almost impossible for Hamas fighters to reach Israel proper.
In addition, after the reoccupation of the West Bank's cities in April 2002, Israel arrested about 7000 Palestinians who are allegedly associated with Hamas, Fatah, and other Palestinian groups.
Continued armed struggle by Hamas will not be easy.
Hamas knows this, and thus is focusing its attention on the Gaza disengagement, seeking to exploit this victory by demanding a share in the post-disengagement order.
It has agreed to participate, for the first time, in the election of the Palestinian Legislative Council, which is due in January 2006, and it is expected to win a large number of seats.
This would, of course, cement its central role in Palestinian politics -- and it would just as surely exacerbate the challenge facing Abbas.
The Hamas Earthquake
Hamas won 76 of 132 seats in the Palestinian Legislative Council, and can count on support from four independent deputies.
Overall, that's 60% of the seats in Parliament, won in nearly every district in the West Bank and Gaza.
Hamas entered electoral politics only recently, but its massive victory was preceded by wide success in municipal elections.
Hamas's political moment has come.
Under Palestinian law, Mahmoud Abbas, the Palestinian president, must now ask Hamas to form a new government.
For their part, Fatah officials seem unwilling to join a Hamas-led government.
Although Hamas has said that it would seek such a coalition, Fatah's humiliating defeat has left it with little credibility as a governing partner.
So far, Fatah's senior leaders have declared that they will be a loyal opposition in Parliament, leaving governmental responsibility to Hamas.
Instead, they will have to focus on rebuilding and reenergizing Fatah.
Hamas is well aware of the shock that its victory has produced.
If Fatah refuses to join a coalition, Hamas may opt for a government of independents and technocrats.
It is unlikely that Hamas will form a government composed of hardliners.
The political, security, and economic circumstances of the Palestinians require a government focused on solving problems, not ideological purity.
The most urgent challenge facing the new government is rampant lawlessness and anarchy throughout Palestinian society.
Murder, kidnapping, and extortion have reached record heights.
Armed individuals resort to kidnapping to get jobs, free family members from prison, and exact revenge.
Often, the people involved in these crimes belong to local gangs or even to the militias of large clans.
In opposition, Hamas adamantly refused to collect illegal weapons.
Now, it will have to deal with a Palestinian society that is armed to the teeth, with poverty rates reaching 70% and unemployment at 35% .
Having benefited from overwhelming political rejection of Fatah, Hamas will now be judged by how it uses its new authority.
For the first time, a political clock is ticking for Hamas.
Senior Hamas officials are well aware of the challenge, and have promised a complete overhaul of Palestinian public services and administration.
More than anything else, Hamas's success in the coming months will be measured by its response to these issues.
Will Hamas be able to root out corruption and incompetence, and deliver services fairly and efficiently?
How will its election affect Palestine's foreign aid inflows, which form major component of the national budget?
Initial international reaction to the Hamas victory has been severe.
The Bush administration has declared that it will not deal with a Hamas government, because Hamas remains committed to Israel's destruction.
This, indeed, is the language of Hamas's 1988 covenant.
Interestingly, however, Hamas's election platform combined different approaches to the issue of a Palestinian state.
On the one hand, Hamas agreed for the first time to the establishment of a Palestinian state in the West Bank and Gaza, with East Jerusalem as its capital. On the other hand, the platform repeats Hamas's refusal to relinquish even an inch of historic Palestine.
Whether Hamas can actually be transformed into a more moderate organization is impossible to say right now.
But it is clear that Hamas is now vulnerable to public opinion and, as a governing authority, will have to deal with the international response to its victory.
Immediately after the election, a senior Hamas official, Mahmoud al-Zahar, said that Hamas would maintain the cease-fire with Israel begun last February, if Israel did the same. Hamas may be signaling that it will not provoke Israel.
Perhaps its governing responsibilities will push Hamas toward ongoing discussions with the United States and the international community.
In any case, despite the election results, and even without Fatah in government, Abbas remains in charge of negotiations with Israel.
He has quickly called for a revival of peace talks, although Israel, like the US, has refused to deal with Hamas.
Palestinians have entered uncharted waters.
They turned out in droves to vote in an election that former US President Jimmy Carter described as honest, fair and unmarked by violence.
They elected a party which called for "reform and change" in response to a decade of violence and lawlessness.
And Palestinians accepted Hamas's view that negotiations based on the Oslo Accords could not achieve Palestinian rights and political ambitions.
Victory achieved, Hamas will take on the responsibility for the Palestinian side in the Israeli-Palestinian conflict.
With the Palestinians' future at stake -- not to mention the future of Israel and the Middle East -- no one can say if Hamas is up to the task.
Hamas and Fatah at the Crossroads
Since Hamas was founded in the early 1980's, it has refused to come under the leadership of the Palestine Liberation Organization (PLO).
Hamas's victory in the parliamentary election earlier this year -- a democratic watershed -- demonstrated that it had come of age politically.
For the first time in Palestinian history, a religious party is dominant.
But Fatah has not accepted defeat, while Hamas is convinced that elements within Fatah agree with Israeli and American plans to topple the Hamas government.
Abbas remains the Palestinian president, and the Basic Law makes him commander of all Palestinian security forces.
However, while most official security forces remain loyal to him, over the past year Hamas has created an alternative security structure, built around a 4000-member "Operational Force."
Moreover, Hamas has announced plans to recruit 1,500 additional security personnel for the West Bank, Fatah's stronghold.
In recent weeks, the two sides have clashed frequently across the Gaza strip, heightening tensions further.
The confrontations have come at a time when Abbas has been trying to persuade Hamas to moderate its anti-Israel stance and ally with Fatah in a national unity government.
Abbas believes that Hamas's acceptance of negotiations with Israel is the only way to break the international sanctions that are devastating Palestinian society.
Despite this, both sides are building up their forces.
Intelligence reports suggest that Hamas is smuggling weapons and explosives from the Sinai into the Gaza Strip at an accelerated pace.
The United States, Israel, and some Arab governments plan to arm and train forces loyal to Abbas, especially his presidential guard. They want to prepare Abbas's forces in Gaza for a confrontation with Hamas, which they believe is inevitable.
Israel is considering Abbas's request to transfer arms and ammunitions from Egypt and Jordan in hopes of bolstering his loyalist forces.
There is also an American proposal to allow the Badr Brigade -- a wing of the Palestine Liberation Army that is currently stationed in Jordan -- to relocate to the Palestinian territories as Abbas's rapid reaction force in Gaza in anticipation of a feared civil war.
The Badr Brigade is composed of several thousand Palestinians, mostly long-time PLO activists.
As the maneuvering continues, Israel and Egypt find themselves working together to bolster Abbas and Fatah.
With the Gaza Strip in its backyard, Egypt has already mediated several times between Hamas and Fatah, and has been trying, so far unsuccessfully, to arrange a swap of prisoners with Israel following Hamas's abduction of Israeli soldier Gilad Shalit.
But Egypt's government is angry with Hamas for opposing the formation of a coalition government.
Indeed, the seizure of Shalit deepened the rift between Hamas and Fatah, which believes that the abduction was staged in order to sabotage discussions about a national unity government.
More generally, Egypt is concerned that Gaza is becoming politically radicalized and may be transformed into "Hamastan."
This, Egypt fears, would give a boost to its own Islamic radicals, against which the government has long fought.
Egypt also worries about a possible Hamas-Fatah civil war.
Although Hamas has ruled this out, it has shown no hesitation to use heavy force against its opponents.
Likewise, Foreign Minister Mahmoud Al-Zahar of the Hamas-led government says that any dissolution of the government or call for early elections by Abbas would be a recipe for civil war.
Fear of major fighting has already sent many Palestinians into Egypt, leading to the deployment of Egyptian troops on the border to control any mass exodus.
Israel, meanwhile, is worried that Hamas has strengthened its military grip on Gaza, in terms of both fortifications and networks capable of launching Qassam rockets into neighboring Israeli towns.
Israel might not wait for Abbas and his forces, but rather launch a full-scale intervention to weaken Hamas.
Can Hamas and Fatah put aside their differences and form a unity government?
Abbas says that if a coalition government is not agreed upon within the next two weeks, he will dissolve the current government, a move Hamas will not tolerate.
But forming a coalition government is unlikely to ease the tension between Hamas and Fatah.
New confrontations would likely emerge as soon as a new government was formed.
Ironically, the most likely way to avoid large-scale confrontation between Fatah and Hamas is through an Israeli incursion into Gaza.
Facing the Israelis together is the only way that the rival Palestinian groups will postpone their own bloody showdown.
Palestine's House Divided
The Hamas/Fatah face-off marks a dramatic shift in Palestinian politics, whose top priorities until now has been an end to the Israeli occupation and the establishment of an independent state.
It also tremendously complicates peace negotiations, which both the Palestinians and the "Quartet" (the United States, the European Union, the United Nations, and Russia) had premised on maintaining the Gaza Strip and the West Bank as a single territorial unit.
Ironically, these territories were reunited by Israel's victory in the 1967 war, after 19 years of separation.
Previously, Egypt had ruled in Gaza, while Jordan annexed the West Bank.
Under Israel's occupation, and then with the establishment of the Palestinian Authority (PA) in 1994, the territories remained separated geographically, but not politically.
The Hamas takeover in Gaza has -- at least for now -- ended that political unification.
Palestinian President Mahmoud Abbas has now set his conditions for dialogue.
Hamas must withdraw its armed men from all security headquarters they occupied, return power to the legitimate authority, and apologize to the Palestinian people.
Although internal division harms Palestinians' national interest, it is unlikely amid mutual accusations and incitements that dialogue between Fatah and Hamas will be conducted soon.
But the fear that is most consuming Abbas and Fatah is that the conflict with Hamas might spread to the West Bank.
To avoid such a scenario, Abbas has banned all militias and military groups in the West Bank, including his Fatah Party's al-Aqsa Martyrs Brigades.
Abbas has succeeded in convincing Israel to grant amnesty to many Fatah fugitives in the West Bank who will join his security apparatuses.
Abbas has also asked Israel to allow the PLO's Badr Brigade, currently stationed in Jordan, to enter the West Bank.
That would give Abbas an additional 3,000 well-equipped and trained troops.
Following King Abdullah II of Jordan's intervention, Israel appears to have agreed to allow the Badr Brigade's entry with full arms and ammunition.
If Fatah is to become a viable partner for peace and regain its grassroots support, it must reform itself and end the widespread corruption that has undermined its reputation.
Abbas must also share power with more disciplined, younger leaders.
Israel can help Abbas by releasing senior Fatah leader Marwan Barghouti, who is currently serving five life sentences in an Israeli prison.
Owing to his influence with the Fatah militias, Barghouti's release could help Abbas and the discredited Fatah leadership, and boost the younger generation of Fatah leaders.
Israel is divided on how to deal with Hamas, which will also complicate the start of peace talks.
Some Israelis argue that Hamas should be encouraged to establish order in Gaza and provide assurances to its neighbors.
If Hamas can establish order inside Gaza, prevent violence against Israel, and stop missile attacks against Israeli towns and villages, it might avoid Israeli military intervention.
But the dominant view in Israel is that Hamas is a direct threat, unwilling to stop attacks on Israel.
For Israel, last summer's fight with Hezbollah in Lebanon demonstrated the risks of allowing radical Islamists to consolidate their power on Israel's border.
Sooner or later, Israel is likely to deal with Hamas militarily, perhaps even by re-occupying Gaza.
One reason neighboring countries may take part in peace talks is that Egypt and Jordan fear that Hamas could begin actively to support these countries' own Islamic opposition groups.
Moreover, Egypt, Jordan, and Saudi Arabia -- the three main Sunni Muslim regimes -- are concerned that Gaza could provide a base for their regional non-Arab foe, Shiite Iran.
Their fear is based on Iranian support for Islamist groups -- Sunni and Shiite -- in Iraq, Lebanon, and Palestine, as well as its ongoing relationship with Syria.
If the Hamas-Fatah split brings about another territorial partition, Palestinians' national aspirations will suffer their gravest setback in the last half-century.
Although the overwhelming majority of Palestinians reject the use of force to settle this power struggle, many welcome the change in Gaza, where Hamas has cleared the streets of armed militias and restored some law and order.
The Palestinians confront a harsh reality.
Whatever actions are taken to confront Hamas will undermine the Palestinian national project.
A house divided against itself cannot stand, said Abraham Lincoln.
And a Palestine divided against itself will never secure its independence.
Hamas Takes on the Radicals
With Hamas in control for more than two years, the Gaza Strip has long been considered much more traditional and conservative than the West Bank.
Nevertheless, in Gaza's political milieu, Hamas is a moderate Islamic group that opposes al-Qaeda-style extremism.
But such extremist Islamic groups have been gaining support in Gaza, and Hamas has noticed.
The shoot-out in the mosque shows that Hamas will be ruthless in taking them on.
Various Salafi extremist groups have been operating in Gaza for years.
Salafis, whose name is derived from the Arabic phrase for "righteous ancestors," known as "Salaf al-Salih," insist on a return to what they consider the purity of the practices of the first Muslims.
Hamas has, in the past, cooperated with some of the Salafis, assuming they would stand behind Hamas's leadership.
The Army of Islam joined in the raid that abducted the Israeli soldier Gilad Shalit in June 2006.
The group also took responsibility for the 2007 kidnapping of the BBC's Gaza correspondent Alan Johnston, who was later released after negotiations led by Hamas.
The Warriors of God is one of a handful of radical, al-Qaeda-inspired groups to have appeared in the Gaza Strip in recent months, first coming to public attention in June after claiming responsibility for a failed horseback attack on Israel from Gaza.
Their Web site shares images, language, and music with al-Qaeda and other jihadi groups.
In a recent declaration, the group made favorable mention of al-Qaeda leaders Osama bin Laden and Ayman al-Zawahiri.
The Warriors of God demands a pure form of Islamic practice throughout the Gaza Strip, including the implementation of Sharia religious law and a rejection of democracy.
Indeed, the confrontation at the mosque followed the declaration of an Islamic Caliphate in Gaza, a flagrant rejection of Hamas's authority.
Many young men in Gaza have become increasingly radicalized.
Pakistani-style dress has become common, as is the long hair that is thought to resemble the style of the Prophet Mohammad.
At the same time, violence against "law-breakers" is on the rise.  Internet cafes have been bombed, institutions with Christian affiliations burned down, foreign schools attacked, and wedding parties assaulted.
There are substantial ideological differences between Gaza's Salafi al-Qaeda affiliates and Hamas.
As a ruling party, Hamas has insisted that its sole concern is the Palestinian people, not a global Islamic revolution.
Hamas has not imposed Islamic law in the Gaza Strip.
The Salafi groups, however, appear increasingly influenced by the growth of radical al-Qaeda-style extremism in Pakistan, Iraq, and Afghanistan.
While traditional Salafi movements have stayed away from politics, the younger groups see activism and violence as the best means of realizing their goals.
But Hamas's failure to establish and implement Islamic law is not the only issue that rankles.
One of the reasons for these groups' increased appeal is the de facto cease-fire between Israel and Hamas, which has led some in Gaza to charge that Hamas has been neutralized as a resistance force.
With the border closed under Israeli blockade for more than two years, levels of poverty, unemployment, and despair have grown, with young men increasingly interested in joining the global jihad as it comes to Gaza.
Indeed, Hamas' confrontation with Salafi groups comes as Israel is charging that dozens of foreign terrorists have crossed into Gaza from the Sinai Desert to join the violent underground.
Hamas's crackdown thus highlights its desire to maintain control over its conflict with Israel.
The threat of Salafi extremism in Gaza is far from over.
Salafis have threatened to retaliate against Hamas, particularly the security brigades that led the counter-attack on the mosque.
A new Salafi group called the Brigade of Swords of Righteousness has declared its obedience to the Warriors of God, and has warned Gazans to stay away from government buildings, security headquarters, mosques attended by Hamas leaders, and other official buildings.
The group now considers these legitimate targets.
With hundreds of tunnels connecting the Gaza Strip and Sinai, it is very difficult to control the flow of arms, ammunition, and possibly foreign fighters.
Hamas's battle with these radicals, who detonated suicide bombs and killed six Hamas security men during the mosque fight, is just beginning.
Residents are afraid that Gaza could become another Iraq, with bombings and mass killings a daily occurrence.
Hamas will use all means necessary to protect its power, and to break the jihadi groups now spreading in Gaza.
In the process, Hamas hopes to win the international legitimacy that it has long sought.
The Time is Now to Fight Disease
It is possible for a child born just ten years from now to live in a world where AIDS, tuberculosis and malaria are on the wane.
But this can only happen with considerable investment.
Now.
Otherwise, today's grim picture will only get worse.
Each day, these diseases kill 16,000 people—devastating entire communities and plummeting countries deeper into poverty.
Upping the ante could turn the tables.
Recent successes in Brazil against AIDS, in Mozambique against malaria, and in China against TB, show what can be achieved on a global scale with more resources.
There are new ways of directing aid to where it is most needed.
A key instrument is the Global Fund to Fight AIDS, TB and Malaria.
Created in 2002 as a partnership between governments and civil society, the Global Fund is unique in the way it aims to deliver assistance.
Driven by real needs on the ground, projects are designed and implemented by recipients, and its procedures and operations are transparent.
Of late there has been much talk about intensifying efforts to eradicate poverty.
Ahead of the G8 summit in Scotland in July, a coalition of non-governmental organizations has launched the "Global Call to Action Against Poverty," and the UK host has made Africa a top priority.
Building on this momentum, the campaigns for debt relief, trade reform, and increasing aid to poor countries have gained traction.
Yet, while pledges to increase development assistance have soared, short-term funding is woefully inadequate.
Any strategy for raising living standards must include urgent measures that address AIDS, TB and malaria.
Stemming the spread of this deadly trio of diseases is the linchpin in the global fight against poverty.
Unchecked, these diseases not only sap the strength of national economies, but jeopardize peace and security.
Teachers and nurses are dying; police and security forces are being hard hit, and 14 million children have already been orphaned by AIDS.
We now risk failing to meet the Millennium Development GOAL, set out by the United Nations, of reversing the spread of AIDS, TB and malaria by 2015. This failure will make remote any hope of reaching the other Millennium goals in the fight against poverty.
A comprehensive response to AIDS, TB and malaria is needed.
Acting now means less spending in the long run.
Investments in effective prevention, treatment and research in 2005 and 2006 will save millions of lives, lessen the socio-economic impact of the diseases in poorer countries, and remove the need for increased spending on these chronic crises in the future.
The Global Fund plays an important role in this funding environment, providing approximately 66% of all current external funds in the fight against TB, 45% in the fight against malaria, and 20% of all external support to combat HIV/AIDS.
Since the Global Fund was founded three years ago, it has built an impressive track record: approving 310 grants totaling $3.1 billion in 127 countries and disbursing $920 million since 2002. Despite the scope of its mission, it has a minimal bureaucracy, which allows for a flexible response to changing needs.
The Global Fund is not perfect; as with all new organizations, it is experiencing growing pains.
Yet, issues such as procurement policies, trade-offs between efficiency and ownership, and the balance between government and non-governmental organizations as implementing partners are being addressed through the Fund's open and inclusive governance systems.
If the Fund is to live up to its potential it will need $2.3 billion to continue its work effectively in 2005. The first of two replenishment conferences for the Global Fund is taking place this week in Stockholm, with the aim of securing financial pledges to cover grant commitments in 2006-2007, as well as to fill the gap for this year.
Donors have long preached the importance of a funding vehicle such as the Global Fund—one that is needs-driven, relies on local input, and promotes donor coordination.
They now have a chance to make good on their word.
With many battles ahead in the fight against AIDS, TB and malaria, it would be a disgrace if this opportunity is squandered.
Europe's Defense Investment Gap
Foreign policy disputes between Europe, France in particular, and the US are mounting, and not only over the Israeli-Palestinian bloodbath and the conduct of the anti-terrorism war.
But Europe's criticisms, no matter how sound, will not be taken seriously by the US so long as the Continent continues to free-ride on America's defenses, something it has done for half-a-century.
In a bellicose world, a credible voice in the international arena requires a creditable military capability and high-tech military technology.
In both, Europe is lacking.
America's irritation with some of its European allies - Tony Blair's UK being the noticeable exception - is understandable.
In the current fiscal year, the US will spend an additional $50 billion on defense, raising its overall defense bill to $379 billion, more than 3% of GDP.
This sum is, in fact, low by post-WWII standards.
At the time of the Gulf War of 1991, US defense spending was 4.8% of GDP; it was far higher in the 1950s and 1960s.
Europe's commitment to defense tells another story.
Defense spending is 1.6% of GDP in Germany, 2% in Italy, and 1.5% in Spain; only France and the UK reach 3%.
But confining discussion about defense commitment to the percent of GDP spent on the military is insufficient because there are economies of scale in defense spending.
So one would expect that smaller countries will spend proportionally more on defense than larger ones.
Instead, today America alone spends more than most of its NATO allies combined, and defense spending in the US is likely to increase even more in the years to come.
Security and global influence are not the only benefits that come through military expenditure.
About 10-15% of US military spending finances basic research and thus provides a powerful boost to America's high-tech research and development.
The internet, based on thinking and spending made in the 1940's, and the silicon chip, developed in the 1970's, are both products of research funded by the Pentagon.
The war in Afghanistan, which was truly revolutionary in the way it was conducted, proves how new information and communication technology can bring about success with a minimal number of men on the ground and minimal losses.
The Russians fought for ten hard years over the same terrain in Afghanistan.
Lacking comparable technology, they lost tens of thousands of men and were eventually defeated.
At the beginning of the Afghan campaign many military "experts" feared that the US would face a similar fate.
How wrong they were!
Europe lags behind the US in R&D, and its stinginess over defense contributes mightily to a growing high tech "investment gap."
Data concerning patents documents America's advantage: in the late 1990s 56% of all global patents in high-tech fields was granted to US applicants, only 11% to EU applicants.
The connection between R&D and growth is too obvious to doubt that Europe's sluggish economies are a direct result of European backwardness at innovation - and that this in turn may reflect the absence of critical military spending to drive investments in research and development.
The ongoing dispute between Europe and the US over the choice of the military transport plane -to be used to deploy the new 60,000 strong European Rapid Reaction Force - is symptomatic of Europe's problems.
America would like Europe to opt for an aircraft built by Boeing and Lockheed Martin.
Europe is divided: some countries, notably Italy, support the US; others, notably France and Germany, argue in favor of a European plane built by Airbus in a $15 billion publicly funded project.
This is an issue on which Europe should stand up to the US.
The EU should fund the Airbus project and make sure that an important fraction of the money goes into R&D to foster the growth of an industry that is one of the few European high-tech success stories.
But where should the funds needed to pay for this huge investment come from?
In recent weeks European defense ministers suggested that increases in military expenditures should be excluded from the budget constraints imposed by the Euro stability pact.
The idea that a sharp increase in military spending in a (hopefully temporarily) bellicose world should be amortized with some deficits is consistent with sound economic policy, but only if the rest of the budget remains "lean."
This is the case in America, where nobody really worries if increased military spending will create a temporary deficit.
Not in Europe.
An increase in military spending, in conjunction with an enforcement of the stability pact, should bring about a trimming of the non-defense budget: the public sector wage bill and a welfare state grown far beyond the goal of supporting the incomes of the poor, would of necessity need to be trimmed sharply.
For half-a-century Europe has relied on the US for security, while spending its own money on a pricey welfare state.
This can no longer continue - at least not if the EU is serious about playing a leading role in the world.
This is not a pleasant message, but what happened in New York and Washington on September 11
Argentina: Open Up or Shut Down
"I have an important political mission," Eduardo Amadeo said on being appointed Argentina's ambassador to Washington. "I must explain our transition."
But diplomatic explanations are not what Argentina needs.
It does not need to waste scarce money on diplomacy of dubious value--not when the country lacks an agency dedicated to helping Argentine businessmen sell their goods abroad.
Indeed, the sum Argentina spends on its diplomats is what tiny Ireland spends on its Export Promotion Agency, an institution Argentina never bothered to create.
Instead of talking to fellow diplomats, Argentina's ambassador to the US should talk to US supermarkets, convincing their managers to buy Argentine goods and arranging for them to meet with small businessmen from his country.
He should not be duplicating what Argentina's President and Foreign Minister are capable of doing.
Export diplomacy is important, but export promotion , visiting stores and talking to buyers, is even more vital.
European grocery shops are full of products from Israel, but how often do you see Argentine beef or other goods?
Argentina's economy opened up significantly in recent years, notwithstanding a strong exchange rate, which made exporting difficult.
Total exports doubled in 1991-2001, from US$12 billion to $25 billion, with industrial exports growing from $3 billion to $8 billion.
But the numbers remain very small.
In fact, Argentina is amazingly closed for an economy its size.
Exports do not exceed 10% of GDP, and manufactured goods account for only about a third of total exports.
Brazil, a country eight times the size, exports 12% of its economy's output, and 57% of Brazilian exports are manufactured goods.
Chile exports almost 30% of its output.
Some small European countries come close to 50%.
Little wonder, then, that Argentina's current crisis is so harsh: the portion of its economy that can generate the export revenues necessary to repay foreign debt is too small.
When a country reaches the point that it needs all its exports to service its national debt, and the size of the export sector is fixed, nothing is left to pay for imports.
So imports dry up and the economy stops.
The more open an economy is, the more easily it can avoid this trap.
Of course, all countries eventually overcome crises.
The question is how.
Argentina now faces a choice that is both economic and political.
The path of development that it chooses as it emerges from its crisis will determine the country's future for many years to come.
So it is surprising that this choice is not at the center of the political debate in the campaign for the presidency now underway.
There are two ways out of the current morass.
One is the old model: a recovery in real wages and a resumption of consumption.
Viewed from the despairing perspective of today's crisis, this model seems like a dream.
But if it is implemented, in 3-5 years Argentina will look exactly like the country we have always known: a largely closed economy that remains dangerously vulnerable to external shocks.
The alternative is to capitalize on the unique opportunity that this year's devaluation of the peso offers by making the competitiveness gains last long enough to shift resources into the export sector.
Of course, this will depress real wages and consumption, because the rise in peso revenues will be used instead to finance the investment needed to expand the export sector.
This will lead to the creation of new firms and the retooling of existing ones to make them fit to export.
Eventually productivity gains in a larger export sector will drive up real wages and consumption.
In short, Argentina's economy must open up or risk shutting down.
Policy can help open it up.
By keeping the price of public services frozen, the government would win on two fronts: inflation would be held in check and altered incentives would shift investment from the domestic sector towards exporting firms.
In the old model returns come quicker, but the long-term implications are gloomy, because the economy would remain saddled with the same problems it has confronted for decades.
The alternative is to look forward and asks what type of country Argentines want to leave to future generations.
There should be no doubt as to the answer to this question, except in the minds of politicians who fail to raise it because they refuse to think beyond the coming presidential election.
Perhaps it is not by chance that Argentina has the largest number of psychology students in the world.
If you are a closed and inward-looking country, you are bound to need lots of psychologists.
The minister for education would do her country a profound service if she were to re-allocate resources to courses designed to train export promoters.
Teach young people some basic marketing skills and then send them out to Argentina's embassies. They will work wonders, unlike the cheap talk of Ambassador Amadeo at Washington dinner tables.
The Big Bang of Economic Freedom
Why is it so difficult to implement the deregulation needed to make an economy more competitive?
Why do so many governments try to achieve this end, and why do almost all of them fail?
All citizens stand to benefit from competitive markets for products and services, but more often than not, the broad coalition required to sustain pro-competitive policies never materializes; political support simply isn't there.
Why?
This question is important not only in transition economies and other emerging market countries, but in rich countries as well--in fact almost everywhere, except possibly the US and the UK, which long ago embarked on a process of radical and far-reaching economic liberalization.
New Zealand and Ireland followed suit and their economies have been booming ever since.
Lack of competition is typically due to over-regulation.
Taxicabs in European cities are expensive because the number of licenses is strictly controlled.
With market entry blocked, license owners face little pressure to hold down fares, and the officials who allocate licenses are well placed to collect votes or bribes.
In short, regulation tends to distort incentives, stimulating what economists call rent-seeking behavior: the taxi driver and the license official collect unearned premiums (rents) solely because they can exploit their position as insiders, not because they are more productive.
Notaries are another example of this phenomenon. Public notaries in many countries charge extremely high fees for services that are virtually useless.
Fees are high because the notaries themselves control access to their profession.
Without government regulation (including rules requiring that consumers purchase their useless services), public notaries would not have the position from which they draw rents.
Examples of the benefits of deregulation abound.
The taxi market in Ireland is deregulated, and fares there are cheap.
For some time after US airlines were deregulated, the five-hour flight from New York to Los Angeles cost much less than the half-hour trip from Zurich to Frankfurt.
Similar discrepancies were found in the price of a coast-to-coast phone call in the US and that of a domestic long-distance call in France.
Whereas regulation creates unearned rents for overprotected minorities (taxi drivers, notaries, airline pilots, and telecom or electricity workers), deregulation reduces these rents and redistributes them to the general public.
But because overprotected minorities enjoy privileged access to politicians, it is no surprise that deregulation incites so much fierce--and effective--opposition.
Public utilities are a good example of this.
Whenever a government attempts to liberalize the electricity industry, unions and firms join forces in opposition.
Workers and management oppose deregulation because openness to competition would eliminate their unearned premiums.
The wages of electrical workers are high precisely because they have appropriated a part of the rents created in an uncompetitive electricity market.
Is there a way to weaken this opposition?
What if a government, instead of fighting the electricity industry alone, unleashed an economic "big bang," trying to liberalize most markets at once?
An analogous "all or nothing" procedure was used in the US in the 1980s to close unneeded military bases.
Since 1945, there had not been a single base closure.
Even though the Pentagon itself wanted to close many of them and use the money elsewhere, no measure could be gotten through the Congress, because military bases qualify as "pork" - the favors for their constituents that help congressmen get re-elected -- and, according to old and sacred informal rules, no congressman will ever vote against pork in a colleague's district.
But a plan to close numerous bases passed by an overwhelming majority when the congressional leadership finally agreed to present a single list of bases to be closed; the list could only be voted up or down, without any possibility of amendments.
Good sense triumphed over pork.
The cause of economic liberalization would be greatly advanced by adopting similar strategies.
For example, electricity workers would realize that, as consumers, their gains from lower prices throughout the economy more than compensate them for the loss of rents in their own firms.
The big bang approach gives workers a stake in liberalization and thus makes deregulation politically easier to pursue.
Deregulating product markets has an additional benefit: it facilitates liberalization of the labor market. Evidence gathered by the OECD shows a strong positive correlation across countries between the degree of competition in the product market and the extent to which labor market regulations increase the powers of workers when they bargain with firms.
Bargaining is mostly about the distribution of excess rents between the firm and its workers.
In a competitive industry, where there are no excess rents, there is little to bargain about.
In some cases, however, regulation works in the opposite direction: it keeps the price of public services artificially low, rather than too high.
This is true of railway fares throughout continental Europe, which are subsidized by government.
Here again, winning the battle for deregulation requires convincing consumers that they stand to benefit.
Railway fares will be higher, but taxes will be lower, because only those who actually use trains will pay the costs, rather than the non-traveling taxpayers.
Deregulations of airlines and bus transportation will also create healthy competition for railroads and help keep prices from rising too far.
Piecemeal deregulation is doomed to fail.
Generating sufficient political support to enact reforms that can survive the opposition of vested interests requires attempting to deregulate the entire economy simultaneously, not select industries, one by one.
The key to eliminating inefficient, unproductive subsidies to minorities is to implement tax reductions for all.
Europe's University Challenge
The university systems in the US and Continental Europe couldn't be more different.
Which works better?
The answer is clear: America's by a long shot.
European universities are generally based on three misguided principles:
This system is supposedly more egalitarian than America's system of higher education, which many Europeans look down on as elitist.
In reality, Europe's system typically produces less research, worse students (especially at the doctoral level), and is probably less egalitarian than the US system.
Having taxpayers cover the costs of university education is indeed redistributive, but in the wrong direction--the beneficiaries are most often the children of comfortable European families.
Even taking a generous view, the best that can be said is that the system is neutral insofar as redistribution is concerned, because the wealthiest pay more taxes and use more university services.
In addition to favoring Europe's "haves," this system makes it virtually impossible for self-financed private universities to survive.
In fact, this is probably the true motivation of Europe's free public university system: to maintain the state's monopoly on higher education.
But consider, instead, the US system: students pay for their education and, with part of the tuition these students pay, universities finance scholarships for deserving but poor students.
Such a system is at least as "fair" as Europe's model, and probably more so than one in which taxpayers pay for everybody, including the rich.
Indeed, recent research comparing education in the US and Italy finds that family income is more important in determining a student's success (measured in terms of his salary) in "egalitarian" Italy than it is in "elitist" America.
But competition is as important as financing in determining a university's quality, because competition increases the merit of the product.
This is true in the US system, where public and private universities coexist happily.
The University of California at Berkeley is public.
Stanford University, an hour away down the coast, is private.
Both are among America's finest universities.
Competition between them works because it involves fighting for the best students and offering scholarships to deserving poor ones.
By contrast, Europe's centralization and bureaucratization control over universities produces only mediocrity.
Appointments in European universities are often governed by complex bureaucratic processes that involve countless "judges" chosen from all over a country.
This process is supposedly designed to "guarantee" that the best are appointed.
In reality, however, these judges make it easier for insiders to appoint their friends, rather than for the quality of research and teaching to determine who is hired.
Some countries, take France, are changing their systems by appointing a few academics from other countries onto hiring and promotion committees.
While this is obviously a move in the right direction, it will produce few results.
The best American universities operate their hiring processes internally, relying on outsiders only for expert opinions on the quality of a candidate professor's research.
What produces good appointments is the threat that mediocre professors will make it difficult to attract good students and large research grants.
Europe's tendency to equalize salary and treatment of professors and researchers also reduces the incentive to engage in good research and good teaching.
If the only factor that increases a professor's salary is the passage of time, why make the extra effort to excel?
Of course, love of research and teaching is why many people join university faculties in the first place, but why not give these noble sentiments a helping hand with appropriate financial incentives?
Low salaries are often part of an implicit bargain: in exchange for the bad pay, university administrators close their eyes to lazy teaching and research.
Moreover, if salaries are low, how can university deans stop their faculty members from scouring the country to do lucrative consulting?
The result is bad teaching, lousy research, and absentee professors.
US universities often use aggressive financial incentives and differential treatment of professors to reward good teaching and research.
Also, the private nature of contracts between an American university and its professors creates healthy competition for talent and a flexible and efficient market for scientists.
The result is that it is not uncommon for a bright, productive young professor in America to earn as much, if not more, than older and less productive colleagues.
In Europe, promising young researchers struggle and have to supplement teaching and research with outside jobs, while established professors earn good salaries.
Given these conditions, it should surprise no one that American universities nowadays are increasingly staffed by many of Europe's best scholars.
What is surprising in the face of this brain drain is the power of the lobby of university professors in Europe to block reform.
Old and Aging Europe
When US Secretary of Defence Donald Rumsfeld spoke recently of "Old Europe," he was right, but not in the way he intended.
Europe is indeed old, and growing older.
Across the continent children are increasingly scarce.
Fertility rates (the number of children per woman in the population) have fallen to 1.2% in Germany and Italy.
The rate is even lower in Spain --in fact, the lowest in Europe.
Spain is still a young society, but a society without children is doomed.
The fertility rate for the US, by contrast, is 2.4, and it is 2.1 for the UK.
These differences are extraordinary, particularly in view of the far less generous maternity leave policies that apply in the US and the UK relative to continental Europe.
France stands out on the Continent with a fertility rate of 1.8, which is most likely the result of years of generous tax policies towards large families.
Migration is also an important explanation for these differences.
Higher fertility rates in the US, the UK, and France reflect the large number of immigrant families in each country.
Fertility rates among immigrants are typically higher than in native European or North American families.
But increasing the number of immigrant workers will not necessarily raise fertility rates.
Germany, for example, has a large population of guest workers, but few settle there with their families; most leave their children in their homeland.
An aging population contributes to Europe's poor economic performance.
The old do not work, and a smaller and smaller share of the population (the disappearing young) is taxed to support them.
In turn, the high tax rates needed to support the old discourage the young from working, creating a vicious cycle: ever increasing tax rates on a disappearing labor force, lower growth rates, and fewer resources available to support those that retire at 60 and live into their 90's.
The effects of this are partly offset by the fact that, with fewer children, more women enter the labor force.
But then these women also retire (often at an even younger age than men) adding to the "unsupported" army of retirees.
Compare this with the US, where participation by women in the labor force also is increasing, despite America's higher fertility rate.
Indeed, female participation in the workforce is higher in the US than in the European Union (70% versus 60%).
The saving rates among Europe's old people indicate that they are worried about the dwindling number of workers who can be taxed to support them.
Consider Germany. Any economic textbook will tell you (the famous "life-cycle" model) that the young save for their retirement, while the old spend what they accumulate.
But in Germany, the data seem to suggest a puzzling fact: the old save until their final days.
It is the young who spend.
Even more remarkable is not the level of savings among the old, but how it changes over time.
Recent German surveys have detected a small increase in their savings rate.
Why should old people save?
The most plausible reason is that many now realize that they will live far longer than they anticipated--often spending one-third of their lives in retirement--but that the State may no longer deliver on its promises.
Default is unlikely, although not impossible, on pension benefits. But it is more likely on the provision of health services, by far the most important service for old people.
When you understand that you are likely to live into your late 80's or beyond, and you also understand that the quality of public health services is deteriorating, you save more to take care of yourself.
So why do Europeans have fewer and fewer children?
Indeed, non-working time even for those who hold jobs is increasing, offering ample opportunity to rear children.
Working hours in Europe as a whole fell from 1713 hours per year in 1980 to about 1576 today, with Germans putting in the least number of hours at work.
One explanation often mentioned points to a lack of support, such as public childcare, for mothers raising children.
But, then, why is America's birth rate higher than in many countries in Europe that have much larger public support for childbearing mothers?
High housing costs and imperfection in lending markets are the more likely explanation behind Europe's falling fertility rates.
It is easier for a young couple to borrow and buy a house in the US than in Europe.
Rental markets are also more flexible in the US.
So another dangerously vicious circle seems to be operating: high taxes discourage work, and because fewer jobs are created, fertility is discouraged.
But with fewer children, higher tax rates are needed to support the growing army of the old.
Gunther Grass famously titled one of his novels "Headbirths, or the Germans are Dying Out."
Little could he know how true his fantasy would just three decades later.
Europe's Overdue Reformation
War and its huge cost; the falling dollar; mounting trade and budget deficits; the chicanery that hollowed out companies like Enron and WorldCom; the bursting of the high-tech bubble: capitalism American-style is both under strain and under a cloud.
From left to right, many European intellectuals think that the capitalist game as played by the US is passé.
An active search is on for new models.
Strong on rhetoric and fueled by a wave of anti-Americanism, that search is nonetheless thin on facts.
Stories of corporate malfeasance do, of course, abound in the US.
But it is facile to jump from individual corporate scandals to broad conclusions about the supposed rottenness of the American economy.
A close look at productivity growth (output per hour worked) in the US and Europe shows that US capitalism remains as vital than ever.
Having grown at an average annual rate of just 1.6% since the early 1970's, annual US productivity growth in the non-farm business sector has accelerated to an average of 2.6% in the seven years since 1995, with no sign of a slowdown.
In 2002, productivity grew by 4.8% - an extraordinary result, because productivity normally falls during economic slowdowns.
Now look at Europe.
Annual productivity growth actually slackened in the second half of the1990's, from 2.5% to just 1.3% today.
This productivity gap is often attributed to the "New Economy" that emerged in the late 1990's.
True, many new technologies were developed and first applied in the US.
But technology spreads rapidly: the same Windows or SAP programs are available in all countries, including Europe.
So there must be other differences.
Two candidates stand out: attitudes toward work and corporate governance.
Six OECD countries do better than America in terms of output per hour worked: Norway, Belgium, France, Ireland, the Netherlands, and Germany.
But the rankings change if you make output per capita (a better measure of a country's economic well-being) the standard: here the US comes first, and France and Germany drop, respectively, to 16th and 11th place.
The reason for examining output per person rather than output per hour worked is simple: what determines a nation's wealth is how much each person works, and how many people work.
This is where the US overtakes Europe: fewer people work in Europe than in the US, and those in Europe who do work don't work as much.
Annual hours worked in the US are about 1800, about 1500 in France, and 1400 in Germany.
One reason why Europeans work less is because they pay more taxes, and high taxes are necessary to support those who do not work - an obvious vicious circle.
But something deeper is at work.
Perhaps the Europeans are perfectly happy to work less and enjoy more free time, both in terms of having more vacations during their working age, and spending less time in the active labor force.
This is a legitimate choice, but once made, Europeans should stop looking for scapegoats for slow growth.
For the source of the problem is neither the European Central Bank, nor the Stability Pact.
Europe grows less because it works less - and it should not be surprised if a number of so-called "developing countries" soon catch up with Europe in terms of income per capita.
The availability of new technologies is a necessary, but by no means sufficient, condition to raise a country's standard of living, because there must also be companies that are able to make use of them. In the early 20th century, it took over twenty years for the electrical engine to transform the textile industry.
New machines were available, but firms were not prepared to use them.
To do so required a change in work practices and in the way firms were run. Unions opposed such change, but it also took time for bosses to understand that the way they ran their plants needed to change.
The new economy arrived after a decade of deep transformation within US companies.
During the 1980's, a wave of leveraged buyouts transformed US corporate culture, evidently making bosses more receptive to technological innovation.
Not so in Europe, where the interests of a company's employees and their unions often come before those of its shareholders.
Indeed, at one European newspaper, articles that arrived via e-mail were re-typed by typographers: the technology for transferring them electronically was available, but not the work rules to allow the paper to apply it.
Unions are not the only culprits.
Many European firms have complex ownership structures, with large shareholders whose interests often conflict with those of the company - hardly the best way to take sound business decisions.
This is particularly true in finance and banking.
Whatever the corporate horror stories in US banks, almost no European investment bank remains, and Germany is seriously considering a state-owned "bad bank" to bail out its all-powerful banking giants.
If Europe wants to work less, it must be extraordinarily productive when it does work if it is to keep up with the hard-working Americans.
That is why Europeans should hope that the wave of corporate restructuring and reformation, which many thought would follow inevitably in the wake of the creation of the single market, begins to crest across the Continent and change the way businesses are run.
Hands Off the "Super-Euro"
Three years ago, the European single currency, the Euro, was born at an exchange rate of 1:$1.17, which presumably was deemed to reflect appropriately price levels on both sides of the Atlantic at that time.
The Euro's exchange rate has since endured a roller-coaster ride.
Now, it has returned to almost exactly its opening level.
So why is the European business community claiming that the "super Euro" is bringing calamity down upon their heads?
The answer is that blaming the Euro is an easy way to deflect attention from the true cause of Europe's economic malaise: a surprisingly low level of productivity per capita.
Europe's low productivity reflects a simple statistical fact that fatally undermines relatively high productivity per hours worked: weak participation in the active labor force means that Europeans work a very low number of hours.
It is important to clarify a few fundamental points regarding the Euro/dollar exchange rate, because this is an issue on which confusion--often generated strategically--pervades public debate.
First, nobody knows how to explain or predict the short-term movements (from one day to six months, say) of exchange rates.
A famous academic paper about 20 years ago showed that a random walk was better at predicting short-run exchange rate movements than any fancy mathematical model based on selected economic variables.
That conclusion still applies.
Nobody had a clear idea why the Euro plummeted to almost $0.80 in its first year and a half of trading, and nobody could predict when it would recover.
Some observers attribute the current "high" level of the Euro (and thus low growth in Europe) to tight monetary policy on the part of the European Central Bank (ECB).
But if high interest rates are causing the Euro's rise, why was the dollar appreciating in periods when the US Federal Reserve cut rates aggressively?
People should be wary of commentators who purport to explain "why" a currency's exchange rate is doing what it is doing.
Second, exporters who blame the current level of the Euro for their difficulties should wake up to reality. The current level of the Euro makes prices on both sides of the Atlantic relatively similar.
If an exporting firm is only profitable when the Euro falls to $0.80 or $0.90, it better start increasing productivity fast if it is to survive with the Euro back up at $1.17.
For many years Germany and Japan dominated world exports, and at the time both the yen and the Deutsche Mark were among the "strongest" currencies in the world.
It was innovation, and high productivity, not a weak currency, that enabled German and Japanese goods to conquer the world.
Third, the Euro area is about as open to international trade as the US.
The US economy was flying in the 1990s, when the dollar was strong.
As was true for Germany and the Deutsche Mark and remains true for Japan and the yen, a strong dollar has not historically caused weak US growth.
Europeans are used to thinking of the exchange rate as a critical variable, because they live in very open economies that export close to 50% of their total output.
But most of these exports go to other Euro-zone countries, and are thus unaffected by the level of the Euro.
Exports outside the Euro area claim only 15-16% of Europe's total output, and will be even less when (and if) Sweden and the UK join the Euro.
So commentators, policymakers, and businessmen should stop calling for the ECB to do something about the "strong Euro."
Central bank intervention in the currency market is merely destabilizing, and therefore counter-productive.
The ECB was right to ignore the exchange rate when it fell to $0.80, and it is right to ignore it today when it is close to $1.20.
Most economists believe that central banks should only target inflation, which means cutting interest rates only when the economy slows down and inflation falls--which is precisely what the ECB has been doing.
The bottom line is that Europeans should worry and talk less about the Euro exchange rate, and spend the time they save trying to address their real problems: low productivity, market rigidities, fiscal polices constrained by the Stability Pact, and bankrupt pension systems.
Europe's economic policymakers have enough problems on their plate. They should let the currency markets take care of the Euro/dollar exchange rate.
The Dangers of Gray Power
With rare bipartisan agreement, the Bush administration is proposing a substantial increase in benefits for the elderly.
The proposed reforms may cost US taxpayers more than President Bush's massive tax cut of 2001, and one that implies a very significant redistribution from America's young to its old.
But while many observers have pointed out the risks associated with Bush's tax cuts, and the gaping deficits that have followed, few seem worried about the added deficits that will arise from this gift to the old.
What is happening in America is but more evidence of the vast power exercised by the elderly in our societies.
Similar moves are afoot throughout Europe, where the generosity of state-sponsored pension plans has become unsustainable, but reforming the system is almost impossible politically.
The rise of pensioners' political power results from a multiplicity of factors.
The first is simply that in every industrial society, people are living longer lives and having fewer children.
Combine this with the generous retirement rules that were designed in the 1970's, when the post-war baby-boomers were just about to join the labor market and the welfare state seemed to be free of budget constraints, and you create an entitlement that no one wants to tinker with.
The second factor empowering the pensioners' lobby is that the old are, on average, richer than the young, simply because they have been around longer and so have had more time to accumulate wealth.
Being richer, they can provide more financial support to parties and politicians who will defend their interests than the young, who might want to push for pension reform.
Finally, pensioners have time in their hands, which they dedicate to organize political activities in their own interest.
Two examples: many trade union leaders in Italy are retirees, and retirees account for the largest proportion of the members of the most powerful and militant union, the CGIL.
In the US, retirees tend to vote more than the young.
Indeed, their power in America was perhaps best symbolized by the fact that a relatively few elderly men and women in Florida decided the last Presidential election!
All of this generates a vicious circle: the stronger the political power of pensioners and of older workers, the greater the pressure on government to shorten working lives and increase pension benefits.
This in turn raises the share of voters who are dependent on pensions, and thus the political power of retirees.
In a recent article, Vincenzo Galasso and Paola Profeta from Bocconi university in Milan show that, in Italy, this nexus is now the major obstacle to pension reform.
As time passes, the political support for reform dwindles, at least until the system blows up.
Another aspect that makes reforms difficult is that public pensions systems redistribute income from the rich to the poor because these systems are typically structured as ``defined benefits'' systems.
Pensions are linked to final wages rather than to the actual contribution made by the worker over his or her lifetime.
The extent of this redistribution varies from one country to another, but it is present throughout the OECD, including in the US.
Within the anti-reform coalition, those who favor redistribution, typically young and on the political left, thus often join retirees and older workers.
The result is an extremely powerful political movement that extends from left to right, and includes young and old alike.
The clear losers are young workers, and the future generations who will face the high tax burdens necessary to pay retirees their promised benefits.
The redistribution implicit in many pension systems is often far from ``clean.''
Many systems entail politically motivated privileges for powerful lobbies.
In Brazil, the pension plan of private sector workers runs a small surplus, but that of civil servants runs an enormous deficit, equivalent to of 4.5% of Brazil's GDP.
French public-sector employees recently brought the country to a standstill when targeted by a reform whose main objective was rather modest: to bring their benefits into line with those in the private sector.
It is encouraging that the French government eventually prevailed, and interesting how this happened.
After weeks of paralyzing strikes, Prime Minister Raffarin's government began a campaign to convince voters that the reform was simply removing the privileges of a small minority.
The point sold well and civil servants found themselves isolated.
Of course, given the political risks, governments should not wait for confrontation with pensioners.
Officials can take two obvious steps to avoid it altogether.
First, increase the age of retirement.
This has two obvious benefits: it cuts the overall cost of the system by shrinking the number of retirees, and thus weakens the constituency that opposes reform.
Second, eliminate the redistribution implicit in the system.
Any redistribution, indeed, should be transparent, and take place via taxation and non pension-related transfers.
Of course, it is easy to understand why this does not happen: when redistribution is transparent, those who pay for it can complain.
When redistribution takes place via the pension system, it is paid for by unborn generations, who have no voice in the next election.
In the meantime, one can only suggest to our grandparents that they compensate their grandchildren by leaving them generous private bequests along with high tax burdens.
Reforming Europe from Below
Look at European history for the past 25 years, and you see that from the late 1970's to the early 1990's the continent was plagued by macroeconomic instability, high unemployment, over-regulated markets--including, importantly, financial markets--unregulated monopolies, and inefficient state-run industries.
Over the past decade Europe has made important progress in restoring macroeconomic stability, but it has been less successful in enacting the micro-level reforms that are necessary to deregulate markets and improve their efficiency.
Why is this?
Is there a lesson in this for the countries of Central and Eastern Europe as they prepare to join the EU?
High inflation and mounting public debt generated a feeling of ``crisis'' in the early 1990's in some EU countries: when one's house is on fire, the costs of doing nothing are too large to continue sitting back and doing nothing.
It took the exchange rate crisis of 1992, for instance, to make Italy's leaders realize that something had to be done about the country's public finance mess.
The fear of being left out of the euro did the rest, by creating a political consensus in favor of taking the right and necessary steps.
Today, Europe's economic house is no longer on fire.
So it has become much harder to break the back of special interests in order to liberalize markets and improve economic efficiency.
Just this past June, for example, France went through a 1968-style month of strikes and street protests only to implement minor pension reforms: the elimination of a few special privileges enjoyed by public sector employees.
In a sense such pusillanimous reforms are the outcome of Europe having become a more ``normal'' place.
Europe simply could not afford the failure of the euro project, so it's leaders did what was necessary.
But no one, it seems, will stop this rich continent from living with slow growth, high unemployment, and inefficient markets.
There is no ``crisis'' associated with that choice--just slow decline.
The Maastricht convergence criteria that led to the euro's creation worked because they were imposed by a multinational agreement and were monitored multinationally.
More importantly, the ``punishment'' for not complying was clear, strong, and certain: exclusion from the monetary union.
None of that threatens Europe today.
So member states have precious little incentive to continue the reform process?
But could something like the Maastricht process be used to implement structural reform?
In a sense, such a process is already at work.
One mechanism that has often been effective at reining in powerful special interests in individual EU states, and thus at implementing structural reforms, is action by the European Commission.
France decided to permit a very mild opening of its domestic electricity market the day before the start of formal proceedings against France at the European Court of Justice for infringement of an EU directive.
Italy ended 70 years of active involvement by the state in industry thanks to the determination of the EU competition commissioners, Karel van Miert and his successor, Mario Monti.
Obviously the European Commission can play a positive role only if it embraces a stance in favor of liberalizing markets and does not fall into the trap of focusing on coordinating national regulation throughout the Union.
Regulation of markets does need to be coordinated; but it also needs to be eliminated in many cases.
Consider Europe's financial markets, which provide an alternative way to break the reform deadlock.
In the old Europe, with fragmented financial markets, Chancellor Gerhard Schroeder's request that Mannesmann remain a German company in the face of a (successful) takeover bid by Vodaphone was tantamount to his following an order by the company's mostly German shareholders.
As it turned out, such action no longer works in a world in which European companies are exposed to the scrutiny of international investors.
European financial markets were, and to some extent still are, dominated by a few large banks.
When the euro was launched banks in Europe accounted for some 80% of total firm financing, as compared to 30% in the US.
Banks are often less prepared to finance a risky, but possibly bright idea.
As lenders, they are also less efficient at monitoring firms than shareholders are.
Before the advent of the euro, local markets were small and illiquid.
The development of modern, highly liquid financial markets has been one of the main benefits of the euro: in a few years, for instance, bank lending in Germany fell from 74% to 32% of the total funds raised by large German companies.
In Italy the share of bank lending as a percent of the total funds raised by big Italian companies fell from 75% to 50%--the difference being made up mostly by emissions of corporate bonds.
The lesson for new member countries from the East is clear: once you are in the Union, the outside pressure to reform decreases: the impetus to reform must be found at home.
Reforms aimed at deregulating financial markets should be the priority.
America's reborn service economy stands in stark contrast to what is found in Europe.
Thanks to the European Commission's tough competition policy, Europe has gone a long way towards making its industries more viable.
In the service sector, by contrast, deregulation has been much more limited, probably because services are much less exposed to international competition, which means that old hidebound rules are easier to preserve.
The outcome is that in Europe, contrary to the US, an increase in the demand for services produces higher rents, rather than more jobs.
Take the simple case of taxi licenses: if the number of taxi licenses is fixed, and consumers start using taxis more often, what you will observe is, at most, an increase in the demand for powerful Mercedes cars that taxi drivers use, not an increase in jobs.
In other words, a good indicator of the state of the US economy is how many people take care of you at a supermarket cashier.
In many European countries, you should instead look at the quality of the stereo in your taxi.
The labor market flexibility in the US service sector is truly remarkable.
During recessions and booms, you can feel the changes in quality and number of waitresses in restaurants, in the size of staffs in shops, in the availability of cleaning services.
In the roaring 1990's, it was almost impossible to find qualified restaurant staff to fill vacant jobs.
During the stagnant economic years of the Bush administration, such workers were plentiful.
In Europe, you simply certainly can't see these differences: waiters, busboys, and cooks all have job security.
Part of the problem here is that temporary, short-term jobs in Europe have a very bad connotation.
The fact that obstacles to short-term employment contracts lead to long-term unemployment traps is often forgotten.
Such perceptions reflect a deeper difference.
By and large, workers and management in Continental Europe retain many of the old class antagonisms that first emerged with the rise of industrialism in the 19
In the US, such sentiments are much less ingrained in the culture.
Leading 19
Yet beneath the surface, things are beginning to move in Europe.
Stealthily, the competition authorities of the European Commission are starting to get tougher on professional services (consider, for example, "Competition Policy and Liberal Professions," a statement that can be found on the European Commission's Web site, www.europa.eu.int ).
Once they have brought the cozy cartels of lawyers and accountants into line, other service industries seem destined to be opened up to greater competition, and hence to become great engines of job creation.
Notwithstanding Europe's labor unions, temporary jobs are starting to be accepted.
The American service industry job machine may be on its way across the Atlantic.
Capitalism's High Noon
Europe's Enron-induced schadenfreude is kaput.
Last year's Vivendi and this year's Parmalat scandals have seen to that.
Europe, like America - indeed, like the entire capitalist world - must now become more hawkish in demanding prosecution and punishment of bosses who loot their companies.
American prosecutors in the Enron case have made important progress lately, with some important crooks, like Andrew Fastow, offering both guilty pleas and a willingness to testify against their former colleagues.
Mr. Fastow will go to jail for ten years; those he testifies against will face even longer sentences.
Italian prosecutors seem zealous to make those who looted Parmalat pay a similar price.
But these cases go beyond the companies robbed and the shareholders betrayed.
What is at stake is no less than the perception of the fairness of the market and political support everywhere for market-oriented policies.
Capitalist economies produce inequality, often large ones.
Up to a point, and to the extent that income differences are due to differences in ability, effort, investment in education, etc., they are necessary to providing the correct incentives to invest, work, innovate, and grow.
But the more tainted the market's reputation for fairness, the more average citizens will see income differences merely as the result of corruption, illegal activities, connections with public officials, and so on.
This will increase demands for more regulation and heavy government involvement in the economy, so as to bring unruly and untrustworthy capitalists under greater control.
Moreover, the more that wealth accumulation is viewed as "unfair" (i.e., the result of corruption and illegality), the more pressure for stiff taxation of "ill-gotten gains" will mount.
If any of these populist measures would make markets fairer and better functioning, we would say, "So be it."
Unfortunately, reacting to corrupt businessmen in this way sets in motion a vicious circle: more regulation may lead to even more corruption in order to avoid it; higher taxes on wealth will bring about even more tax evasion, making the system even more tainted.
Sadly, nowadays, things as disparate as highly paid executives, the Enron and Parmalat scandals, contested mergers and acquisitions, stock market volatility, "junk bonds," and asset-price bubbles are all lumped together under the snide heading "cowboy capitalism."
Europeans are particularly prone to see things this way - and to see a powerful government as the sheriff to keep the cowboys from shooting up the town.
This is especially worrisome because Europe has recently begun moving in the right direction by deregulating its markets.
With political support for these changes still shaky, the risk is that opponents may use Parmalat, Enron, Vivendi, and other cases as an excuse to reverse the process.
In many developing countries, weak regulators and a widespread perception of corruption often stand in the way of pro-market reforms; the left (populist or otherwise) can credibly argue that capitalism is "corrupt" and so must be taken under the wing of the government.
This is a big reason why market capitalism has such a hard time taking root in the developing word.
If capitalists are corrupt, how can you convince a poor peasant to believe in the market economy?
He will vote for populist policies.
The result is even more corruption and less growth in a sort of "corruption-induced" poverty trap.
The Parmalat scandal may have been a blow to global capitalism, but in Italy it is hoped that it might sound the death knell for an economic system traditionally based much more on "connections" amongst private groups - and between these groups and the public sector - than on competitive markets.
For Italy, the obvious solution is to strengthen the country's investigative and financial institutions, and improve the design of regulatory agencies, particularly the quality of their personnel.
This, however, will not happen overnight, and in the meantime the demand for more regulation may result in a structure that is heavy, ineffective, and in the end impedes, rather than corrects, market forces.
Supervision inside Italian firms should be strengthened by making sure that a sufficient number of non-executive directors sit on the boards of public companies.
A single independent director would probably have been enough to blow the whistle at Parmalat: there were none on its board.
Similarly, it might help to have accounting firms be selected by minority shareholders or paid by the stock exchange, rather than by a company itself.
Here, even the recent changes in the US have not gone far enough: they prevent accounting firms from also serving as advisors to a firm, but they still leave the decision about remunerating the accountants in the hands of the company, thus creating a perverse incentive to play fast and loose with financial reporting.
It is surprising that while the Italian government is busy redesigning the regulatory and supervisory structure of the country's financial institutions and financial markets, nothing is being said about independent directors and accounting firms.
After all, good sheriffs need active citizens to be in their posses and to serve on juries.
Clean capitalism needs the same sort of widespread engagement.
The Racism of the Welfare State
Two demographic acids are corroding Continental Europe's welfare states.
One is Europe's aging population. The other is the flow of immigrants from soon-to-be new member countries in the European Union and from outside the union.
In our recent book Fighting Poverty in the US and Europe: A World of Difference , Edward Glaeser and I discuss why the welfare state is so much more generous in Europe than in the US.
One important explanation is the much larger racial heterogeneity to be found in the US relative to the more homogeneous Continental Western Europe.
Consider this: according to the World Value Survey, whereas 60% of Americans believe that the poor are "lazy," only 26% of Europeans hold this belief.
Not surprisingly, those who adhere to such beliefs are more averse to redistribution and welfare, and evidence shows that in the US, those who express more "anti-minority" points of view are also more averse to redistribution and more likely to have less sympathy for the poor.
It seems easier for white middle class Americans to consider the poor less worthy of government support if they think of them as different.
To put it crudely, but candidly, indifference comes easy if the poor are assumed to be mostly "black."
This is more difficult in Norway, where rich and poor are white, often blond and tall.
Much experimental and statistical evidence shows that individuals trust and associate more with others of the same race.
Precisely for this reason, political opportunists in the US have long used the race card to discredit welfare and redistribution, from the Jim Crow system that segregated blacks in the South before 1964 to the infamous Reagan-era charge about black "welfare queens" who drive Cadillacs.
Right wing white politicians, predisposed against taxes and redistribution, use the race issue to secure the votes of poor whites, who otherwise might vote differently on purely economic grounds.
Even more fundamentally, racial considerations also influence the nature of America's political institutions.
Proportional representation, widely adopted in Europe in the first decades of the 20th century, was never embraced by the US because it is a system that would allow black representatives to be elected regularly.
In Europe, however, socialist and communist parties imposed electoral systems based on proportional representation precisely because they open the door to representatives of minorities (the communists and socialists themselves).
The few American cities that introduced this system in the Progressive era, between 1910 and 1930, soon abandoned it - or were forced to - in order to stop the election of black representatives.
Today the only US city that uses proportional representation is the leftist bastion of Cambridge Massachusetts.
Proportional representation is widely viewed as one factor that promotes the implementation of redistributive policies by providing a political voice to minorities.
Cross-country evidence shows that the size of public redistributive spending increases with the degree of proportionality in the electoral system.
There is more. Many redistributive programs in the US are run by the 50 states.
States that are more racially heterogeneous have smaller redistributive programs, even controlling for their level of income.
Welfare is relatively plentiful in the overwhelmingly white states of the North and Northwest (Oregon and Minnesota, to cite two examples) and in some states in New England (such as Vermont).
It is lacking in the racially mixed Southeast and Southwest.
Continental Europe is becoming, and will become, more ethnically mixed as more newcomers from Eastern Europe and the developing world arrive.
Xenophobic parties are on the rise across Europe; in some cases, they are in office.
Think of Jörg Haider and the late Pym Fortuyn, or, to a lesser extent, Italy's Northern League.
It will not be long before even Europe's more respectable conservative parties reach for rhetoric about "foreigners coming here to feast off of our taxes."
Simply put, when middle-class Europeans begin to think that a good portion of the poor are recent immigrants, their ingrained belief in the virtue of the welfare state will begin to waver.
Even Europe's leftist intelligentsia now associates crime and urban squalor with immigration.
The step from here to lamenting the high taxes spent on welfare for immigrants is a but a short one.
When this happens - and I say "when," not "if" - there are three possible political responses. One is to close borders to poor immigrants, eliminating any correlation between poverty and immigration.
The second is to somehow restrict welfare benefits to "natives."
The third is to reduce the size of welfare for all because political support for it is declining.
The first strategy is short sighted and the second odious.
I hope that the third one will win out, because it would mean relatively open borders, no discrimination, and less government intervention.
Not to worry: the European welfare state will remain more generous than the stingy American one, but it may become more manageable and less intrusive.
The fact that this will come about because of ethnic "animosity" is sad and depressing.
The silver lining is that the European welfare state does indeed need trimming!
Melting Pot or Economic Meltdown
Worried about an invasion of migrant workers from the new member states of Central and Eastern Europe, the old EU members have erected high barriers in order to prevent the flow.
Despite the open market rhetoric of the EU, for most citizens of the new member states free labor mobility will not be a reality for the next seven years at least.
This is a politically understandable but flawed policy.
One of the key achievements of the European Union is mobility of goods and inputs.
Without this, what kind of a union would the EU be?
Otherwise, what, precisely, do the new countries get out of membership other than the nagging intrusions of the Brussels bureaucracy?
Given the high hopes that preceded ascension to the EU, and the stingy attitude of the Union to its new members, it should not surprise anyone if an anti-European reaction soon starts to brew in these countries.
So the cure is as bad as the disease: discrimination against the new members creates political problems of its own for the Union.
The real question is whether there is a disease at all.
Should Western Europe really be worried about an enormous flow of new immigrants?
In fact, estimates of potential migration flows from East to West are relatively small.
According to An agenda for a growing Europe , a report published by Oxford University Press in 2004 for the European Commission, 250,000 to 450,000 workers will go West during the first one to two years, followed by around 100,000 to 200,000 annually thereafter.
Over the first decade, the cumulative number of migrants might amount to between 1.5 and four million, that is, 2.4% to 5% of the total population in the new member states - and a tiny fraction of the total population in the current Union.
Aging populations and lower fertility rates in the new member states might result in even smaller flows.
There is another, less obvious, reason why the EU's policy on migration is flawed.
As Mircea Geoana, Romania's bright young Minister of Foreign Affairs, recently put it: "If the EU waits another seven or ten years before it opens up, the workers it will receive from my country will be the least qualified, peasants and individuals with low human capital: by then, the doctors, the architects and the engineers will all have migrated to the United States."
Indeed, this is precisely what happened with the Russians: the most qualified have already gone to the US. Europe has been unable to attract much more than a few disreputable oligarchs, who migrated to the French Riviera, and a handful of lively street singers.
Western Europe is increasingly inhabited by aging populations that have lost the incentive and enthusiasm to work hard, take risks, and be ambitious.
Without an inflow of new blood and new ideas, the old Continent's economic future looks bleak.
Just look at the US: where would America be if it had introduced barriers to entry to various waves of new immigrants and remained confined to Anglo Saxon settlers?
To be sure, managing a melting pot is not easy, and many of America's social problems are related to difficult race relations.
But New York and Los Angeles, the two most ethnically diverse cities in the US, are also America's leaders in business and in the arts.
Nothing comes easy in this world: if the Union cannot manage a multicultural society in Europe, then it ought to prepare itself for permanent stagnation.
So long as the Union's borders remain closed, there is also a risk that foreign investment will fly over Western Europe and land in Central and Eastern Europe, where people are willing to work longer hours, market regulations are less intrusive, and human capital is relatively high, because Communist schools were good at technical training.
These countries have opened their markets to foreign investors - and foreign investors are responding eagerly.
Given Western Europe's growing need for labor in the years ahead, the question is not whether to have immigration, but only where that immigration is going to come from.
Will it be the legal immigration of easily assimilated people from Central and Eastern Europe, or illegal immigration from the Maghreb?
Europe on Holiday
Currently, the average number of hours worked per person aged 15 to 25 each year in France and Germany is about 50% lower than in the United States.
Other European countries (for example, Italy and Spain) fall somewhere between these poles.
Although some Americans always like to boast about their superior work ethic, this disparity in working hours between the US and Europe has not always existed.
Indeed, until the mid-1970's, the number of hours worked on either side of the Atlantic was roughly the same.
From the mid-1970's on, however, Americans continued working more or less the same number of hours, while Western Europeans began working less and less each year.
If Western Europe needs an explanation as to why its rate of economic growth is lagging behind the US, it need look no further.
The average number of working hours per person depends on a variety of factors:
• the level of participation in the labor force;
• the number of vacation days workers have;
• the number of hours worked in a "normal" week, i.e., with no vacation.
Virtually all the difference between the US on one side and France and Germany on the other are due to the first two factors, each with roughly equal weight.
So, lower participation in the labor force explains half of the difference, and longer vacations for those who do work accounts for the other half.
The importance of vacation time should come as no surprise to anyone who has experienced Europe's deserted cities in August, the three-week vacation "bridges" in April and May in France and Italy, the "rush hours" that take place every Friday at 2 PM in German cities, and crowded ski slopes in February due to winter school vacations.
But knowing "how" Europeans work less is one thing; knowing "why" Europeans work less than Americans is another.
One view is that Americans are perceived (and like to see themselves) as Calvinist workaholics, whereas Europeans like to think that they know how to enjoy life's pleasures.
As a European working in the US, I admit that I do take many more vacations than my American colleagues.
So there may be something in this "cultural" explanation.
But why did this start around 1973?
A second argument attributes the difference to income taxes, which, in fact, have increased significantly in Europe since the 1970's, while in the US income taxes fell from the early 1980's onward.
Income taxes certainly must affect willingness to work.
They may not change by much the number of hours worked by the main breadwinner in a family (typically a man), but they do influence the participation of women in the labor force.
After all, why work, when your after-tax salary barely pays for childcare and household help?
But even this is not a sufficient explanation, because studies of how the supply of labor responds to tax changes suggest that something else must explain the enormous gap between US and Europe, especially France and Germany.
For the age group over 50, the structure of pension systems is clearly a major factor.
It was and remains much more profitable to retire earlier in Europe than in the US.
Why should a Frenchman or Italian in his early sixties work today, when in the 1990's he could have retired in his mid-fifties with 80% or more of his last working-age salary?
For women, the retirement age in the mid-1990's was even lower.
Public sector employees had even more advantages.
Nor is that all.
In the 1980's and 1990's, many European labor unions, in response to rising unemployment, adopted the policy of "work less, work all."
In other words, they obtained shorter hours (i.e., more vacations) in order to keep employment up.
The problem is that total compensation did not go down in proportion to the shorter hours, thus leading to an increase in pay per hour.
Lower productivity and higher unit labor costs eroded firms' willingness to hire, leaving Europe with chronically higher unemployment than in the US.
Today's debates about growth in Europe are full of buzz words like "knowledge-based society," "technological progress," and "investment in education."
Europeans certainly need something to compensate for a short working life with many vacations.
But much of this discussion is merely a form of "political correctness." It is more reassuring - and "feels better" - to tell Europeans that growth is sluggish because society is not sufficiently knowledge-based, rather than pointing to the trade-off between vacations and growth.
Europeans tend to prefer vacations over growth.
Personally, I love taking more and more vacations.
But I cannot (and do not) then complain if my income does not grow faster and faster.
The Inevitability of Chinese Democracy
Fifteen years ago, Fang Hongin was protesting in Tienanmen Square.
A few years ago, in Beijing, he ran one of China's most popular TV shows, each week testing the limits of the authorities' indulgence.
Today, he runs Dragon TV, Shanghai's leading station, and advertisements featuring him hang from the city's skyscrapers.
Hu Shuli belongs to the same generation: the journalist whom the Economist magazine calls "China's most dangerous woman," moved from her first job, with the Party press, to editing Caijng , a business magazine that runs stories on corruption, exposing businessmen and public officials.
It would be a mistake, however, to interpret these experiments with a free press as signs that democracy in China is near.
The Party allows Caijng to expose corruption because this helps it to stop China's most serious disease.
"The first civil right is getting out of poverty," says Yongtu Long, one of China's WTO negotiators.
"In 15 years, we got 200 million people out of poverty; 700 million Chinese today have access to electricity, an unknown luxury 15 years ago.
This is why our priority is growth: everything else, frankly, is less important."
Growth, however, does only mean getting people out of poverty.
Twenty-five years ago, China had a more egalitarian society than Sweden; today there is vast inequality between city and countryside, between the western provinces and those bordering the Pacific ocean, and within cities, which attract a constant flow of former peasants looking for jobs.
Indeed, China's income distribution today looks more like that of Brazil than that of Sweden.
But more inequality also means more opportunities: becoming rich today in China remains very difficult, but it is no longer impossible - just walk into one of the pubs of downtown Shanghai.
Inequality can be accepted, but not if it is the fruit of corruption, and this remains China's foremost social problem, which the Party has been unable to eradicate, despite Caijng 's exposés and the death penalty.
Can China really do without democracy?
A few years ago, Fareed Zakaria, then an editor of Foreign Affairs , argued against the priority normally given to democracy, simply defined as the possibility of choosing political leaders through free elections.
The world is full of democracies, he argued, that routinely violate human rights.
"Elections are of little use if democratically elected governments limit the freedom of the press and the independence of the judiciary."
"There is certainly more freedom in Shanghai than in Moscow," says a professor from Tsinghua University in Beijing, echoing Zakaria.
She is probably right, although India reminds us that sometimes elections are a powerful and effective mechanism to correct the path a country has taken.
India's economy is growing almost as fast as China's, with a similar increase in inequality and, to some extent, corruption.
But Indian voters have turned against this model.
As a result, India's economy is likely to slow.
It is hard to tell whether this is good or bad.
It is probably bad in the short run, but who knows about the longer term?
The point is that questions such as, "Are we creating too much inequality?" cannot even be asked in China.
The upshot is that whenever a problem gets out of hand, the turnaround comes too late and is dramatic.
This is why China cannot shelve the problem of its transition to democracy.
Democracy is not only a mechanism to help prevent strategic mistakes.
There is a more mundane reason why many, even within the Party, think that a democratic transition has become inevitable: the Party is simply losing control of the country.
Deng Xiaoping was the last Chinese leader to possess undisputed authority to decide on public policy.
Today, the Party's political bureau has more than 20 members and each resolution requires unanimity.
More important decisions require an even larger consensus, involving up to 3,000 people.
For example, the Party's main current activity is drafting the documents that will be approved at the next congress, scheduled for the autumn of 2007.
The difference between the economy's pace and that of the Party means that the country increasingly runs on its own.
As in the past, when a dynasty weakens, the provinces make their own decisions.
Even slowing the economy is hard: lacking an efficient financial system, credit growth must be controlled directly through banks.
But the director of the Guangzhou office of China Construction Bank, China's largest, consults with the party leader of his province before executing the directives he receives from the bank's head office in Beijing.
Considering these difficulties, some inside the Party admit that "there is only one way forward: let someone be in charge, no matter how she or he is chosen, even through an election, provided effective decision-making is restored."
So China's democratic transition may be closer than anyone realizes.
But if it happens, it will not result from grassroots democratic experiments in towns and villages; rather, it will be an elite-driven transition, careful to preserve the government's control.
This is the only condition under which the People's Liberation Army and the all-powerful Military Commission will accept democratization.
Is the European Union imploding?
The prospect of being accepted into the EU provided the nations of Eastern and Central Europe with a strong incentive to achieve fiscal balance - a process somewhat similar to what happened in Western Europe at the time the euro was launched.
In both cases, however, after initial progress, countries have shown clear signs of political "fatigue": in the euro area, the Stability Pact has imploded; throughout Eastern Europe, budget deficits have started to rise.
In the Czech Republic last year, the budget deficit jumped to 13% of GDP, a threefold increase since 1999.
Although this included a one-time charge for bank restructuring costs, this year the deficit will close above 6% of GDP.
In Poland, the deficit is also moving close to 6% of GDP, up from 2.9% in 2001.
In Hungary the budget deficit is widening again, after narrowing to 4% of GDP in 2001.
Malta, too, has a deficit close to 10% of GDP, up four percentage points since 2001.
Only the Baltic countries seem able to maintain sound fiscal policies.
In many ways, this is not surprising: once politicians no longer face annual EU progress reports - and the threat of exclusion - fiscal relaxation becomes much less costly.
At the same time, the big euro area members (France and Germany) do not have a leg to stand on to criticize other countries' fiscal policies, so there are virtually no international constraints on EU countries' budget deficits.
Indeed, these constraints have proven to be utterly useless after a country's EU entry, and it will be hard to impose them as an admission criterion for other potential entrants.
Perhaps more surprising is the apparent political backlash against the governments that have led countries into the EU.
Once again the similarity with what happened in Western Europe at the time of the euro's implementation is striking.
The government of Romano Prodi, having managed against all the odds to get Italy into Europe's monetary union, fell three months later.
The Czech Republic, Poland, and Hungary have each endured a government crisis since EU accession.
Throughout Central and Eastern Europe, the EU is not as popular as it used to be.
Voter turnout in the European Parliament elections in June was embarrassingly low in the new accession countries, ranging from just 17% in Slovakia to 38.5% in Hungary.
Participating in their first-ever EU election, citizens in these countries turned out at a rate not only well below the European average (about 45%), but even below the UK average.
The reasons are twofold. Accession countries felt that they were asked to make major fiscal adjustments in order to be accepted into the EU.
Regardless of whether such policies were in the long-term interest of these countries, in the short run they were politically costly.
This "adjustment fatigue," a term coined to describe the experience of Latin American countries to economic liberalization in the 1990's, is now coupled with the feeling that the EU is not such a great bargain after all.
Perhaps most visible has been Western European countries' eagerness to protect their labor markets against migration from Central and Eastern Europe - a sticking point that always comes up in every meeting between politicians from the West and the East.
Little wonder, then, that voters in Central and Eastern Europe now feel that they got a poor bargain from the governments that brought them in: belt tightening, labor market restrictions, and the notorious barrage of EU regulation.
The result has been a reaction against these governments and a lack of public interest in EU affairs.
So, after all the celebrations of European enlargement, we are left with a predictable set of problems: a "union" of countries with very different views on everything (from foreign policy to labor market policies) and different economic interests; widespread disillusionment among voters in the new member states; a constitutional process whose future is uncertain; and all the usual political wrangling in Brussels between countries seeking to get as much power as possible.
The Long Decline of Western Europe?
It's election season in Germany, France and Italy, so the time for structural reforms is over.
Paradoxically, this could be good news for those who think that Europe should start contributing to world growth by expanding domestic demand.
In fact, the current wisdom has it that the reason why France recently grew twice as fast as Germany is that French consumers have stopped worrying about social reforms.
As soon as French Finance Minister Nicolas Sarkozy decided to leave the government and start campaigning for the presidency, incumbent President Jacques Chirac abandoned all plans for reforms that might antagonize voters.
So health reform or even partial pension reform must wait a few years.
At the same time, a recent "white paper" produced by a working group headed by the IMF's former boss, Michel Camdessus, which was charged with proposing the type of structural reforms needed to achieve growth, was received with the usual outcry from trade unions.
Most of its reasonable proposals will soon become another example of forgotten good intentions.
Back to business as usual in France.
German households, on the other hand, according to a recent poll published in the influential daily, Die Welt , are in a more sober mood: most plan on cutting down their vacation travel -- which, obviously, does not mean that they will work more; they will just spend some of the many weeks of their paid leisure at home -- and postponing large item purchases.
Why?
They are worried by the talk of pension reform, changes in the health system, and new eligibility rules for unemployment benefits.
To be sure, their mood may soon turn brighter: Chancellor Schröder is also preparing for re-election.
He may even have a shot at winning, as the SDP, his party, is reviving in the polls.
Accordingly, references to the need for pushing ahead with reforms have disappeared from his speeches.
As a result, perhaps the long-awaited turnaround in German consumption -- which has been flat for the good part of a decade -- is about to happen.
In Italy, Prime Minister Berlusconi waited three and a half years before deciding to deliver on his main electoral promise of a tax cut.
But real tax cuts also mean spending cuts and, as elections loom barely a year from now, it is too late.
Concerned that cutting spending might lose him votes, Berlusconi is proposing a tax cut of less that 0.3% of GDP -- and one that is partly to be financed by other levies.
If Germans are depressed, Italians are in a coma.
There is a lesson to be drawn from these experiences.
Europeans don't really want reforms, and politicians are very aware of this.
Or, to put it differently, special interests have become so powerful and entrenched that any attempt at reform brings out a powerful lobby against it.
So politicians on the campaign trail promise the impossible: reforms that will produce instant prosperity at no cost to anyone.
When -- surprise, surprise! -- this turns out to be impossible, they give up on reform altogether.
In the meantime, they do serious damage because Europeans are so worried about the possibility of reform that the mere possibility of such reforms actually being enacted plunges them into a funk.
In fact, there are two problems with all this talk and little or no real action on structural reforms.
First, it makes consumers anxious and depresses demand.
Second, it leaves time for anti-reform lobbies to organize and prevent any progress toward completion of the reform effort.
A politically more successful plan would be to adopt the "big bang" approach: implement quickly a broad set of reforms that will break the opposition of special interests and leave enough time before the next election for the benefits of reform to be felt by voters.
When consumers see the benefits of market deregulation, for example, perhaps they will feel compensated for having to work longer for their retirement.
But no European politician on the horizon is likely to take this approach.
Does this mean that Europe -- at least continental Western Europe -- is doomed?
Not necessarily.
Germany, France, and Italy are rich countries.
Even without reforms, they will be able to afford a civilized form of life for many years to come.
To be sure, eventually they will become poor relative to other, faster growing economies.
But after all, it took Argentina nearly a century of mismanagement to go from almost the top of per capita income to its relative poverty today.
The Reform Game
Reform, when long discussed but never implemented, can do far more harm than good.
Anticipation of a reform -- say, of pension rules, the health system, or unemployment benefits -- worries everyone who might feel the impact.
In response, they cut consumption and save more, expecting that sooner or later they will have to start paying for some of the services they had been used to getting free or at subsidized rates.
In the meantime, as politicians debate and do nothing, consumer confidence falls, economic performance worsens, and the consensus needed to get reforms approved in the first place vanishes.
Still the talk does not stop, nor does the fall in consumer confidence.
Germany's recent experience provides a worrying example of this vicious circle.
Reform of Germany's generous social system has claimed the front pages for German papers for more than ten years.
The result has been a sharp fall in consumer confidence: the German index of consumer sentiment was small but positive in November 2000; it has since fallen to -20, the sharpest decline in the euro area.
Out on the street, pessimism runs rampant.
For two years now, the growth rate of private consumption (measured at constant prices) has been negative: - 1% in 2002, -0.5% in 2003.
Similar declines in real consumption are rare in industrial countries, as in bad years consumers typically draw on their savings to keep their consumption relatively constant.
In the case of Germany, one has to go back to the early 1980's to see similar negative numbers in consumption growth.
As a result, rather than falling, the household saving rate has increased, rising from 9.7% of disposable income in 2000 to 11.8% last year.
Depressed consumption and higher savings have affected all age groups, but the relatively old have been more prone to the trend than the relatively young.
The only positive signs in consumption are seen among the youngest households, those headed by people in their early twenties, who evidently hope that sooner or later the reforms will be approved and their tax burden reduced.
But the saving rate even in households in their thirties has risen along with concern about reforms.
Not surprisingly, elderly people cut consumption more.
With retirement, they have lost almost all options: they can no longer work more, nor can they sign up for private health plans -- the insurance premiums at their age are too high.
So they are forced to rely on their savings, and virtually stop consuming.
Put this in the context of a rapidly aging population and the effects on overall consumption are dramatic.
Interestingly, France is the only large Euro area country where consumer confidence is growing (from -24 a year ago to -13 today).
Jose Bove Against the Poor
Support for increased foreign aid, debt relief and debt forgiveness comes from all sides.
From rock stars, to "anti-globalists," to religious organizations, to various advocates for developing countries, to the UN, the calls are becoming deafening.
The "story" promoted by the pro-aid movement is simple and appealing.
Global differences in income per capita are too extreme; globalization is increasing income inequality; the poor are becoming progressively poorer and many starve in order to pay their debt.
So more aid is needed, and more debt forgiveness, because the world's rich become rich only at the expense of the world's poor.
Aid and debt forgiveness will lift poor countries out of poverty
This story is almost completely wrong.
The only part that is true is that differences in per capita income are extreme.
All the rest is false.
Globalization is not responsible for third world poverty.
Corrupt and inefficient governments of developing countries are.
There is not one shred of evidence showing that more openness to trade increases poverty, but anti-globalists do not let facts interfere with their ideology.
More trade makes both sides of a transaction wealthier.
Even if globalization did increase inequality - a big if - since nobody has shown it convincingly, it still reduces poverty.
That is, it increases the income of both the poor and the rich who trade - more so the rich, of course, yet the poor gain too.
The anti-global alternative is to make both sides poorer.
Inequality may be lower, perhaps, but poverty higher.
What's appealing about that?
It is not true that poor countries have become poorer.
Many examples exist of countries that lifted themselves out of poverty, from South Korea to Costa Rica to Botswana.
Others squandered the immense wealth of natural resources, say Nigeria or Venezuela, the latter, incidentally, recently adopting protectionist policies.
There is no evidence that increasing foreign aid to governments in developing countries improves their economic performance and lifts them out of poverty permanently.
In fact, more aid is likely to increase corruption, because it augments the amount of resources over which elites fight.
The same goes for debt forgiveness: it only encourages countries to borrow more, often for the benefit of local elites.
A recent widely cited book by William Easterly - a former economist at the World Bank and an expert on aid and development - provides a mountain of shocking stories about local elites squandering foreign assistance.
The pro-aid coalition should read it carefully.
Those who really care about reducing poverty should place blame where it belongs: with governments and bureaucracies in many developing countries, especially in Africa and Latin America.
Traditionally, instead, foreign aid paid no attention to the virtues of the receiving countries and did not discriminate in favor of "good governments."
Donors have typically favored their former colonies, irrespectively of the nature of their regimes.
One of the worst offenders here is France.
Statistical evidence shows that a hypothetical former colony of France, following hideous policies, with dictatorial and objectionable regimes, would receive much more aid from France than a non-former colony struggling and trying to adopt decent polices.
In other words, France gives almost exclusively to its former colonies, irrespective of how bad their regimes are.
Aid given by the US has been overly influenced by Middle East politics and, previously, by the Cold War.
Political alliances, indeed, are often more important than the quality of the receiving countries policies as a determinant of the direction of aid giving.
The only donors that directed their aid reasonably well are the Scandinavian countries, whose aid giving is the highest in per capita terms but small as a percentage of the total.
One of the reasons is that these countries did not have colonies and political alliances to support.
Before providing more aid or debt forgiveness two conditions need to be met.
One is "institutional conditionality:" only governments that show serious progress in reducing inefficiency, robbery of public property and corruption, should receive aid.
Reasonable ways to measure corruption do exist; we know which countries are more corrupt than others.
This evidence should be used more aggressively by donors to discriminate amongst receivers.
Unfortunately, in most cases the poorest countries, where aid is most needed, are also the most corrupt.
So a second condition must be applied: in such cases aid flow should be kept completely out of public channels and administered by non-local groups un-associated with local elites and governments.
Finally, other rich country policies may be much more beneficial than aid.
The main change should be stopping agricultural protection for rich country farmers.
The worst enemies of poor countries are farmers in rich countries.
Defeating the lobby of French farmers that strangles reform of the EU common agricultural policy should be the top priority of Europe's pro-poor coalition.
Instead, anti-globalists care more about the charm of French agricultural towns threatened by globalization, that is, by the agriculture of struggling poor countries.
Contrary to what critics of the IMF, such as Joe Stiglitz, say, abandoning the "Washington Consensus" will hurt the poor.
In his recent vitriolic attacks on the IMF Stiglitz implied that he cares for the poor while the IMF does not.
Well, the data contradicts him: using policies that he directly or indirectly advocates -such as using deficits first and inflation later to solve fiscal problems - is especially bad for the poor.
Latin America's rich and middle classes are particularly adept at shifting their wealth to tax havens at the slightest sign that tax collection may become tougher.
Divided Europe Stands
In coming meetings of the G8 (the world's club of rich industrial countries plus Russia), four members--Germany, France, Italy, and the UK--will participate both individually and as members of the European Union, whose President also attends to represent the EU as a whole.
But shouldn't the EU have only a single representative?
The main argument in favor of such a change is that joint participation by the EU would increase Europe's weight in international relations, especially vis-a-vis the US.
After all, a key reason for European integration in the first place was precisely to provide a more powerful voice for Europe in the international arena.
The EU's member countries share strict rules on fiscal policy, a common currency (except, for the moment, the UK, Sweden, and Denmark), a common trade policy, a common antitrust policy, and common market polices, just to name a few.
So why not having a single representative at the G8 meetings.
Indeed, Germany, France, Italy, and the UK basically share a common stance on international economic policy, so why not present a united front to the world where these issues are concerned?
There are two possible answers.
One is that despite occasional shows of unity, European countries retain very different views on foreign policy and do not want to delegate this prerogative.
Consider, for example, the recent strained relationship with the US.
Germany has recently taken a more anti-American stance (perhaps for electoral reasons), but it is beginning to like flexing its independent foreign-policy muscles.
The risk is that agreeing on a common foreign policy would either be impossible or would lead to the adoption of a minimum common denominator that would leave Europe ineffective and weak.
Alternatively, taking a strong position based on, say, majority voting within the EU may lead to very strained relations between member states.
The European Union may soon have 25, or more, members.
Agreeing upon a united foreign policy will become even more difficult, if not downright impossible.
Between 1995 and 2002, notwithstanding the Stability Pact, total public spending in the euro area (net of interest and of capital spending) remained virtually unchanged: it amounted to 41% of the euro zone's GDP in 1995; it will amount to 40.7% of GDP this year.
Meanwhile, gross government investment, already minuscule, contracted even further: from 2.7% to 2.4% of GDP.
As a result of the Stability Pact, teeny differences in budget outcomes acquire a prominence in Europe's economic policy debate that is not only ridiculous on their face, but distract attention from Europe's real budgetary problems.
Few people seem aware of the margin of error that exists when computing such numbers.
It is not uncommon, say, for parliamentary discussions about a budget to turn on the question of whether or not such an such an action will lead to a deficit of 0.8 or 1.1% of GDP-blithely unconcerned that the difference between those numbers is well below the statistical margin of error.
Futile debates of this type are a handy excuse for a country to avoid facing its real fiscal challenges: unsustainable pensions, unemployment benefits that discourage workers from looking for a new job, public sector wage bills unrelated to productivity.
Mario Monti on Trial
Mario Monti, the European Union's Commissioner for Competition Policy, is often in the spotlight, usually to popular acclaim.
Over the years, he has won important victories limiting state aid to business, one of Europe's most pernicious economic maladies.
Today, however, the benefits derived from his achievements are at risk because of a series of stunning courtroom defeats.
With a competition case against software giant Microsoft seemingly in the offing, Commissioner Monti will need to rediscover his footing fast.
Within a period of just a few weeks, the European Court of Justice (to which private parties can appeal decisions made by the Commission) voided three of Monti's decisions rejecting proposed corporate mergers.
While the two issues, state aid and private mergers, are in principle separate, losing repeatedly on one battlefield undermines Monti's position elsewhere, particularly the battle against state aid.
The Court's rulings against Monti's decisions are devastating.
In the Schneider/Legrand steel merger case, it cites "several obvious errors, omissions and contradictions in the Commission's economic reasoning" as well as a "procedural irregularity which constitutes an infringement of defense rights."
The Tetra Laval case saw the Court denounce Monti's "economic analysis of the immediate anti-competitive effects," which it said was "based on insufficient evidence and some errors of assessment."
Finally, in the Airtours merger case, the Court rebuked the competition authorities for "decisions that are vitiated by errors" concerning issues that are "fundamental to any determination of the question of the creation of a collective dominant position."
Worsening the injustice, in at least one case the Court's decision came too late for the companies involved to go ahead with their plans.
These cases raise important questions about both the substance and procedures of the European Commission's handling of competition policy.
Start with the substance. The Court's verdicts leave the impression that competition policy in Europe is overly zealous.
That condemnation matters, because passing judgment on the trade-off between the efficiency gains to be had from any merger versus the threat to competition is a subtle matter, not an ideological one.
In the Airtours/First Choice case, the Court ruled that the Commission failed to prove that the three leading tour operators, if merged, "would have an incentive to cease competing with each other." The Court rejected the Commission's conclusion that the merger would enable them "to interpret each other's business strategies more easily and to adopt those strategies themselves."
Moreover, the Commission "failed to identify or demonstrate clearly" how the merged operators would enforce any "common policy."
Finally, the Commission "underestimated" competitors' ability to react to "any attempted restriction of capacity," either by increasing supply or by entering "the relevant market quickly."
The Tetra Laval-Sidel case is particularly interesting because it shows the extent to Monti's team tends to second-guess private companies.
The Competition Commission started from the premise that the current overlaps in the packaging markets will grow in the medium to long term.
It then concluded that Tetra Laval, from its strong dominant position in the carton container market, will probably pressure its current customers wishing to switch over to PET packaging to use equipment produced by Sidel when they make that switch.
The Court agreed, in principle, that the merger could allow such leveraging to occur, but it found that the Commission did not prove that the merged entity would have an incentive to use this possibility.
We are confident that Monti's office could answer the Court's criticisms and that reasonable people can disagree on the subtleties of whether these mergers threaten competition enough to be rejected.
But our point is different.
Rather than putting proposed mergers by private companies under the microscope, Commissioner Monti should focus on his other mandate: safeguarding against state intervention and state aid to companies.
In other words, Monti should think hard about redirecting his limited resources to the right battlefield.
To be sure, we are not arguing that Commissioner Monti should forget about the fight to make European product markets more competitive.
In most European cities, taxi drivers are protected by limits on the number of licenses; the number of notary publics in many countries is similarly restricted, and the price of their services-which are typically of little economic value, but inescapable under existing administrative procedures -- correspondingly high.
These are important battles, and they are very close to citizens' hearts.
But, like the fight against subsidies to businesses, these are battles that are directed against state intervention, not private companies.
The question of procedures concerns constitutional design.
In the area of competition policy the Commission is, at least in the first instance, both prosecutor and judge.
The Commission is authorized to open a case against a proposed merger and to decide on it.
The parties involved can appeal to the European Court of Justice, but this takes time and a reversal of the Commission's decision typically produces no more than a moral victory to one of the parties. The time of the merger may have come and gone, as was the case in the Airtours/First Choice decision.
A division of responsibility between prosecutor and judge is a critical constitutional guarantee for private litigation.
Competition policy in the United States is based upon this principle. It is one that Europe would do well to put into practice.
Former President Giscard d'Estaing and the European Convention, please take note.
The Stealth Threat to World Trade
Threats to world trade come in many guises.
The usual suspects include protectionist barriers and militant anti-globalization protests of the type that derailed the "Millennium Round" of World Trade Organization (WTO) talks in Seattle last year.
Although these protests grab headlines, a new and perhaps even more insidious threat to world trade has quietly taken shape over recent years: so called "open sectoralism," or the practice of negotiating access to foreign markets on a selective, industry-by-industry basis.
What this practice entails is that countries negotiate lower tariffs on some types of products but not on others.
Contrary to appearances, open sectoralism is not a first step to more comprehensive trade agreements.
Indeed, it may prevent wider agreements from being negotiated.
For even when successfully negotiated, sectoral agreements jeopardize economic efficiency and performance by protecting the least competitive industries because each country tries to open trade in areas where it is competitive.
No country likes to open its manufacturing dinosaurs to foreign competition.
The economic implications of such a stance, however, are perverse.
Imagine an America or Europe still stuck in the 1950s, with economies dependent on coal and steel, and textiles, and with no competition from cheaper producers in Asia and elsewhere, and the danger becomes obvious.
A second danger arises from the fact that, by liberalizing trade for only a few economically successful industries, open sectoralism weakens, rather than strengthens, the broad political support needed for the comprehensive global trade agreements that benefit most businesses, consumers, and countries.
America is the keenest supporter of open sectoralism, beginning several years ago with the "zero-for-zero" tariff negotiations during the Uruguay Round of world trade talks.
Those talks led ultimately to the dismantling of tariff barriers in ten key sectors.
Pushed by business, the US negotiated sectoral agreements in telecoms, information technology, and financial services.
The first major deal, the Information Technology Agreement (ITA), took effect in 1997 and covers 90% of trade in IT products worth more than $600 billion annually.
The ITA was subsequently backed by the European Union after Hugo Paemen, the EU ambassador to the US, saw the ITA as proof that sectoral agreements help circumvent mounting political resistance to new trade rounds.
With the support of the two most powerful actors in world trade, the ITA model has been pursued ever since in other sectors.
A Global Agreement on Basic Telecommunications went into effect in 1998; a Financial Services Agreement to liberalize trade in banking, insurance, and securities was implemented in April 1999.
Such agreements, which often dismantle not only tariffs but other regulatory barriers, may appear unassailable.
But looks deceive.
Because the powerful sectoral interests that supported liberalization during the Uruguay Round -- information technology, financial services, telecommunications -- now have their own deals, the energy they once brought to the cause of broader trade liberalization has diminished sharply.
Indeed, the Japanese believe that the halfhearted backing of US business groups for a new round of WTO talks reflects the success of the earlier sectoral agreements.
So Japan now opposes negotiating a second ITA, which it fears will further weaken political support for broad trade liberalization.
Fears for the future of comprehensive, multi-sector trade negotiations are well founded.
Continuing effort by US officials, for example, to focus narrowly on trade in services and agriculture impedes wider agreements by limiting the tradeoffs that can be made among sectors.
Moreover, a sector-by-sector approach invariably ignores a host of issues within the WTO, such as dispute settlement, anti-dumping, and the like.
The recent experience of the Asia-Pacific Economic Cooperation (APEC) forum highlights the limitations of open sectoralism and should prompt a thorough re-appraisal.
Following the launch of the ITA, America pressed APEC's members for accelerated liberalization on a sectoral basis as a means to revive a stalled regional trade agenda.
But efforts to reach an agreement to liberalize trade in 15 sectors soon faltered: the cost of selective liberalization in uncompetitive, but politically sensitive, sectors was simply too high for some governments to bear.
The most important lesson of APEC's failure is a recognition of the enormous difficulty found in constructing a broad enough, and yet politically acceptable, package when trade negotiations are limited to particular beneficiaries.
Because some industries no longer care about wide trade agreements because they have already benefited through a sectoral deal, the groups that normally see themselves as gaining from greater trade openness are too weak to offset the political influence of protectionist forces mobilized against liberalization.
Policymakers who are now attracted to open sectoralism because of its delusive promise of frictionless politics should take that lesson to heart.
If the full benefits of trade liberalization are to be gained quickly, there is no alternative to resuming comprehensive negotiations -- and the tradeoffs between industries that this strategy entails -- by reviving the WTO's Millennium Round.
It is this agenda, rather than the hollow hope of open sectoralism, that should be the main priority of trade negotiators in the future.
Make or Break for Europe's Constitution
The challenge for the EU now is to refocus itself on the priorities of today and tomorrow.
It needs to connect better with its own citizens, to renew their support by showing that Europeans working together can foster growth and jobs, fight international crime, and secure a clean environment.
The Union needs to play a more active role in the wider world, not in pursuit of selfish interests, but in promoting the universal values on which it is founded.
Most of all, the enlarged Union needs a constitutional and institutional framework that fits its ambitions.
For thirty months, governments and parliamentarians have been working on a new constitution for Europe.
An exceptional draft was prepared by the convention chaired by former French President Valéry Giscard d'Estaing.
It is the task of national governments - of me and my colleagues in the European Council - to finish the job.
We meet in Brussels this week, and our overriding priority is to reach agreement on the constitution.
Consensus on most of the draft has existed for some time.
There is no dispute about the EU's values and objectives, about inclusion of the Charter of Fundamental Rights, or about simplifying legislative processes.
These are all major advances.
But national governments inevitably have a particular interest in the powers of EU institutions in such key areas as foreign policy, criminal law, and taxation.
These are the issues on which final agreement now needs to be reached.
Through months of bilateral contact and negotiation among ministers, we have succeeded in whittling down the outstanding issues to a point where a fair and balanced overall package is achievable.
As in any negotiation, the key ingredients are timing and political will.
People simply weren't ready last December when a first attempt was made to finalize agreement.
The European Council's decision in March to finish the negotiations during the Irish presidency sent a powerful signal of our determination to break the stalemate.
In the last month, I have met all of my colleagues face to face, in their capitals.
We speak often.
I detect no slackening of resolve.
In fact, there is a sense that we cannot afford to fail.
In a challenging period for the Union, it needs to show that, when the chips are down, its members can make collective but difficult decisions in the common interest.
The basic institutional balances between the Commission, the Council and the European Parliament are not in question.
But the EU's institutions need to be modernized.
Greater continuity and focus will be provided through the creation of a full-time chairman of the European Council and an EU Foreign Minister, and there is to be a three-country team presidency of other Council formations.
There is also now an acceptance that the voting system within the European Council should be based on a double majority of population and member states.
This is logical, transparent, and representative.
But the precise arrangements for double majority voting need to be calibrated in a way that respects the particular concerns of all member states, while still ensuring that the new system is more efficient than its predecessor.
I believe that we can settle this most difficult question in an equitable way.
The task of the Commission is to drive forward the EU's agenda in the common interest.
There is a developing consensus that 'representativeness' and legitimacy can be achieved by including nationals of all member states in the next two Commissions, with a move thereafter to a fixed smaller number based on strictly equal rotation.
There is also a need to ensure that the citizens of all member states, big and small, are adequately and appropriately represented in the European Parliament.
The constitution envisages further expanding the parliament's important functions, both legislative and budgetary, in partnership with the member states.
In fact, for the first time, a significant watchdog role is being assigned to national parliaments.
These arrangements will preserve the EU's unique institutional essence - the balances between its institutions and among member states - while offering the prospect of greater effectiveness, efficiency, and transparency.
The constitution will see a further major advance in the use of majority voting, which is necessary in an EU of 25 (and soon more) members.
But a few topics will have to remain subject to unanimous decision, given their special nature.
I believe we are close to a balanced agreement on this.
Too often, the complex issues involved in this kind of negotiation are presented as a battle between one country and another, or between competing ideologies.
From my own long experience of negotiation, I know that talk of winners and losers is not just unhelpful, but misleading.
Everyone must compromise, but they must also see their own hopes and concerns reflected in a final text.
If we succeed this week, it will be a triumph for the EU.
Europe is a confluence of different traditions and histories, of independent sovereign states.
But we are united in our belief that sharing sovereignty and working together is the best - indeed, the only - way forward.
Adopting a constitution means consolidating the end of the bitter divisions of the past, and a chance to build a Union that works for our 450 million people.
Palme's Legacy 15 Years On
STOCKHOLM: Olof Palme, Sweden's then Prime Minister, was assassinated 15 years ago on February 28th.
His death shocked millions everywhere.
The murderer has still not been found, at least he has not been convicted.
The crime was an attack not only on Palme, but on democracy itself.
Murdered, Palme is now part of history.
But history is something that must be freely analysed, not silenced out of deference.
So, as we recall Palme's assassination we should also remember how he behaved and what he represented.
What, for example, is Olof Palme's legacy in foreign policy?
Palme was a powerful, eloquent critic of the US and the war in Vietnam.
He cursed Soviet oppression in Czechoslovakia and General Pinochet's murders in Chile.
Because of these stands, Palme has often been portrayed as a consistent adversary of tyrannies.
Do not "vilify" the Soviet Union, said Palme, Chairman of Sweden's Social Democratic Party for 17 years and Prime Minister from 1969-1976 and, again, from 1982-86.
Do not engage in "anti-Soviet agitation" or "the business of anti-Sovietism," he declared in 1984, a typical neutralist stand in Palme's Sweden.
No doubt, Palme reflected the spirit of his times.
The West's Marxist revival after 1968 deeply impressed journalists and socialists, not least in Sweden.
The Vietnam War changed the world view of many young people.
Palme, however, carried this spirit forward so long after many others had seen the liberal light.
"Neither communism nor capitalism represents a dream of liberty for the peoples of Europe," he said only a few years before the peoples of East and Central Europe freed themselves from Communism to embrace democracy and capitalism.
Palme also exploited ideological differences over diplomacy to wound other democratic parties in Sweden.
The conservatives were lapsing into "the crusading spirit, aimed at the liberation of Eastern Europe, which prevailed in conservative quarters in the West during the Cold War," he said in 1983--a moment of heightened tension between the West and the USSR.
Eventually, Sweden's Liberals and Conservatives, after 44 years of Socialist rule, came to power in 1976.
None of the threats to Sweden's foreign policy, which Palme confidently predicted, materialized in their nine years in office during the last quarter century.
Divisive at home, Palme tried hard to divide the West at a critical moment.
In the 1980s Social Democrats in Sweden and Germany developed a close ideological collaboration in foreign affairs.
The so-called "Palme Commission" (including the influential Egon Bahr) suggested a policy of "common security" between East and West, and nuclear weapon-free zones instead of NATO's policy of deploying cruise and Pershing II missiles to counter the Soviet advantage in theater nuclear weapons.
This alliance between the two parties led to serious distortions of fundamental Western values.
Palme and Oskar Lafontaine, then one of the leaders of the opposition in Germany, did not see the Cold War as primarily a conflict between freedom and tyranny.
When Palme visited East Germany in 1984 he never criticized repression there, nor the Berlin Wall.
Instead, Palme praised East Germany's leader, Erich Honecker, underlining shared goals and the mutual struggle for peace and development.
Palme's main speech mentioned "détente," "trust,"and "friendship," but never "freedom".
Much the same happened when Palme visited Cuba.
He shared a podium with Fidel Castro at a mass rally in Santiago de Cuba.
Palme spoke appreciatively of "socialist revolution," never mentioning his own party's conviction that "revolution" should take place only after free and honest elections.
Indeed, Palme used Marxist slogans, but said nothing about human rights and political freedom, giving the impression that Sweden and Cuba embraced similar ideologies.
In a joint statement with Castro, Palme claimed that the two men were united in all the areas they had discussed.
They even confirmed their happiness that the struggles for freedom of "the Vietnamese and Cambodian peoples have been crowned with victory."
This was said in the summer of 1975, two months after Cambodia's Khmer Rouge embarked on a genocide that killed two million of the country's seven million people.
Was Olof Palme unaware of Pol Pot's massacres?
Newspapers in almost all democracies, including Sweden, were informing us of the Cambodian horrors.
Palme, however, thought it more important to present a united front with Cuba's tyrant than to worry about atrocities committed by Communists in Indochina.
Palme, indeed, seldom condemned oppression in Third World countries.
He constantly condemned apartheid in South Africa, yet he never criticized Mao's China, the most murderous regime to arise after World War II.
This double standard was particularly pernicious in the Middle East, where Palme never censured an Arab country, regardless of its corruption or cruelty.
The only nation in that region he repeatedly attacked was its only democracy, Israel.
He even equated the Israelis with the Nazis.
Fifteen years after his murder, Sweden and the West must grapple with what Palme left behind, his anti-Western agitation and his willingness to see fundamental ideals of freedom as merely relative values.
It is that aspect of his moral "example" that should be recalled.
The Old in the New Anti-Semitism
Why do so many Holocaust survivors sense emerging anti-Jewish threats before seeing them?
Because they know how supposedly "innocent" insinuations grow into accusations and that accusations can become discrimination and soon after legislation. It is then that hysteria is set loose.
Survivors sound the alarm because they know what is at stake.
By doing so they strengthen our democracies in ways that no other people can.
We listen to the survivors so that we survive.
That we have cause to listen is clear, as the results of the first round of the French presidential elections demonstrate.
But not only demagogues like Jean-Marie Le-Pen and Europe's other lumpen extreme rightists incite trouble.
Throughout the 20
Take the case of the French Ambassador to Britain.
At a dinner party in London not long ago he described Israel as "that shitty little country."
His vulgar comments are not particularly frightful.
What is worrying is the response.
He was not recalled by his government; Tony Blair's government did not request his recall; popular opinion treated the matter as merely another scandal.
Indeed, the French press thought the ambassador a victim of Britain's tabloid press, not of his contemptible sentiments.
Sadly, the French ambassador to the Court of St. James has many allies among Europe's elites.
But Ambassador Bernard did provide a service; he helped us to recognize how widespread this new anti-Jewishness is.
As one columnist notably said, Israel has become "the object of hate that dare not speak its name."
But we must not only dare, we are obliged to speak.
We must not be silent about the daily attacks in France against Jews and synagogues.
It is a shame for all of Europe that many French Jews cannot send their children to school without worrying about their security.
Anti-Semitic outrages are also reported elsewhere: in Berlin and London, in Switzerland, Italy, Sweden, the Netherlands, and in parts of Eastern Europe.
We must not be silent about the fact that denial of the Holocaust is becoming routine; so too the parallels that anti-Semites/anti-Zionists draw between Israel and the Third Reich.
We must "confront the new Nazi plague which is nesting in Israel," wrote a Syrian paper as Palestinian TV portrays Israeli soldiers as rapists and cold-blooded murderers.
The Mufti of Jerusalem stated that "it's not my fault that Hitler hated the Jews, they hate them just about everywhere."
One Friday sermon on Palestinian TV told Muslims "to have no mercy on the Jews, no matter where you are...kill them... and those Americans who are like them."
What we must remember about anti-Semitism is that, although it always starts with Jews, it never stops with Jews.
Jew-hatred, if not contained, almost always develops into assaults on other groups and minorities and finally undermines democratic institutions and the rule of law.
So the struggle against anti-Semitism is a task for Jews and non-Jews alike.
But it is now a more diffuse struggle than ever because an astonishing element in today's anti-Semitism is its flexibility.
Although anti-Semitism never changes its goal - to attack Jews - it does change its face, its strategy, its rationalizations, even its vocabulary.
Once Jewish religion was the target.
When Judaism did not surrender, Jews were expelled or killed.
In the 19
I do not equate criticism of Israel with anti-Semitism.
It is as legitimate to oppose certain Israeli policies and decisions as it is to scrutinize any nation.
But anti-Zionism is becoming akin to anti-Semitism.
Sometimes anti-Zionists claim that they are not against Jews but are "only" against the Jewish state.
But suppose someone said: "I am only against the existence of Great Britain, I am not anti-British!"
Or if somebody told me that "I love Swedes, but Sweden should be abolished."
You would not believe them.
It is hard to love or respect a people and hate their state.
Yet people pretend that they can where Israel is concerned.
In several UN agencies, Israel-bashing is routine.
This demonization of the only democracy in the Middle East is a central part of the new anti-Jewishness.
When Israel is described "as the enemy of all good and the repository of all that is evil," says Professor Irwin Cotler, a member of Canada's parliament, it becomes a "teaching of contempt" within the UN.
This constant singling out of one nation as humanity's enemy is in fact a campaign directed against the Jewish people.
Indeed, many anti-Jewish outbursts in a number of countries are rooted in condemnations of Israel that exploit anti-Semitic terminology.
Attacks on synagogues are often triggered by a defaming language about the Middle East.
Compared to previous anti-Jewish outbreaks, today's anti-Semitism is less an attack on individual Jews than an attack on the "collective Jew," the state of Israel.
Such attacks, however, have started a chain reaction of assaults across Europe and Latin America on individual Jews and Jewish institutions.
In the past the most dangerous anti-Semites were those who sought to make the world Judenrein , free of Jews.
Today the most dangerous anti-Semites are those who want to make the world Judenstaatrein , free of a Jewish state.
Can A Wimp Disarm Saddam?
The UN's weapons inspectorate chief and Iraq have agreed on tentative terms for the conduct of weapons inspections, which in theory could begin as early as two weeks from now.
But the success of any such deal depends as much on the men who will carry out the inspections as on the details of when, where, and how they are carried out.
Hans Blix will head the UN arms inspectorate charged with searching for, finding, and destroying Saddam Hussein's weapons of mass destruction.
I have known Blix for over forty years.
In 1960 he was my deputy when I was a leader of the Swedish Liberal Youth organization.
Since then I have followed his career closely.
He became Sweden's foreign minister for a year and was later a director general of the International Atomic Energy Agency (IAEA) in Vienna.
I can think of few European officials less suitable for a showdown with Saddam Hussein.
Indeed, it is with utter disbelief that I watch television news about Blix's negotiations with the Iraqi dictator's henchmen.
The world has been amply warned about Blix's weaknesses because he has a track record of compounded failure.
When Blix headed the IAEA before the Gulf War of 1991, he blithely assured the world, after several inspections, that nothing alarming was happening in Iraq.
He delivered the clean bill of health that Saddam had hoped for when he began hiding his atomic factories and ambitions.
Since then, we have learnt all too unambiguously that Saddam is obsessed with procuring weapons of mass destruction - chemical and biological warheads as well as atomic bombs and the missiles to deliver them.
Former experts of Iraq's nuclear weapons program, who have fled Baghdad for the West, confirmed this.
They told us about determined and costly efforts to obtain doomsday devices.
Indeed, it is now clear that Saddam was but a year away from securing his first atomic bomb when the Gulf War broke out.
After that war, UN inspectors found and destroyed huge amounts of chemical and biological warheads as well as facilities to produce nuclear weapons.
Despite his grave failings as IAEA chief before 1991, Blix once again came to lead UN disarmament inspectors, this time in tandem with another Swede, Ambassador Rolf Ekéus.
Blix, naive and relatively ignorant about technical details -- his field is international law -- is easily mislead.
Even after the Gulf war, he failed to realize that the Iraqi officials, who were again assuring the UN that they were hiding nothing, were but consummate liars.
Indeed, Blix believed that Iraq had no program at all for nuclear arms.
David Kay, perhaps the most effective arms inspector, insisted that he did not trust them.
But Blix reproached Kay for his attitude.
You must believe in official information, Blix implied.
The turning point came when Kay initiated inspections of suspect buildings without notifying the Iraqis about his intentions in advance.
This new, aggressive inspection strategy had dramatic consequences: Kay discovered material which confirmed that Iraq was only 12 to 18 months away from producing a nuclear device.
This historic discovery ended up in a confrontation at a parking lot in Baghdad.
UN cars were surrounded by 200 Iraqi soldiers and a mob, ordered out to the scene by Iraqi officials.
For four days and nights the siege continued, as Kay and his colleagues used satellite telephones to fax crucial documents to the West.
Blix had opposed the raid.
Fortunately, Ambassador Ekéus backed it and supported the inspectors during the siege.
I have met a number of experts on Iraq's weapons of mass destruction, and they often compare the two Swedes: "Ekéus is brilliant," they say, "Blix is terrible."
When the current UN inspectorate was being put together in 1999, both Ekéus and Blix were among the candidates being considered to head the new group of inspectors.
Friends of Iraq in Paris and Moscow consulted Baghdad to see whom Saddam would prefer.
France and Russia then suggested Blix.
Surprisingly the Clinton administration accepted that decision.
Saddam's chemical and biological arms, and his determination to get nuclear weapons, are a threat to the world.
The dictator could use these arms himself or make them available to terrorist organizations.
And the issue of war and peace depends on a man repeatedly duped by the Iraqi regime.
The Bush administration probably understands Blix's weaknesses.
My guess is that the US will not allow Blix and the inspectors that he oversees to be deceived by Iraq again.
Regardless of how this crisis develops from this point, the UN has neglected its duties by asking a wimp to lead the inspectors who are supposed to stand up to the brute of Baghdad.
The UN Heresy
No other organization is held in such respect as the United Nations.
This is perhaps natural, for the UN embodies some of humanity's noblest dreams.
But, as the current scandal surrounding the UN's administration of the Iraq oil for food program demonstrates, and as the world remembers the Rwanda genocide that began ten years ago, respect for the UN should be viewed as something of a superstition, with Secretary General Kofi Annan its false prophet.
Not since Dag Hammarskjöld has a UN leader been as acclaimed as Annan.
Up to a point, this is understandable.
Annan usually maintains an unruffled, dignified demeanor.
He has charm and - many say - charisma.
But a leader ought to be judged by his or her actions when important matters are at stake.
Annan's failures in such situations are almost invariably glossed over.
Between 1993 and 1996, Annan was Assistant Secretary-General for UN Peacekeeping Operations and then Under-Secretary-General.
One of the two great disasters for which he bears a large share of the blame is the Serbian slaughter of 7,000 people in the Bosnian town of Srebrenica, perhaps the worst massacre in postwar Europe.
In 1993, Bosnia's Muslems were promised that UN forces would protect them.
This commitment was a precondition of their consenting to disarm.
The UN declared Srebrenica a "safe haven" to be "protected" by 600 Dutch UN troops.
In July 1995, Serb forces attacked. The UN did not honor its pledge.
Annan's staff released evasive, confused statements.
Oblivious, apparently, to the dreadfulness of the situation, they failed to sound the alarm properly and did nothing to intervene.
The Dutch fired not a single shot.
NATO air power could have halted the Serbs, but Annan did not ask for NATO intervention.
Ratko Mladic, the Serb commander and war criminal, deported the women and children under the eyes of the UN, while capturing and murdering the men and adolescent boys.
No one should be surprised by the UN's inaction, because only the year before it had demonstrated utter incompetence in facing the fastest genocide in history - the slaughter of 800,000 Tutsis and moderate Hutus in Rwanda in just 100 days.
UN forces in Rwanda in 1994 were Annan's responsibility before and during the crisis.
Annan was alerted four months before Hutu activists began their mass killings by a fax message from Romeo Dallaire, the Canadian general commanding UN forces in Rwanda.
Dallaire described in detail how the Hutus were planning "anti-Tutsi extermination."
He identified his source "a Hutu" and reported that arms were ready for the impending ethnic cleansing.
Dallaire requested permission to evacuate his informant and to seize the arms cache.
Annan rejected both demands, proposing that Dallaire make the informant's identity known to Rwandan President Habyarimana, a Hutu, even though the informant had expressly named the President's closest entourage as the authors of the genocide blueprint.
Annan maintained his extreme passiveness even after the airplane crash that killed Habyarimana, which signaled the genocide's start, helped by the indifference of the great powers (America not least).
One might think Annan far too compromised for the post of Secretary-General, but the UN doesn't work that way.
Instead of being forced to resign after Rwanda and Srebrenica, he was promoted to Secretary-General.
That is the culture of the UN: believe the best of barbarians, do nothing to provoke controversy among superiors, and let others be the butt of criticism afterwards.
Even subsequent revelations about Annan's responsibility for the disasters in Rwanda and Bosnia did not affect his standing.
On the contrary, he was unanimously re-elected and awarded the Nobel Peace Prize.
He is the all-time Teflon diplomat.
The media sometimes ratchets up admiration for Annan by pointing out that his wife is Swedish and a close relative of Raoul Wallenberg.
We are meant to infer that, on top of all his talents, Annan shares the ideals embodied during the last days of WWII by the foremost Swede of modern times.
But Wallenberg's name should make us even more dismayed about Annan's record.
Wallenberg refused to ignore the threat of massacres to come. Instead of ducking responsibility and carrying on with conventional work in Sweden, he made his way to Hungary, the scene of Hitler's last homicidal orgy against the Jews.
In Budapest, Wallenberg exploited every available contact, resorting to shady tricks, bribes, and other stratagems to save as many people as possible from the Holocaust.
He never allowed himself to be duped by Hitler's cronies.
Perhaps no one's achievement should be judged by comparison with that of Wallenberg - a titan of strength, courage, and perseverance.
The trouble with Annan is that, when similar perils loomed, he proved especially wanting.
Annan cannot plead that he faced any risk to his personal safety, whereas Wallenberg in 1944 and 1945 was in constant peril.
Nor can he possibly excuse himself by saying that no warnings were given, or that he lacked resources, or that he did not have the international position to intervene.
Annan had at his disposal all of the instruments of power and opinion that Wallenberg lacked.
Yet when thousands or hundreds of thousands of people were exposed to mortal threats that he had the authority and duty to avert, alleviate, or at least announce, he failed abjectly.
Now, despite the recent revelations about briberies in the UN's oil-for-food program for Iraq, the world is clamoring to entrust Annan with the future of more than 20 million Iraqis who survived Saddam Hussein's depraved dictatorship.
That is both because of who Annan is and what the UN has become: an institution in which no shortcoming, it seems, goes unrewarded.
The Swedenization of Europe
Anti-Semitism, anti-Zionism, and anti-Americanism are becoming linked and ever more rabid in today's Europe.
They arise from a kind of blindness, combined with a strange mixture of alienation, guilt, and fear toward both Israel and America.
Millions of Europeans resist seeing Israel as a country fighting for its survival.
Israel cannot afford to lose one major war, as it would mean the end of the Jewish democratic state.
But huge numbers of Europeans believe that something is fundamentally wrong with the Israelis: they never compromise; they prefer using military means to solve political problems.
Something similar is at work in the European attitude to the US.
Look at Europe, many Europeans say, we have eradicated wars, dangerous nationalism, and dictatorships.
We created a peaceful European Union.
We do not wage war; we negotiate.
We do not exhaust our resources on weapons.
Call this the "Swedenization" of Europe.
Yes, today's EU is a miracle for a continent where two modern totalitarian movements - Communism and Nazism - unleashed rivers of blood.
But what Europe forgets is how those ideologies were overcome.
Without the US Army, Western Europe would not have been liberated in 1945.
Without the Marshall Plan and NATO, it would not have taken off economically.
Without the policy of containment under America's security umbrella, the Red Army would have strangled the dream of freedom in Eastern Europe, or brought European unity, but under a flag with red stars.
West Europeans also forget that some areas of the world have never known freedom.
In many places, torture chambers are the rules of the game, not the grotesque and shameful mistakes of ill-supervised troops.
Any attempt in such places to go behave the European way and negotiate - without the military power needed to back up diplomacy - would be pathetic.
Instead of supporting those who fight international terrorism, many Europeans try to blame the spread of terrorism on Israel and the US.
But what if Spain - and Europe as a whole - had reacted in the opposite way to the Madrid train bombing of April, saying: "We promise that because of that slaughter we will double our support for stabilization in Iraq by sending twice as many troops, experts, engineers, teachers, policemen, doctors, and billions of euros in support of allied forces and their Iraqi co-workers."
The triumph of terrorists would have been transformed into a triumph of the war on terror.
The images many Europeans hold of America and Israel create the political climate for some very ugly bias.
Indeed, modern anti-Zionist rhetoric portrays Israel's goal as domination of the whole Middle East.
Such ideas are reflected in opinions polls in which Europeans claim that Israel and the US are the true dangers to world peace.
Ian Buruma, the British writer, claims that this European rage against America and Israel has to do with guilt and fear.
The two world wars led to such catastrophic carnage that "never again" was interpreted as "welfare at home, non-intervention abroad."
The problem with this concept is that it could only survive under the protection of American might.
Extreme anti-Americanism and anti-Zionism are actually merging.
The so-called peace poster "Hitler Had Two Sons: Bush and Sharon," displayed in European anti-war rallies, combines trivialization of Nazism with demonization of both the victims of Nazism and those who defeated Nazism.
Much of this grows from a subconscious European guilt related to the Holocaust.
Now the Holocaust's victims - and their children and grandchildren - are supposedly doing to others what was done to them.
By equating the murderer and the victim, we wash our hands.
This pattern of anti-Zionism and anti-Americanism returns again and again.
"The ugly Israeli" and "the ugly American" seem to be of the same family.
This is a new version of the old myth that Jews rule the US.
Earlier this year, the editor of Die Zeit , Josef Joffe, put his finger on the issue: like Jews, Americans are said to be selfish and arrogant.
Like Jews, they are in thrall to a fundamentalist religion that renders them self-righteous and dangerous.
Like Jews, Americans are money-grabbing capitalists, for whom the highest value is the cash nexus.
"America and Israel are the outsiders - just as Jews have been all the way into the 21st century," Joffe says.
The links between anti-Semitism, anti-Zionism, and anti-Americanism are all too real.
Unless Europe's leaders roundly condemn this unholy triple alliance, it will poison Middle East politics and transatlantic relations alike.
Europe and Asia's Arms Race
When European unification was launched, it was thought that "ever closer union" would establish a community that would protect Europeans from political blackmail.
Now we see -- though the lifting of the Union's arms embargo may now be delayed thanks to US pressure and Chinese aggressiveness -- that the European Union has become merely a tool for corruption when France and China draw up joint action plans.
The strategy is simple and ruthless. The world's largest dictatorship is preparing to crush and occupy the first Chinese democracy in history -- Taiwan.
In order to do so, the People's Republic needs much more sophisticated arms than those it possesses today.
The United States naturally does not export such arms to China. Instead, the US is trying to deter China's rulers from launching a military attack on the democrats in Taiwan.
But if the EU ever begins to offer China extensive exports of powerful and offensive weapons systems, the military power of the People's Liberation Army would be able to defeat Taiwan's defense forces.
Over 600 missiles, already deployed on the mainland, are aimed at cities and military bases on the island.
The threat is more apparent than real -- for now.
Russia currently sells certain arms to China, but avoids exporting its most sophisticated systems, since the Kremlin views China as a potential future threat.
However, if EU countries start competing for a share of the Chinese market, the Russians could soon be tempted to sell their best arms to the communist regime in Beijing.
China's new armaments, together with the North Korean crisis, will probably force half a dozen countries in the region to renew their armed forces.
Thus, by whenever the Union should decide to lift its ban on weapons exports to China, the EU could help fuel an arms race in East Asia.
How did China and France manage to fool the EU into thinking that it should ever take part in this?
When Jacques Chirac's government decided to expound its economic co-operation with China, arms became an important component in the strategy.
Just as a ruthless Prime Minister Chirac sold a nuclear reactor to Saddam Hussein in the 1970's, so the President Chirac of today is being lured into doing big business with another aggressive dictatorship.
The rest is a question of economic blackmail.
French diplomats have of course informed China about the reluctance of other European countries about lifting the arms embargo, which was imposed after the massacre in Tiananmen Square in 1989.
China then simply threatened to abandon or never to conclude trade deals with these EU members.
To the Germans, the Chinese probably murmur something about Siemens and Volkswagen. To the Dutch their whispers are most likely about Philips.
China follows the power game within the EU through its French friends, and therefore knows which governments need to be whipped into line.
In Sweden, it has probably been enough to whisper "Ericsson" and "Volvo" to make Primer Minister Göran Persson understand what is at stake for his country commercially.
What European nation, indeed, dares to put at risk a Chinese order for several billion euros?
Typically enough, no EU-country has mentioned Taiwan as a reason not to resume arms exports.
Instead, the EU talks of a "code of conduct" (which probably does not mean very much, but sounds nice) and "free trade" (another charming euphemism for arms exports to dictatorships.
This silence gives a hideous signal.
For what the EU in practice says to China is this: "Taiwan's cause in not our own."
If and when the Union lifts the embargo, Europe will be refusing to take responsibility for the catastrophe that may be approaching.
As usual, it is up to America to protect a free nation that may otherwise be destroyed.
Compare this situation to the drama 60 years ago. Then it was American troops and arms that liberated Western Europe from Nazism.
Now it may be European arms in the hands of the Chinese that will be aimed at American troops protecting a democracy with 23 million inhabitants (in other words, as many people as in all the Nordic countries combined).
As Tom Lantos, a Democratic US Congressman from California, put it, the move to lift the ban on arms exports to China clearly shows that the EU has "lost its moral compass."
Lantos knows about moral compasses: as a boy, he was rescued by Raoul Wallenberg from being deported to Auschwitz by the Nazis in Budapest.
Wallenberg was a Swede.
But now Sweden is revealing that it, too, lacks political morality.
Several friends of mine in the Conservative party's parliamentary group have long been engaged in supporting a free Taiwan.
Over the past ten years, we have held Scandinavian conferences on Taiwan in the parliaments in Copenhagen, Oslo, and Stockholm.
But a call from Prime Minister Persson was enough to render the Conservative party leader Fredrik Reinfeldt docile.
Persson had discovered that he lacked a majority in the Swedish parliament to lift the arms embargo on China. By whispering "Ericsson" into Reinfeldt's ear, it seems, Persson achieved the desired result.
Reinfeldt became the first Conservative party leader in Swedish history to encourage arms exports to a Communist dictatorship.
But Reinfeldt, like Jacques Chirac, has forgotten something. Liberal-minded people may very well prefer not just to exchange one cynical prime minister for another at the next election.
They may prefer a clear choice.
Make the UN Stand for Freedom
For Sweden, my homeland, the United Nations is a sacred cow.
But today, many Swedes, like others around the world, are having second thoughts.
Three events incited these doubts.
The first was the slaughter in Rwanda a decade ago of more than 800,000 people within 100 days -- probably the fastest genocide ever.
The well-documented fact is that Kofi Annan, then the UN's Deputy Secretary General, ordered UN soldiers in Rwanda not to intervene or protect the victims.
That Annan, after this enormous failure, was promoted to Secretary General of the UN remains a puzzle.
Doubts about the UN, and Annan personally, were compounded by the ongoing scandal within the UN administration concerning the Oil for Food program.
Although reports have so far not implicated Annan directly, his management failures are abundantly clear.
The third -- and perhaps the most disillusioning -- scandal concerns the Commission on Human Rights, for it lays bare much about the structural and permanent lack of balance and morality within key UN agencies.
These enemies of freedom are permanently silent about torture, oppression, and mass murder carried out by their fellow dictatorships, but are quick to rant against the world's democracies, in particular the United States.
After more than a third of a century at the UN, even Annan has come close to admitting that the Commission on Human Rights is a source of shame.
Is it reasonable to elect a pyromaniac to the board of a fire department?
Of course not.
So why is it that tyrannies like Cuba, China, Saudi Arabia, Sudan, and Zimbabwe are members of this Commission?
Recent members also include Libya, Vietnam, Congo, and Syria -- the Libyans were even elected chair-country.
How can this be?
Sadly, many free countries seem utterly indifferent to the ongoing campaign against Israel.
To prevent such vicious absurdities from continuing, the world's democracies must unite to prevent any country that systematically violates human rights from being allowed to be a member of the Commission on Human Rights.
Ongoing democratization in regions that have known only dictatorship provides hope that the balance is tilting in a way that would enable it possible for at least one UN body should incarnate freedom.
Who should decide if a country is democratic or not?
A tremendously respected independent think tank, Freedom House, is, like the UN's headquarters, located in New York City.
If there is one book that should be compulsory reading for anyone who makes public statements about human rights, this is it.
So the goal of all free countries should be that only other free countries are allowed seats on the Commission for Human Rights.
Those who have attained power through violence and fraud are not legitimate and should never more shame the UN by being members of this Commission.
Unfortunately, most democracies are often unwilling to fight against the perversion of the UN Human Rights Commission.
The European Union represents 25 democracies and often inspires countries to seek their freedom, as it has in Ukraine and Lebanon.
But the EU's habit is not to defeat the UN's extremists, but to make strange compromises with them.
As a result, rogue states make a few concessions to get the Europeans and others on board and then claim moral parity with the democracies.
Free peoples everywhere should remember that totalitarian forces and ideas cannot be defeated by being nice and accommodating.
The Commission on Human Rights must rid itself of members that detest freedom.
Otherwise, the sole UN agency that concentrates on freedom will be nothing more than a handmaiden to tyranny.
China Must Do More than Mediate
Despair is dangerous in diplomacy. But North Korea's latest actions are making much of Asia hopeless.
Only China, long reluctant to flex its diplomatic muscles, now has the power to find a diplomatic solution to the North Korean nuclear problem.
But the question everyone from Tokyo to Seoul and from Washington to Moscow is asking is this: will China act in time?
China's influence on North Korea is uniquely powerful.
China is keeping its increasingly desperate neighbor on life support by providing most of the non-food aid and energy that North Korea receives from abroad.
But to prevent North Korea from realizing a fait accompli in its pursuit of nuclear weapons, China must do more than mediate between North Korea and the US, the role it has so far played.
Instead, it must now prompt North Korea to halt its nuclear development activities and return to the six-party talks with America, Japan, China, Russia, and South Korea that broke up weeks ago.
Recent developments indicate that North Korea's nuclear threat is becoming more serious by the day.
Two weeks ago, North Korea declared that in June it successfully reprocessed some 8,000 spent nuclear fuel rods and now possesses "nuclear deterrence," suggesting that Kim Jong Il's regime may actually be making atomic bombs.
Not only does North Korea show little interest in holding another session of the six-party talks that the Bush administration and the other participants are calling for; it now wants to ban the Japanese from participating.
Kim accuses Japan of introducing unnecessary obstacles and complications into resolution of the nuclear question by raising the sensitive issue of North Korea's abduction of Japanese citizens.
But this is nothing more than a political diversion.
It is inconceivable that multilateral negotiations could result in a breakthrough toward a diplomatic solution while North Korea is actively engaged in pursuing its nuclear weapons program.
It must be clear by now that Pyongyang is determined to keep its nuclear weapons program in order to obtain a credible assurance from the US that its bizarre and repressive regime will be allowed to survive.
Unless America accommodates North Korea's demands for concluding a nonaggression treaty and ending "hostile" policies, Kim's regime is likely to keep its nuclear weapons program as its most effective deterrent against any preemptive US attack--something that the Bush administration, indeed, refuses to rule out.
America's military victory in the war in Iraq probably hardened North Korea's resolve to rely on the nuclear option as its primary means of ensuring regime survival.
But that should not surprise anyone: the North Korean regime has always been committed to making military power the "first priority" in the state budget.
This contrasts sharply with policies pursued by China and Vietnam, Asia's two other communist powers.
In both countries, the leadership places military power last in their national development strategies.
It would be difficult for the US to change the highest priority of its own national security strategy--preempting terrorism and fighting the spread of weapons of mass destruction--especially with another nuclear threat looming in Iran.
Insofar as the goal of preventing the proliferation of nuclear weapons on the Korean peninsula is concerned, the US has thus succeeded by sustaining an ad hoc concert of powers thus far with China, Japan, Russia, and South Korea.
Indeed, in their first-ever joint declaration, Chinese Prime Minister Wen Jiabao, Japanese Prime Minister Junichiro Koizumi, and South Korean President Roh Moo Hyun issued a plea on the sidelines of the ASEAN summit held in Bali on October 8 for a nuclear-free Korean peninsula.
All sides realize that failure to achieve this would most likely result in a nuclear chain reaction with Japan, South Korea, and perhaps even Taiwan embarking on their own nuclear weapons development programs.
That scenario is China's worst nightmare.
So the question now is what can China do to freeze--and, if possible, to reverse--North Korea's nuclear program.
China finds itself in a delicate position, pulled in one direction by its desire to avoid a precipitous North Korean collapse, and in the opposite direction by its overriding need to deepen economic relations with the US, Japan, and South Korea.
This is why at the UN Security Council China opposed any military action or sanctions against North Korea, a country for which it sacrificed almost one million troops during the Korean War in 1950-53.
It is in China's vital national interest to halt North Korea's quest to become another declared nuclear power.
China's success here would not only enhance its own international prestige, but would also contribute immensely to promoting regional stability and prosperity throughout East Asia.
America's Retreat from Asia
The United States' planned withdrawal of troops from Asia, which President George W. Bush announced on August 16, need not harm peace and stability in the region and particularly in Korea.
But a key condition for a smooth redeployment of US troops is close consultations by America with its allies, something it has not done well up to now.
South Korea and Japan need to have their views taken into serious account if this now inevitable withdrawal is to succeed.
By contrast, unilaterally announcing the withdrawal - and then unilaterally implementing it - may harm the very purpose that the remaining US troops in Asia are intended to serve: assuring deterrence, stability, and nonproliferation in Korea and Asia.
The withdrawal plan is causing countless worries.
In Japan, there are concerns that it will make the country America's frontline command post in Asia, possibly beyond the scope of its bilateral security treaty with the US.
One result is that China feels nervous about the implications of any expansion of the American-Japanese military partnership.
But the impact of America's planned troop withdrawals is felt most keenly in South Korea.
In June, the Bush administration revealed its plan to withdraw some 12,500 of the 37,000 US soldiers stationed in South Korea by the end of 2005.
These include 3,600 troops from the 2nd Brigade of the 2nd Infantry Division, who are already earmarked for redeployment in Iraq.
The US Defense Department justifies this change as part of the so-called "Global Posture Review" that it has been carrying out to provide more flexibility and mobility in deploying troops to more urgently needed places around the world.
But the unilateral nature of the announcement, and the abrupt timing of the plan, has incited alarm in South Korea, and perhaps in Japan, that withdrawal could pose serious risks to the vital role that US forces have performed in deterring another war in Korea.
South Koreans genuinely fear that the plan may weaken deterrence by sending North Korea - which is demanding a US military withdrawal while refusing to abandon its nuclear weapons ambitions - the message that intransigence pays.
Indeed, it should not be forgotten that North Korea maintains an army of 1.1 million troops.
Moreover, the manner in which the Bush administration unveiled its withdrawal plan has weakened the credibility of the US-Korean alliance.
America's unilateral announcement has fuelled rumors to the effect that withdrawal must have something to do with the rising tide of anti-Americanism in South Korea, and especially with the country's reluctance and delay in dispatching an additional 3,600 of its own soldiers to Iraq.
The Bush administration tries to rebut these charges by saying that the plan will not weaken the deterrence capabilities of American forces, for America's far more powerful air and naval presence in the area will be maintained.
Moreover, the US plans to strengthen South Korea's own forces by supplying some $11 billion worth of high-technology equipment over the next five years.
Militarily, this argument does make sense.
Politically and psychologically, however, the method, let alone the timing and implementation of the withdrawals, raises many questions about the ongoing viability of the US-Korean security alliance, for the alliance now seems adrift, without a common purpose and with little direction from either side.
Yet the Bush administration insists: "The US views South Korea as a strong and steadfast ally.
We are committed to South Korea's security and to our alliance and partnership with Seoul."
If Washington is serious about these words, it should transform this commitment into a long-term and comprehensive alliance that can survive the current estrangement - and continue even after Korean unification - by making a joint declaration with South Korea's government at the highest level.
In order to allay misgivings and restore trust in the alliance, it is necessary for the US and South Korea to reaffirm their common interests and values in pursuing deterrence, nonproliferation, stability, and democracy on the Korean peninsula and across Asia.
Once they resolve to continue their alliance with these purposes in mind, it should be possible for responsible officials to work out guiding principles for concrete security cooperation.
Specific negotiations on withdrawing American troops from Korea or on redeploying them from the DMZ to south of Seoul must be carried out according to these principles.
In so doing, America must treat South Korea as a full partner with its own voice in making decisions that affect its security interests.
As an American ally for 51 years, and as East Asia's third-largest economy, South Korea is entitled to be fully consulted on such decisions.
Despite anti-American sentiments among some South Koreans, a majority of the country's people wants American forces to remain as a stabilizing force.
Securing a peaceful and nuclear-free Korean peninsula, a place where the interests of China, Japan, Russia, and America directly intersect, is one of the most important security goals anywhere on the planet.
For this reason, America and South Korea must restore a strategic vision for the future.
The EU Must Start Negotiations with Turkey
A formal recognition by Turkey of the Republic of Cyprus, including its extension to the Northern part of the island, was not requested as a precondition for starting accession talks.
This is a complex matter related to the efforts by UN Secretary General Kofi Annan to negotiate a comprehensive settlement leading to reunification of the island.  
Last year, both Turkey and the Turkish Cypriot community accepted the Secretary General's proposals, which were, however, rejected by the Greek Cypriot side.
There is every reason to expect Annan to resume his good offices soon and to bring the question to a positive conclusion well before Turkey's possible entry into the EU around 2015.
The Cyprus issue should therefore not be construed as an obstacle to the start of negotiations.
The same is true of the reported intention of some EU governments to have the so-called "Privileged Partnership" concept explicitly included in the negotiating framework as an alternative to full membership.
This proposal was discussed at last December's European Council meeting and rejected, resulting in a reference to "open-ended negotiations" in the Council's conclusions. That wording -- never used in previous enlargement rounds -- may have ruffled Turkey's feathers, but it was finally accepted as the type of constructive ambiguity that is so often used in international diplomacy.
It is nonetheless obvious from the very nature of accession negotiations that full membership must be the goal.
Without that prospect, no candidate country would go through the painful process of adopting the tens of thousands of rules and regulations contained in the Acquis Communautaire (the body of EU law).
To ensure that it does, is, after all, the main purpose of accession talks.
Moreover, it is difficult to imagine what advantages could be offered to Turkey in the framework of a "Privileged Partnership" beyond its long-time status as an Associate Member of the EU.
The Customs Union concluded ten years ago allows free trade for all but agricultural goods.
Turkey is invited to Council meetings, it can participate in various EU programs and in manifestations of the European Common Foreign Policy, and, as a member of NATO, it is a partner in EU-NATO security cooperation.
Finally, like all candidate countries, Turkey also receives financial and technical assistance in support of ongoing reform programs.
Short of full membership, there is hardly room for added value in Turkey's relationship with the EU.
Enlargement Commissioner Olli Rehn has spelt it out with the necessary clarity: "If we stick to what we have ourselves decided at the highest political level in the European Council, as we should, I am reasonably confident that the negotiations shall start on the October 3."
This statement is to the credit of the European Commission, and there is not much to be added, except to emphasize that it is up to EU governments to treat Turkey with the fairness that all candidate countries deserve.
To renege on formal decisions and commitments, or to add last-minute obstacles, would make a mockery of the Union's credibility.
Negotiations therefore must begin on October 3.  
Kosovo is Europe's Responsibility
Unfortunately, however, we still cannot turn the page on this pernicious conflict, which has led to so much tragedy and has been a cause of instability in the Balkans for far too long.
The issue will not go away, because Serbia persists in its rejection of the new reality, and is doing everything in its power to prevent normalization.
On orders from Serbia's government, Kosovo Serbs, who represent some 5% of the population, refuse to cooperate with Kosovo's government and the EU mission.
In doing so -- and this is the irony of the matter -- Serbs themselves are preventing the early implementation of the wide-ranging community rights foreseen in the Ahtisaari Plan, which would bring to them a normal and secure life.
On the international level, Serbia -- with strong support from Russia -- is actively engaged in blocking Kosovo's accession to the United Nations and other global or regional organizations.
It is difficult to comprehend what Serbia aims to achieve.
Nobody will deny that, for any state, being separated from part of its territory is a painful matter -- even if a different ethnic group largely populates that territory.
Still, there are examples in recent history when this has been achieved in a consensual manner.
In the case of Kosovo, after the Milosevic regime's brutal behavior in the 1990's -- including repression, massive human rights violations, and large-scale expulsions of Kosovo Albanians -- prompted NATO to intervene and the UN to take over the country's administration, return to Serbian rule became unthinkable.
Serbia's democratic leaders of today must understand that the loss of Kosovo -- although not their doing -- is an irreversible reality with which they must come to terms.
All they can achieve with their current policy of rejection is to delay the much-needed stabilization of the region following the break-up of Yugoslavia, and to make life miserable for Kosovo and its people.
Would it not be wiser to give a helping hand to the infant state, turning hostility into friendship and thus securing the future presence of Serbs in Kosovo?
Kosovo is, first of all, a European problem, and the EU has the primary responsibility to turn it into a success story.
Regrettably, the Union's inability to agree on a common policy has not only weakened its role on the international level, but has also become a major obstacle to determined action in the country itself.
The five member states that continue to withhold recognition of Kosovo should be aware that their stance encourages those who reject the EU mission any cooperation and impede its work.
It also makes it infinitely more difficult for moderate forces in Serbia to adjust to the new situation.
Only a unified EU position, combined with the knowledge that EU accession for Serbia is unthinkable as long as this conflict has not been fully resolved, may over time lead to a change of attitude on the part of both ordinary Serbs and their government.
Kosovo, on the other hand, needs a clear European perspective and unhesitating help to meet the daunting challenges it is facing.
At the moment, both are missing.
Nobody should be misled by the relative calm now prevailing in Kosovo.
The Balkans' recent tragedies have shown that problems that remain unresolved sooner or later turn into open conflict, and that the costs become unbearable for all.
There is no time for complacency.
Those concerned should take to heart what American President Barack Obama said in his inaugural speech: "Our time for standing pat, for protecting narrow interests and putting off unpleasant decisions -- that time has surely passed."
TB and HIV: A Combination Made in Hell
These realities prevent people who believe they are infected with TB from seeking treatment.
In many regions -- and especially in rural areas -- people still believe that TB patients have been bewitched, poisoned, or, as one Nigerian doctor put it, "cursed by the gods."
More than half a million Africans and two million people globally die each year from TB, the leading infectious cause of death for people with HIV/AIDS.
To make matters worse, HIV/AIDS is fueling a dramatic resurgence of TB.
In Tanzania, for example, the number of TB cases increased almost six-fold between 1983 and 2003, from approximately 12,000 to 64,500.
HIV/AIDS has resulted in a 6% annual increase in the prevalence of TB in Nigeria, which now has the highest number of new TB cases in Africa.
Yet TB is commonly considered a disease of the past.
Most people -- even those at greatest risk of contracting the disease, including people living with HIV/AIDS -- lack accurate information about TB's symptoms or where to seek treatment.
Despite the fact that in many parts of sub-Saharan Africa more than half of all TB patients are HIV-positive, most HIV/AIDS testing sites do not offer TB diagnostic and treatment services.
Those sites that do offer such testing find it much more difficult to diagnose TB among patients infected with both diseases, because current diagnostic tests fail to detect active TB in 60-80 % of people with HIV/AIDS.
Political leaders across the globe have made a series of public commitments to address the deadly double impact of TB and HIV/AIDS.
One year ago, in Maputo, Mozambique, for example, African health ministers declared TB a "regional emergency" and lined up behind a new "Global Plan to Stop TB," which includes specific targets and guidelines for addressing TB/HIV co-infection.
Some positive steps have been taken.
Tanzania has experimented with community-based programs that send health workers to the homes of TB patients in order to monitor treatment compliance and provide support.
Yet these efforts have not been taken on a large scale and are not sufficient to stem the dramatic resurgence of TB caused by HIV/AIDS.
The political will to implement the commitments that governments have undertaken is still lacking.
TB programs continue to lack the resources needed to deal with the rising number of cases; health workers are overworked and underpaid; and better tools for diagnosing and treating TB/HIV co-infection are desperately needed.
For Fatima and thousands of people like her, government declarations will become meaningful only when they are translated into better services.
This means rapid expansion of TB centers, so that patients don't have to choose between treatment and caring for their families.
It also means careful coordination of TB and HIV programs, so that people living with both diseases can receive treatment in the same location.
Finally, significant assistance and investment in research and development from wealthy countries is needed, so that free TB treatment is truly available and accessible to all.
The resurgence of TB has become a grave health emergency, and the world can no longer afford to be lethargic in addressing it.
As Stephen Lewis, the UN Secretary General's Special Envoy on HIV/AIDS in Africa, has stated, "TB and HIV act on each other with fatal force -- a combination made in hell."
HIV/AIDS activists and policymakers need to focus much greater attention on TB.
Fatima and those like her deserve nothing less.
Turkey Plays the European Card
Elected with a parliamentary majority almost big enough to change the country's constitution, Turkey's new Islamist government faces daunting challenges.
The most urgent is the looming war between America and Iraq.
Will Turkey maintain its vital diplomatic and logistical support for its American ally?
Or will religious solidarities reshape Turkey's orientation, as the new government joins other Muslim countries in opposing any invasion of Iraq?
Obviously, Turkey's Islamists are not the only ones with serious doubts about the war.
Many Turks share the view that the war could have harsh consequences for their country, both in the short and long run.
The struggling economy does not need the disruption of even a rapidly resolved military conflict.
The Turkish establishment (the military as well as the diplomatic corps) worries about the possibility that a war will fracture Iraq, leading to an independent Kurdish state on Turkey's southern border that would inevitably serve to strengthen Kurdish nationalism within Turkey, raising new threats to Turkey's unity and stability.
Turkey's secular bureaucratic establishment has traditionally been pro-West but with a strong dose of nationalism.
Aside from the Kurdish issue, their attention is now focused on Cyprus as well.
The Cyprus problem has reached a critical turning point, following a peace proposal put on the table by UN Secretary General Kofi Annan with a deadline impending at the end of February.
Meanwhile, the Greek Cypriots have been given their entry invitation to the EU, despite the fact that there is still no agreement on the Cyprus problem.
Cyprus now becomes a key issue athwart the road of Turkey eventually joining the EU.
Unresolved, it will provide a sure means of preventing Turkey's membership by those who are against it.
This constitutes another potential trap for the new government.
Despite the importance of Cyprus, it is the possible war with Iraq that poses the most severe test of the delicate balance that now exists between Turkey's conservative old guard and the more liberal reformers within the ruling Justice and Development Party.
Could it lead to a new power struggle in the party?
The fact that the party leader Mr.Erdogan was prevented through technicalities from becoming a deputy in the Parliament and thus Prime Minister makes the maintenance of this balance even more tricky.
Any open rupture will weaken the hands of the reformers who want to have close ties with the West and the US.
Though the Justice and Development Party has held power only briefly, it has already given clear indications of its choice.
Well aware of western doubts about the party, Erdogan travelled immediately after the elections to western capitals, pressing his argument that the change in government had not changed Turkey's fundamental orientation.
He is well aware of the contrast with the approach taken by Turkey's previous Islamist-led government.
Elected in 1996, after a campaign marked by strong claims of religious revival, the Welfare Party's Necmettin Erbakan made a conspicuous point of making his first official visits to Iran, Libya, Indonesia and Malaysia.
Erdogan stressed this pro-Western orientation again but a few weeks later, at the EU enlargement summit held in Copenhagen in mid-December.
The new government's aggressive lobbying before the summit was perceived both at home and abroad as a clear sign of its commitment to the EU cause.
Rejecting Erbakan's earlier accusation that the EU was a "Christian Club," Erdogan has campaigned openly for full membership.
In this, he received enthusiastic support from the Bush administration, which hopes that Erdogan might have found a way to mix democracy and Islam.
So far, Erdogan has played the European card skillfully, reassuring Turkey's western allies and boxing in the Turkish military, which remains skeptical of his party's intentions.
By accepting European demands for democratic reform as a pre-condition for EU membership, Erdogan played a liberalizing role, reinforcing his claim that his party represents a genuinely democratic option for a Muslim-majority country B indeed, that it is an Islamic version of the Christian Democratic parties that have long dominated Europe's political right.
There is no doubt that the political and economic program of Erdogan and his party is a dramatic departure from traditional Turkish Islamism.
Islamist movements have generally been characterized by strong anti-market and anti-western attitudes.
Yet Prime Minister Gul routinely calls his government "business friendly."
The coming months will be crucial.
To convince skeptics, the party will have to break with conventional Turkish policies on Cyprus, and with conventional Islamist doubts about Europe.
To top it off, Turkey must reach some agreement with its closest ally, the US, if it moves against Iraq.
Erdogan's insistent opening to Europe may be the key to how this all turns out.
By pressing for membership in the EU, he is reinforcing Turkey's long-held western orientation.
This may give him room to distance himself somewhat from American policy.
After all, in becoming more European, isn't Turkey entitled to share Europe's doubts about a war with Iraq?
India's Agony
Because the denizens of this netherworld know neither patriotism nor morality, they are easily lured into partnership with terrorists, particularly when they have reason to feel aggrieved.
In Mumbai, a large proportion of them are Muslims who were denied space in the formal economy and have developed strong vested interests over the past 50 years.
Details about the Mumbai outrage, where terrorists killed over 100 people, are still unfolding.
But we do know that at least 30 men armed with AK47 rifles and grenades held India's business and financial center hostage, targeting both Indians and foreigners, particularly Americans and British.
It is likely that this operation was propelled from Pakistan through the Lashkar e Tauba, a terrorist organization sustained by hatred of secular India and backed by shadowy Pakistani agencies and street support.
In the blood and drama of the events, however, we might miss a significant element of the story.
The attacks were an operation that must have required months of planning: serious weapons were deployed, a small army was mobilized, targets were studied, transport was organized, and weak points identified.
A plan of attack that involved hundreds of people was put in motion, and yet the massive infrastructure of India's government discovered nothing.
The chief of India's Anti-Terrorist Squad, Hemant Karkare (who lost his life in the battles that raged through the night) received a death threat from the nearby city of Pune, but his own unit did not bother to investigate it, since it was busy playing games on behalf of its political masters.
Complacency and politics gave the terrorists more protection than silence or camouflage ever could.
Indeed, the attacks represent more than a failure of police work. They represent a collapse of governance; these are the wages of the sins of administrative incompetence and political malfeasance.
India is a tough nation. No one should have illusions about that.
It has fought off Muslim terrorists in Kashmir, Sikh terrorists in Punjab, Christian terrorists in Nagaland, and Hindu terrorists in Assam and across the country. It understands that you cannot blame the whole community for the sins of a few.
But under ineffectual governance, particularly during the last three years, India is in danger of degenerating into a soft state.
Instead of being an international leader in the worldwide war against terrorism, it is sinking into the despair of a perpetual victim.
Indeed, India stands only behind Iraq in the number of people killed each year in terrorist attacks.
Three years ago, Indian Prime Minister Manmohan Singh rather smugly told President George W. Bush in Delhi that Indian Muslims were not involved in any act of terrorism.
The implication was that the integration of Muslims in Indian society constituted a success story.  Muslims, Singh implied, also benefit from the virtues of democracy, a conclusion that Bush happily repeated.
But Singh certainly did not fool any of the terrorists, some of whom may have read his self-congratulation as a challenge for them to act.
I am an Indian and a Muslim and proud to be both.
Like any Indian, today I am angry, frustrated, and depressed.
I am angry at the manic dogs of war who have invaded Mumbai.
I am frustrated by the impotence of my government in Mumbai and Delhi, tone-deaf to the anguish of my fellow citizens.
And I am depressed at the damage being done to the idea of India.
Putin's Ark
Recently I visited Moscow after five years away.
The city, which looked different and strange, impressed me by its ability to change.
My days back in Russia were divided between official meetings, hours wasted in traffic jams, and nights spent with old friends who tried to show me the best of Moscow nightlife.
On my first free evening, I was invited to a place called "Shinok."
The restaurant had many of the traits found in ethnic restaurants everywhere.
Different bits of kitsch, this time Ukrainian, were richly represented.
But the interior decoration had one unique element -- an artificial wall with windows separating a part of the restaurant hall.
Behind the wall was a stage set of a village yard.
A real cow, as well as chickens and geese populated that ersatz farmyard.
At times an old woman in traditional dress appeared to feed the animals.
Visitors enjoying borscht and pirogi observed her efforts with satisfaction.
"She works for the restaurant," my acquaintance explained.
"She feeds animals and sits in the yard to create the rustic ambiance."
Shinok was just an introduction to today's new wave of Moscow restaurant culture.
A few days later, I visited "The White Sun of the Desert," another ethnic hangout.
The White Sun existed in Soviet times.
Back then, it was called "Uzbekistan" and was nothing more than an obligatory culinary demonstration of the supposedly unbreakable union of the USSR's fifteen fraternal republics.
Although the restaurant interior had completely changed since then, its decorative themes remained the same.
Nowadays, however, the establishment is named after a popular Soviet borscht-western (or "eastern") filmed in 1969 and set in Central Asia during the 1919 Civil War.
The restaurant is decorated not only with oriental carpets, but with life-size figures of the movie's heroes firing machine guns or sitting on crates of dynamite.
This Soviet "orientalism" is reinforced by pretty waitresses dressed in sexy outfits more inspired by the Arabian Nights than by any Central Asian reality -- then or now.
But the Soviet past, not ethnic motifs, are the biggest element in contemporary Muscovite restaurant design.
The club-restaurant "Major Pronin:" is conveniently located in the vicinity of the KGB-FSB headquarters.
It is named after the hero of bad Soviet-era spy novels, a figure who was also the butt of many underground jokes.
The restaurant's interior is decorated with various pieces of espionage equipment.
But the main attraction is a shooting gallery where patrons can test their skills between courses.
Targets depicting serial killers and drug dealers have mottos like "Save a woman" or "Save a boy" on them.
In the middle of the wall is a target representing New York's World Trade Center being approached by an aircraft, with the inscription "Save America."
A new club called "Zone" -- Russian slang for a concentration camp -- is designed to reproduce the feeling of gulag life.
Barking Alsatian dogs, stern guards, and waiters dressed in inmate uniforms work hard to recreate the gulag's sinister atmosphere.
Russian literature is not forgotten.
If the restaurant "Pushkin" on Tverskoy Boulevard not far from the monument to the great Russian poet is designed to recreate the "aristocratic atmosphere" of the early nineteenth century, the combined bar and diner called "Gogol" on Stoleshnikov Lane is an attempt to recreate a vanished Soviet institution called "rumochnaia."
A "rumka" is a vodka glass from which exhausted proletarians could revive themselves.
Of course "rumochnaia" had nothing in common with Nikolai Gogol, but the establishment named after the famous writer does have a skating rink that is used once a day by a man dressed up as Gogol.
After my return to Washington, I had a dinner with an American politician who had just visited Saint Petersburg.
As a special honor, his Russian hosts organized an excursion to Strelna, the "Russian Versailles," which was recently restored from ruin to become the Petersburg residence of President Vladimir Putin.
The palace didn't impress the American.
The amount of marble used for renovation seemed excessive, and the understanding of what constitutes luxury appeared to correspond to the standards of a Holiday Inn.
The American's excited Russian hosts asked him constantly for his opinion of the palace.
Throughout the tour, the American answered with polite exclamations like "exquisite" or "striking."
Finally, they reached the attic.
At last, the American was excited.
The attic of the presidential residence was designed as a belly of the seventeenth-century ship.
"The last time I saw something like this was in a Hamburg beer hall in the 1960's," the politician told me.
How perfect, I thought, as I imagined Russia's president climbing the stairs to the attic of his palace to play the role of Peter the Great.
Like the customers in that Ukrainian-style village restaurant, perhaps Putin found his attic ark reassuring in some unconscious way.
A historical wave beyond his control had lifted the former KGB lieutenant colonel from out of the shadows to the pinnacle of power.
But fate might also just as suddenly wash him away.
What could be better than to have an ark at hand if one day the political tides turn?
Please visit this link for full size photos:
Rushdie a la Russe
June will be a cruel month in Russia's courts.
On June 16th, the rebellious oligarch Mikhail Khodorkovsky and his comrade-in-arms Platon Lebedev finally began to face the judges of the Meshchansky district court.
No doubt, this case will attract the Russian and international press.
Hearings began just the day before Khodorkovsky's trial opened in another case that is no less significant.
But this case is not about oligarchs trying to interfere in politics; it is about a group of artists and curators whose professional activities have unexpectedly turned into a political hot potato.
In January 2003, a gang of Russian Orthodox activists destroyed an exhibition in the Sakharov Museum and Public Center called "Caution!
Religion."
The organizers of the exhibition stated that they wanted to attract attention to the new role of religious institutions in Russian life.
But the Orthodox fundamentalists found the art blasphemous and offensive, and some trashed the exhibition.
Last December, prosecutors charged two Sakharov Museum officials and three of the exhibition's organizers with inciting religious hatred.
They now face prison terms of up to five years.
The vandals, meanwhile, were hailed by church officials as heroes.
All charges against them were dismissed.
The vandals had influential protectors.
All of them were members of the congregation of St. Nicholas in Pyzhi, whose archpriest, Alexander Shargunov, is a well-known radical fundamentalist.
In 1997, he established a movement called the Social Committee For the Moral Revival of the Fatherland.
In 2001, the committee's Web site carried instructions on how to vandalize "immoral" billboards by splashing paint on them.
Followers promptly destroyed 150 billboards in Moscow.
A group of well-known nationalist intellectuals, including film director Nikita Mikhalkov, artist Ilya Glazunov, and writers Valentin Rasputin and Vasily Belov, weighed in with a petition calling the exhibition a "new stage of conscious Satanism."
They wrote that Russia's enemies were bent on humiliating the powerless "Russian people, their objects of worship, and their historic values."
Who, precisely, were these powerful enemies?
The intellectuals didn't identify them, but the fascist political party Pamyat (Memory) did not hesitate.
The appeal posted on its Web site called on Orthodox Christians to protect "our Lord Jesus Christ" from "Yid-degenerates," using the most derogatory Russian term for Jews.
These alarming events in the art world have taken place against a background of rising nationalism and Orthodox assertiveness in Russia.
The Orthodox Church has acquired enormous political clout in recent years, and few politicians risk offending it.
The Sakharov Museum exhibition was subjected to a vituperative media campaign, and the matter was almost immediately taken up in the Duma, where nationalist deputies vied with each other to denounce the artists and laud the vandals.
In February 2003, the Duma passed a decree stating that the Sakharov museum exhibition's purpose was to incite religious hatred and to insult believers and the Orthodox Church.
The state prosecutor was ordered to take action against the organizers, with 265 of 267 deputies approving the measure.
In April 2003, the Duma voted to toughen the law against inciting religious hatred by adding prison terms of up to five years for offenders.
In December 2003, Sakharov Museum director Yuri Samodurov was charged with actions "leading to the provocation of hatred and enmity."
If found guilty, he could be sentenced to up to five years in prison.
Church officials are not calling for that harsh a penalty.
In March 2004, the Moscow Patriarchy's External Relations Department issued a statement that surprised everyone.
It asserted, in effect, that the Sakharov Museum exhibition organizers had committed an administrative rather than a criminal offense.
The difference is that administrative offenses are punished with fines, at most, not prison terms.
Such a softening of the church's position was probably the result of the public outcry in Russia's liberal press.
Yet the pogrom at the Sakharov museum provoked a chain reaction of similar attacks on contemporary art by Orthodox fundamentalists whom the church has been unable to control.
Anna Alchuk, an artist who participated in the exhibition in the Sakaharov Center and was later charged, said she had read all 14 volumes of evidence collected by the prosecutor, and that 11 volumes consisted entirely of letters from "working people" expressing outrage at the show and demanding that the artists be punished.
Almost none of the writers had seen the exhibition - most had signed form letters.
"The events around the exhibition discredit the Russian Orthodox Church, just as the fatwah condemning Salman Rushdie to death discredited Islam," said Elena Bonner, Andrei Sakharov's widow.
The outcome of the court hearings is difficult to predict, but it will answer the question of whether Russians have lost the freedom artistic self-expression that they gained after communism's fall.
Disillusion with "democracy Boris Yeltsin-style" has pushed President Vladimir Putin to search for an ideology based on nationalism and the glorification of the state.
Putin calls it "managed pluralism."
As we can now see, the Social Committee For the Moral Revival of the Fatherland wants to be among the managers.
The Globalization of Science
For example, we know that someone who smokes two packs of cigarettes a day is likely to have a serious problem with cancer some 40 years later.
And science predicts that, unless we severely constrain consumption of oil and coal around the world, the climate will continue to warm, increasing ocean volume and melting huge amounts of ice in the Arctic and Antarctic -- thereby causing disastrous rises in sea level.
These are but two examples of thousands of instances in which it makes good sense for decision-makers to take into account what science can predict about the future.
And yet, what science knows is far too often overlooked when high-stakes decisions are made.
This is not to say that scientists should dominate the government decision-making process.
It is the business of politicians, not scientists, to consider the relative costs and benefits of the options before them, weighing them as they see fit in reaching their conclusions.
But many such judgments will be poor ones without effective scientific input.
For example, the United States government is well-served by an organization called the National Academies, based on three honorary organizations composed of the nation's most distinguished scientists, engineers, and health professionals (the National Academy of Sciences, National Academy of Engineering, and Institute of Medicine, respectively).
This independent, non-governmental organization produces more than 200 reports a year, most in response to specific requests from the US government.
These requests range from questions about the health hazards of trace amounts of arsenic in drinking water, to questions about how best to support various forms of scientific research.
Through a rigorous review process, the Academies insist that each report be limited to what science can say about the subject based on evidence and logic, without preempting the decisions that need to be made by others.
Thus, for example, the report on drinking water predicted the frequency of bladder cancers that would eventually occur in a population exposed to levels of five, 10, or 20 parts per billion of arsenic.
But it did not say what maximum arsenic concentration the government should legislate.
The full text of some 3,000 reports by the Academies are available online (at
However, there are other important science-based issues that require study by internationally-based organizations in order to be widely accepted.
To meet this need, the InterAcademy Council (IAC) in Amsterdam was founded in 2000 by a worldwide organization of science academies called the InterAcademy Panel (IAP).
The IAC is governed by a Board that includes a rotating group of 15 Academy presidents from around the world, representing nations at a range of economic development levels, and its reports present a truly international perspective backed by the world's best scientists and engineers.
The IAC provides advice on subjects requested by the United Nations and other international organizations, all of which is freely available at Inventing a Better Future: A Strategy for Building Worldwide Capacities in Science and Technology .
It argued convincingly for the importance of supporting science and technology institutions in every nation that focus on harnessing the increasing store of international scientific and technical knowledge to meet that nation's needs.
Inventing a Better Future also provided detailed guidance to governments and international organizations on how to build institutional capacities for science and technology in both developing and industrialized countries.
The IAC's most recent effort, entitled Lighting the Way: Toward a Sustainable Energy Future, presents an ambitious science-based agenda for meeting the world's enormously challenging energy requirements.
An important audience for each IAC report are the 100 academies of science that belong to the IAP.  Each has a special responsibility for disseminating a report's recommendations throughout its own country, which can considerably enhance the academy's effectiveness in influencing national policies.
The combination of the IAP and the IAC is an important new experiment for providing international scientific advice -- an experiment that has only just begun to demonstrate its potential effectiveness for spreading the benefits of science and technology to all humanity.
• because pensions are available only for a few executives in the formal sector and for state employees, with nothing provided to the rural poor;
• because free university education is a form of redistribution from poor to rich because the poor are taxed to pay for university, but rarely get to go;
• because expenditures for primary education often end up being captured by teachers' unions in order to guarantee privileges for their members;
• through health expenditures that are often concentrated on hospitals in relatively prosperous and politically important urban areas;
• because free water and electricity are mostly a subsidy for the urban middle class and for rich farmers.
Checks and Balances in an EU Constitution.
EU Commission President Romano Prodi has proposed a scheme to strengthen the Union's executive.
Britain, France, and Spain are working on an opposing plan that will consolidate EU executive powers among the biggest EU states.
What's the ordinary European to think?
Europe's citizens scarcely grasp the issues at the heart of the European Constitutional Convention in Brussels.
Mountains of detail obscure problems; sterile, misleading national discussions that pit "Euroskeptics" against "Europhiles" muster sound and fury but clarify nothing.
So complicated do many issues seem that some newspapers and broadcasters have abandoned reporting about the Convention.
EU citizens can secure a clearer understanding of what the Convention should achieve by asking this question: how should governmental functions be divided between the EU and its member nations?
To answer this, we need to grasp government's true purpose.
Government should provide citizens with public goods: collective defense, legislation and regulation, enforcement of the rule of law.
These can be provided at different levels: local, regional, national, or supranational government, i.e., the EU.
But what is the right level?
In some areas, decentralization works because it recognizes diverse local or national communities.
However, local decisions often have repercussions on citizens in other communities.
So certain services should be allocated to a broader geographic unit because they have externalities (that is, interdependence of effects).
Europe's allocation of governmental powers should be based on the principle that institutions carry out only those activities with clear economies of scale and where differences of opinion are modest.
The lower a government activity's externalities, the more it should be localized.
Low externalities imply limited benefits to be gained from centralization; deep differences among citizens imply that the costs of harmonization would be too high.
No longer can the lira be devalued to favor Italian exports to the detriment of the French, followed by a French reaction, etc.
In educational policy, however, to impose the same system on all members would not create economies of scale.
Of the areas of public policy with high economies of scale or externalities, two stand out: the common market and competition; and foreign policy and defense.
The former covers antitrust, trade, and the common currency.
Some think that fiscal policies - from the structure of taxation to welfare, to budget balances - should also be harmonized.
But national preferences are diverse, and if mechanically imposed, fiscal centralization might incite resistance.
Nor do centralized fiscal policies have any real raison d'être from a constitutional point of view.
The US Constitution, for example, does not prescribe balanced budgets for the states.
Only in exceptional circumstances is fiscal harmonization justified: prohibitions, say, on fiscal incentives aimed at limiting competition, impeding commerce, or restricting the movement of capital.
It would be absurd if New York pursued a different foreign policy than Texas.
Much the same is true in Europe.
The addition of new EU members implies that more internal differences will occur, which means that fewer centralized policies are justified.
These considerations suggest a series of principles for the Convention to consider:
1.
The EU Constitution should establish unequivocally which prerogatives belong to Europe and which to member countries.
When in doubt, the principle of subsidiarity suggests that national states remain supreme;
2.
European-level institutions should guarantee the functioning of markets, including competition, commercial, and monetary policies;
3.
Fiscal policy should remain largely decentralized, save for a few exceptions;
4.
Foreign policy and defense are areas of federal competence, to be delegated to Europe at a proper time;
5.
The creation of new areas of federal competence should be accompanied by decision-making mechanisms found in genuinely representative democracies.
So "No centralization without representation."
A. Alesina, I. Angeloni & L.Schuknecht, CEPR Discussion Paper no. 3115.
Europe faces an historic opportunity.
America's founding fathers wrote a Constitution that has lasted over 200 years.
Members of the European Convention obviously face a far more complex and diverse society-and thus a more daunting constitutional challenge.
But they can succeed by displaying comparable wisdom and foresight.
Some countries -- Mexico, Colombia, and Peru -- appear to want a privileged direct relationship with America.
Other countries -- Bolivia, Chile, the countries of Central America -- prefer regional solutions in which they have a clear and equal say.
The latter group, for example, are generally supportive of the plan to build a Community of South American Nations, a scheme backed primarily by Argentina and Venezuela.
The Mercosur countries don't want a confrontation with anyone, including the US, but do seek a more just and democratic international system.
But it is the ideological picture that presents the starkest contrasts.
Indeed, there could be political consequences that could affect the entire region if the confrontation between Venezuela and the US worsens beyond today's tense relations, or if there were an electoral victory for the Frente Sandinista de Liberación Nacional in Nicaragua, or for Evo Morales's Movimiento al Socialismo in Bolivia.
The eventual formation of a triangle that links Cuba, Venezuela, and Nicaragua is likely to be considered a direct threat to regional stability by the United States, which would have dangerous consequence of putting Latin America atop the security agenda of the Bush administration.
Managing Iraq's Oil
In recent months, Iraq's oil production has grown to more than two million barrels per day. At this rate, current oil output and oil exports now exceed post-invasion predictions.
Experts had argued that funding shortages, lack of security, the problems of stabilizing a legitimate government, and technology shortfalls would severely limit Iraq's output.
Despite the odds, Iraq's daily output reached a post-invasion record of 2.5 million barrels in March.
A number of factors enabled Iraq to increase its output.
Most significantly, the Bush administration gave Iraq $2.3 billion to restore its oil production.
After the invasion, no one expected Iraq to get loans, let alone outright grants.
Instead, $2.3 billion was invested directly into the Iraqi oil sector.
To protect the oil fields and other facilities, the Americans dedicated a massive, overwhelming force of soldiers and private contractors.
The level of protection was unprecedented even compared to Saddam's regime.
On the technical side, the Bush administration hired the world's best oil service companies to revamp Iraq's technologically challenged oil fields.
They still have a long way to go, but significant improvements are already evident. Moreover, the war didn't change the quality of Iraqi fields, which are still among the richest in the world and can produce oil with relatively little effort and investment.
Finally, high oil prices in the past 12 months provided an unexpectedly large windfall to the Iraqi budget, allowing for the financing of other sectors without slighting the oil industry.
High prices also enabled the Coalition Provisional Authority to add even more private security personnel to protect refineries and pipelines.
Granting Iraq the money to restore its oil industry was one of the best post-war decisions that the Bush administration has made.
The money allowed Iraq to begin to address security, production, and technology issues throughout its oil system.
But the question remains: will output growth continue following the transfer of sovereignty to an Iraqi government at the end of June?
Despite massive injections of funds and unprecedented security, insurgents have still managed to halt or reduce oil production and exports several times since the invasion.
The bombing of a pipeline or other oil facility somewhere in Iraq remains almost a daily occurrence, and the transfer of power has not reduced these attacks so far.
Like the Bush administration and Saddam himself, the insurgents understand that whoever controls Iraqi oil controls Iraq's destiny. The new Iraqi government, even supported by US military might, will simply not be able to guarantee a predictable flow of oil, and output will remain quite volatile.
At the same time, maintaining the flow of funds into the Iraqi oil sector is essential, not only for its growth, but for its very survival.
Money brings technological regeneration as well as security.
Under even the best circumstances for Iraq, with oil prices remaining high, the funds available to maintain and modernize the oil industry are limited.
If oil prices decline in the future, the oil industry will suffer severely.
This makes for an interesting relationship between Iraq and Saudi Arabia.
Only Saudi Arabia can manage the global output of oil in such a way that will make room for Iraqi oil and keep prices high.
In contrast, only Saudi Arabia can flood the market and reduce prices far below their current level.
A decline in oil revenues could be devastating to the fledgling Iraqi government.
Current oil revenues are barely enough to cover state expenses, let alone pay for reconstruction, debt, and war reparations.
Even if President Bush wins reelection, it is highly unlikely that the US will make another outright grant to a sovereign Iraq.
Theoretically, international loans could be an alternative, but who would lend to an unstable government, let alone a government whose legitimacy has not been fully established?
Likewise, privatization is out of the picture for now.
The new government will have to make do and chart a slow path for its oil recovery, just as Saddam's regime did.
At the same time, the logic of renewed American support for the Iraqi oil industry remains powerful.
Normal financing is not forthcoming.
Only grants from the US will reduce output volatility.
Saddam's regime caused most of the volatility in the oil market in the last 30 years.
In fact, every peak in oil prices since 1973 was caused by an event related to Iraq.
One would hope that his removal would reduce market volatility and stabilize oil prices.
Unfortunately, Iraq appears set to continue to be a major source of high oil prices, owing to highly erratic output.
For the foreseeable future, one of the principal outcomes of the invasion of Iraq will be greater volatility and thus higher prices.
The Perilous Fantasy of Energy Independence
increases energy insecurity.
However much politicians who call for energy independence might prefer it otherwise, the market has chosen oil as a staple energy source.
So governments should ignore neither the valid interests of oil exporters, on whom consumers in their countries depend, nor exporters' reaction to the rhetoric of energy independence or to steps taken to achieve it.
Isolationist politicians may not care about other countries, but they should think twice lest they harm their own.
The biggest threats to the world's energy security are not terrorist attacks or embargoes by oil-producing countries -- short-term events that can be dealt with quickly and effectively through various measures, including reliance on strategic petroleum reserves, increases in production, and diversion of oil shipments.
Instead, the main threat to the long-term sustainability of energy supplies is the mismatch between investment in additional capacity and energy infrastructure, on one hand, and growth in demand for energy on the other.
Major oil exporters could respond in a variety of ways to political posturing on energy, most of which would exacerbate rather than ameliorate the global energy situation. One of the most plausible scenarios in response to calls by governments and politicians around the world to reduce or even eliminate dependence on oil is a relative decline in investment in additional production capacity in the oil-producing countries.
An energy crisis in this case is almost certain if those who press for energy independence fail to provide a workable alternative in a timely manner.
Of course, these efforts will almost surely fail to replace oil within a reasonable time, as they are not market-driven and require heavy subsidies.
Indeed, confronted by political leaders' hostile rhetoric, oil producers have a strong incentive to increase production in order to lower oil prices to levels that undermine the economic feasibility of alternative energy sources -- a logical interventionist policy to counter the anti-oil interventionist policies of consuming countries.
After all, a collapse in oil prices would be a death sentence for several new energy technologies, and, not incidentally, would increase demand for oil.
Even if the oil producing countries do not intentionally bring about an oil price collapse, they might accelerate production as much as they could in the short term, while oil still had some value.
But lower oil prices, coupled with expectations of a decline in demand, would in turn put pressure on oil-producing countries to reduce planned investments in production capacity or even to mothball major projects, as they have done in the past, leading to a decline in oil supplies.
Thus, if alternative energy technologies did not come on-line by the time oil production started to fall, global shortages would become inevitable, while closing the investment deficit would take years, even in the face of rising oil prices.
In spite of these possibilities, let's assume that plans for energy independence succeed, and that several European countries, the United States, Japan, China, and India become self-sufficient.
Major oil exporters could then seek to use their now less-valuable oil at home as cheap fuel for an expanded heavy industrial sector.
Instead of exporting oil directly, they could export their energy embedded in metals, chemicals, and manufactured products at prices that undercut anything producers in the oil-consuming countries, especially Europe and the US, could match, given their dependence on higher-cost alternative energy sources.
Energy independence thus could destroy entire industries, especially petrochemicals, aluminum, and steel.
In fact, cheap energy in oil-producing countries might make their new industries competitive with those in China, India, and Southeast Asia.
The net result would be a loss of jobs and weakened economies.
Countries might end up energy-independent, only to become steel-dependent or petrochemical-dependent.
So what would come next?
Would politicians, with their perpetual fascination with "independence," attempt to eliminate dependence one commodity at a time?
Put another way, would the cause of "energy independence" seek to reverse globalization?
Oil is a finite resource.
Only long-term, market-oriented, economically viable, and sustainable energy options can ensure economic growth in both producing and consuming countries.
Isolationist policies, by contrast, always lead to shortages and discontent.
No matter how energy independence is pursued, it will never amount to anything other than an unattainable -- and potentially dangerous -- fantasy.
The Endless Iranian Nuclear Crisis
Iran, it is often claimed, has no need for nuclear power, given its abundant oil and natural gas reserves.
But the Iranian government is under economic and political pressure to supply increasing amounts of electricity to its growing population and fragile economy.
Using oil or natural gas for domestic electricity threatens oil and gas exports, which are the principle source of government revenues.
Indeed, with domestic oil consumption growing at a higher rate than production, government revenues from oil exports are already in decline.
Thus, nuclear power will halt the decline in government revenues by freeing more oil and natural gas for export.
Iran's natural gas resources, if developed, would not be a substitute for cheap nuclear power, because gas is more profitable in other uses than in power generation.
The Iranian government fears that electricity shortages, slow economic growth, and high unemployment will turn the populace against it.
As social tensions increase, political turmoil will follow.
Nuclear power offers the possibility of cheap, plentiful electricity, which will contribute to social and political stability.
Iranian experts argue that, in considering the trade-off between internal unrest and external sanctions, the Iranian government must choose between domestic security and international security.
Domestic pressure could very well bring down the regime, but international pressure will not.
History is on the side of the Iranian government.
The Islamic Revolution has survived a brutal war with Iraq, economic sanctions, and decades of international pressure and isolation from the US.
Moreover, Iran's leaders remember that the Shah was forced to flee the country in 1979, despite having strong international support.
While there may be security reasons for any future US administration to oppose even a civilian nuclear program, American policymakers also recognize the strategic impact that nuclear energy will have in stabilizing the Iranian regime.
The US and Iran have been fighting proxy wars since 1979, and their ongoing conflict means that proxy wars will continue in Lebanon, Iraq, Afghanistan, and the Caspian Sea region, as will trade and investment wars.
Indeed, as long as China and Russia have money to invest and arms to sell, most UN sanctions will be toothless.
Iran will continue to threaten the world community that it will use its oil weapon, but this is highly unlikely.
It is not in Iran's interest, under any scenario, to decrease oil exports, let alone halt them.
However, domestic pressure, a sense of nationalism, and the need to improve its bargaining position with Western countries might force the Iranian government to respond to harsh UN sanctions or an air attack on its nuclear facilities.
But even under these extreme circumstances, Iran will still need its oil revenue.
A symbolic cut or embargo, while possible, would have little impact on world oil markets.
Iran's government has more effective options to respond to attacks from the US and its allies.
Its supporters in Iraq might cripple Iraqi oil exports from Basra, which would damage US plans in Iraq while boosting Iran's oil revenues, or limit the availability of fuel to the US Army by attacking roads and bridges, especially the Kuwait City-Baghdad highway.
The world community will continue to pay a high price for the nuclear standoff, which will cast a shadow over world oil markets for years to come.
Some experts argue that it has already raised oil prices by about $15 per barrel.
Ironically, an Iranian civilian nuclear program would enhance US and world energy security by making more oil and gas available in the global market.
But America's determination to destabilize Iran and the Iranian government's determination to retain power reduce the likelihood of this scenario.
How Does the Weak Dollar Affect Oil Prices?
The implications of pricing oil in any single-currency are more far-reaching than most people think.
For example, some oil-producing countries ask their customers to pay in euros, but that does not mean that their oil is priced in euros.
And even if dollar prices were to be replaced by euro prices, the impact of single-currency pricing on the oil market would be the same.   
While oil-exporting countries receive revenues in dollars (or their euro equivalent), they use different currencies to import goods and services from various countries.
Any change in the exchange rate of the dollar affects the purchasing power of these countries, and therefore their real income. 
Likewise, international oil companies sell most of their oil in dollars, but they operate in various countries and pay some of their costs in local currencies.
Any change in the value of the dollar therefore affects their cost structure and profitability. In turn, it affects reinvestment in exploration, development, and maintenance.
The relationship between the value of the dollar and oil prices is very complex.
While they can feed on each other to produce a vicious cycle, their short-term relationship is distinct from their long-term relationship.
In the short-term, dollar depreciation does not affect supply and demand, but it does affect speculation and investment in oil futures markets.
As the dollar declines, commodities -- including oil -- attract investors.
Investing in futures becomes both a hedge against a weakening dollar and an investment vehicle that could yield substantial profit, particularly in a climate of vanishing excess oil production capacity, increasing demand, declining interest rates, a slumping real estate market, and crisis in the banking industry.
OPEC might be correct to blame American policies and speculators for higher prices.
It is also correct that if OPEC had excess capacity, it would have already used it to flush out speculators to bring oil prices down.
OPEC can regain control in one of two ways: use its "claimed" excess capacity to flush out speculators, or use its financial surpluses to overtake them.
Recourse to the latter option means that, even without excess capacity, OPEC can still be in the driver's seat.
In the long run, however, statistical analysis of various oil industry variables indicates that a weaker dollar affects supply by reducing production, regardless of whether oil is owned and produced by national or international oil companies.
A weak dollar also affects demand by increasing consumption.
The result of a decrease in supply and an increase in demand is higher prices.
The lower dollar also reduces the purchasing power of oil exporters.
If nominal oil prices remain constant while the dollar declines, the real income of the oil-producing countries declines, resulting in less investment in additional capacity and maintenance.
The same is true of oil companies.
Consequently, oil prices increase.
Indeed, because oil prices were rising while the dollar was declining, capacity expansion by oil firms failed to meet forecasts for non-OPEC production in the last three years.
Even oil production in the United States has not matched the increase in oil prices, as rising import costs for tools and equipment -- partly a reflection of the dollar's weakness and other factors -- have forced project delays and cancellations.
Of course, the lower dollar means cheaper oil in Europe, Asia, and all countries with appreciating currencies.
Oil prices hit records in the US in 2004 and 2005, but not in Europe, which partly explains why economic growth there has not been affected.
When Americans paid $120 per barrel, Europeans paid only about €76 per barrel.
Several factors have prevented high oil prices from affecting the demand for petroleum products in the US in recent years, such as increased government spending, low interest rates, tax breaks, and an increase in real incomes.
To be sure, the weaker dollar has forced some American families to spend their vacations in the US instead of Europe.
But, since many Americans use gas-guzzling SUV's for their vacations, demand for gasoline has remained high.
Unless and until US consumption patterns change or a rebounding dollar increases oil production, Americans will bear the brunt of single-currency oil pricing.  
Europe's New Mission in Africa
For some people, raw military might is the only true measure of power.
But the 16 EU military missions that have now been carried out in support of the ESDP have much more to commend them.
Large parts of Africa need support, and Europe can and must lend a hand.
Nor is the EU's new style of political-military engagement in Africa a throwback to colonialism.
True, many African countries currently suffer from instability, state failure, regional strife, violent internal political competition, and other assorted ills, including, massacres and large-scale brutality, civil war, massive movements of refugees, economic disruption, and environmental damage.
Yet the big picture in Africa is not uniformly bleak.
Some African countries are comparatively stable and prosperous, and the Continent possesses a youthful population that will soon top one billion people, abundant mineral reserves, and an inherent dynamism.
At the same time, we in Europe cannot afford to dismiss Africa's troubles as if they had no impact on our own societies.
The European project has been built on values that we deem to be universal, and we must make a very real effort to uphold them, not only as a moral imperative, but also because it is in our strategic interest.
The EU is by far the largest export market for African goods, and it also offers a home to large communities from almost every African country.
Likewise, a large number of European citizens and dependents are scattered throughout Africa.
In the early stages of a crisis, European intervention -- through political and financial assistance, diplomatic intervention, and even military action -- can prevent it from erupting into violence.
Moreover, when a crisis is winding down and there are openings for moderating influences, outside intervention can prove instrumental in enforcing peace and bringing warring factions to the negotiating table.
In countries that have experienced the horrors of civil war, the arrival of an effective military force from outside is generally welcomed, as was the case in both the 2003 and 2006 Congo operations.
Just by virtue of being there, the force shows the goodwill and commitment of the nations that sent it, and, by projecting a sense of law and order, it provides valuable leverage for honest brokers trying to mediate a peace deal.
Europe's policy toward Africa may suffer shortcomings, but at least there is a policy, which is based on supporting African states and regional organizations like the African Union whenever practicable, necessary and, above all, requested.
The ESDP takes into account the larger European policy, and aims to provide assistance in planning, training, and logistical support to missions and forces created by African states or groups of states.
For example, the recent concept of "European reinforcement of African capabilities in prevention, crisis response and conflict resolution" (which is known as ‘Recamp') openly calls for African ownership of this process.
Europe has never claimed to have the means of redressing all the strategic imbalances that exist in Africa -- nor does it have any intention of doing so.
Yet, taken together, the EU countries possess a considerable array of assets, including the military capability needed to conduct decisive operations.
Yet their most valuable asset is cultural: soldiers who are willing and able to interact with the local population, who are cautious in their use of lethal force, and who are ready to accept the many shades of gray that exist between conflicting parties.
Nevertheless, European military capabilities are limited, requiring that European planners look for "minimal" options, with the drawback that smaller commitments generally require a long-term perspective.
The ESDP has not functioned long enough to establish a clear track record.
Yet our modest ongoing endeavors in Congo − a police advisory mission known as EUPOL and a defense reform mission called EUSEC − and in Sudan, where 60 Europeans are providing staff support to the African Union's AMIS II mission in Darfur, offer grounds for hope.
The EU's members must above all recognize that Africa's ills have to be dealt with by Africans.
This is as much a matter of principle as of cold, strategic calculation, and it is here where the ESDP has much to offer: a long-term view, supported by a powerful economy with the assets needed to carry out humanitarian operations, conflict prevention, crisis management, and security support.
Foremost among the ESDP's advantages is Europe's cultural knowledge and understanding of Africa.
Today, former colonial powers have evolved significantly, just as have their former colonies.
On both shores of the Mediterranean, generations have passed and new connections have been formed.
It is the knowledge, understanding, and mutual respect that remain, and that are the cornerstones on which Europe's policy for Africa must be built.
Losing Turkey
Both the dominant Justice and Development Party (AKP) and its secular rivals remain publicly committed to pursuing EU membership, but in practice doubts have emerged.
French President Nicolas Sarkozy's insistence that a referendum should be held on Turkey's admission suggests that years of painful adjustment to EU norms will never produce the payoff of membership.
The US and the EU are evidently convinced that Turkey has nowhere else to go.
The Turks, they think, will fatalistically accept any snub.
But this cozy assumption overlooks a tectonic shift in Turkey's geo-political position.
Immediately after the collapse of the Soviet Union, Turkey looked to the newly-independent central Asian states in a mood of pan-Turkic romanticism.
These ancestral homelands exercised a hold on Turkish imaginations, but today it is business opportunities, energy resources, and other practical matters rather than ethnic unity that are creating a loose Turkic "commonwealth."
Most striking is Turkey's renewal of relations with Russia without damaging its ties to the newly independent post-Soviet states.
Turkey's ancient antagonism toward Russia briefly revived when the Soviet Union imploded.
In the early 1990's, some Turkish generals saw the humiliation of Russian troops in Chechnya as part of a long-awaited revenge.
But, while Russia (and Iran) were once Turkey's great geo-political rivals, today they are export markets and energy suppliers.
Energy is the key to Turkey's new geo-political position.
Its industry and population are growing dynamically, so its energy demands are producing geo-political synergy with Russia and Iran, neither of which can afford to cut the flow of oil and gas without provoking a massive internal crisis.
Meanwhile, as Turkey's attitude toward its neighbors has changed, its governing elite has watched the EU embrace ex-communist countries with far shakier market economies and shorter democratic records.
As one Turkish general put it, "If we had joined the Warsaw Pact rather than NATO, we would be in the EU by now."
Last summer's re-election of Prime Minister Recep Tayyip Erdogan's AKP, followed by the election of Abdullah Gul as the first president whose wife wears a headscarf, seemed to confirm the fears of anti-Islamic Europeans.
Yet, even if many AKP activists and voters are devout Muslims, Erdogan and Gul remain committed to European integration.
Time is running out, however, for them to satisfy their supporters and silence their critics by achieving it.
The problem is that the AKP's victories, together with America's courting of Erdogan and Gul, have triggered a crisis of direction among Turkey's once-dominant secular and pro-western elite.
Even if the AKP can rely on the allegiance of millions of voters and swarms of new members anxious to join the winning side, the secularists are deeply entrenched in Turkey's institutions, universities, media, and business.
But both ordinary AKP supporters and disillusioned secularists are now suspicious of America's actions and motives in the region.
Key military figures' tacit backing for the Turkish Parliament's refusal to endorse the March 2003 US-led invasion of Iraq suggests that Turkish nationalism could unite the AKP's rank-and-file MPs with their otherwise implacable foes in the secular camp.
If the EU were to snub Turkey openly over membership, or if America were to seem too lax on the Kurdish problem in Northern Iraq, a huge swathe of the two camps could well unite.
Turkey's links with Israel, for example, have been strained by Israeli investment in Kurdistan.
While Shimon Peres made a gesture of reconciliation by choosing Ankara as the setting for the first speech by an Israeli president to the parliament of a predominantly Muslim country, Israel's concerns about Iran are far more serious than are Turkey's.
Israel's two most irreconcilable enemies, Iran and Syria, are in fact among the most vocal supporters of Turkey's hard-line stance towards the Kurds.
America's conquest of Iraq de-stabilized Turkey's Western orientation more than the US cares to admit.
Most Turks don't want to see their country excluded from the West, but if the EU spurns them while speeding up entry for weaker candidates, Turkey may come to feel sufficiently strong and embittered to strike out on a new geo-political course.
The Euro Ark
Faced with the biggest test in its history, the euro is far from steering into disaster, as the Nobel laureate economist Milton Friedman predicted ten years ago.
On the contrary, Europe's Economic and Monetary Union is proving a major asset in these tumultuous times.
Doubters should remember that the euro was itself born out of crisis.
The single currency was conceived as an answer to the upheavals of the postwar period -- double-digit inflation, high unemployment, and speculative attacks on the pound, the lira, and the French franc.
It was the crisis of the European Monetary System that drove the euro's launch on January 1, 1999.
In ten short years, the euro revolutionized the global economic environment, rising to the status of the world's second currency and rivaling the dollar as a medium for international trade and finance.
The EMU is now the world's largest market, and continues to grow.
With Slovakia's entry on January 1, the euro spans 16 countries and 329 million citizens.
The benefits of a monetary union based on a stable macroeconomic framework and governed by an independent central bank are manifest: the euro area has enjoyed low inflation and low interest rates for much of the last decade, a boost in trade and investment, and rapid integration of financial markets.
Moreover, 16 million jobs have been created over the last 10 years -- a record more successful than even the US.
Today's financial turmoil and economic downturn are highlighting the EMU's advantages in several important ways.
First, the euro has eliminated the possibility of exchange-rate turbulence and speculative currency attacks that more vulnerable economies could have expected in the current turmoil.
As a stable and strong world currency, the euro is also limiting exchange-rate instability globally.
Second, the euro area benefits from an independent European Central Bank whose swift actions to ease liquidity constraints and coordinate monetary policy have recently helped to avert a financial meltdown.
Such rapid, coordinated steps by 16 national central banks would have been unthinkable.
Third, the EMU's stability-oriented macroeconomic framework has better prepared euro-area countries for economic storms.
Thanks to the fiscal rules of the Stability and Growth Pact, the euro area achieved its soundest budgetary position in 2007, bringing deficits to their lowest levels in 25 years.
This allowed many European Union countries to approach the crisis with room for maneuver.
Such are the EMU's benefits that the visible costs of remaining a non-member are beginning to recast the political debate surrounding euro adoption in several countries. 
Of course, the euro is no panacea, nor has it functioned perfectly over the last decade.
Divergences between euro-area economies in terms of growth and inflation have been a persistent challenge.
Though differences are no bigger than those found within larger economies such as the US or Germany, they risk being amplified by the crisis.
This is why it is even more important that we continue to improve the EMU's functioning.
This requires not just reinforcing resilience in the face of crisis, but also equipping euro-area economies for the longer-term challenges of globalization, aging, resource scarcity, and climate change.
In a potentially more volatile twenty-first century global economy, we must reap the maximum benefits of economic integration in terms of growth and jobs.
The key to a better functioning EMU is closer surveillance and deeper coordination of economic policies.
Leaders must start living up to the responsibilities that come with sharing a single currency.
They must recognize the impact that national economic policies have on the euro area as a whole, and thus discuss and coordinate economic programs at the euro-area level.
Here, the launch of the European Economic Recovery Plan -- the initiative for an EU-wide fiscal stimulus equivalent to 1.5% of GDP, endorsed by the European Heads of Government in December -- constitutes a major step forward.
This must now be followed by closer budgetary monitoring, particularly given that fiscal stimulus measures, the economic downturn, and bank rescue plans will take a toll on public finances.
The Stability and Growth Pact must remain the cornerstone of the EU's budgetary framework, and effective surveillance and peer support will be vital to help member states work towards balanced budgets once the economy rebounds.
Deeper fiscal surveillance should be matched by broader economic surveillance, especially since current-account imbalances have become more acute during the crisis.
The European Commission is now working on extending the focus of surveillance beyond fiscal policy so that we can identify risks stemming from macroeconomic imbalances or changes in competitiveness and address them before they become entrenched.
Finally, euro-area nations must strive harder to find common positions on international issues and to speak with a single voice in the global arena.
This is the only way to promote and defend the EMU's economic interests in a world where the challenges are global and overcoming them will increasingly depend on multilateral cooperation.
Consider November's international summit on the financial crisis.
Agreeing a common position ahead of the meeting gave Europe a greater role.
When the euro area manages to agree swiftly on a coordinated position, this can be instrumental to finding agreement in the EU as a whole and internationally.
It is vital we now build on this success and develop a genuine international strategy for the euro.
The European single currency has been a major success, but it remains a work in progress.
A decade after the euro's introduction, we must follow the example of its founders and turn crisis into opportunity by uniting in a spirit of cooperation and ambition -- and thereby reinforce the EMU's foundations.
Will Human Rights Survive Africa's Latest Oil Boom?
The region's economic stature was bolstered in 2003 with the advent of the Chad-Cameroon oil pipeline, a $4.2 billion project brokered by the World Bank that is expected to boost exploration and output in Chad and at offshore sites in Equatorial Guinea, while spreading the benefits more widely.
For example, with the pipeline crossing 890 kilometers of its territory, Cameroon will net $540 million annually in fees and royalties for the next 25 to 30 years.
All of this was made possible by what has been, by historical standards, an exceptional period of political stability.
Oil was discovered in Chad's southern Doba region in 1975, with 300 wells drilled so far.
But none of the reserves could be exploited until 1988, when Chad's protracted civil war finally ended.
With the subsequent oil boom, one would have expected the fortunes of Chadians and Cameroonians to improve at the individual, local, and national levels.
But instead we see a landscape of widespread poverty set against a backdrop of endemic corruption and official mismanagement.
So far, the governments in neither Chad nor Cameroon have been willing to publish any earnings records concerning the pipeline project.
This lack of transparency is not surprising.
For this reason, the World Bank imposed stringent conditions on Chad and Cameroon.
Both countries were required to deposit 10% of the expected oil income in a blocked foreign account intended for future generations.
At least 80% was to be invested in schools, healthcare, roads, electricity, and provision of potable water, while 5% would be allocated to the oil-producing areas and to settlements along the pipeline's route.
Periodic audits of oil accounts also were to be carried out.
Moreover, Chad and Cameroon were each to contribute $140m to the project, although this sum was paid entirely by the World Bank and the European Investment Bank.
Oil started to flow through the pipeline in July 2003, 16 months ahead of schedule, with the flow peaking at 225,000 barrels per day by the end of that year.
Now, 30 months later, interested groups and the larger public are angrily asking about the oil wealth that is yet to touch their lives.
Much attention is being focused on the terms of the so-called "host government agreements" concluded by the ExxonMobil-led financing consortium and the governments of Chad and Cameroon to govern the construction and operation of the Doba oil fields and the pipeline.
The report finds that the host government agreements place a price tag on protecting human rights by imposing large financial penalties if the operation of the oil fields or the pipeline is interrupted -- even to enforce valid laws.
During the same period, life expectancy grew by 11 years.
Despite longer retirements living standards among those on pensions improved enormously.
Is it likely that an equal increase in living standards could occur between now and 2040 (when there will be two working people -- as opposed to four today -- for each person in retirement)?
No, because social solidarity is not what it was.
After WWII, pensions were very low and the costs they imposed on workers were modest.
Because economies were growing, workers voluntarily accepted continuous increases in the taxes paid to finance the pension system.
Today, in all EU countries, the average income provided by pensions is much higher and, in some cases, such as in France, higher than many incomes received by the working population.
Rising pension pay-outs, when combined with continuous increases in taxes and social security contributions, have made those with jobs unwilling to contribute more to the retired.
This resistance has brought forward the issue of allowing capital markets to play a role in financing Europe's pension systems.
The rising popularity of personal retirement savings may also help enhance the efficiency of Europe's financial markets, the lack of which is partly responsible for Europe's slower growth and higher unemployment.
For countries where private pension funds are the most developed (the US, and Britain and the Netherlands) have the highest stock market capitalization.
• workers must participate in establishing a pension system to complement state pensions.
A proposed European Commission directive about professional pensions is now on the table.
Europe should be more ambitious.
The EU should put in place a common fiscal framework applicable to all capitalized forms of pension savings: pension funds, life insurance, or salary-reduction savings.
Wage earners opening a plan under a form and framework of their choice (say, a pension fund) should be able to deduct their contributions (up to a fixed ceiling) from income tax or, if they have no taxable income, should receive tax credits.
Further, up to prescribed limits, employee contributions should be, up to prescribed limits, matched by employers.
These savings should be constructed in such a way as to favor their being taken out in the form of annuities, without excluding (with an appropriate penalty) the possibility of a one-time withdrawal of the principal.
If pension reform is to work, attitudes toward savings must change.
Europeans should stop complaining that they save too much and consume too little.
In fact, Europe needs to invest more, and so must save more.
The economic policies of EU countries also need to be resolutely adjusted to promote investment, productivity, and growth.
If increased savings are used to finance public deficits or are invested overseas not least in the United States (too often the case nowadays), encouraging such savings may not be worth the effort.
Every now and then, Europe must act decisively to accomplish important political objectives.
Such was true with the euro's establishment.
An equally bold vision is required to assure Europe's future pensioners.
Europe and President Bush
ROME: What does the future hold for transatlantic relations?
That question arises with every new American administration.
Because worries about a "widening Atlantic" gap have existed since the early 1970s, it is tempting to proceed as if transatlantic relations will remain on roughly the same wavelength as before.
The truth is, however, that the US and the EU are rapidly evolving along their own paths: both sides of the Atlantic thus face the challenge of managing an ever more complex relationship.
Two other temptations must also be resisted.
On the European side is the temptation to speed the emergence of the Union as an international actor by constantly claiming autonomy or independence from the US.
Lingering anti-American undertones, of course, will invariably surface for, as in any long unbalanced relationship, the junior partner will tend to make declaratory statements that generate misperceptions.
Europeans should not succumb to this temptation, for the move from dependency to equal partnership is not measured by rhetoric.
Instead, Europeans must assume a fairer share of the transatlantic burden, putting in place a truly common European foreign policy, and think and act as a regional power with a global outreach.
If the Euro succeeds as a global currency, which I believe it will, and if Europe's rapid reaction force becomes a reality soon, as I also think it will, the EU will have secured the preconditions for a more equal partnership -- literally by putting its money (and soldiers) where its mouth is.
On the American side, the temptation is to overplay its "sole superpower" role by acting unilaterally.
But this is loneliness disguised as leadership and is not in America's interest.
National interests can no longer be effectively pursued unilaterally; US global interests are served best by multilateral action and bodies.
Even if, in military terms, America remains the sole superpower, military might is of limited use in the daily conduct of foreign policy.
America would benefit not less than Europe from an effective system of global governance in the achievement of its goals -- be it freer trade, a viable non-proliferation regime, containment and prevention of regional conflicts, or better regulated financial markets.
To this end, the US has a vital stake in the EU's coming of age as an international actor.
It should therefore do away with the traditional ambivalence of demanding a more mature and active Europe on one hand, all the time feeling uncomfortable with it on the other.
True, America officially welcomed the launching of a common European security and defense policy.
But recurring signs of US nervousness about the nature of this process exist.
Americans often ask whether it is all about better European capabilities -- which would be fine for NATO -- or about European integration (i.e. instrumental to a political project).
My response is that it is about both, and that Washington should support both.
A sober assessment of this process leads me to assert that a more capable and united Europe will usher in a more effective Atlantic Alliance and not, as some believe, in American disengagement from European commitments.
What the EU aims at is not a duplication of NATO structures or an alternative to the Atlantic Alliance.
The EU is preparing to deal -- jointly with US forces or with purely European forces when NATO as a whole decides not to engage -- with crises in and around Europe.
More than defense -- which will remain NATO-centered -- Europe is building up its security role as a regional stabilizer: a role that EU enlargement to include candidate countries in Central and Eastern Europe will strengthen.
For, contrary to what is often said in America's Congress, Europe already bears the lion's share of the peacekeeping burden (let alone reconstruction aid) in the Balkans.
It goes without saying that there should be "no taxation without representation."
If Europe's foreign and defense policies succeed, NATO should become more European.
Washington, however, should not worry about this: if Europeans see the Alliance as a more European organization they are more likely to commit themselves (in budgetary terms, too) to its success.
A similar logic of partnership applies to enlargement.
The concept of Europe is not immutable, and rightly so.
On the basis of a broad notion of security and stability, EU enlargement is every bit as important as deepening the EU.
Here a common transatlantic approach to both EU and NATO enlargement would enhance stabilization and integration in post-Cold War Europe -- to everyone's benefit.
A new and functional division of labor between Europeans and Americans is thus conceivable, provided it retains the framework of common political commitments and shared responsibilities.
What should not be pursued is a rigid, vertical and artificial division of labor, whereby the US plays the lone global leader (with Europe simply following) while the EU concentrates exclusively on enlarging its "house" (with the US disengaging from Continental security).
This would be unhealthy and make the transatlantic compound unsustainable.
The antidote is a genuine sharing of choices and decisions.
If divisive decisions must be taken, healthy partnership requires that they be discussed openly and honestly.
A case in point is the issue of National Missile Defense.
No matter what policy the Bush administration adopts, European reservations and doubts should be taken into account.
If Europeans want to have some influence here, they must play a unitary role by, say, encouraging America to update the ABM Treaty in agreement with Moscow.
That would help strategic stability, prevent antagonizing Russia (which remains a fundamental factor in European security) and avoid deteriorating the security climate in Asia.
The same is true of dealing with so-called "rogue States": here again, a better combination of US and European strategies could produce a more effective approach, based on a blend of engagement and resolve.
A new division of labor, and a new sharing of responsibilities, depends as much on economics as on security.
A stable Euro makes stronger cooperation possible and desirable: not only to prevent global financial instability but to avoid the risk of conflicting currency blocs arising.
Provided that the Bush Administration pragmatically pushes for more trade liberalization, we will be able to deepen transatlantic market integration, which will act as a boost for our economies.
Scope will also then exist for revitalizing the WTO, for which a strong European-American commitment is a necessary precondition, though not the entire solution.
Here a serious reassessment of our negotiating tactics and old habits is needed.
The WTO, but also the IMF and World Bank, must understand the evolving needs of those societies most vulnerable to the impact of globalization.
We need to reach out to the rest of the world in a more open and persuasive way.
The G-8 process, which Italy chairs this year, will test such resolve - on which rests the legitimacy of the entire process.
A renewed Euro-American partnership based on our own respective styles and instruments in foreign policy will benefit both sides.
The EU is rightly searching for its identity as a collective actor.
As Europe changes, so too does America -- in terms of its demographic and social composition, economic and political structures, geopolitical orientation and national psychology.
Granted, transatlantic diversity might cause occasional squabbles.
However, mutual interaction and equal partnership remain the only response -- especially if they are reflected into long overdue reforms of multilateral institutions and increased global governance.
Operating within multilateral frameworks, however tiresome, has more often than not served US national interests as well as those of Europe.
This will not change.
A stronger EU is America's natural partner, occasional competitor, but certainly not a rival.
It is the duty of governments on both sides of the Atlantic to persuade their publics of this.
Europe by Degrees
To be sure, impatient dissatisfaction has been a driving force behind European integration since its initial years.
But, as Robert Schuman wrote in his Declaration in 1950, Europe could not be built all at once.
Likewise, Altiero Spinelli, another of the EU's founding fathers, wrote late in life that without visionary Europeans there would be no Europe, but without pragmatic statesmen, the visionaries would have gotten nowhere.
The Reform Treaty's shortcomings are obvious.
Abandoning the name "Constitution" was probably necessary to bring all member states on board.
But not equally necessary is the enduring uncertainty about the common political platform upon which Europe's voice in foreign policy will have to rely.
Moreover, the Area of Freedom, Security, and Justice still requires unanimity for essential decisions in the fight against crime and terrorism and therefore, implying excruciating slowness.
Nor does the Treaty do enough to strengthen coordination of Europe's economic and budgetary policies.
Moreover, agencies such as Europol and Eurojust will be similarly subject to greater parliamentary scrutiny, and the budgetary procedure will be simpler and more democratic.
The EU Charter of Fundamental Rights will become legally binding and the judicial protection of citizens will be enhanced by facilitating their access to the European Court of Justice and by extending the Court's jurisdiction.
The Union's capacity as a global actor will be enhanced by merging the High Representative with the Commissioner for External Relations and establishing a single diplomatic service.
Europe's Constitutional Future
Last week, the President of the European Convention, Valery Giscard d'Estaing, submitted a so-called "skeleton" for a future Constitution of Europe.
All the ingredients of a constitution - values, principles, the rights of citizens, the competencies of the Union and its constituent institutions, etc - were included.
This document arose despite the fact that the Convention's mandate did not empower the delegates to produce a constitution.
According to the Nice Declaration, which I drafted as one of the participating prime ministers, we were only to simplify and restructure the EU's basic treaties.
As the C onvention worked, our mandate was transformed due to various pressures.
These came from member countries, from civil society organizations, and from letters, documents, and email messages from across Europe.
Democratic pressure changed our mandate.
When even the Foreign Minister of Britain, a country happy with its centuries-old "unwritten constitution," claims himself eager to have a written European Constitution, something truly has changed!
Yet, scholars such as Ralph Dahrendorf and Joseph Weiler suggest that a European constitution does not make sense because a democratic constitution presupposes a paramount common identity that is absent in an EU where individual national loyalties still prevail.
Others, such as Robert Dahl, argue that democracy requires smaller communities based on shared interests and personal relations.
For them, Europe may be too big to forge truly democratic institutions.
Such theoretical objections must be set against the fact Europe already exists - indeed, decisions are made everyday on the European level which determine our lives.
We may dislike it, but the EU is part of our system of government, like municipalities, regions, and nation-states.
So the question is not whether Europe exists, but whether we are satisfied with the way it functions.
If not, can we fix it, and is a constitution the way to do it?
The first problem in need of a "constitutional" solution that is tackled is Europe's clear and unified identity.
Not many people realize it, but because of the patchwork of treaties from which today's European institutions arose, "Europe" is not a unitary entity; indeed, the "European Union" and the "European Community" denote two different things.
The Community is the set of institutions created in the 1950's to establish a common market.
When we decided later to have a common foreign policy, and to cooperate in judicial and police matters, we invented the Union.
The Union deals with foreign policy; the Community with economic integration.
One consequence of this is that agreements with third countries that involve both foreign and economic matters require two distinct treaties: one for the Union, one for the Community.
This confuses even trained foreign diplomats who negotiate with Europe.
If it confuses them, how befuddling must it be for ordinary citizens?
How can a European citizen really identify with Europe if no single "Europe" exists?
Europe's indistinct legal identity has another deleterious impact.
If the Community does something that affects someone's rights, he or she can go to court.
But if the Union encroaches on your rights, access to a court may be closed because the Union happens to have no legal personality!
The next problem to be tackled - again with constitutional implications - is the anonymous, bureaucratic nature of European legal acts.
Criticizing institutions is as essential a part of democracy as protecting enumerated legal rights.
But Europe's institutions are hard to criticize because they produce acts that ordinary people cannot name or understand.
In national life, acts of parliaments are called "statutes" or "laws," and these usually have names that you can rally for and against.
In the EU we have " regulations," "directives," "decisions," "general guidelines," "common strategies," "common actions," "common positions" - a myriad that only experts can comprehend.
When a "directive" is issued, you don't know who is responsible; instead, they are known as, say, "Directive 17.62" (meaning that it is directive no. 17 issued in 1962).
In Italy there is now a controversial statute that will change the rules of criminal procedure in ways that might prove helpful to eminent public figures.
Well, the name of Senator Cirami is attached to that bill.
By god, we can fight about "the law Cirami"!
Would things be the same if the bill were called "Regulation 75"?
Because Europe has so many bodies that legislate - the Council of Ministers, the Council for Agriculture, the Council for Industry, the Council for the Environment, etc. - we cannot know who is doing what and why.
We need a single legislative council, a bicameral European Parliament, with one house representing member states, and the other the European electorate.
In this simplified system, legislation will be called legislation, and executive regulations, as in most legal systems, will fill in the gaps in primary legislation.
This is a system European citizens will understand.
The draft constitutional document presented last week introduces small but significant changes that may empower Europe's citizens to both identify with and criticize Europe.
It calls for a single, unified legal entity.
Whether it is called European Union, United States of Europe, United Europe, or something else, it will also provide for a unitary, simplified system of normative acts that will introduce more transparency and accountability.
The institutional structure envisaged by the proposed European Constitution should also reflect and help develop Europe's broader aspirations.
Europe must be more than a vehicle of economic integration, which is almost accomplished anyway.
At the simplest, we expect Europe to be fair.
We expect our social model to be realized.
We expect economic and social matters to be connected.
We expect Europe to play a role for good in the world.
Of course, roadblocks await.
One of them is that more Europe cannot mean a centralized system.
Democratic governments are too complicated for that.
Getting the proper balance among European, national, regional, and local institutions will be a crucial challenge.
But if the people are to ordain a Constitution for Europe, all of their ties and values will need to be respected by that Constitution.
Europe's Crisis of Leadership
Much less positively, EU member states have been slow to act in concert.
At first it was the European Commission that drew criticism for its slowness in making proposals to rally national governments and their policymakers.
Now it is the member states that are resisting the urgent need for a coordinated EU-wide policy response to the deepening crisis.
The speed and the severity of the economic slowdown are far greater than any of the post-war downturns of the past 60 years.
In Europe, we by and large failed to heed the warning signals of America's sub-prime mortgage crisis when it erupted in the late summer of 2007, and thus were unprepared when the next phase of the crisis engulfed European banks, too.
The lesson to be drawn is that the EU must move more quickly and with greater determination than has been the case so far.
Throughout the EU, people are asking, "What is Europe doing to address the crisis?"
The answer is "not nearly enough," and the political price may be high at next summer's European Parliament elections.
The remaining weeks of 2008 will be crucial to Europe's efforts to regain the initiative and to attempt to attenuate the effects of the crisis while also addressing unresolved problems on the EU reform agenda.
As Trustees of Friends of Europe , we would urge the European institutions and EU political leaders to renew their efforts regarding both the Lisbon Treaty and the Lisbon Agenda.
France's EU Presidency has done much to improve coordination between member states' responses to the financial crisis, and the European Commission has also begun to play the more active role that Friends of Europe called for on October 10.
The challenge now is for the presidency and the Commission to give fresh political impetus to the EU's stalled reform drive.
The December 11-12 European Council should signal clearly the timetable envisaged for re-opening the Lisbon Treaty's ratification process. Failure to do so would bring the risk of still greater political problems after next June's European elections.
The Lisbon Treaty is a step towards adapting the EU's decision-making mechanisms to the twenty-first century and a membership of 27 or more countries.
The global nature of the current crisis makes it plain that Europe must be able to decide quickly and coherently, or suffer adverse consequences.
There seems little doubt that public opinion across the EU is increasingly drawing the same conclusions.
The sovereign right of the Irish people to decide their own future is unchallengeable.
But Ireland should also allow the EU's other member states to proceed with the Lisbon Treaty if that is what they wish.
Even if another referendum is to be held in Ireland, the Irish government should foresee a procedure that, irrespective of the outcome, allows other member states to implement the essential parts of the Lisbon treaty.
The Commission now needs to take action to ensure that member states redouble their efforts with regard to the Lisbon Agenda for overhauling Europe's global competitiveness.
In 2000, the EU set a ten-year program of agreed reform targets, yet in many cases its member states have lacked the political will to implement them.
Europe's increasingly gloomy prospects make these reforms more necessary than ever.
The Gazpromization of European Energy Security
Concerns in the EU over energy security, fueled by increasing dependence on Russia, have never been greater. Together with the Russian authorities' expropriation of oil company Yukos, foreigners have been squeezed out of Russia's energy extraction sector.
Inevitably, many in Europe are questioning the value of the Kremlin's word.
Rather than turning away, the EU should seek deeper engagement and reciprocity.
It should facilitate further incorporation of Gazprom into the EU market through market liberalization and downstream integration.
Yet it must also press for Gazprom's ultimate restructuring and real market entry into Russia for European companies, because Russia's unwillingness to do so guarantees energy insecurity for Europe.
Indeed, the Putin administration established a track record of bending rules and bullying foreign investors, with the support of prosecutors, tax authorities, regulatory agencies, and courts.
At the same time, Gazprom has evolved into the dominant market-maker in gas for Europe, and its actions have made a mockery of EU efforts at greater collaboration with Russia.
Gazprom strategy deploys three tactics: co-optation -- cultivating partnerships with certain countries, political leaders, and corporations, as levers of its interests; preemption -- using upstream power and Russian diplomacy to manipulate downstream conditions and scoop up assets; and disaggregation -- dividing the EU through bilateral deals.
Gazprom's co-optation of Europe has been achieved mainly through Germany, where its partnerships with energy companies and banks have helped align the authorities with Russian aims.
Extensive lobbying, directly and by proxy, is underway to persuade European regulators to allow long-term supply contracts in the EU -- despite their deadening effect on competition.
Preemption by Gazprom has been accomplished through a raft of acquisitions.
Gazprom has flooded the market in Turkey, withheld gas in Ukraine, threatened to do so in Belarus, and offered preferential market access to willing partners, such as Italy.
In the Caucasus, the Kremlin has prevented Iran from establishing infrastructure to compete as a supplier of gas to Europe.
To stop Iran's gas, Russia effectively bought Armenia's entire energy sector, while its support for Iran's nuclear program helps maintain Iranian isolation, keeping away the Western money Iran would need to become a rival gas exporter.
Gazprom's dominance is reinforced by activities coordinated with the Kremlin to assert its influence in markets like Spain and Italy.
In exchange for gas deals with rival suppliers, such as Algeria, Russia has offered vast concessions on arms and preferential debt terms.
In other cases, the Kremlin acts punitively, as when it cut off oil supplies to Lithuania following the sale of the Mazeikiu Nafta refinery to a Polish company, or to Ukraine after its people voted for the "wrong" party.
The prime example of disaggregation is the Nord Stream pipeline, which appeals to Germany while angering Poland and the Baltic countries.
The undersea pipeline will cost three times as much as a new pipeline along existing land routes, undermines the energy security of Germany's eastern neighbors, and threatens the Baltic Sea's fragile ecosystem.
But, by delivering exports directly to Germany, Russia will be able to cut off gas to Ukraine, Poland, and the Baltic states without directly affecting West European supplies -- and Russia's recent behavior indicates that this is a real threat.
But Gazprom is worried about its upstream capabilities, as is evident from the decision to divert gas from its Shtokman field to Europe rather than liquify it for new North American markets.
As long as Gazprom remains opaque, Europe cannot know whether its key supplier is spending enough to develop future reserves.
The Kremlin's political battle to win control of Russia's energy sector has resulted in a dramatic reduction in the growth rate of domestic oil and gas production.
That is a problem for Europe.
Gazprom cannot be a partner to Europe if it does not invest in its own infrastructure, yet plays a leading role in stripping Russian private businesses, invests $14 billion in non-core assets, such as news media, and is run from the Office of the Presidential Administration.
The lights must not go out across Europe.
Brussels must demand transparency, symmetry, and the rule of law from Moscow, with the goal being a revolutionary integration of European and Russian energy markets.
Simultaneously, through the diversification of supply sources, massive investments in liquified natural gas (LNG), and a strong push in favor of the Nabucco pipeline and inter-connectors between the Mediterranean rim countries, Europe can move closer toward energy security.
The very downstream access Gazprom wants in Europe is the EU's trump card.
The EU should tell Gazprom that access to Europe's downstream assets is conditional on the reciprocal openness of Russia's energy sector.
The result would be a welcome place in the European energy market for a Russia that is both trusted and respected by its international partners.
Free Trade, Free Labor, Free Growth
Things are no better in Europe.
France has dealt the Doha round of World Trade Organization (WTO) negotiations a blow by rejecting the outline deal on agriculture.
European Commission President José Manuel Barroso believes that protectionist pressures are increasing. 
When the Doha trade round was launched shortly after September 11, 2001, there was plenty of international goodwill.
But disenchantment with globalization -- and, in some regions, fear of immigration -- has since set in.
A recent Financial Times/Harris poll in the US, Germany, France, the United Kingdom, Italy, and Spain found people nearly three times more likely to say that globalization is negative than positive.
Free trade would lead to an overwhelming boost to welfare everywhere, but especially in the developing world.
Grasping these benefits is potentially one of this generation's greatest challenges.
Increased negative sentiment could have the worst possible result: not just Doha's failure, but also the raising of trade and immigration barriers.
These barriers remain largely because further liberalization would redistribute jobs, income, and wealth in ways that governments fear would reduce their chances of remaining in power -- and their own wealth in countries where corruption is rife.
The greatest hope is thus getting the Doha round back on track.
But there is a big difference between a low-quality result and one that is more comprehensive.
Moreover, the long-term impact of free trade is huge.
Recast as after calculating the net present value of the stream of future benefits, a realistic Doha outcome could increase global income by more than $3000 billion per year, $2500 billion of which would go to the developing world.
In addition, the experiences of successful reformers like Korea, China, India, and Chile suggest that trade liberalization immediately boosts annual economic growth rates by several percentage points for many years.
Eliminating subsidies and trade barriers would mean that resources could be used more efficiently, so there would be more scope to reduce inequality and poverty, social tensions, environmental degradation, malnutrition, and disease.
There would, of course, be costs.
Firms and workers would need to adjust as reform forces some industries to downsize or close and allows others to expand.
In addition, there are social costs to consider.
Yet the benefits of a successful Doha round are between 45 and 440 times higher than these costs.
This is clearly an extremely sound investment.
An "alternative" to Doha, whereby other high-income countries would follow the European Union's offer of duty-free access to products from Least-Developed Countries (LDCs) and African, Caribbean, and Pacific (ACP) small countries, would involve only a tiny fraction of global gains from trade reform.
Moreover, it may well hurt other poor countries -- thereby worsening inequality -- by encouraging resources to be allocated to activities that become uncompetitive following the next World Trade Organization agreement.
Europe's Military Revolution
BRUSSELS: Creating the euro -- a revolutionary innovation in an EU whose nature is to evolve slowly, by fits and starts -- provoked debate across the continent and beyond.
Plans for a common EU defense policy, however, have thus far attracted less attention.
No longer. Americans increasingly ask: "Why bother?" and point to the efficacy of NATO.
Europeans often find such questions hard to answer, partly because there is no single answer.
For believers in a more united Europe, closer cooperation on defense is self-evidently desirable.
Others emphasize the pragmatic, pointing out that EU members can achieve far more in foreign/defense policy by working together than on their own.
These pragmatists stress the growing number of external challenges -- in the Balkans, Middle East, Africa or elsewhere -- requiring a concerted response.
A third argument, held by some French Gaullists and many EU left-wingers, says that Europe needs a common foreign and defense policy to resist American hegemony.
This anti-American view, however, is not widely held.
Supporters of a common EU foreign/defense policy see a Europe capable of looking after its own defense as a better partner for the US.
Confusion and doubts arise now because of vagueness about the likely uses of the Rapid Reaction Force, a key step in developing these common policies.
The Rapid Reaction Force, it is said, should be capable of fulfilling the so-called "Petersberg" tasks.
Yet "peacemaking" (one of those tasks) could cover anything from Operation Alba -- which in 1997 saw Italy lead a 6000-strong European force into Albania to suppress anarchy -- to an attack on Sierra Leone rebels resisting UN peacekeepers, to Gulf War type conflicts.
Because all EU governments know that, for the foreseeable future, Europe will be capable of only modest military operations there is no great value in defining now how the Rapid Reaction Force will be used.
America should welcome the increasing weight and sense of responsibility for Europe as represented by the Rapid Reaction Force.
True, America's role in NATO -- that ingenious device through which America retains, with Europe's blessing, an institutionalized influence over the continent -- would diminish.
For NATO would become a framework in which two major powers, instead of one big and 18 smaller ones, coordinate policies and responses to crises.
The gains here outweigh any inconvenience to America's freedom to maneuver.
Enhanced European capabilities would allow America to leave many instabilities in and around Europe in the care of its allies.
Moreover, adding defense to the informal acquis that would-be EU members must endorse will reduce pressure on NATO to enlarge.
An EU committed to its own defense, although not offering the same formal guarantees as NATO, offers candidate countries the prospect of belonging to a genuine security community.
More fundamentally, creation of a Europe whole and free, but also united, is America's greatest foreign policy success of the past half-century.
To complete that objective, the EU must become a fully-fledged international actor.
Thus the challenges posed to America by Europe's common and defense policy are primarily psychological.
In Europe, however, those challenges are matters of will and political leadership, which cannot come from committees.
Here we propose a number of institutional and policy reforms, including:
· Merging the jobs of Chris Patten, the external relations commissioner, and Javier Solana, the High Representative for foreign policy, so that the EU speaks with a single voice;
· Giving the new Brussels�based Political and Security Committee higher status to draw together both the inter�governmental and Community sides of foreign policy;
· Setting a Europe�wide target for national defense budgets, committing all member�states to spending at least 2% of GDP on defense, and 25% of their defense budgets on arms procurement and R&D;
· Creating a special EU defense budget, to finance common missions, capabilities and weapons programs;
· Establishing a Monitoring Group of force planners, based within the Council of Ministers secretariat, to co�ordinate the peer group pressure that should encourage governments to improve their military capabilities.
Authority to build coalitions, push governments to fulfill deadlines, generate support or take the blame for failure must come from that traditional source of leadership, the nation state.
Because no single EU state can provide the dominant leadership America provided NATO during the Cold War, Britain, France, and Germany must assume this role in Europe.
Were one of them to oppose common action, the cohesion and credibility of any EU undertaking would be destroyed.
But if these three are determined to push ahead, they will represent the will of most, if not all, other EU members.
Membership in this group of three entails, not the power to command, but the responsibility to lead.
If these three fail to agree in a crisis, Europe will be opting out; if united on taking action, Europe will be committed.
So Britain, France, and Germany must start thinking of the EU as a whole, carrying the greatest burden and taking the greatest risks.
Their leadership will need to be informal, transparent, and inclusive.
Unfortunately, at this moment, none is prepared for these unenviable, yet inevitable, tasks.
But their commitment to Europe's military revolution is bound to move them closer to fulfilling them.
Failing to act now will increase costs in the future -- both financial and humanitarian.
We all stand to lose from a reversal of the economic and social progress made across Africa in the past decade.
Burgeoning markets might disappear and investment opportunities evaporate, while the risk of political instability will increase.
Every percentage-point fall in growth has direct social consequences, whether on nutrition levels, infant mortality, or school attendance.
Every person pushed back into poverty is another step away from achieving the Millennium Development Goals.
For all of these reasons, the continued engagement and support of all of Africa's partners, including the G-8 countries, is vital.
As this year's DATA Report from the Africa advocacy group ONE underscores, many donors are honoring their aid commitments, despite the economic downturn.
Why Put Charles Taylor on Trial
We petitioned Nigeria's Federal High Court last May to review the decision of Nigerian President Olusegun Obasanjo to grant refugee status to former Liberian President Charles Taylor, who is a fugitive from war crimes charges brought by a United Nations-backed Special Court in Sierra Leone.
We are two of Taylor's many victims.
Seven years ago, we were young Nigerian businessmen trading in electronic hardware and medical equipment on Africa's West coast.
We procured our supplies in Nigeria and exported them to Liberia and Sierra Leone.
In the summer of 1997, David was in Monrovia when Charles Taylor was inaugurated President of Liberia following an eight-year civil war.
One year later, the UN and the Economic Community of West African States deployed soldiers as peacekeepers in neighboring Sierra Leone to guarantee a ceasefire in that country's near-decade-long conflict, instigated by rebels of the Revolutionary United Front.
In the fall of 1998, we traveled separately on business trips to Freetown, the capital of Sierra Leone.
On previous visits, we had heard reports of atrocities committed by RUF rebels, including amputations, rapes, and mutilations of civilians in the countryside.
But the presence of the international community reassured us that it was safe to do business in the country.
Both our home government and friends in Sierra Leone agreed.
We planned to spend the Christmas and New Year holidays in Freetown before returning to Nigeria early in 1999.
Then our plans went awry.
Shortly before Christmas, rumors of an impending rebel assault began to filter into Sierra Leone's capital.
First a trickle, then a deluge of internally displaced persons arrived.
We tried to change our flights and return to Nigeria, but there were no flights available.
On January 6, the rebels overran the home where we were staying in Freetown.
We were among nine Nigerians staying there.
The rebels - over one hundred of them, many young teenagers - surrounded our building, set it on fire, and ordered all Nigerians to come out.
Their commander, who spoke with a distinct Liberian accent, called himself Captain Goldteeth.
When we tried to escape, the rebels captured us.
Captain Goldteeth had us brought to a bus terminal next to our residence, where more than 80 other captives were assembled.
He said that he had instructions - from the Executive Mansion in Monrovia - to send a message to Nigeria, the leading troop contributor and financier of the regional peacekeeping force, ECOMOG.
Captain Goldteeth asked the "cut-hand-cut-foot man" to separate Nigerians from the others.
Then they began to amputate us.
Their first victim was Emmanuel's younger brother, Benedict Egbuna.
They cut off his hands from beneath the elbow. He bled to death in front of his pregnant wife, Zainab, and us before he was dumped behind the house.
Many of our best friends were also mutilated and killed.
Next it was our turn.
The machete cut through Emmanuel's flesh and bones but did not entirely sever them.
With hands dangling from his arms, the rebels dumped Emmanuel in the cemetery.
They then cut off David's arms before setting him ablaze.
Neither of us knows how we survived this ordeal.
Benedict Egbuna's five-year old son, Benedict Jr., born five months after the slaughter of his father, is a source of comfort to both of us and to all who knew his father.
Someday, when he grows up, Benedict Jr. will look to us to reconstruct the memories of the father he will never know.
At a later point, Benedict will almost certainly also ask us what happened to those responsible for his father's killing.
What shall we tell him?
We have a duty to seek justice for the victims of Charles Taylor's crimes.
Refugee status is a humanitarian shelter.
Nigeria must not let it be used as a tyrant's shield.
Turkey, Europe and Middle-East Security
Many factors contributed to the French and Dutch objections to the proposed EU Constitution.
One -- usually unstated -- factor is a fear of Turkish membership in the Union.
That membership drive, however, has already transformed Turkey.
In order to prepare for EU accession, Turkey has undertaken vast and serious legal, political, and economic reforms.
Turkey's bureaucrats, politicians, and citizens united to fulfill the Copenhagen criteria for EU membership and tolerated the pain of the IMF-directed structural-adjustment programs.
The looming accession process will be even more painful, but Turkey's people are firmly resolved to face this challenge.
Turkey's transformation has already put an end to the Cold War-style security-state apparatus that ruled the country for half a century, and has changed the framework of the country's domestic and foreign policy.
By modernizing and democratizing at home, Turkey's politicians gained self-confidence in their ability to conduct a successful regional policy.
As a result, Turkey's leaders are now willing to pursue active diplomacy in the Middle East in an effort to minimize problems with neighboring countries.
Of prime importance is the fact that Turkey is emerging as a role model for those across the Middle East who are seeking reform and modernization.
This influence does not imply a hegemonic relationship, but rather points to an alternative path for reform and economic development that other primarily Muslim countries might take.
The EU is associated with peace, democracy, and economic development, while the Middle East is characterized by instability, authoritarianism, and economic backwardness.
Turkey's reform process shows that the latter is not an unavoidable destiny for the countries of the region.
In this respect, Syria and Iran appreciate Turkey's EU membership process.
They consider a European Turkey an opportunity to develop their own relations with the EU.
Turkey also shows that the supposed clash between democracy and security -- and, indeed, between democracy and Islam -- can be reconciled.
Other Muslim states seem to grasp this: recently, a Turk was chosen for the first time and by a majority vote to be Secretary General of the Organization of Islamic Countries.
Turkey's other major contribution comes through constructive diplomatic engagement in the region.
The Turkish government has adopted an active role as a promoter of peace and has reconfigured its policies toward a number of regional problems.
For example, Turkish Prime Minister Tayyip Erdogan broke with tradition by displaying a critical attitude toward Israel's more hawkish policies in the occupied territories, and did so without severing diplomatic relations with Israel.
During a visit of Turkey's Foreign Minister Abdullah Gul to Israel in early January, there was serious discussion about Turkey assuming a mediating role between Israel and the Palestinians, as well as in future Syrian-Israeli talks.
Turkey, of course, did not join the US-led occupation forces in Iraq, but it has put enormous effort into mobilizing regional support for a stable Iraqi state.
Indeed, Turkish policymakers have, on a regular basis, brought the countries bordering Iraq together for discussions about the future of the region.
The United Nations Security Council has taken these meetings seriously and has requested further regional cooperation on the Iraqi question.
Turkey's constructive engagement with the EU creates a sense of trust in the West -- among Western leaders at least, if not yet the general population -- for its regional initiatives. Yet Turkey is also succeeding in keeping an equal distance between both the EU and the US.
For example, Turkey is closer to the EU in its policies toward Iraq and Palestine, yet follows a line similar to that of the US in the Balkans and Cyprus.
In recent history, a variety of regional powers -- the Shah's Iran and Nasser's Egypt -- have arisen in the Middle East.
Turkey's arrival as a regional power is different in that its democratic structures make an active peacemaker, not a local bully.
This is both a necessary and a promising role, for the region needs a local dynamic force pushing for reform, transformation, and peace.
Turkey's experience shows that true security in the region requires internal stability and social peace.
With luck, this model can be exported throughout the Muslim world.
Resilient Brazil
"The sub-prime crisis hasn't yet reached the beaches of Copacabana," Finance Minister Guido Mantega recently proclaimed.
"We are growing free of imbalances and, in fact, gradually reducing our dependence on inflows of foreign exchange -- that's key."
Indeed, the government has emphasized that Brazil will be even more insulated as efforts to cut spending reduce dependence on external capital flows.
But Brazil's ability to escape the effects of a recession in the United States depends on the scale of the crisis.
Brazilian officials do have some reasons to boast that Latin America's largest economy may be stronger than ever: macroeconomic indicators are healthier, solvency ratios have improved, and a mix of exports, investment, and domestic demand has been stimulating economic activity.
During the recent years of abundant global liquidity, the real grew stronger and the central bank was able to pile up foreign reserves, creating a cushion that totaled roughly $185 billion in late January, an amount sufficient to cover the entire foreign debt for the first time in history.
Nevertheless, government officials admit, off the record, that the impact of an expected US recession will not be insignificant, because Brazil is not fully protected from external events.
Beyond the sub-prime crisis, concerns about the US financial system's stability carry serious implications for the global economy.
Moreover, a recession or a slowdown in the US and Europe would hit Brazilian exports, narrowing Brazil's trade surplus considerably.
In fact, although America's trade significance has diminished, accounting for only 16% of Brazilian exports last year, Brazilian trade and growth typically go hand in hand with the US and Europe; historically they have never decoupled.
At the same time, an extended US slowdown could reduce foreign demand from other markets.
The scenario could worsen if there is a breakdown in commodity prices -- one of the most serious threats to Brazil from a global economic slump.
Deceleration in India and China would lead to further cuts in prices for raw materials, weakening markets whose strength has underpinned Brazil's powerful trade performance in recent years.
In any case, the central bank has already projected that Brazil's trade surplus will disappear this year, with a small deficit expected.
Fortunately, Brazil's stock exchange has suffered less than other emerging-market bourses from the financial turbulence in the US and elsewhere.
Recently, the exchange has become the prime source of financing for Brazilian companies, ahead of the state-owned National Development Bank, which grants loans at below-market rates.
But Brazil's financial markets are much more sensitive than trade to international disturbances, and monetary flows could decrease in the long term.
Indeed, should the global economy deteriorate further, outward portfolio investment could accelerate, reducing the financing available to Brazilian corporations and eventually affecting their ability to invest.
So far, business confidence is still high in the industrial sector, according to internal surveys conducted by the São Paulo Association of Industries, and inward FDI hit a record-high US$34.6bn last year.
Optimistically, Brazilian officials believe that the government's Growth Acceleration Program will serve as a vaccine against global turbulence and help reduce bottlenecks in the economy.
Human Rights Made Whole
It will now be up to the UN General Assembly to provide final approval of the Protocol. If adopted, this instrument can make a real difference in the lives of those who are often left to languish at the margins of society, and are denied their economic, social, and cultural rights, such as access to adequate nutrition, health services, housing, and education.  
Sixty years ago, the Universal Declaration of Human Rights recognized that both freedom from want and freedom from fear are indispensable preconditions for a dignified life. The Declaration unequivocally linked destitution and exclusion with discrimination and unequal access to resources and opportunities. Its framers understood that social and cultural stigmatization precludes full participation in public life and the ability to influence policies and obtain justice.
Yet this unified approach was undermined by the post-World War II logic of geopolitical blocs competing over ideas, power, and influence. Human rights were also affected by such Cold War bipolarity. Countries with planned economies argued that the need for survival superseded the aspiration to freedom, so that access to basic necessities included in the basket of economic, social, and cultural rights should take priority in policy and practice.
By contrast, Western governments were wary of this perspective, which they feared would hamper free-market practices, impose overly cumbersome financial obligations, or both. Thus, they chose to prioritize those civil and political rights that they viewed as the hallmarks of democracy.
Against this background, it was impossible to agree on a single, comprehensive human rights instrument giving holistic effect to the Declaration's principles. And, unsurprisingly, it took almost two decades before UN member states simultaneously adopted two separate treaties -- the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social, and Cultural Rights -- encompassing the two distinct baskets of rights. However, only the former treaty was endowed with a follow-up mechanism to monitor its implementation.
In practice, this discrepancy created a category of "alpha" rights -- civil and political -- that took priority in the influential and wealthy countries' domestic and foreign policy agendas. By contrast, economic, social, and cultural rights were often left to linger at the bottom of the national and international "to do" lists.
Addressing this imbalance between the two baskets of rights, the new Protocol establishes for the Covenant on Economic, Social, and Cultural Rights a vehicle to expose abuse, known as a "complaint mechanism," similar to those created for other core human rights treaties. This procedure may seem opaque, but by lodging a complaint under the Protocol's provisions, victims will now be able to bring to the surface abuses that their governments inflict, fail to stop, ignore, or do not redress. In sum, the Protocol provides a way for individuals, who may otherwise be isolated and powerless, to make the international community aware of their plight.
After its adoption by the General Assembly, the Protocol will enter into force when a critical mass of UN member states has ratified it. This should contribute to the development of appropriate human rights-based programs and policies enhancing freedoms and welfare for individuals and their communities.
Not all countries will embrace the Protocol. Some will prefer to avoid any strengthening of economic, social, and cultural rights and will seek to maintain the status quo. The better and fairer position, however, is to embrace the vision of the Universal Declaration of Human Rights and promote unambiguously the idea that human dignity requires respect for the equally vital and mutually dependent freedoms from fear and want.
Democracy in Latin America
I am a firm believer in free trade and hope to see the proposed "Free Trade Area of the Americas" established, as scheduled, in 2005.
Still, I find it disconcerting that economic issues have eclipsed discussion about how to strengthen and consolidate democracy and human development in Latin America.
Much remains to be done in these areas.
If neglected, poverty and poor governance will begin to overshadow any success we have in promoting economic growth.
In an area where 12% of adults are illiterate and more than a fifth of the population lacks safe drinking water, focusing exclusively on economics is simply not enough.
In the Central American countries torn by war in the 1970s and 80s, peace agreements have been signed and democratic institutions are in place.
Yet, the weapons from those wars remain in the hands of former soldiers and rebels and are often sold on the street.
These weapons of wars past contribute to levels of violent crime so atrocious that many Central Americans feel greater fear for their safety today than they did during the years of civil war and rebellion.
So, although we have not seen outright coup attempts of late, we still see levels of threat and rebellious behavior on the part some Latin American militaries that are unacceptable in mature democracies.
One example is the pressure placed on Chile's President Ricardo Lagos to spend outrageous sums of money on sophisticated fighter jets to "modernize" Chile's Air Force.
As long as military chiefs continue to hold undue power within their governments, spending priorities will be out of step with the needs of ordinary people, and democracy will remain threatened by the Damoclean Sword of a potential coup.
Like Caudillismo , another old ghost continues to haunt the continent - poverty.
Although Africa and South Asia suffer much higher rates of poverty, Latin America has the ignoble distinction of incorporating the greatest economic and social inequality within its societies.
Instead of finding ways to remedy this, we continue to condemn our children to poverty by failing to provide them a decent education.
Many countries went too far in fiscal reform programs during the 1980s and 90s, slashing not only wasteful public spending, but essential spending on health and education.
Without these basic building blocks, it will be impossible to ensure that the benefits of growth are widely shared.
Wealthy Latin Americans are not doing their part.
While European countries such as Sweden and France collect more than 45% of their gross domestic product in taxes, Guatemala collects a mere 9%.
The democratic principle of equality has a long way to go in order to deepen its roots here.
Elitism, on the other hand, remains deeply entrenched in our institutions and our cultures.
Perhaps not all culture is worth saving.
The Storm Before the Calm
Indeed, financial markets may have taken the Fed's view on US inflation as representative of other central banks' outlook on inflation, reinforced by the surprising ECB decision of October 2 to keep interest rates on hold.
In October the US was on the cusp of the most significant turning point for inflation in the last 20 years.
Of course, forecasting inflation is notoriously difficult.
There have been large structural shifts in the world economy (e.g., trade and financial globalization) as well as in individual economies (such as the decline in trade union power).
Monetary policy itself has shifted to a far greater focus on inflation.
Moreover, energy and food price shocks can be both large and largely unpredictable, while the speed of price changes tends to increase with big shocks.
Most forecasting models used by central banks therefore put a large weight on recent inflation.
This approach tracks inflation quite well, except at turning points , because the models miss key underlying or long-term influences.
The turning point that the US and world economy are facing is straightforward.
Global output is probably falling faster than at any rate since World War II, except perhaps for 1974-1975.
Under these circumstances, large excess capacity develops and commodity prices fall.
Indeed, it seems unlikely that governments in China and similar emerging markets can compensate swiftly enough to boost domestic consumption.
And, with growing over-capacity, investment in goods production may fall even further, with serious implications for GDP.
Hence demand for commodities, which has been driven by emerging-market growth, has fallen sharply, and help decrease global inflation.
Eventually, lower commodity prices and lower inflation will act like a huge tax cut for households, allowing interest rates to fall further and thus stabilize economic activity.
Paradoxically, the faster oil prices now fall, the shorter the subsequent period of deflation will be, as further damage to the economies of industrial countries is avoided.
Since oil and food prices have fallen sharply, and probably have further to fall, while unemployment is soaring, our models suggest that consumer price inflation, particularly in the US, must fall at record rates over the next 6-12 months.
about inflation risk, others are concerned that the usual monetary transmission mechanism is not working, and that the US could face a Japanese-style "lost decade," while others worry about a 1930's-style slump in the industrial countries.
So the policy debate now under way is about whether monetary policy can stem deflation and what happens if and when the "zero lower bound" on interest rates is reached.
The zero lower bound arises because nominal interest rates cannot fall below zero.
But if nominal interest rates stay positive, while inflation is negative, then real interest rates may become too high for an economy in recession, causing recession to become more severe and prolonged.
Influenced by a misreading of the Japanese experience, this led to excessive protection against the "tail risk" of deflation.
Ironically, that policy response helped to fuel the credit and housing bubble, whose collapse has triggered the current recession, which may actually bring about deflation.
There are important differences between the structure of the Japanese and the US economies, including the enormously high level of liquid assets held by Japanese households, which tends to lead to lower consumption when interest rates fall.
These differences, and the lessons that have been learned from Japan's "lost decade" about the need to refinance the banking system, suggest that a "lost decade" for the US is most unlikely.
The policy implications outside the US and Japan, where rates are close to zero, are that central banks can safely cut policy rates and continue aggressive liquidity support operations with little risk of inflation.,..
In any case, with so little confidence in the financial system, and credit constrained by concerns about falling housing prices, the usual transmission channels from the policy rate have been blocked.
Thus, the emerging emphasis on recapitalizing the banking system and more recently, on unorthodox policies, including the purchase of private sector credit securities is correct.
Finally, there are two major differences between the 1930's and the present.
The industrial world is now far more dependent on (mostly foreign) oil than it was then.
The extreme rise in real oil prices was a major cause of the current recession, and its reversal will be a major factor in recovery.
The other crucial difference is that we know enough not to repeat the errors -- particularly trade protectionism -- of the 1930's.
Pinochet's Trial, Chile's Dignity
The court battle on whether or not to punish former Chilean dictator Augusto Pinochet is now over.
After prolonged reflection on medical reports regarding Pinochet's health, Judge Juan Guzmán found him mentally fit to stand trial on nine counts of kidnapping and one count of homicide.
Chile's Supreme Court has now upheld that indictment.
All of those crimes were committed during "Operation Condor," a Latin America-wide program among the continent's dictators to physically eliminate their opponents on the left.
Judge Guzmán also determined that the former dictator is not insane and knows right from wrong.
This is critical, as Pinochet has sought to deny his competency.
A recent "vascular incident" that sent him to a military hospital -- where he regained consciousness and motor skills -- will furnish excuses to request new medical examinations and delays as criminal proceedings move forward.
But Guzmán's efforts to bring the dictator to justice should not remain isolated.
Other judges and official bodies need to keep the pressure on Pinochet.
Much, for example, is still to be learned in cases such as the assassination of General Carlos Prats and his wife in Buenos Aires in 1974. Moreover, investigations by the US Congress into the Riggs Bank have uncovered the suspicious means by which Pinochet and his family obtained their wealth.
These investigations need to be followed up with judicial action.
The investigation into the death in 1980 of ex-president Frei Montalva, the principal opponent of the dictatorship, has advanced but needs to be pursued vigorously in the courts.
Frei's death implicates the repressive apparatus that Pinochet and Manuel Contreras, his "right hand," managed in lockstep.
Operation Condor, the Riggs, Frei, and Prats affairs, and many other crimes are documented in the recent report on torture and political imprisonment written by the special commission established by President Ricardo Lagos.
Arriving 30 years after the military coup that brought Pinochet to power, the report has both unsettled and empowered Chileans.
Seemingly invincible for many years, the former dictator's final collapse began in London in October 1998, when Spanish lawyers, Judge Baltasar Garzón of Spain, and Scotland Yard brought charges against him.
Pinochet responded with arrogance, provoking a huge sense of shame for Chile's young democracy.
Pinochet's ability to evade the courts cast a dark shadow over the country's military institutions and made many Chileans wonder how far the country had really gone in its transition to democracy.
Without Judge Garzón's insistence on pursuing the matter, prosecuting Pinochet would have been nearly impossible, owing to powerful opposition from wealthy and media-savvy Chileans.
The Chilean government's excessive caution -- rooted in fear of instability that could affect the basic rights regained after the dictatorship -- also helped Pinochet evade justice.
Indeed, Chile's courts could not have garnered the necessary public support to free them from their inertia without the push Garzón provided.
It would also have been impossible to consider bringing Pinochet to justice without the extraordinarily important human rights struggles waged by victims' organizations, victims' families, and jurists who, against all the odds, remained true to their cause for decades.
Few organizations in Chile have been as capable or as successful as those dedicated to human rights.
Because of the tenacity and passion of ordinary Chileans demanding that the state fulfill its mandate to protect their human rights, Pinochet finds himself before the bar of justice, and others who used their power to kill, torture, or exile their fellow citizens are being pursued.
Yet many still wonder, "Will Pinochet ever pay for his deeds?"
International public opinion and history have already condemned him.
Chile's dignity now hinges on whether or not its legal system reaches the same conclusion.
Doubts that Pinochet will be punished exist because "pinochetismo" remains alive in Chile.
Powerful supporters defend him, using any underhanded means they can muster.
They are aided by the fact that some within the government would prefer to close a sorrowful chapter of human rights violations rather than bringing it to a conclusion.
Depending on the course the nation takes, Chileans may in time reconcile themselves to their past.
For now, their different views coexist and they live together peacefully.
But citizens and the state must also face the truth and bring human rights abusers to justice if people are to live honestly in their society and in history.
To the extent that Chileans do so, they will create the conditions for a more dignified and honorable society.
A judicial judgment against Pinochet is an important step forward.
The Case for Mitigating Greenhouse Gas Emissions
Stern Review Report on the Economics of Climate Change amounts to a call to action: it argues that huge future costs of global warming can be avoided by incurring relatively modest cost today.
Critics of the Stern Review don't think serious action to limit CO2 emissions is justified, because there remains substantial uncertainty about the extent of the costs of global climate change, and because these costs will be incurred far in the future.
However, I believe that Stern's fundamental conclusion is justified: we are much better off reducing CO2 emissions substantially than risking the consequences of failing to act, even if, unlike Stern, one heavily discounts uncertainty and the future.
Two factors differentiate global climate change from other environmental problems.
First, whereas most environmental insults -- for example, water pollution, acid rain, or sulfur dioxide emissions -- are mitigated promptly or in fairly short order when the source is cleaned up, emissions of CO2 and other trace gases remain in the atmosphere for centuries.
So reducing emissions today is very valuable to humanity in the distant future.
Second, the externality is truly global in scale, because greenhouse gases travel around the world in a few days.
As a result, the nation-state and its subsidiaries, the typical loci for internalizing externalities, are limited in their remedial capacity. (However, since the United States contributes about 25% of the world's CO2 emissions, its own policy could make a large difference.)
Thus, global climate change is a public good (bad) par excellence .
Cost-benefit analysis is a principal tool for deciding whether altering it through mitigation policy is warranted.
Two aspects of that calculation are critical.
First, it has to be assumed that individuals prefer to avoid risk.
That is, an uncertain outcome is worth less than the average of the outcomes.
Because the possible outcomes of global warming in the absence of mitigation are very uncertain, though surely bad, the uncertain losses should be evaluated as being equivalent to a single loss greater than the expected loss.
The second critical aspect is how one treats future outcomes relative to current ones -- an issue that has aroused much attention among philosophers as well as economists.
At what rate should future impacts -- particularly losses of future consumption -- be discounted to the present?
The consumption discount rate should account for the possibility that, as consumption grows, the marginal unit of consumption may be considered to have less social value.
This is analogous to the idea of diminishing marginal private utility of private consumption, and is relatively uncontroversial, although researchers disagree on its magnitude.
There is greater disagreement about how much to discount the future simply because it is the future, even if future generations are no better off than us.
Whereas the Stern Review follows a tradition among British economists and many philosophers against discounting for pure futurity, most economists take pure time preference as obvious.
However, the case for intervention to keep CO2 levels within bounds (say, aiming to stabilize them at about 550 ppm) is sufficiently strong to be insensitive to this dispute.
Consider some numbers from the Stern Review concerning the future benefits of preventing greenhouse gas concentrations from exceeding 550 ppm, as well as the costs of accomplishing this.
The benefits are the avoided damages, including both market damages and non-market damages that account for health and ecological impacts.
Following a "business as usual" policy, by 2200, the losses in GNP have an expected value of 13.8%, but with a degree of uncertainty that makes the expected loss equivalent to a certain loss of about 20%.
Since the base rate of economic growth (before calculating the climate change effect) was taken to be 1.3% per year, a loss of 20% in the year 2200 amounts to reducing the annual growth rate to 1.2%.
In other words, the benefit of mitigating greenhouse gas emissions can be represented as the increase in the annual growth rate from today to 2200 from 1.2% to 1.3%.
As for the cost of stabilization, estimates in the Stern Review range from 3.4% of GNP to -3.9% (since saving energy reduces energy costs, the latter estimate is not as startling as it appears).
Let's assume that costs to prevent additional accumulation of CO2 (and equivalents) come to 1% of GNP every year forever, and, in accordance with a fair amount of empirical evidence, that the component of the discount rate attributable to the declining marginal utility of consumption is equal to twice the rate of growth of consumption.
A straightforward calculation shows that mitigation is better than business as usual -- that is, the present value of the benefits exceeds the present value of the costs -- for any social rate of time preference less than 8.5%.
No estimate of the pure rate of time preference, even by those who believe in relatively strong discounting of the future, has ever approached 8.5%.
These calculations indicate that, even with higher discounting, the Stern Review's estimates of future benefits and costs imply that mitigation makes economic sense.
These calculations rely on the report's projected time profiles for benefits and its estimate of annual costs, about which there is much disagreement.
Still, I believe there can be little serious argument about the importance of a policy aimed at avoiding major further increases in CO2 emissions.
The Vanishing Swedish Exception?
For the past two years, Western Europe's voters have been turning rightward.
In Denmark, France, Italy, the Netherlands, Norway, and Portugal, concerns about immigration, chronic unemployment, high taxes, and deteriorating public services have fuelled this trend.
But as Europe's most recent parliamentary election shows, Sweden's Social Democrats--in power for 61 of the past 70 years--remain relatively immune to serious challenges from the right.
Opinion polls just a few months ago gave the Social Democrats 44% popular support.
Together with the former Communists and the Greens, the left held a comfortable 12-15% lead over the four non-socialist parties.
Why has Sweden held out against the right-wing tide sweeping so much of Western Europe?
The immediate reason for Social Democracy's enduring appeal is foreign policy.
In early 2001, Sweden held the EU presidency, giving Prime Minister Göran Persson, the country's dominant politician, a bright spotlight in which to shine.
The Social Democrats also benefited by supporting the US after the September 11
Persson exudes competence and authority.
He bolstered his image considerably after winning the 1994 election by tightening government finances and eliminating a huge fiscal deficit.
But he has done nothing remarkable since winning again in 1998.
Sweden's economy rose and fell with the IT bubble, reflected in telecoms giant Ericsson's troubles today.
Persson's main advantages entering this year's campaign were that he was unencumbered by new promises and was well equipped to run a presidential-style contest based on his personal appeal.
But force of character cannot mask real problems and a changing political agenda.
Although foreigners often idealize Sweden's welfare state, its economy has been losing ground steadily for 30 years.
In 1970, GDP per head was the fourth highest in the world; now it is 17
One reason for this relative malaise is that Sweden remains the world leader in taxation, with public expenditures claiming nearly 60% of GDP.
Conservatives demand lower taxes, but this is unpopular: almost 65% of Swedes live on public salaries or social transfers.
Unlike other Europeans, Swedes are thus much keener to keep taxes high, which guarantees a large left-wing vote.
Even so, Swedes fret about the deteriorating quality of services provided by the social welfare system.
The Social Democrats shrewdly reversed themselves on this point during this year's campaign, but health care entitlements have clearly gone too far.
No less than 14% of Swedish employees are currently registered as sick, double the number five years ago.
The Social Democrats argue that this reflects a serious health problem, while non-socialists suggest that the system is defective.
Many Swedes have come to believe that it is their right to register as sick regardless of their health .
No other evidence suggests that public health is actually declining.
Deteriorating public education poses another worry.
Stockholm, ruled by conservatives and liberals, has extended its free-market experiments, such as privatization of subway trains, to education vouchers and free choice of alternative schools.
The Social Democrats lost miserably in the capital.
As in most recent European elections, immigration loomed large, but as usual, Sweden was out of step with other countries.
The small Liberal party, which campaigned in favor of free labor immigration, tripled its support.
The Liberals make the sensible argument that anybody with a job should get a work visa, but that knowledge of Swedish be a citizenship requirement and that unemployed immigrants be barred from receiving social benefits for five years.
Post-Soviet Free Trade
Ever since the Soviet Union collapsed, the independent states that emerged from the wreckage have tried to sort out their trade relations.
The twelve members of the Commonwealth of Independent States (CIS) concluded an Agreement on a Free Trade Zone in 1994, but it does not work.
Whenever one member is successful in exporting to another, the importing member soon imposes quotas or prohibitive tariffs, impeding economic development.
The simple solution is a mechanism for conflict resolution.
The World Trade Organization (WTO) has a well-functioning arbitration court with accepted penalties that could be utilized, but only four CIS countries (Kyrgyzstan, Georgia, Moldova, and Armenia) have joined the WTO.
The largest CIS economies-Russia, Ukraine, and Kazakhstan-should hurry up and join as well.
Alas, instead of adapting tried and tested mechanisms, various CIS countries invent ever more complex schemes, such as the five-state Customs Union, which was renamed the Eurasian Economic Community last year, when its failure became evident.
Three ideas are contained in this nebulous term: a customs union, coordination of accession to the WTO, and a currency union.
None of these will benefit any participant.
A CIS customs union failed already, and will fail again in the future.
It delivered no freer trade than the CIS free-trade zone.
No participant harmonized its customs with anybody else.
Russia refuses truly to accept the sovereignty of the other CIS states, and instead wants only to impose its own customs policy, which the others do not accept.
Now the four presidents propose an independent supranational commission for trade and tariffs in order to forge a common customs policy.
But there is no reason to believe that this will work any better.
Simply put, these countries have different foreign-trade interests.
A country that does not produce a product has no interest in its protection, while countries that do have protectionist interests.
For instance, Russia's automotive and aviation industries insist on high import tariffs, while Kazakhstan produces neither cars nor airplanes.
Russia's high import tariffs on cars would impose an unjustified consumer tax on Kazakhs.
Coordination in accession to the WTO sounds good, but would actually delay membership by several years at a time when speed is vital.
It is much more difficult for Russia, with its large and complex trade, to enter the WTO than it is for Ukraine and Kazakhstan.
Russia must conclude bilateral protocols with no less than 67 countries, compared with 22 for Ukraine.
Indeed, Russia has demanded that Ukraine revoke the 11 bilateral protocols for WTO accession that it already signed.
Meanwhile, until Russia, Ukraine, and Kazakhstan accede to the WTO, the trade situation within the CIS will not improve.
If they would stop "cooperating" and start competing to be the first to enter the WTO, all three countries could be members within a year.
The worst idea is the currency union.
The fundamental problem was that each country had a central bank that issued ruble credits, because no country was prepared to accept central-effectively Russian-control over its monetary policy.
Why repeat that catastrophe?
None of the political preconditions has changed.
No CIS country would accept a Russian monopoly on the emission of a common currency, and without a central monopoly on the emission of money, a currency union cannot work.
Third, a currency union should be undertaken with a large, differentiated economy with substantial financial depth.
But these economies are small, and most are not highly diversified;
Fourth, the members of a currency union should have similar economic structures or at least have business cycles that move in parallel.
Given Russia's dependence on exports of oil and natural gas, and Ukraine's status as a major energy importer, the two countries' business cycles are likely to diverge rather than overlap.
Whereas Russia would require devaluation when oil prices fall, Ukraine could consider revaluation.
For the last three years, Russia, Kazakhstan, and Ukraine have been economically successful, with Russia and Ukraine boosting average annual economic growth rates of 6% and Kazakhstan around 11%.
Sound market-based thinking has driven their domestic economic policies.
None of them can afford to fool around with economic nonsense in their trade policy.
Is Putin Self-Destructing?
With the arrest of Russia's richest man, oil tycoon Mikhail Khodorkovsky, Russia has lurched into a deep political crisis.
Unwittingly, President Vladimir Putin has opted for an all-or-nothing victory over the oil oligarch.
At stake is nothing less than Russia's frail democracy.
The legal charges against Khodorkovsky concern old privatization and tax evasion cases.
But the charges against Khodorkovsky are as flimsy as they are tendentious: the privatization case had been amicably settled previously, and Khodorkovsky has merely used tax avoidance schemes that are commonplace in Russia--and that have been upheld in court.
Putin's real problem is that Khodorkovsky is too powerful and independent for the straitened politics he wants.
During his four years in power, Putin has advanced four major policies.
The first three--free market reform, the rule of law, and a pragmatic foreign policy--have been widely acclaimed, while the fourth--"managed democracy"--has been tolerated because it has brought political stability.
But "managed democracy" now threatens to unravel all three of his real achievements.
Khodorkovsky is the fourth major businessmen taken out of action by the authorities.
Four independent TV channels have also been taken over by the state, and no criticism of Putin is permitted in significant media.
The main polling organizations have also been brought under Kremlin control.
Regional elections are regularly manipulated, often by disqualifying leading opposition candidates.
The pattern is evident: a systematic authoritarian drive is underway.
Russia's oligarchs are undoubtedly unpopular, and Khodorovsky's arrest was evidently aimed at boosting Putin's prospects in the looming parliamentary and presidential elections.
But although Russians dislike the powerful, and cherish underdogs and martyrs, a man in jail no longer looks strong.
With Khodorkovsky's arrest, the authorities flaunted their extralegal and arbitrary powers in such a way that they have aroused widespread public worry.
Previously, Putin had enigmatically appealed to most Russians.
By balancing between ex-KGB people and big businessmen, he seemed independent of both.
Now he has antagonized all big businessmen; he even refuses to meet them.
Suddenly, he has reduced himself to KGB President, jeopardizing the very political stability he sought to guarantee.
Putin has spoken continuously about the need for the rule of law, but in his TV statement on October 27, he effectively stated his preference for law enforcers.
Indeed, in the Khodorkovsky affair, all procedural requirements have been blithely neglected.
For example, although prosecutors control the relevant courts, they did not bother to secure the necessary court orders for the Yukos raids and arrests.
The obvious conclusion that even ordinary Russians are drawing is that neither property rights nor people are safe.
Investments are likely to be stopped or delayed.
Those who can export capital will do so.
An emerging panic seems certain to dampen today's strong growth.
The fallout from Khodorkovsky's arrest is felt abroad as well.
The world's business press has roundly condemned the authorities' behavior, especially the impounding of Yukos shares worth many times more than possible state claims, which smacks of expropriation.
Foreign governments are voicing their fears.
In one stroke, Putin has jeopardized his considerable accomplishments.
With his public bluntness, he has discarded his prior coyness and deprived himself of deniability.
As the KGB culprits keep quiet, the President must do most of the talking, exposing himself further.
But why defend the arrest in a televised statement?
Why refuse to meet Russia's business elite, while meeting with foreign investment bankers?
Why seize Yukos shares and licenses?
A couple of weeks before his arrest, Khodorkovsky told me: "I do not understand how they can win, given how many mistakes they make."
His words seem prescient.
The situation in the Kremlin appears reminiscent of the spring of 1996, when a group of KGB men, led by President Boris Yeltsin's chief bodyguard, General Alexander Korzhakov, almost seized power.
But the oligarchs mobilized behind Anatoly Chubais, who ousted Korzhakov and his circle by June.
Once again, Russia's big businessmen have united behind Chubais.
If Putin wants to save his own skin, he must act fast and sack his top KGB aides in the Kremlin and the Prosecutor General.
It is worth recalling that in 1999 former Prime Minister Yevgeny Primakov and Moscow Mayor Yuri Luzhkov were seen as a shoo-in ticket for the presidency.
But, having curried favor with Russia's media, they were unaccustomed to criticism--and rendered helpless when it appeared.
The taboo against criticizing Putin is already powerless.
The main liberal parties--the Union of Rightist Forces and Yabloko--are attacking him ferociously, while the faceless parties that supposedly support him are silent and confused.
They are presumed to be on the verge of winning an overwhelming majority in the parliamentary elections due on December 7, yet like Korzhakov and his clique, they could be routed.
Indeed, by alienating big business and letting his wily chief of staff, Alexander Voloshin, resign, Putin has deprived himself of crucial electoral resources.
His former chief political advisor has even accused him of using "Stalinist measures." If Putin falls short of the high expectations in the upcoming parliamentary election, his fortunes in the March 14, 2004, presidential vote may be jeopardy.
By arresting Khodorkovsky, Putin has revealed his authoritarian nature to the entire world.
He has thrown a gauntlet in the face of Russia's civil society and business elite.
They have little choice but to resist, and their strength should not be underestimated. The battle for Russian democracy is joined anew.
Putin's Last Stand
Russia's President Vladimir Putin was incredibly successful in achieving his goals during his first term.
He strengthened the power of the federal government, while defeating big business, free media, the communist party, the liberal parties and civil society.
Within government, he squezzed regional governors, both chambers of parliament and even the government apparatus, concentrating all legislative, executive and judicial power in himself.
Meanwhile, solid macroeconomic stability and steady growth of 6.5% a year were attained.
Alas, Putin's success may lead to his downfall.
He was fortunate during his first term because he recognized limits to his power.
An avid reader of opinion polls, he tried enigmatically to be everything to all voters.
Now, he seems to think himself free of constraint, but no politician is that lucky.
Putin is violating too many rules of politics, and just cannot stop.
Putin is too jealous of power to delegate. Because he wants to make all decisions, he replaced a strong prime minister and chief of staff with two men unable to make decisions.
So rather than creating a strong vertical command, he paralyzed his government.
One reason for this extreme overcentralization is that Putin does not trust anyone.
Another reason is his preoccupation with secrecy.
A true secret policeman, he relies on his circle of KGB men from St. Petersburg.
His power base shrinks by the day, and his strangling of independent information makes him increasingly ill-informed.
The consequences were apparent in the school hostage drama in Beslan in North Ossetia.
Law enforcement failed the population.
It possessed no relevant intelligence.
Policemen accepted bribes to let the terrorists though.
Russia's best special forces were sent to Beslan, but they were not given ammunition, body armor, battle plans, or operative command.
The school was never cordoned off.
In the end, local Ossetians stormed the school with their own guns and killed several special troops in contempt.
Incredibly, the Chairman of the Federal Security Service (FSB) and the Minister of Interior arrived in Beslan soon after the siege started, but hid doing nothing.
Similarly, the two regional governors concerned refused to go to Beslan.
In fact, nobody from the government did anything.
Putin and his government simply ignored the Beslan crisis, minimizing news coverage about it.
Official statements came from a junior local official, who made himself a fool through gross lies. Obviously, such secrecy hurts Russia.
It is difficult to imagine a worse government performance.
In his time, Soviet President Leonid Brezhnev was ridiculed for only being interested in concealing bad news and not wanting to remedy problems.
Putin now acts just like that.
The conclusions from the Beslan drama are obvious.
Chechen policy must be revisited.
The security forces should be cleansed and disciplined.
Impotent ministers and governors should be sacked, while their offices should be given more authority.
More open information flows and fewer KGB appointees are needed.
Putin, however, wants nothing of the kind.
He does not obey the elementary rule that when in a hole, you stop digging.
None of the culprits has been sacked, while the editor of Izvestiya was sacked as a punishment for accurate reporting.
Nothing is done against the rampant corruption of the FSB.
Rather than give governors more authority, he demanded to appoint them himself.
Instead of strengthening the government, he deprived it of his one of his best men, Dmitri Kozak, and appointed another unknown KGB man from St. Petersburg in his place. This is all harm and no cure.
Putin's rule is not only authoritarian; it is dysfunctional.
It is too rigid and centralized to handle crises.
Rather than address actual problems, Putin pursues his personal authoritarian agenda.
This centralized police state is interested in little but its own economic and political power.
It is difficult to escape the impression that Putin is more interested in pampering his KGB men than fighting terrorism.
Because liberal economic reforms harm their interests, such reforms have been abandoned.
Ordinary Russians are not blind.
They ask: "How can the appointment of governors be a means of fighting terrorism?"
Putin is swiftly eroding the great authority he built up during his first term.
This process can destabilize Russia faster than anybody now realizes.
The question is no longer whether Putin will really leave office when his term ends in 2008, but whether he will be able to save himself that long.
He can probably do so, but will need to undertake a complete U-turn. He must sack his top KGB friends and hapless Prime Minister Mikhail Fradkov.
A return to democracy, regional self-government and free media are other requirements.
He must also settle the Yukos affair and change his Chechen policy.
Putin has the power to do so, but hardly the mindset.
The Orange Velvet Revolution
Ukraine's ‘Orange Revolution' will reach its climax on December 26, when Prime Minister Viktor Yanukovich and former Prime Minister Viktor Yushchenko will replay their run-off for the presidency. The massive fraud that was supposed to bring victory to Mr Yanukovich, and which incited hundreds of thousands of Ukrainians to take to the streets of Kyiv to defent their rights, no longer looks possible.
Yet Ukraine's democratic future is still not guaranteed.
Ukraine is undergoing a true liberal revolution, akin to the great European liberal revolutions of 1848, and reminiscent of Prague's Velvet revolution of 1989.
Ukrainians demand democracy, freedom and the rule of law.
After five years of an average annual economic growth of 9%, economic claims are strikingly absent, as are all socialist and even social demands.
The discredited election results suggested that the country is geographically and ethnically divided, with the democratic opposition candidate Yushchenko winning overwhelmingly in seventeen western and central regions, while Yanukovich dominated in ten eastern and southern regions.
However, Yushchenko did carry several Russian-speaking regions, notably the capital Kiev, and Yanukovich won most in the authoritarian Donetsk and Luhansk regions furthest to the east.
Much of the regional differences can be explained by their degree of democracy and openness rather than ethnicity.
Wisely, Yushchenko launched the slogan "East and West together!" emphasizing his endeavor to unite the country.
Similarly, miners bussed by their managers to Kiev were soon being convinced of the ‘Orange' cause by the demonstrators and were quickly sent back East by their minders.
The role of business is palpable on both sides.
A quip says this is a revolt of the millionaires against the billionaires.
The Yanukovich candidacy was supported by the three dominant business clans with rather few allies, while the business community, and even some billionaires, overwhelmingly supported Yushchenko.
This is a truly bourgeois revolution.
Both the Ukrainian revolution and high economic growth have been caused by President Leonid Kuchma's patent habit of playing everybody against everybody, while abstaining from fair play.
Ordinary Ukrainians aspire to law and order; businessmen want their playing field to be leveled with the richest and most well connected.
Yushchenko is careful not to criticize oligarchs but "bandits" and corruption, because smaller oligarchs support him.
Rarely has one country intervened so heavily in another country's elections as Russia did here.
Yushchenko's campaign alleges that Russian enterprises were forced by the Kremlin to put up $300 million for the Yanukovich campaign.
Kyiv and its airwaves were flooded with Russian political advisors, slandering Yushchenko worse than any Ukrainian did.
President Putin himself campaigned twice for Yanukovich in Ukraine and congratulated him twice before the forged final results had been presented, rendering him little but ridiculous.
Russia's extreme activism is curious.
Yanukovich stands for a truly oligarchic state of the sort Putin defeated at home, and Yanukovich accused Yushchenko of having sold Ukrainian companies to Russian corporations.
President Putin's behavior is probably best explained by his dislike for democracy.
In addition, if Ukraine's President becomes an international pariah, he can only turn to Russia, as is the case of President Aleksandr Lukashenko in Belarus.
After this spectacular Russian failure, however, Putin's "managed democracy" looks anachronistic and faces the threat of a real democracy in its neighbor spreading to Russia.
For the first time, Ukrainians have thrown their little-brother complex toward the Russians overboard.
With new self-confidence, they note that they are thinking and facing the truth unlike their Russian brethren.
Ukraine has little choice but to turn to Europe and the West.
Ukrainian exports of steel have boomed on China's appetite, but sooner or later that appetite will be sated, and Ukrainian steel producers will need new markets.
Europe is the obvious choice, while Russia has little but stiff competition to offer.
If Ukraine becomes a democracy, it will undoubtedly soon develop the rule of law.
It is already a market economy and it is certainly located in Europe.
Thus, it becomes a formidable challenge to the European Union to offer anything but welcome to Ukraine.
Yet much can still go wrong.
The most obvious risk is that the elections are not concluded or that Yushchenko is denied executive power.
Solidarity suffered that frustration in Poland in 1980-81, which prolonged communist rule for a decade.
Fortunately for Ukraine, its business is private, and a common view of the whole business community is that the electoral rerun must be conclusive.
Otherwise, financial destabilization will threaten the fortunes of the very rich.
Another danger lies in the prominent role in the revolution of multi-millionaires.
No doubt they want to dominate the new cabinet, and with their impressive executive and intellectual skills they are dispersed over all parties.
Alas, if they are allowed to run the show, Ukraine might face more redistribution of fortunes than cleansing of corruption, letting the revolutionary public down.
Ideally, Yushchenko should reach out to the new professionals who have not as yet been intoxicated by the pervasive corruption of the old administration.
Nor has the old regime disappeared.
Yushchenko has gained a majority in Parliament because many adherents of the old regime switched their allegiance out of convenience.
They can change again, and no less than 300 of the 450 members of the Ukrainian Parliament are supposed to be millionaires.
Ukraine needs early parliamentary elections, but that is constitutionally difficult to accomplish.
Meanwhile, Yushchenko was forced to accept a poorly designed political reform full of traps.
The Russian threat lingers, whereas the West is more likely than not to be too passive.
Fortunately, Yushchenko's camp is painfully aware that time is short and that they must act fast.
Ukraine has a great opportunity, but its leaders must act radically to exploit it.
Lucky Putin, Unlucky Yeltsin
But Russia's stellar economic performance has little to do with Putin's policy, and a lot to do with the reforms Yeltsin embraced.
By 1998, Russia already had achieved a critical mass of markets and private enterprise, while the financial crash of that year worked like a catharsis, forcing the government to abolish enterprise subsidies that underpinned a devastating budget deficit of some 9% of GDP.
Moreover, world oil prices that had fallen to $10 a barrel started rising toward the stratosphere.
The whole success story thus was in place in early 1999, one year before Putin entered the stage.
To be sure, Putin should be praised for substantial economic reforms during his first three years.
A new tax code was adopted, with lower and fewer taxes, notably a flat income tax of 13%.
The civil code was completed, a new customs code was enacted, and substantial judicial reform was implemented.
At the same time, however, Putin has systematically eliminated the rudimentary democracy Yeltsin had build.
One television channel after another was taken over by the state under various pretexts, as were major newspapers.
Opposition candidates and parties were denied registration for the slightest formal complaint.
Falsification of elections became the rule.
Many prominent Russians favored the Pinochet model of authoritarian politics and liberal economics.
But growing authoritarianism also hit business.
In October 2003, Putin cracked down on Mikhail Khodorkovsky, the CEO and main owner of Yukos oil, Russia's most valuable company, who was thrown into prison on dubious charges of tax fraud after backing Putin's political opponents.
Moreover, Putin's associates wanted Yukos' wealth, which was confiscated by the state oil company Rosneft through lawless taxation, leaving Putin's tax reform and judicial reform in tatters and severely undermining property rights.
In fact, since 2003, Putin's main economic policy has been re-nationalization.
Well-run private companies have been more or less forced to sell out to state-dominated companies.
Gazprom is buying up oil (Sibneft), gas, and power companies at knockdown prices, reinforcing its monopoly.
That, in turn, allows Gazprom to boost its profitability through price increases, despite stagnant production.
Indeed, with state companies now producing one-third of Russia's oil, output growth has plummeted, as owners of private enterprises -- the source of dynamism in the sector -- are now afraid to invest in new capacity.
Among foreign investors, both Shell and TNK-BP are being pushed out by Gazprom in their main gas fields in Russia.
Beyond oil and gas, Russia's arms export agency, Rosoboronexport, has just seized Avtovaz, the giant dysfunctional Soviet car factory, and VSMPO-Avisma, Russia's big titanium company, while all aircraft production has been concentrated in one state company.
The government cheers this re-nationalization, although it has reduced Russia's industrial growth from 8.3% in 2004 to 4% in the last two years.
Similarly, inefficient state banks -- far inferior to private banks even in Kazakhstan or Ukraine -- dominate the banking system.
The not very profitable state-owned Vneshtorgbank, for example, is on a buying spree, aggravating the quality of Russian banking.
Increasingly, Russia's oil surpluses drive economic growth through rising investment, which boosts construction and consumption, in turn benefiting retail trade and finance.
With personal incomes rising strongly, poverty is declining, while 68% of Russia's college-age youth now attend universities.
But other social indicators are unimpressive.
Life expectancy for men is stuck at 59.
The murder rate is even higher under Putin than it was under Yeltsin, as is the traffic death rate.
None of the big public systems -- education, health care, or the military -- has been reformed, and the regime shows little interest in doing so.
Instead, the Kremlin is preoccupied with the profitability and value of the state-dominated companies that it controls.
Not surprisingly, all corruption indicators have been rising since Putin took over from Yeltsin, whereas they are falling in most post-communist countries.
Although corruption is pervasive, no top official has been prosecuted.
Putin and his KGB friends from St. Petersburg sit safely on all this wealth, thanks to their authoritarian governance and control over all security organs.
Such a powerful apparatus cannot retire to a quiet life in a dacha as Yeltsin did -- it would have to privatize everything first -- which implies that Putin has no choice but to remain in office, regardless of what he says about not seeking a third presidential term.
But if he holds on to power contrary to the constitution, his popularity could easily collapse, especially as his economic policy has thrived on luck, not reform.
Putinomics
The strangest thing about the Duma election was that Putin lost his nerve.
He over-exposed himself in public appearances that were as aggressive as they were vague in substance.
He ran against the West and the "chaos" of the 1990's, just as he raged against Chechen terrorists in 1999 and against oligarchs in 2003.
The Kremlin abandoned democratic procedures, controlling which parties were allowed to run and their candidates, while Putin's United Russia monopolized media coverage.
Opposition activists were blocked from most campaigning, and often arrested, while Kremlin-controlled courts denied their complaints.
As a consequence, the new State Duma has not been elected so much as appointed.
It lacks legitimacy and its members are unknown.
But Putin's legitimacy has also been tainted by the pervasive fraud.
His only "mass" meeting in Moscow drew no more than 5,000 people.
The main questions are how authoritarian he will become, or whether this pathetic campaign will weaken him.
Putin's policy is easy to understand if one realizes that he usually does the opposite of what he says.
In his first term, Putin appeared to be an authoritarian reformer, undertaking substantial market reforms, such as introducing a 13% flat income tax.
But in his second term, Putin was simply authoritarian, undertaking no economic or social reforms worth mentioning.
The expropriation of the oil company Yukos, valued at $100 billion, was the signal event, and was followed by rising corruption.
Putin has established a purely personal dictatorship.
He rules through the presidential administration and competing secret police forces without ideology or party.
United Russia is little more than a bunch of state officials.
He has sapped most power from other state institutions.
Personal authoritarianism rarely survives its founder.
Since Putin has created an over-centralized regime that cannot survive without him, he has to stay as president.
Law is of minimal relevance, as he can always order the Constitutional Court to approve his third term.
Putin's regime may be described as a group of clans, consisting of state-dominated corporations, such as Gazprom, Rosneft, Vneshtorgbank, Rosoboronexport, and the Russian Railways, together with the security agencies.
Putin's KGB cronies, usually from St. Petersburg, control these institutions, and tap them for huge kickbacks.
At the same time, Putin has made sure that they all hate one another, so that they need him as arbitrator or godfather.
In a sensational interview before the election in the Russian newspaper Kommersant , one of these previously unknown KGB managers explained how they use state extortion against private enterprises to accomplish their "velvet re-privatization" through state corporate raiding.
According to the European Bank for Reconstruction and Development, the share of GDP originating in the private sector has declined from 70% to 65% under Putin.
Re-nationalization through extortion is likely to accelerate.
This re-nationalization has not been justified ideologically, but rather cynically: the purpose is simply to generate corrupt revenues for top Kremlin officials.
None of Putin's KGB kingpins has been arrested or even demoted.
As re-nationalization gained momentum, the public economic rhetoric changed and become statist.
Putin now favors protectionism, state intervention, and subsidies.
In this climate, no progressive structural reforms are likely.
Until recently, Russia has pursued an admirably conservative macroeconomic policy, running up huge budget and current account surpluses.
It has paid off its foreign debt and built up foreign currency reserves of $450 billion.
Before the Duma election, however, Putin jeopardized this last vestige of responsible economic policy.
Currently, Russia's greatest economic concern is growing inflationary pressure, driven especially by food prices.
Rising food prices are an international phenomenon, and Russia's inflation is driven by the large current account surpluses and capital inflows.
But Russia's government is no longer trying to mitigate these factors, instead pursuing an inflationary policy.
Not surprisingly, inflation has shot up from 7% last spring to 11% currently, and may reach 15% in the spring.
Naturally, monetary and fiscal policy should be tightened, but that is difficult when Putin is trying to placate the population.
He could liberalize the exchange rate and let it float upwards, but he is not even doing that.
Instead, using an old Soviet tactic, Putin has imposed informal price controls, which cannot hold for long in a privatized economy.
Russia's economic growth is still driven by the sound market reforms undertaken in the 1990's and Putin's first term, together with high oil and gas prices.
The main question about economic policy in Putin's third term, then, is how fast it will deteriorate.
Putin's Last Stand
The two biggest issues in Bucharest will be whether to invite Albania, Croatia, and Macedonia to join NATO, and whether to offer applications to Ukraine and Georgia to start so-called "membership action plans."
These questions should be decided by NATO's members, not outsiders.
In February 2007, Putin, in an anti-Western tirade delivered in Munich, declared: "I think it is obvious that NATO expansion does not have any relation with the modernization of the Alliance itself or with ensuring security in Europe.
On the contrary, it represents a serious provocation that reduces the level of mutual trust."
So Putin's views about NATO are clear.
He will scandalize the summit by seeking to intimidate the former Soviet clients in the room.
Such an aggressive attitude benefits a country's foreign policy only up to a point -- one that Putin passed long ago.
Initially, he acted as an able diplomat and accommodator, but since his Munich speech, Putin has begun uniting the West against Russia.
In his speech on May 9, 2007, commemorating Russia's victory in World War II, Putin compared the United States with Nazi Germany: "We have a duty to remember that the causes of any war lie above all in the mistakes and miscalculations of peacetime, and that these causes have their roots in an ideology of confrontation and extremism.
It is all the more important that we remember this today, because these threats are not becoming fewer, but are only transforming and changing their appearance.
These new threats, just as under the Third Reich, show the same contempt for human life and the same aspiration to establish an exclusive dictate over the world."
Serious politicians do not speak like that.
These are the rants of Putin's few remaining friends -- Venezuela's Hugo Chavez, Iran's Mahmoud Ahmadinejad, and Belarus's Alyaksandr Lukashenka.
At home, awareness is rising that Putin is damaging Russia's interests by insulting and intimidating everybody.
He is isolating his country among the world's pariahs; worse yet, he has achieved little.
When Putin became president in 2000, he named accession to the World Trade Organization as his foreign policy priority.
He failed, because he gave in to petty protectionist interests, imposing a timber embargo against Finland and Sweden, a fish embargo against Norway, and various agricultural embargos against Lithuania, Ukraine, Moldova, Georgia, and others.
Russia's foreign policy is focused on the interests of its state-dominated corporations, notably Gazprom, which has concluded agreements with many foreign countries and companies for monopolistic deliveries.
But a Gazprom pipeline typically costs three times as much per kilometer as a similar Western pipeline, because of "leakage" (kickbacks and waste).
The primary purpose of Russia's foreign policy seems to be to tap Russia's state companies for the benefit of Kremlin officials.
But customers do not trust suppliers who cut deliveries, raise prices unpredictably, expropriate competitors, and let production decrease in the way Gazprom and Russia's other state companies have done.
As a result, Russia's gas exports to Europe have started declining.
Putin's foreign policy also is evidently intended to whip up populist chauvinism.
Beating up on foreigners may boost his authoritarian rule, but this, too, has a price.
Not only the US and Europe, but all former Soviet republics feel alienated by Putin's aggressive tactics.
Many are seeking to shield themselves from Russia's capricious embargos -- for example, by seeking alternative energy supplies.
Arguably, Russia has improved its relations with China under Putin, but at the cost of acceding to China's demands for two big disputed islands over which the two countries fought in 1969.
Putin's apparent aim was to secure financing for Rosneft's purchase of the Yugansk oil field, which was part of the Yukos confiscation.
Yet China, too, is wary of Putin, and has been sending warm signals to leaders of former Soviet republics, such as Ukraine's Yuliya Tymoshenko.
Russia's nationalists are also outraged by Putin's foreign policy, because it has alienated former Soviet republics and weakened Russia's military. The nationalist Council for National Strategy published a devastating report on the decay of Russia's military under Putin.
Russian military procurement, it claims, has plummeted. For example, only three new military aircraft have been purchased since 2000.
True, armaments costs have risen sharply, but only because Putin's KGB friends, who monopolize weapons production, have stolen inordinate amounts.
Yet, despite this spending shortfall, Putin seems obsessed with making pointless and provocative gestures, such as resuming long-range nuclear bomber flights off the American coast.
In the early 1990's, many westerners and Russians wanted Russia to become a full-fledged member of both the European Union and NATO, on the condition that Russia became a full-fledged democracy.
Unfortunately, the West never made that offer, and Russian democracy went astray.
Russia should be given a new chance, but only after Putin has departed.
Russia is no enemy of the West; Vladimir Putin is.
Ukraine's Dollar Addiction
Ukraine's prices started spiraling out of control around the time when Yuliya Tymoshenko returned as prime minister last December.
Malicious observers suggest that she is to blame for pursuing populist social expenditures. But this is false.
Her government actually tightened the budget just before New Year.
Indeed, Finance Minister Viktor Pynzenyk reports that the state recorded a budget surplus of 0.6% of GDP during the first quarter of 2008.
This is not surprising, because state revenues expand with rising prices, while expenditures are largely fixed.
But Tymoshenko's government has, in reality, done a solid fiscal job.
State finances are generally in good shape, with public debt at just 11% of GDP.
According to the National Bank of Ukraine (NBU), international reserves have grown steadily and now stand at $33 billion.
The real cause of Ukraine's inflation is that its currency, the hryvnia, remains pegged to the US dollar.
When the dollar falls in value, as it has, Ukraine's very open economy imports inflation.
In the last year, the dollar's value dropped by 12% against the euro, which is a more important currency than the dollar in Ukraine's foreign trade.
The International Monetary Fund has persistently warned Ukraine that its dollar peg could cause a financial crisis because of over- or undervaluation, and for years has called on Ukraine to free its exchange rate.
But the NBU refused to do so -- making Ukraine the last country in Central and Eastern Europe to tie its currency to the dollar.
Ukraine's powerful industrialists praised the NBU's low exchange-rate policy, believing it makes the country more competitive.
They ignore the fact that the NBU can control only the nominal appreciation of the hryvnia.
But costs are determined by the real revaluation, which is the sum of exchange-rate changes and inflation.
The dollar peg has also forced the NBU to pursue a loose monetary policy.
Ukraine's current refinance rate is 16% a year, 10% less than inflation, which means that Ukraine has a negative real interest rate of 10% a year.
As a result, Ukraine's money supply, M3, exploded by no less than 52% in the last year, which points to inflation hitting 30% soon.
The NBU's leadership understands that it must act to contain inflation, but its insistence on the dollar peg ties their hands, because it prevents them from raising interest rates sufficiently.
Instead, they have reverted to strict reserve requirements, effectively rationing credit and thereby causing a domestic credit squeeze in the midst of the current international financial crisis, which is likely to force some medium-sized banks into bankruptcy because of liquidity problems.
Rationing is always worse than a market.
Why does the NBU persist with this harmful policy?
Incompetence is one reason, but politics is probably the decisive cause.
The NBU is subordinate to President Viktor Yushchenko, who, despite naming Tymoshenko as prime minister, seems more interested in harming her politically than in capping inflation.
The flaws in the NBU's policy are so obvious it will be forced to free the exchange rate, but it might act too late.
Even now, in the midst of an inflationary crisis, the NBU wants to move in small steps, evidently failing to grasp the severity of the crisis.
The NBU needs to announce that it no longer has an exchange-rate target and that it will stop intervening by ending its purchases of dollars on the currency market.
If the NBU lets the exchange rate float, Ukrainians are likely to exchange billions of dollars into hryvnia, driving up the hryvnia exchange rate.
That would contain Ukraine's inflation, as the NBU could restrict the money supply through high interest rates rather than rationing.
Time is short.
The great economist Rudi Dornbusch used to say that a financial crisis usually starts much later than anyone expects, but then develops faster than anyone can imagine.
Ukraine is on the financial precipice.
Yushchenko and the NBU can still act, but if they do not do so immediately, a costly and unnecessary financial crisis might ensue.
As prime minister, Yushchenko saved his country from financial default in early 2000.
Ukraine's well-being must not be sacrificed to his political ambitions.
The Return of the Siloviki
Putin's statement hit like a bolt from the blue.
Two days earlier, United States Trade Representative Ron Kirk and European Union Trade Commissioner Catherine Ashton had completed successful talks on Russia's accession to the WTO with Putin's first deputy, Igor Shuvalov, Finance Minister Alexei Kudrin, and Minister of Economy and Development Elvira Nabiullina.
As late as June 3, Putin had declared himself sure of Russia's "swift joining of the WTO."
The leaders of Belarus or Kazakhstan seemed equally surprised by Putin's statement, especially as Russia had just prohibited almost all imports of dairy products from Belarus in a protectionist ploy.
After 16 years of negotiations, Russia appeared poised to join the WTO within a couple of months.
Indeed, only three difficult hurdles remained.
First, Ukraine demands a bilateral protocol on market access, which would force Russia to abolish roughly 100 trade sanctions, primarily in agriculture.
The second obstacle is border controls with Georgia, a mainly political issue: whether Abkhazia and South Ossetia are independent, as Russia maintains, or are part Georgia, as the rest of the world believes.
Finally, the EU insists that Russia abolish planned prohibitive export tariffs on lumber.
Only the Georgian issue is really serious.
A customs union with Belarus and Kazakhstan is no alternative to Russia's WTO accession.
No countries have ever entered the WTO collectively, nor is this legally possible says WTO head Pascal Lamy.
Moreover, while the customs union was proclaimed in 1995, the earliest it can be formed is in July 2011, which is unlikely.
Predominantly a commodity exporter, Russia has less need for the WTO than a manufacturer like China.
Even so, one-fifth of Russia's exports comprise metals and chemicals that are sensitive to anti-dumping measures.
A series of World Bank and Russian studies have estimated that Russia can gain 0.5-1.0 percentage points in economic growth for half a decade if it joins the WTO.
Membership is also important for Russia's international standing.
It is the only G-20 country outside of the WTO, which accounts for 96% of global trade.
The WTO also represents a choice of economic and political strategy.
Before Putin resigned as president in May 2008, he presented his "Russia 2020" program.
Its heart was an "innovation strategy" based on more market reforms and investment in human capital, leading to annual growth of 6-7%.
In their rhetoric, President Dmitri Medvedev and his technocrats embrace this vision.
But Putin and his siloviki (political allies whose power base is in the security apparatus) seem to prefer an "inertia strategy," the worst of the Russia 2020 scenarios.
This strategy amounts to state capitalism, living on Russia's energy wealth, and doing nothing to curtail Russia's massive red tape and corruption.
By reversing course on the WTO, Putin has again shown himself to be Russia's master.
He did the same thing last summer by lashing out against a successful mining and metallurgical company, Mechel, and provoking the war in Georgia.
During the winter, Putin's poor policy choices on the financial crisis undermined his power.
Rather than shielding Russia's private enterprises, he engineered a domestic liquidity freeze, which led to a sharp drop in GDP of 9.5% in the first quarter of 2009, despite Russia's huge foreign reserves.
The pragmatic technocrats took over, but the subsequent doubling of oil prices signals that the danger for Russia's economy is over for now, so the siloviki are resuming command.
The question is what their next step will be.
The prominent Russian military analyst Pavel Felgenhauer insists that their prime aim is to finish off Georgia and its president, Mikheil Saakashvili, who remains in power and defiant.
Georgia has received no military support and is virtually undefended.
The Kremlin continues its propaganda offensive against Georgia, and has vetoed prolonging the mandate for United Nations observers in Georgia and Abkhazia. A major Russian military maneuver, Caucasus 2009, is underway.
The last such maneuver, Caucasus 2008, was followed by the invasion of Georgia.
During the latter part of this maneuver, July 6-8, US President Barack Obama is supposed to meet President Medvedev in Moscow.
Medvedev obviously hopes to reach out and improve Russia's and his own standing in the world.
The siloviki , however, prefer Russia isolated and authoritarian, with power securely in their hands.
The Kremlin wants a new strategic arms control agreement, but the siloviki desire nothing more.
Obama's administration had hoped for a final breakthrough in Russia's WTO talks, but Putin's actions have eliminated prospects for such an outcome.
The US also wants progress on the territorial integrity of former Soviet states, such as Georgia, but that, too, is unlikely.
Putin or his collaborators seem to be setting up Medvedev for a failure, suggesting that their jealousy of Medvedev's limited power is greater than their interest in defending Russia's national interests.
Yet there is still hope that Putin encounters a sufficiently negative reaction that he changes his stance on WTO accession.
After all, he suspended Russia's WTO accession talks after the August 2008 war in Georgia, only to allow them to restart this spring.
Westernize the Black Sea Region
The bloody end to the schoolhouse hostage crisis in North Ossetia, and recent clashes in Georgia between government troops and separatist forces, have put the troubled Black Sea region on the front pages of newspapers once again.
This rising violence is also a wake-up call for the West, highlighting the need for a new Euro-Atlantic strategy in a vitally important region that lies at the crossroads of Europe, Eurasia, and the Middle East.
Indeed, the Black Sea region is the Euro-Atlantic community's eastern frontier with the wider Middle East.
With Afghanistan, Iraq, and Iran topping the list of strategic challenges facing the West, anchoring democracy and security in these new borderlands of the Euro-Atlantic community has become imperative for both the United States and the EU.
Moreover, success here can provide lessons in how to facilitate the daunting process of reform and modernization in the wider Middle East.
Georgia's "Rose Revolution" last winter demonstrated that the will to implement radical reform now exists.
For the first time, a country in the region is matching its aspirations with the concrete steps needed to become a viable candidate for eventual membership in Euro-Atlantic institutions.
A visitor to Georgia's capital, Tbilisi, now sees the same level of determination to join the West that existed a decade ago in the Baltic states.
America and Europe share an interest in the success of these efforts, particularly as they seek to diversify energy supplies away from Saudi Arabian and Persian Gulf oil.
The Black Sea is poised to become a key conduit for non-OPEC, non-Gulf oil and natural gas flowing into European markets and beyond.
The Black Sea region's long-term stability and integration with the West is thus critically important to the long-term energy security strategy of EU and NATO members.
Anchoring these countries to the West will not be easy.
Whether the end result is better relations or full integration of these countries into the EU and NATO is an open question.
But both organizations need to reach out to these countries, a process that should be seen as the next phase in completing the wider Europe.
What should a new bold yet realistic EU and NATO outreach strategy for the Black Sea region look like?
Clearly, the region's countries are weaker and further behind previous candidates for Western integration.
But the good news is that the EU and NATO are much better positioned to develop an ambitious strategy than they were vis-à-vis Central and Eastern Europe a decade ago.
If the EU and NATO decide to launch a bold outreach strategy for the region, they will be able to draw on existing tools, conceptual talent, and practical experience.
For example, NATO already has three members - Bulgaria, Romania, and Turkey - bordering the Black Sea.
As for the EU, the candidacies of Romania and Bulgaria need to be concluded successfully, together with the issue of Turkey's membership aspirations.
An EU that includes Sofia and Bucharest, and that is on track with Ankara, will be well positioned to engage the wider region.
The EU also needs to put meat on the bones of its new Neighborhood Policy, while NATO must apply new mechanisms for strengthening ties with the region.
As opposed to a 100- or 200-meter sprint, both organizations need to think more in terms of a much longer race, perhaps a marathon.
If countries in the region embrace the idea, a network of current EU and NATO members could step forward with projects and assistance aimed at promoting a Black Sea identity and community.
Recent events in Georgia remind us that resolving the region's "frozen conflicts"- i.e., those in the breakaway regions of South Ossetia and Abkhazia, of Transdneistria in Moldova, and Nagorno-Karabakh in Azerbaijan - must be a priority.
In reality, these conflicts are not frozen; they are festering wounds that breed corruption and organized crime.
They inhibit democratization and incite instability.
While these conflicts involve historical grievances, outside actors - particularly Russia - contribute to their lack of resolution, which is essential for successful reform.
So far, neither America nor Europe has made these conflicts a top priority.
Resolving these semi-dormant wars requires stepped-up political involvement, economic engagement, and a willingness to provide Western peacekeeping forces and monitors if and when they are needed.
But the long-term peace and stability needed to advance economic and political reform in the region will also require either a change in Russian behavior or a reduction in Russian influence.
The experience of the last decade suggests that a policy of engaging the Kremlin intensely while protecting fundamental Western interests may be the best way to proceed.
Developing a new Euro-Atlantic strategy for the Black Sea region must start with the democracies of North America and Europe recognizing their moral and political stake in the outcome.
Projecting stability and security in these countries is the next logical step in building a Europe "whole and free" and securing the Euro-Atlantic community's eastern frontier with the Middle East.
This task will be as important over the next decade as integrating Central and Eastern Europe into the West was in the 1990's.
A Global Green New Deal
Far from burdening an already over-stressed, over-stretched global economy, environmental investments are exactly what is needed to get people back to work, get order books flowing, and assist in powering economies back to health.
In the past, concern for the environment was viewed as a luxury; today, it is a necessity -- a point grasped by some, but by no means all, economic architects yet.
A big slice of President Barack Obama's $825 billion stimulus package for the United States includes a boost to renewable energy, "weatherizing" a million homes, and upgrading the country's inefficient electricity grid.
Such investments could generate an estimated five million "green-collar" jobs, provide a shot in the arm for the construction and engineering industries, and get America back into the equally serious business of combating climate change and achieving energy security.
The Republic of Korea, which is losing jobs for the first time in more than five years, has also spotted the green lining to grim economic times.
President Lee Myung-Bak's government plans to invest $38 billion employing people to clean up four major rivers and reduce disaster risks by building embankments and water-treatment facilities.
Other elements of Lee's plan include construction of eco-friendly transportation networks, such as high-speed railways and hundreds of kilometers of bicycle tracks, and generating energy using waste methane from landfills. The package also counts on investments in hybrid vehicle technologies.
Similar pro-employment "Green New Deal" packages have been lined up in China, Japan, and the United Kingdom.
They are equally relevant to developing economies in terms of jobs, fighting poverty, and creating new opportunities at a time of increasingly uncertain commodity prices and exports.
In South Africa, the government-backed Working for Water initiative -- which employs more than 30,000 people, including women, youth, and the disabled -- also sees opportunity in crisis.
The country spends roughly $60 million annually fighting invasive alien plants that threaten native wildlife, water supplies, important tourism destinations, and farmland.
This work is set to expand as more than 40 million tons of invasive alien plants are harvested for power-station fuel.
As a result, an estimated 500 megawatts of electricity, equal to 2% of the country's electricity needs, will be generated, along with more than 5,000 jobs.
So it is clear that some countries now view environmental investments in infrastructure, energy systems, and ecosystems as among the best bets for recovery.
Others may be unsure about the potential returns from investing in ecosystem services such as forest carbon storage or in renewable energy for the 80% of Africans who have no access to electricity.
Still others may simply be unaware of how to precisely follow suit.
In early February, the United Nations Environment Program will convene some of the world's leading economists at the UN's headquarters in New York.
A strategy for a Global Green New Deal, tailored to different national challenges, will be fleshed out in order to assist world leaders and ministers craft stimulus packages that work on multiple fronts.
The Global Green New Deal, which UNEP launched as a concept in October 2008, responds to the current economic malaise.
Spent wisely, however, these stimulus packages could trigger far-reaching and transformational trends, setting the stage for a more sustainable, urgently needed Green Economy for the twenty-first century.
The trillions of dollars that have been mobilized to address current woes, together with the trillions of investors' dollars waiting in the wings, represent an opportunity that was unthinkable only 12 months ago: the chance to steer a more resource-efficient and intelligent course that can address problems ranging from climate change and natural-resource scarcity to water shortages and biodiversity loss.
Blindly pumping the current bail-out billions into old industries and exhausted economic models will be throwing good money after bad while mortgaging our children's future.
Instead, political leaders must use these windfalls to invest in innovation, promote sustainable businesses, and encourage new patterns of decent, long-lasting employment.
Designer Diets?
Throughout our lives, we are exposed to a complex mixture of food compounds.
Intricate biochemical processes extract from food the energy and other useful components that enable us to grow and function.
Many compounds, seemingly unimportant in the past, are now recognized as influencing our health.
For example, lycopene from cooked tomato sauces may help prevent prostate cancer.
Everyone, indeed, knows that food can have a positive or negative impact on health.
Food may never cure any particular disease, but diets rich in fruits and vegetables, cereals and plant-sourced oils offer protection from many cancers, cardiovascular disease, and other illnesses associated with old age.
The problem, for scientists and consumers alike, is that the benefits are not the same for everyone.
So we need to understand how what we eat interacts with our bodies -- or, more specifically, our genes -- to affect our health.
This is the science of nutrigenomics.
The long-term aim of nutrigenomics is to define how the whole body responds to food using so called "systems biology."
Every cell in your body (except mature red blood cells) -- there are about 50 trillion in an adult -- contains copies of your DNA, which are coiled up tightly to form 46 separate bundles called chromosomes.
These chromosomes are stored in the core of the cell (nucleus), and there are 22 matching pairs, one of each pair from each of your biological parents, plus an X-chromosome from your mother and either an X- or Y-chromosome from your father; XX makes you a girl and XY a boy.
DNA stores information that is vital to the growth, repair, replacement, and correct functioning of our cells.
It consists of two strings -- formed from phosphate and sugar -- along which four unique chemical compounds (DNA bases) are attached.
There are about three billion bases, and the sequences in which they occur is our genetic code, or human genome.
Within the genetic code, there are 30,000-40,000 highly organized regions called genes.
Genes are the basic unit of heredity, and, unless you are an identical twin, the combination of genes inherited from your parents is unique to you.
Genotyping can be used to determine which genes you have, but it cannot always predict your phenotype.
This includes our risk of developing a host of age-related diseases.
Genes code for proteins, the body's workers, which are not made directly from DNA, because they do not speak the same language.
Ribonucleic acid (RNA) acts as an interpreter in a process called transcription (the reading of genes).
Translation from RNA creates three-dimensional proteins from combinations of 22 essential amino acids -- essential only because our bodies are not able to make them, so they must be obtained from our diet instead.
Such is the complexity of nutrigenomics that it is no longer possible for nutritional researchers to work alone.
Expertise in a wide variety of different areas -- molecular and cell biology, mathematics and statistics, nutrition and diet, food chemistry, and social science -- is fundamental to progress.
No War of Civilizations
More to the point, this is not a new war.
Terrorism has existed as a political tool in the Middle East for a long time -- and it has been used not only against Israel or the United States.
It was Syrian agents who assassinated Lebanon's President-elect Beshir Gemayel in 1982.
Kurdish terrorists have been active in Turkey for decades; Islamic terrorists assassinated President Anwar Sadat in l981 and later tried to assassinate President Mubarak.
This is not a fight against Western imperialism or globalization.
Nor is it a response to the present violent deadlock in the Israeli-Palestinian negotiations: some of Osama bin Laden's terrorist acts against American targets in the mid-1990's, it should be recalled, occurred at the height of the Israeli-Palestinian honeymoon that followed the Oslo agreements of l993.
Instead, we are witnessing a much deeper phenomenon, which is as much cultural as political and economic.
Islam as a religion can be tolerant as well as triumphalist -- as its sister world religion, Christianity, can be.
But there is a strain in extremist Islam that sees modernity -- the whole Enlightenment project -- as its enemy.
For it democracy, equality, political liberalism, separation of state and church, equality between the sexes, secularism -- are all the work of the Devil.
Just like the Anabaptists of Münster, they see themselves as God's agents in a world corrupted by the sins of materialism and faithlessness.
Such a Manichaean world legitimizes terrorism as the will of God.
For people like Bin Laden -- and it appears that it is his version of Islamic fundamentalism which is behind the terror acts in New York and Washington -- even the Saudi monarchy is evil, because it has facilitated American presence in the Middle East.
For years, some versions of such terrorism have received tacit support from some Arab states.
Even some European countries, for causes deeply rooted in a Machiavellian raison d'etat , have sometimes closed their eyes when confronted with terrorist behavior.
Syria -- a prime source of state-sponsored terrorism -- is now even considered a candidate for a seat in the Security Council.
But just as there could be no moral neutrality in the war against Nazism and Fascism, so the coalition the Americans are now trying to build will begin to take as a root assumption that, if the war against terrorism is to be serious, tolerance of terror-supporting regimes cannot go on.
Some terrorists are, no doubt, motivated by legitimate concerns and have legitimate grievances (the Kurds and the Palestinians come to mind).
Yet legitimate goals do not legitimize evil means.
The kind of terrorism which we saw in the l970's and l980's -- airline hijacking, the murder of Israeli athletes in the l972 Munich Olympics -- has now mutated into the Islam-inspired Palestinian suicide terrorist, and finally into the Armageddon-like landscape we now see in New York and Washington.
The war ahead will be a difficult one.
The war against Iraq of a decade ago, and the "virtual" war without casualties that NATO waged in the skies over Kosovo, offer no precedents.
Indeed, they deluded us for too long into thinking that the war against terrorism was a police matter -- that investigators and indictments were the way to fight fanatical terrorists, not a relentless, painstaking armed struggle.
Those delusions, at long last, ended brutally with the massacres in New York and Washington.
No clear strategies now exist for how the war is to be waged. Strategies, however, will be found.
What would be a tragic is if this struggle against terror became a war of civilizations, of the West against Islam.
For the terrorist vision of Islam is a perversion of it.
But collaborators with terrorism should, and will likely be viewed with the same severity as the terrorists themselves.
Only in this way can this war against the world of the Enlightenment, which is the modern world that stretches across all the oceans and, yes, embraces all its faiths, be won.
How to Target Iraq
In the current debate about policy towards Iraq, two extreme alternatives are usually presented: either extend the military campaign against terrorism to Iraq, or maintain the current uneasy status quo with that country.
Pious talk about reworking the UN sanctions is another version of the second alternative - that is, of doing nothing.
Both alternatives are unpalatable.
Yet preparing a ground war against Iraq - finishing off the unfinished business of the 1991 Gulf War - is a high risk strategy.
Arab countries, already questionable allies in the war against fellow Muslims in Afghanistan, will be even less reliable in a war against fellow Arabs.
The Europeans, let alone the Russians, may demure.
The military odds appear daunting.
Still, letting the status quo continue is equally problematic.
It means that the Iraqi people will continue to suffer - both from Saddam's brutalities, as well as from the consequences of the sanctions caused by his continued rule.
Moreover, it would continue to send the wrong message to would-be terrorists: you can get away with murder.
The perceived weakness of the US after the embassy bombings in East Africa and the attack on the destroyer the USS Cole no doubt contributed to the audacity of the attacks of September 11
Other options, however, do exist and a combination of them could help bring down Saddam without necessarily engaging in outright military action.
First, local forces opposed to Saddam should be encouraged.
By this I do not mean the loudmouthed but totally ineffective so-called Iraqi Opposition.
The local forces to be encouraged - by special operations people and the provision of arms and training - are the leaders of the southern Shi'a and the northern Kurds.
In the latter case, the infrastructure for support already exists, though it was partially dismantled during the Clinton administration.
In the Shi'a south, still reeling from the brutal suppression of the ill-fated 1991 rebellion, contacts must be created and networks established.
Iraq's neighbors - Saudi Arabia in the south and Turkey in the north - must be reassured that Shi'a and Kurdish rebellion will not result in the dismantling of Iraq and a change of borders: both countries have legitimate concerns regarding this issue.
With the current much more open regime in Teheran, Riyadh can also be convinced that the dangers from an Iranian-controlled Shi'a entity in southern Iraq are less formidable now than they were in 1991.
On the other hand, the cozy relationship that now exists between Jordan and Saddam must be addressed, with all sensitivity to Jordan's dilemmas.
The Iraqi politico-military elite must be both targeted and approached.
Saddam has been masterful at filling most crucial positions in the army and security services with people who come from his Tikriti clan.
But they are far from being a monolithic group: enmity, jealously, anger over the past brutalities and injustices visited upon many of their kin may make some generals and colonels open to suggestions of a coup.
Those suggestions should be premised on a two level approach: first, the US, with UN support, should create a war crimes tribunal to judge Saddam and his top generals: they should know that come the day of reckoning, they will be hunted down like Milosevic and his minions.
One major indictment should deal with the use of poison gas against Kurdish rebels in Halabja during the time of the Iran/Iraq war.
Parallel to this, and the encouragement of insurrections in Iraq's south and the north, preparations for a military option should be credibly enhanced.
But with the stick should come a carrot: with good intelligence, some Iraqi generals and colonels should be approached with offers of amnesty and support should they decide to try to topple Saddam.
Failure to act, they should be told in no uncertain terms, will leave them exposed (like Saddam) to an indictment by in an international war crimes tribunal once Saddam's rule is brought to an end.
They should also be offered the lifting of sanctions on Iraq provided that they - after getting rid of Saddam - accept the resumption of a UN inspection regime.
Even if this will not immediately bring Saddam's regime down, such active attempts at undermining his rule will certainly make Saddam nervous, and as Ceausescu and Milosevic have shown, nervous dictators make fatal mistakes.
One premise underlies this entire line of thought: to imagine that there is a democratic alternative to Saddam, or that once he disappears there will be a democratic transition in Iraq, is to entertain dangerous illusions.
The only alternative to Saddam's regime is some sort of military rule, but one less oppressive and relatively more open.
It must certainly be committed to a foreign and internal policy not based on terrorism and thuggery and a Saddam-like quest for weapons of mass destruction.
Here, undoubtedly, is a complicated strategy, and one with its own inherent pitfalls.
One key advantage of it is that such an approach has a real chance of gaining support, albeit sometimes tacit, from Arab countries - and from Europe and Russia as well.
Such a calibrated approach, however, combining a differentiated understanding of the nature of Saddam's regime and its weaknesses, has a better chance of success than an outright assault, or the dangers inherent in allowing Saddam to remain in power.
The successes in Afghanistan call for an equally nuanced and sophisticated approach in regard to Iraq.
A Saudi Protectorate for the Palestinians
From Hosni Mubarak to Ariel Sharon, Middle East leaders are trekking to Washington to discuss restarting the peace process.
President Bush talks of a Palestinian state and of reforming the Palestinian authority, but (so far) offers no road map to achieving either.
Here Shlomo Avineri, once Director-General of Israel's Foreign Ministry, proposes an innovative approach to reach both goals.
Two conflicting needs assail the Middle East.
The Palestinians must rebuild political structures almost completely destroyed by Israel's recent incursions into the West Bank.
Yet it is also clear that the Palestinians are unable to create a polity untainted by terrorism and free of an ideology that violently repudiates Israel's right to exist.
After the Oslo agreements were reached a decade ago, supporters of the peace process, in Israel and abroad, hoped that the PLO - an armed national liberation movement deeply enmeshed in terrorism - would transform itself into a responsible and viable political structure.
Only then would a sovereign Palestinian state be able to live in peace alongside Israel.
If the ANC could make such a transition in South Africa, why not the Palestinians?
The hope that Yasser Arafat might become a Palestinian Nelson Mandela inspired even Israelis skeptical about the Oslo process.
This was not to be.
Arafat missed the historic opportunity to achieve a Palestinian state in 2000 when he rejected proposals by President Clinton and then Israeli Premier Barak at Camp David and later in Egypt.
Instead, he launched an armed intifada, in which competing Palestinian militias unleashed terrorism and suicide attacks against Israeli civilian targets - not only in the occupied territories, but also in Jerusalem, Tel Aviv, Haifa, Hadera, Afula, and Netanya.
Some militias were under Arafat's direct control, while others got semi-official support from him, and still others were his antagonists.
Their common aim was to wrest from a frightened and terrorized Israel what could not be achieved by diplomacy.
Palestinian territories descended into a lawless chaos reminiscent of Lebanon in the 1970-80's.
Israel will not allow the reconstruction of terrorist structures on its doorstep: no country would.
But Ariel Sharon's government should not be allowed to use the Palestinians' utter failure at peaceful nation building as an alibi for continued occupation.
What, then, is to be done?
Will an international force hunt down suicide bombers?
Will it possess intelligence assets and the will to fight if needed?
Such a force is dangerous nonsense.
Palestinian institutions must be rebuilt, but within a legitimate Arab context.
Like Kosovo and Bosnia, Palestinian territories should be put under an international protectorate, but not
A Saudi protectorate over the Palestinians will have internal Arab legitimacy; it will also possess knowledge and techniques used in the Arab world to ensure security.
Palestine at the Crossroads
President George W. Bush's long-awaited speech on the Middle East combined hope for both sides with extremely tough language.
The hope was clear: Israelis deserve security and a life without fear of suicide bombings and other acts of terrorism; Palestinians deserve dignity, an end to the Israeli occupation, sovereignty, and statehood.
But the toughness was reserved solely for the current Palestinian leadership: without mentioning Yasir Arafat by name, Bush clearly called for a new Palestinian leadership, one "not compromised by terrorism."
The current leadership, he maintained, has not fought terrorism, but has instead encouraged and even "trafficked" in it.
He condemned the Palestinian Authority's rejection of Israeli peace offers and promised US support for statehood if the Palestinians change their leadership, reiterating that "a Palestinian state will not be achieved by terrorism."
One cannot imagine a harsher condemnation of Arafat and the entire Palestinian leadership.
Bush is now clearly suggesting that Arafat is not a partner for peace, that the Oslo agreements are, in effect, dead, and thus that the Palestinian Authority as constituted by them does not exist anymore.
By adopting this policy, Bush is walking a fine line between Arab pressure to support the emergence of a Palestinian state and his own commitment to fight terrorism and not reward suicide bombers.
The speech was a masterful blend of the carrot and the stick.
But Bush now faces two challenges--one major, the other minor--in pushing his policy forward.
The major challenge is how the demand for a change in the Palestinian leadership will be met.
As a result, elections in Palestine currently mean about as much as they did in the old Soviet Union.
How will democratic change come about in such a society?
Will it follow the path of chaotic, violent regime collapse by which Nicolae Ceausescu lost power in Romania?
Or will the Palestinians change their autocratic leadership peacefully, as in Serbia when Slobodan Milosevic was ousted?
Both options cannot be ruled out.
President Bush also mentioned Arab help in bringing about a change of Palestinian leadership.
Does he have in mind something like a Saudi protectorate over the Palestinians, sanctioned by the Arab League?
It may not be a bad idea.
But until now, at least, the Palestinians have not been good at building institutions that are not contaminated by terrorism.
How to build them remains the central question, and Bush has yet to offer a clear answer.
The minor challenge is to get the Europeans to support Bush's policy.
Some Europeans may see Bush's approach as another example of American unilateralism--and in a way they are right.
But so what?
The problem with the Europeans is that all they have are declarations and speeches--a policy toward the region that is rich in lofty rhetoric, but poor if not starved in the capacity to implement anything concrete.
The Middle East Dream Map
The recent push given by President George W. Bush to the so-called Middle East "road map" is welcome, and the fact that both Israel and the Palestinians have accepted it is a good omen.
Yet the chances that it will bring real, as opposed to merely rhetorical, progress toward reconciliation remain slim.
The reasons are manifold: first, what is called a "road map" is in reality little more than a wish list of what has to be done in order to achieve peace between Israel and the Palestinians.
It is a noble set of goals, but it sometimes appears to be distant from the region's political realities.
For example, the road map rightly acknowledges that the Israeli-Palestinian conflict cannot be solved in a void; regional considerations must be taken into account.
At the same time, the "quartet" that composed the road map--the US, the EU, Russia, and the UN--realizes that Israel cannot be convinced to make such concessions without a fundamental change in the general attitude of the Arab world to the existence of the Jewish state.
For this reason, the road map premises peace between Israel and the Palestinians on normalization of relations between Israel and all Arab countries.
Can this really be achieved in the foreseeable future?
Does the US--or, for that matter the Quartet--really believe they know how to move Syria or Libya from their current closed-mind position, which threatens Israel's existence?
There is no indication in the road map that the initiators have thought this out beyond wishing out loud that it would happen.
Similarly, the road map is an attempt to revive the Oslo peace process.
But this process, based in the 1993 Oslo accords between Israel and the PLO, has been in serious trouble since Yasser Arafat rejected the peace package offered to him by Prime Minister Ehud Barak, with the support of President Bill Clinton, at Camp David in December 2000.
This was a watershed in Middle East politics--a massive change for the worse.
The Palestinians' refusal to accept - or even continue to negotiate about -- the most generous and comprehensive Israeli offer since l967 in exchange for an end-of-conflict agreement signified that the Palestinians are not ready to accept Israel's legitimacy.
There is now much more bitterness, fear, and hatred on both sides than in 2000, when the Camp David negotiations failed.
The direct and indirect support given by the Palestinian Authority to suicide bombing against civilians in Israel suggested to most Israelis that the Palestinians still view attacks against civilians as a legitimate weapon.
The sometimes-brutal Israeli responses to such terrorism further embittered the Palestinians against Israel.
True, the sidelining of Arafat and the appointment of Abu Mazen as the Palestinian Prime Minister is an important step in the right direction.
But Abu Mazen's real power has yet to be tested.
Does he really control the murky financial resources of the PLO, which gave Arafat so much real power beyond the formal title of head of the Palestinian Authority?
Most importantly, does Abu Mazen have the political will and power to really suppress--harshly, if necessary--the murderous terrorist gangs that control so much of the Palestinian population?
Much depends on the answers to these questions.
Last but not least: by the admission of its drafters, the road map will take a number of years to implement--in the best case two, in the worst case three or four.
It would need constant follow-up on dozens of contentious points at the highest level, i.e., the US President.
Is President Bush--or any US President--capable of effectively exercising his enormous authority, day in and day out for two or three years, to ensure that the parties really translate what might be just a verbal acceptance of vague language into painful, and even politically dangerous, decisions?
Past experience is not encouraging.
The attention span of a US President is limited on any issue.
Yet without his constant attention, the road map will run into the Middle East sand dunes that have already buried so many well-intentioned peace plans.
What, then, can be achieved?
Perhaps, as in Bosnia and Kosovo--where nobody talks about a permanent solution, but violence has been stopped--what is needed is stabilization, an end to daily bloodshed, de-escalation of hostility, and some mutual confidence building.
Israelis and Palestinians are not yet ready for the tough political decisions envisaged by the road map.
They need a series of stopgap measures to bring stability and safety for civilians on both sides.
With such de-escalation, perhaps at some time in the future true reconciliation will be possible.
However difficult or sad to admit, the moment is not ripe for more than this.
Palestinian Refugees and German Expellees
The atmosphere could not have been more tranquil: a former royal castle in the rolling hills of the Taunus region near Frankfurt, where statesmen and politicians held an annual meeting dealing with the Middle East.
Europeans and Americans, Israelis and Iranians, Egyptians and Turks, Palestinians and Tunisians rubbed shoulders.
The novelty this year was the presence of representatives from post-Saddam Iraq, among them an official from the Kurdish Regional Government, as well as a high ranking Shi'a representative.
The new situation in Iraq, along with the Middle East road map, were at the center of attention.
On the opening night, a senior German government minister, himself deeply involved in Middle Eastern affairs, addressed both subjects, displaying great sensitivity both to Israeli and Palestinian concerns.
The evening proceeded along the expected anodyne trajectory until a Lebanese academic raised the issue of the right of Palestinian refugees to return to Israel.
The senior German minister listened attentively, and then said: ``This is an issue with which we in Germany are familiar; may I ask my German colleagues in the audience to raise their hand if they, or their families, have been refugees from Eastern Europe?''
There was a moment of silence.
The issue is embarrassing in Germany, fraught with political and moral landmines.
Slowly, hands were raised: by my count, more than half of the Germans present (government officials, journalists, businessmen) raised a hand: they, or their families, had been Vertriebene --expelled from their ancestral homes in Poland, Czechoslovakia, Hungary, and Yugoslavia after World War II.
It is estimated that up to 10 million were expelled, and with their descendants they make up today almost double that number--almost one in four Germans.
In the hushed room, the senior German minister continued: he himself was born in Eastern Europe, and his family was expelled in the post-1945 anti-German atmosphere. ``But,'' he added, ``neither I nor any of my colleagues claim the right to go back.
It is precisely because of this that I can now visit my ancestral hometown and talk to the people who now live in the house in which I was born--because they do not feel threatened, because they know I don't want to displace them or take their house.''
The minister went on to explain that peace in Europe is today embedded in this realization: if East European countries had thought that millions of ethnic Germans would like to return, ``the Iron Curtain would have never come down.''
It was a highly emotional response to the Lebanese academic's question--one that Arab representatives chose later on to ignore.
But it was just one more expression of the context in which the issue of the 1948 Palestinian refugees has to be addressed.
As the German senior minister reminded the audience, there are numerous parallels in recent history to the Palestinian refugee problem.
Anyone who now claims that the 1948 Palestinian refugees have a claim, in principle, to return to Israel, must confront the question: should the millions of Germans expelled from Eastern Europe after 1945 also have the same right of return to their lost homes?
The German minister supplied the answer.
Similarly, if Helmut Kohl's government had insisted in 1990 that all Germans expelled from Poland and Czechoslovakia have a right to return to those countries, German reunification would not have gained the broad international agreement that it did.
It would be clear that what West Germany had in mind was not reunification, but reversing the consequences of Nazi Germany's defeat in 1945.
The Palestinians' demand for the right of return has an analogous meaning.
Insistence on it in 2000 at Camp David and Taba made clear to most Israelis that what the Palestinians have in mind is not undoing the consequences of the Six Day War in 1967.
Rather, the demand for a right of return amounts to an effort to reverse the consequences of their defeat in 1948, when the Arab world went to war to prevent the state of Israel from being born.
It is worth keeping in mind what advocates of a Palestinian right of return now prefer to forget: Palestinian Arabs and four Arab members of the UN went to war in 1948 not only against Israel, but against international legitimacy and the UN plan for a two-state solution.
There is no other example of UN member countries going to war to prevent implementation of UN decisions.
This is what the Arab countries and the Palestinians did.
Clearly there is a serious humanitarian issue involved.
The fact that the refugees' plight was compounded by their use as political pawns for half a century is a measure of the cynicism and immorality of Arab political leadership.
Nonetheless, the humanitarian issue remains.
The senior German minister referred to it explicitly, both with regard to the Palestinians and the post-1945 German refugees.
But the political consequences for him were clear: the revanchist call for a return of refugees--in both the German and the Palestinian case--is a formula for instability, if not war.
Three Iraqs, Not One
America's mounting difficulties in setting up a coherent form of government in Iraq, let alone a democratic one, inspire a question that most statesmen consider unthinkable: is it possible that there is no way to re-constitute Iraq as one state, and that alternative options must be considered, unpalatable as they may appear?
Like so many problems in the re-birth of states wounded by dictatorship--Eastern Europe is a good example--Iraq's difficulties have deep historical roots.
To blame everything on the heavy-handedness of the Americans is too simplistic and shallow, even if their mistakes have, indeed, been legion.
Iraq was established in the 1920's by the British, who occupied the region after the Ottoman Empire disintegrated at the end of WWI.
Their policies were dictated by British imperial interests, and gave no consideration to the wishes, interests, or characteristics of the local population.
What British imperial planners did was to stitch together three disparate provinces of the old Ottoman Empire and put at their head a prince from Hedjaz (now a part of Saudi Arabia).
The three provinces--Mosul, Baghdad, and Basra--each had very distinct characters and very different population structures.
Mosul had a Kurdish majority, with significant Assyrian-Christian and Turkoman minorities; Baghdad was mainly Sunni; and Basra was predominantly Shi'ite.
Throwing such disparate groups into one body politic doomed the newly invented country to decades of strife and repression.
The old Ottoman Empire ruled these three provinces--as it ruled all of its imperial possessions--through its historically autocratic means.
The challenge facing the new Iraqi state was to try to create a non-despotic, relatively representative form of government in which all sectors of the population would find an expression of their political will.
This turned out to be an impossible mission.
For this reason Iraq--even before Saddam Hussein--always suffered the most repressive regime of any Arab state.
In a country where Shi'ites form the majority, the Sunnis--traditionally the hegemonic group in all Arab countries--were totally unwilling to allow any democratic process to jeopardize their rule.
A Shi'ite insurrection was brutally put down in the 1920's (with the help of the British Royal Air Force).
Similarly, Kurdish attempts at autonomy before WWII were drowned in bloody massacres of tens of thousands of innocent civilians, and even the Assyrian Christian minority--a relatively small group, with no political ambitions--was exposed to murderous assaults in the 1930's.
Under these conditions, with the Sunni ruling minority constantly feeling threatened, it was no accident that the only attempt in any Arab country to establish something like a pro-Nazi fascist regime occurred in Iraq in the early 1940's under Rashid Ali al-Khailani.
The British suppressed this misadventure, but not before hundreds of Jews in Baghdad were murdered in a wild farhood (pogrom) instigated by the short-lived pro-Nazi government.
Saddam's regime was merely the most extreme manifestation of the harsh underlying fact that Iraq's geography and demography condemned it to rule by the iron fist.
Nor has Saddam's fall changed this fact: anti-US violence is not only an expression of anger at foreign occupation; it is also a Sunni attempt to abort the establishment of a democratic order that would put them--the historical masters--in a subordinate position.
Similarly, one cannot see the Kurds in the north submitting willingly to a Baghdad-dominated Arab regime, let alone a Shi'ite one (most Kurds are Sunnis).
There is little understanding in the West of how deep the Sunni/Shi'ite divide runs.
Put yourself in pre-1648 Europe, a time when Protestants and Catholics slaughtered each other with abandon, and you'll understand the enmity immediately.
So what can be done?
Yugoslavia's example shows that in multi-ethnic and multi-religious countries deeply riven by conflict, partition and separation may be the only way to ensure stability and democratization.
There is no doubt today that Croatia and Serbia--despite their difficulties--stand a better chance of becoming more or less stable democracies than if they were still fighting for mastery among themselves within the Procrustean bed of the former Yugoslavia.
Nor is federation an alternative--as the terms of the federation itself become the bones of contention (see Bosnia or Cyprus).
Even the pacific Czechs and Slovaks found it easier to develop their respective democratic structures through a velvet divorce rather than be joined in an unworkable marriage.
The time has come to think the unthinkable, about creating a Kurdish state in the north, an Arab Sunni one in the center around Baghdad, and an Arab Shi'ite state in the south around Basra.
Repeating mantras about territorial integrity--the conventional wisdom of international relations--is productive only as long as it ensures stability and averts chaos.
Again, as Yugoslavia--and the Soviet Union--showed, once strife replaces stability, territorial integrity loses its strategic meaning and legitimacy.
This is not a universal prescription for ethnically homogenous states.
The point is simply that there are moments in history when democratization and nation building coincide, and that in deeply divided societies the minimum consensus needed for both to succeed simultaneously is difficult to achieve.
All this may run contrary to conventional wisdom, but who thought that the USSR would disintegrate?
Creative and innovative thinking is needed about Iraq; otherwise today's mayhem will continue--and worsen.
A Referendum For Kurdistan?
The assassination of the President of Iraq's Governing Council makes it crystal clear that the US is failing to create the minimal law-and-order needed for any sort of orderly transfer of power to take place by June 30th.
Barely two months ago, the signing of a constitutional document by a US-appointed group of un-elected Iraqi officials was heralded as if it were the re-enactment of America's constitutional convention in Philadelphia in 1787.
But by now it is clear that this is a worthless piece of paper.
No imposed constitution, however elegant it may be, will be very helpful to Coalition forces when confronted with the type of mayhem seen in towns like Fallujah or Najjaf.
In the Kurdish region of northern Iraq, however, the situation is completely different: in the last ten years, under the protection of the Allies' no-fly zone, and even more so since the toppling of Saddam, the Kurdish regional government has been able to establish and sustain a relatively orderly administration.
It has overcome tribal and party differences and created a de facto functioning government, with an impressive record on development issues such as education, irrigation, and construction - and, above all, with no violence.
Confronted with the debacle in the rest of (Arab) Iraq, the question has to be asked why the US-led coalition should not hold a referendum in the Kurdish region, asking the population how they would like to be ruled.
After all, the Kurds have, by any internationally accepted standards, a right to self-determination.
Historically, the Kurds - who are distinct in language, culture, and historical consciousness from Arabs - never had their day in court.
After World War I and the fall of the Ottoman Empire, the victorious Allies promised them a state of their own - a promise that was cynically betrayed when British and French imperial interests took precedence.
Since then, the Kurds have suffered under the despotic rule of rival ethnic groups.
There are obvious obstacles to holding such a referendum, primarily because the US does not have a mandate to dispose of Iraq as it pleases.
But the same goes for the rest of Iraq: the US is now lamely asking for a UN resolution mandating a transfer of power to a legitimate Iraqi government - but such an authorization is highly unlikely, nor is there anyone in Iraq to whom authority can conceivably be transferred.
Why should the one region - and people - who run an orderly government, are not involved in murder, attacks on mosques, and suicide bombing of schoolchildren, be penalized?
Another objection is the opposition of Turkey - and, to a lesser degree, Iran and Syria - to granting the Iraqi Kurds self-determination.
But if one thinks in terms of universal norms of human rights, what right has Turkey to dictate internal development in another country?
After all, nobody accepts Israel's claim to oppose as a matter of principle the establishment of a Palestinian state in the West Bank and Gaza.
The same should apply to Turkey.
If Turkey grants its own Kurdish minority more cultural and language rights and allows legitimate Kurdish political representation in the Turkish parliament, the willingness of Turkish Kurds to oppose Ankara will be diminished.
In the nineteenth century, the joint interests of the authoritarian Russian, German, and Austrian Empires prevented the establishment of a free Poland: such unholy alliances have no place in the twenty-first century.
Recently, under the aegis of the UN, a referendum on the future of Cyprus was held within the island's Greek and Turkish communities.
The outcome was paradoxical, and not to the liking of those who initiated it: but the right of the communities to determine their future was accepted.
Why not in Iraqi Kurdistan?
Perhaps to assuage political fears - and considerations of international law - any plebiscite in the Kurdish region should, initially, have only a consultative status.
But it will give legitimate expression to the will of a people long oppressed and entitled to their place in the sun.
Such a referendum may also concentrate minds among the Arab Sunnis and Shia in Iraq, when they come to realize that it is their violence that is dismantling Iraq.
Perhaps they may decide that violence is counter-productive and carries its own penalties, and may then follow the Kurdish example of curbing violence, which would help put Iraq together again without recourse to permanent repression.
If not, at the very least, the injustice suffered by the Kurdish people for generations would, at long last, be rectified.
The Other Palestinian Revolution
The euphoria that has, for over a week, greeted Mahmoud Abbas's election as President of the Palestinian Authority was perhaps justified.
But now it is time for a clear-eyed assessment of what lies before Palestinians, Israelis, and, perhaps more importantly, for the wider Arab world.
Such an assessment requires acknowledging that the election was far from flawless: Hamas and Islamic Jihad boycotted the poll, and Marwan Barghouti, a fellow Fatah member with Abbas and the one candidate who could seriously have challenged him, was ungently persuaded by the movement's leadership to withdraw his candidacy in order to present a unified front.
Moreover, Abbas (also known as Abu Mazen) succeeded in getting the dozen or so Palestinian security services and militias under his control.
This guaranteed his victory, though the parades of armed men brandishing guns at his rallies were not exactly what democratic norms call for.
Yet the fact remains that after decades of Yasir Arafat's autocratic rule, and despite the obvious constraints of continued Israeli occupation, the Palestinians did elect a leader in a relatively free and competitive election.
For years, Arafat avoided holding elections, as required by the laws of the Palestinian Authority, under the pretense that they cannot be held under occupation: but, lo and behold, two months after his demise, an election was held - and with resounding success.
The presidential election will obviously serve as a catalyst for renewed, and possibly more successful, negotiations with Israel.
But the impact of the Palestinian vote will also be watched closely in the Arab world, because what happened in the West Bank and Gaza is unparalleled in the annals of Arab politics.
Abbas will now bask in the glow of having been elected.
Nothing like this has happened in any Arab country. Indeed, Abbas is now the only Arab leader who came to power in a more or less free election.
Is Palestinian society so different from other Arab societies? Not really.
But there were several unique factors in the Palestinian context.
First, there was strong external pressure: confronted and exasperated by Arafat's deviousness and autocratic style, the United States and the European Union clearly told the Palestinians that any future support for their quest for independence would depend on their going through a reasonably acceptable democratic process.
Second, most Palestinians perceived that their ability to go through such a democratic process was itself a significant step in their struggle against Israel.
Finally, Palestinians have been exposed not only to the obvious hardships of occupation while living under Israeli rule for the better part of four decades; they were also able to experience, at close range, a liberal democracy at work - a free press, an independent judiciary, and political pluralism.
The dialectic of occupation plays strange games, both with occupier and occupied.
The Palestinian elections were seen all over the Arab world on Al-Jazeera and other Arab TV channels.
They must have focused people's minds on their own stunted political conditions. If the Palestinians, under Israeli occupation, can choose their own leaders, why can't the same happen in Cairo or Damascus, in Ryadh or Algiers?
When the jubilation and the justly earned compliments for the Palestinians subside, both Arab rulers and Arab masses (the much hyped "Arab street") may start asking some hard questions.
The Palestinians have shown that it is not true that an Arab society cannot progress towards representative institutions.
So why can't this progress be emulated in other Arab societies?
Perhaps a time bomb has been planted under the thrones of Arab potentates - kings, emirs and presidents.
While Iraq - an attempt to import democracy by force - is failing, the paradoxical conditions of an Arab democracy under Israeli occupation may be a threat that Arab rulers have not yet comprehended.
Humpty-Dumpty Iraq
The problem is not with the constitution, but with the conventional wisdom -- almost an idée fixe -- that Iraq is a viable modern nation-state, and that all it needs to make it work properly is the right political institutions.
But this is a fallacy, and responsible leaders should begin to think of alternatives.
The Iraqi state, established in the 1920's by British imperialist planners (with Winston Churchill in the lead), is a strange pastiche of three disparate provinces of the old Ottoman Empire: Mosul in the north with a Kurdish majority, Baghdad in the center with a Sunni Arab majority, and Basra in the south with a Shia Arab majority.
For their own political reasons, the British put the Sunni Arabs -- never more than 25% of the population -- in control of the whole country, and even imported a Sunni Arab Hashemite prince to rule over their creation.
Ever since, the country could be held together only by an iron fist: Iraq's history is replete with Shia, Kurdish, and even Christian Assyrian revolts, all put down in bloody fashion by the ruling Sunni minority.
Throughout its history, modern Iraq has always been the most oppressive of the Arab countries.
Saddam's rule was only the most brutal in a long line of Sunni regimes.
It was this Sunni hegemony -- and not merely that of Saddam's Ba'athist regime -- that was toppled by the United States.
But, given Iraq's history and demography, the American attempt to refashion the country as a functioning democracy has foundered on three shoals: the Shia majority's empowerment, the Kurds's refusal to give up their hard-won de facto mini-state in the north, and the Sunnis' violent campaign to undermine any system that they do not lead.
In short, the draft constitution is an attempt to square a circle.
The Sunni resistance -- a guerilla and terrorist war that was well prepared in the last years of Saddam's rule -- will continue to try to subvert any semblance of order representing the current majority Shia-Kurdish coalition.
The Sunnis will go on with their murderous attacks on Shias, Kurds, and the US-led military coalition.
They will probably boycott the constitutional referendum and all subsequent elections, just as they have boycotted the previous elections.
After all, given the brutal logic of their long hegemony in Iraq, why should the Sunnis contemplate submitting to a process that is premised on their minority status, particularly when whole areas of the country are under the effective control of the Sunni insurgency?
Similarly, why should the Shias, for their part, submit to Sunni hegemony rather than building up their own political structure in the south, modeled on what the Kurds have already achieved in the north?
Let's be frank: Iraq is going the way of Yugoslavia as it disintegrated in the early 1990's.
Of course, such norms are helpful.
But once a state disintegrates, as happened in Yugoslavia, no constitutional formulations can save it.
Constitutions works only if all sides have an interest in operating within the proposed framework -- and this obviously is not the case in Iraq.
There is nothing sacrosanct in the continued existence of multi-ethnic and multi-religious states if their constitutive groups do not wish to live together.
On the contrary, there are lessons to be learned from the demise of the Soviet Union, Yugoslavia, and even -- perhaps especially -- Czechoslovakia, which negotiated its break-up without violence.
By contrast, the current Bosnia-Herzegovina is an example of another failed attempt to keep a decrepit multi-ethnic entity alive: it doesn't work, and the country is held together only by the almost dictatorial power of the international community's High Representative and the presence of foreign troops.
Hamas in Power
The Hamas victory is, first and foremost, an indication of the total failure of the traditional Palestinian leadership to create a body politic.
Palestine is not yet a state, but it is already a failed one.
Since the Oslo Accords of l993 between Israel and the PLO, the Palestinians enjoyed limited transitional autonomy.
To be sure, the new Palestinian Authority (PA) took power under difficult conditions, but which new liberation movement does not face serious challenges when it finally must govern?
The PA had an opportunity to lay the institutional foundations for a functioning state.
But, but instead of supplying the population with the necessary infrastructure -- economic development, education, welfare, medical services, housing, and refugee rehabilitation -- Yasser Arafat's Fatah-led PA spent more than 70% of its meager budget on a dozen competing security and intelligence services, neglecting all other spheres of activity.
It created what is called in Arabic a Mukhabarat (security services) state, very much like what is prevalent in almost all Arab countries -- Egypt, Syria, Saudi Arabia, republics and monarchies alike.
The vacuum that the PA left elsewhere, including the social sphere, was filled by Hamas.
Indeed, its popularity is due not only to its fundamentalist Islamic ideology and its commitment to the destruction of Israel.
The high esteem in which Palestinians hold Hamas also grew out of what Hamas actually did for them while the PA squandered its resources.
It was not only the endemic corruption of the official Palestinian leadership that turned so many Palestinians from it.
Hamas set up better schools, kindergartens, crèches for mothers, medical centers, welfare services, and programs for youth and women -- all of this in addition giving special grants to the families of suicide bombers.
In the elections, Hamas received its dividend for doing what the Fatah-led Palestinian Authority failed to do.
It is still an open question whether Hamas in government will become more pragmatic and less committed to terrorism: it certainly is a possibility, and one should not prejudge the outcome.
But nor, on the other hand, is it clear that the existing organs of the Palestinian Authority -- especially the security services at its disposal -- will allow a peaceful transfer of power. Indeed, no such precedent exists: there has never been a peaceful transfer of power in any of the Arab League's 22 member states.
Israel's response to Hamas's victory will obviously be complicated by its own elections on March 28, and by a government headed by an interim prime minister, Ehud Olmert, owing to Sharon's incapacitation just weeks after leaving Likud and founding a new, centrist party, Kadima (Forward).
Despite Sharon's absence, Kadima maintains its lead in public opinion polls -- the most recent gave it 44 of the Knesset's 120 seats, compared to 21 for Labor and 14 for the right-wing rump-Likud, under Binyamin Netanyahu.
Kadima's success is due to Sharon's main innovation in Israeli politics: the successful unilateral disengagement from Gaza.
That withdrawal was based on the conviction that the gaps between the Israeli and Palestinian positions are too wide to enable meaningful negotiations.
Hence, Israel must start deciding the future boundaries of the country unilaterally, hoping for eventual negotiations at a later stage.
This is also the line adopted by Olmert.
But Hamas's victory suggests that the gaps between the Israeli and Palestinian sides will grow even wider, and that the chances for a negotiated settlement will recede even farther into the future.
This leaves further unilateral Israeli moves -- such as a partial set of withdrawals from selected areas in the West Bank -- as the only feasible option.
Realistic conflict management will replace utopian hopes for conflict resolution.
In a region full of paradoxes, the Hamas victory may have added another one: usually, when extremists on one side become stronger, it plays into the hands of extremists on the other side, producing a dangerous spiral effect.
In this case, however, the victory of the extremist Hamas may strengthen not the extremists of Likud, but, surprisingly, the more moderate centrists of Kadima.
One cannot be certain of such an outcome, of course, but it is now the best that one can realistically hope for.
Can Hamas Stay in Power?
The abduction of an Israeli soldier in the Gaza Strip, as well as the abduction and subsequent murder of an 18-year old Israeli civilian in the West Bank, have brought to the fore that question, which has haunted Israeli-Palestinian relations since Hamas won parliamentary elections in January.
The international community, led by the "Quartet" (the United States, the European Union, the United Nations, and Russia), has put three conditions to the Hamas government if it wishes to achieve international legitimacy and continue to be supported financially.
Hamas must recognize Israel's right to exist, stop all terrorist activities, and commit itself to carry out all previous international agreements signed by the Palestinian Authority.
These look like reasonable conditions to any outside observer.
To Hamas, however, they appear to undermine its very raison d'etre.
After all, this is an organization committed to the destruction of Israel -- its charter calls for a holy war against all Jews -- and the establishment of an Islamic state in all of historical Palestine.
Indeed, Article 22 of that charter reveals that Hamas views the Jews (together with the Freemasons and other nefarious organizations like Rotary International and the Lions Club), as responsible for the French and Bolshevik Revolutions, World War I, and World War II.
So it is no great surprise that Hamas rejected the Quartet's conditions.
At the same time, Palestinian President Mahmoud Abbas (Abu Mazen), who represents Fatah, which lost the January elections, has tried in vain to find common ground with Hamas through an ambiguous text known as "The Prisoners' Document."
This document was intended to serve as an implicit acceptance of Israel's right to exist.
But nothing of the sort appears in the truncated text approved by Hamas.
On the contrary, the text legitimizes continuing attacks against Israeli civilians in the West Bank, making it unacceptable to Israel -- and to the international community.
But the current crisis cannot be solved by words alone.
One of the paradoxical results of America's almost messianic belief in elections as a panacea for all the ills of the Middle East is that Hamas -- the winner of democratic elections -- has gained a degree of legitimacy that it never had before.
On the other hand, Hamas's history and current behavior clearly indicate that it regards elections as merely a political tool, and that it is devoid of any commitment to the norms and values underlying democracy.
Fascist and communist regimes of the past, which followed a similar instrumentalist approach to democracy, come to mind here.
Yet, at the same time, the US supports Abu Mazen, trying to undermine the Hamas government, thus casting a shadow on the credibility of its own commitment to democracy.
The current violence may escalate further, and could bring down the Hamas government.
On the other hand, diplomatic means may bring about the release of the Israeli soldier and put a stop to the firing of Qassam rockets from Gaza into Israel -- a daily occurrence that has challenged the credibility of the new Israeli government under Prime Minister Ehud Olmert.
But the fundamental problem is that, until now, at every historical juncture, the Palestinians refused to accept a compromise and consequently failed in nation-building.
In 1947, they refused the UN partition plan, which called for the establishments of two states in British Palestine.
In 1993, after the Oslo agreements, the Palestinian Authority established under Yasir Arafat became another militarized authoritarian regime, very much like Syria and Egypt, and did nothing to alleviate the suffering of the Palestinian refugees.
It was this failure that brought Hamas to power.
The current crisis is obviously the first serious test for Olmert and his plans for further withdrawal from Israeli-occupied territories.
But it is an even greater test for the Palestinians: will they once again be led by a radical and fanatical leadership into another national catastrophe?
Or will they finally realize that a future of independence, sovereignty, and dignity is open to them -- but only if they grant the Israelis what they rightly claim for themselves?
The international community can urge the Palestinians toward a decision.
But that decision, and its moral costs, remains in the hands of the Palestinians alone.
Putting Lebanon Together
When Israel withdrew its forces from southern Lebanon in 2000, the international understanding was that the Lebanese government would re-assert its authority in the evacuated area.
Hezbollah, which led the armed struggle against Israeli occupation, was to disarm and re-invent itself as a political force, representing the Shiite community that was historically marginalized by Lebanon's ruling Maronite, Sunni, and Druze elites.
None of this happened.
Instead of deploying its forces in southern Lebanon, the weak government in Beirut acquiesced in Hezbollah's determination to turn the area into a staging ground for attacks against Israel.
Over the last six years, Hezbollah established a virtual state-within-a-state: its militia became the only military force in southern Lebanon, setting up outposts along the frontier with Israel, sometimes only a few meters away from the border.
Occasionally, Hezbollah shelled Israel, and its leader, Hassan Nassrallah, continued his blood-curdling invective, not only against Israel and Zionism, but against all Jews.
UN Security Council resolution 1559, which explicitly called for the disarming of all militias and the reassertion of Lebanese government authority in the south, went unheeded.
After the much-heralded "Cedar Revolution" of 2005, Hezbollah even joined the Lebanese government, while at the same time maintaining its armed militia and control of the south.
Israel, for its part, still reeling from the trauma of its ill-begotten war in Lebanon in 1982, chose not to respond to Hezbollah's attacks and hoped that the attacks would not escalate.
Yet such absurd situations tend to explode, as occurred with Hezbollah's abduction of two Israeli soldiers within Israeli territory.
The continued existence of Hezbollah's illegitimate state-within-a-state can no longer be tolerated.
Like the UN presence in Srebrenica during the Bosnian war, UNIFIL has given the UN a bad name: it never stopped terrorists from attacking Israel, nor did it stop the Israeli invasion of Lebanon in 1982.
What is needed is a military delegation that has a clear mandate to use force.
The mission of such a force should be to help deploy -- by force, if necessary -- the Lebanese Army in southern Lebanon, to participate in disarming Hezbollah, and to patrol the Israeli-Lebanese border, ensuring that no incursions take place from either side.
Last but not least: it is not widely known that one anomaly of Lebanon's status until this very day is that Syria has not fully recognized its existence as a sovereign nation (in Syrian school textbooks, Lebanon figures as part of Greater Syria).
Consequently, there are no normal diplomatic relations between the two countries -- no Syrian embassy in Beirut and no Lebanese embassy in Damascus.
Will Olmert Survive?
The commission, headed by retired Supreme Court judge Eliyahu Winograd, has just published its interim report.
Its criticism of Olmert, Defense Minister Amir Peretz, and Chief-of-Staff Dan Halutz -- set forth in a detailed and meticulous 117-page assessment -- is harsh, but not surprising.
The Winograd Commission articulated what most Israelis already think: Olmert and Peretz lacked the military, security, and policy experience to confront a terrorist organization that raided Israeli territory, killed a number of soldiers and kidnapped two, and then launched thousands of rockets on civilian targets for over a month.
Indeed, the inexperience of the prime minister and the defense minister are unprecedented in Israel's history.
Olmert, who stepped into Ariel Sharon's shoes as leader of the new Kadima Party, was considered a competent but lackluster parliamentarian -- and later mayor of Jerusalem -- who was known more for his polemical style than for his political stature or gravitas.
For most Israelis, even those who voted for him as the bearer of Sharon's legacy after the Gaza disengagement, Olmert thus remained the accidental prime minister.
Likewise, Peretz, a rabble-rousing but effective trade unionist, surprised all when he won the Labor Party's leadership primary and then chose the defense portfolio over the treasury.
To many, the duo of Olmert and Peretz seemed to invite trouble.
Precisely because Israelis are aware of the constant security threat facing their country, they have always believed that their leaders should be able to lead Israel in war -- but also to ask the military tough questions when diplomacy may fail.
When such a moment arrived, totally out of the blue (or so it seemed) with Hezbollah's raid on July 12, 2006, Israel's two top politicians were completely out of their depth, stumbling into a war for which neither they nor the Israeli Army were prepared.
The military was led -- for the first time in its history -- by an Air Force general, Dan Halutz, who believed that everything could be solved by air power, creating a combustible combination of civilian ignorance and military arrogance.
In measured but devastating prose, the Winograd Commission gives failing marks to all three leaders.
Olmert decided to go into battle recklessly and unaware of the consequences.
Peretz was unable to gauge the strategic implications of his decisions.
And Halutz failed to present the civilian leadership with the full panoply of military options at the army's disposal.
Halutz already resigned a few months ago.
But both Olmert and Peretz have declared that, despite the Commission's conclusions, they would not quit: instead, they have vowed to implement the report's many far-reaching substantive recommendations about policy, strategy, and decision-making processes.
Will Olmert and Peretz be able to stay on?
Their coalition government enjoys a comfortable parliamentary majority; nor does the political arithmetic imply a viable parliamentary alternative.
But public opinion -- volatile and angry -- calls for both to resign: a public-opinion poll conducted after the Commission published its report indicated that only 14% of Israelis believe that Olmert should keep his job, while less than 11% support Peretz.
Later this week, demonstrations calling for the government's resignation are planned, and it will become obviously more difficult for the government to continue to function.
There are already rumors about a palace coup within Kadima, aimed at replacing Olmert with either the deputy prime minister, the veteran Shimon Peres, or the popular foreign minister, Tzipi Livni.
But it does not appear that Olmert will allow himself to be pushed out.
In fact, Olmert's weak and discredited government may yet survive.
If the government were to fall and new elections held, there are strong indications that the winner might be Binyamin Netanyahu, of the right-wing Likud, which was decimated in the 2006 elections, but is now patiently waiting in the wings.
Many who want Olmert to go would still not welcome a Netanyahu comeback, which may also explain what appears to be an indirect endorsement of Olmert by the United States.
Only a strong Israeli government can make the painful decisions necessary for negotiations with the Palestinians to succeed.
As a result, the prospects for meaningful continuation of Israeli-Palestinian talks look even dimmer than they did before.
Indeed, the real loser of the 2006 Lebanon war was neither Israel nor Hezbollah, but, at least for the time being, the peace process.
Impotent America?
There are immediate reasons why this is so: Israeli Prime Minister Ehud Olmert's government is weak and unpopular, mainly due to the botched 2006 war against Hezbollah in Lebanon.
The Palestinian Authority under Mahmoud Abbas is even weaker, having lost control of Gaza to Hamas after a violent putsch last year.
On the Palestinian side, this is part of a deeper phenomenon: a longstanding failure to create the institutional structures necessary for nation building.
For example, in 1936-1939, a Palestinian uprising against British rule deteriorated into a bloody civil war, in which more Palestinians were killed by their brethren than by the British army or the Jewish self-defense forces.
Looking back at 60 years of American involvement in the region, one can discern two scenarios in which the United States can bring the local players to an agreement.
Absent these conditions, the US is ultimately powerless.
The first scenario is when a real war threatens to spill over into a wider conflict, destabilizing the region and Great Power relations.
At such times, resolute American steps can stop the fighting and impose a cease-fire, if not peace.
In 1973, at the end of the Yom Kippur War, Israel was poised to encircle the entire Egyptian Third Army in Sinai.
A few tough messages from President Richard Nixon stopped the Israelis in their tracks and enabled the Americans to start a lengthy process of de-escalation that led to a number of interim agreements.
Likewise, in 1982, during the invasion of Lebanon, Israeli troops were about to enter Muslim West Beirut after Syrian agents assassinated the pro-Israeli Lebanese President-elect Bashir Gemayel.
During the first Gulf War in 1991, when Iraq fired 39 Scud missiles at Israeli civilian targets and US forces failed to stop the Iraqi attacks, Israel was set to strike Iraqi targets, which would have split the US-Arab anti-Iraq coalition.
The US warned Israel not to get involved, and Israel was forced to comply.
In all these cases, American involvement was swift and focused on a clear aim, and compliance was verifiable within days, if not hours.
In such dramatic situations, US power is at its greatest.
The other scenario is when the two sides have already engaged in bilateral peace talks, paid the domestic political price, and reached agreement on most issues, though some matters remain unresolved and threaten to derail the process.
In such cases, America can step in and, by using both carrot and stick, make both sides go the extra mile.
After Anwar Sadat's visit to Jerusalem in 1977, Israel and Egypt negotiated for a year and reached agreement on most issues: peace, diplomatic relations, and full Israeli withdrawal from all occupied Egyptian territory in Sinai.
At this point, President Jimmy Carter -- who initially opposed the process -- invited both sides to Camp David to hammer out a peace treaty.
In 1993, in secret bilateral negotiations in Norway (unknown to the Americans), Israel and the PLO reached an agreement about mutual recognition and the creation of a provisional Palestinian Autonomous Authority.
Yet some issues remained unresolved.
President Bill Clinton stepped in, and prevailed upon the two sides to work out their remaining disagreements.
When either of these two scenarios is lacking, American initiatives are stillborn.
Absent local political will, and when confronted with a peace-making project that may take years to complete, the US is virtually powerless.
It is extremely successful as a fire brigade or as a midwife , but not as an initiator .
Building Palestine From the Bottom Up
The first obstacle -- indeed, the issue that stands front and center today -- is the ongoing Palestinian civil war, with Hamas controlling the Gaza Strip in defiance of Abu Mazen's Fatah-led Palestinian Authority.
The Palestinians' basic failure at nation-building makes any meaningful peace talks with Israel -- let alone an agreement --  almost impossible at the moment.
With Palestinians unable to agree among themselves on a minimal national consensus, how can peace be established between them and Israel?
Second, with Likud's Benjamin Netanyahu as prime minister, Israel now has a government which is far less likely to be willing -- or able -- to make major concessions and evacuate hundreds of thousands of Israeli settlers from the West Bank.
Third, and most significantly, the 1993 Israel-PLO agreement has until now failed to achieve its aim.
Attempts to revive the Oslo peace process -- the "Road Map" and the Annapolis process --  have similarly failed to achieve more than vacuous declarations and hollow photo opportunities.
The causes of these 15 years of failure should be considered, so that Mitchell's mission does not become another stillborn effort.
Both the Palestinians and Israel can easily and rightly be blamed for the failure of the Oslo process.
But there is a more fundamental cause at stake, and it should not be overlooked.
The Oslo process tried to build a Palestinian state from the top down: create a Palestinian national authority, hand over territory to it, give it increasing power, arm it and finance it, hold elections, and a Palestinian state would emerge.
Instead, the consequence was a corrupt, militarized Palestinian Authority, with competing security services proved incapable of providing security.
Nor could it conduct credible negotiations with Israel or deliver necessary services to ordinary Palestinians.
Two reasons for this failure stand out: the institutional weakness of Palestinian civil society, which lacks the infrastructure necessary for nation-building; and the impossibility of simultaneous nation-building and peace-making.
There is no precedent anywhere in the world that suggests that such a two-tier process can succeed.
A fundamental change of paradigm is needed: the effort should shift to building a Palestinian state from the bottom up, for which there are encouraging signs, even in the midst of the failure of the top-down process.
In the last two years, former British Prime Minister Tony Blair and US General Keith Dayton have succeeded in effective institution-building in three West Bank districts -- Jenin, Bethlehem, and Hebron -- turning them into the most peaceful areas in the West Bank, with a minimal Israeli military presence.
Local authorities were supplied with adequate funding and advice; independent chambers of commerce became the backbone of a local commercial middle class, which is interested in keeping the region peaceful, even absent an overall agreement; local police were trained (in Jordan), and now function effectively as police forces, not armed militias; and business relations with adjacent Israeli regions have been renewed.
This empowerment of an effective local leadership was done with much persistence -- and little fanfare. But these nuts-and-bolts projects created -- for the first time -- the building blocks necessary for effective Palestinian nation-building.
Admittedly, this process will take time and patience.
But, until now, it has been the only approach proven to succeed, while everything else has failed.
As Blair recently put it, such a bottom-up process may even go hand-in-hand with Netanyahu's goal of an "economic peace," though it would eventually have to go beyond it.
That such an approach would have to include a total halt to Israeli settlement activities goes without saying.
If carefully crafted, it may even be implicitly accepted, albeit without much enthusiasm, by the Israeli government.
The Oslo process has failed; an attempt to revive it -- say, by way of the Beirut Arab peace initiative -- will merely bring into the open all of the existing disagreements between the two sides, and will not overcome the Palestinian failure at nation-building.
After all the breakdowns in efforts to create a Palestinian state from the top down, only the old-fashioned way -- from the bottom up -- remains viable.
Let The Serbs Try Milosevic
A lot has been happening in Yugoslavia recently, much of it surprising.
After some procrastination and an initial failed attempt, Milosevic has been arrested, without bloodshed, though not without danger.
The peaceful vote in Montenegro last weekend may presage conflict and difficult decisions about independence, but chances are strong that the parties will settle these matters by talking rather than fighting.
These are great steps forward, and they show that despite brainwashing and the complicity of many Serbs in the crimes of the Milosevic regime, democracy and open society have a chance of taking root in what remains of Yugoslavia.
One key decision facing Serbia, and its new authorities, is whether Milosevic should be extradited to The Hague.
There seems to be almost universal agreement that he should, and international pressure is being applied on President Kostunica to comply.
But the decision may have life-and-death ramifications for Serbia's future.
Many who agree that Milosevic is a war criminal now think that we should listen to the voices coming from Belgrade and their cry that Milosevic should face trial before his own people.
Ultimate moral responsibility for what was done by Milosevic rests with Serbia's people.
They brought him to power, albeit not in a way that conforms precisely with democratic norms; they supported him, even when he led them into genocidal crimes and to defeat after defeat.
Finally, they brought him down, and the new democratic leadership in Belgrade has, at no little risk to its own position and standing, arrested him.
That arrest could well have ended in a bloodbath that might have destabilized a still insecure democratic government.
Yugoslavia's new leadership should now be allowed to deal with Milosevic in a way that promotes democracy within Yugoslavia.
His crimes should be judged by his own people -- not by an international tribunal.
In this way the trial will gain more legitimacy and credibility, especially among the many Serbs who still need to be educated in order to realize the true extent of Milosevic's crimes.
Most importantly, by dealing with Milosevic, the Serbs, many of whom supported his regime, will be forced to confront their own behavior and deal with their own consciences.
Only through this process will Serbia be able to rejoin the ranks of free and healthy European nations.
If the trial is held before distant judges, sitting in a far�away capital, applying a not very transparent and somehow abstract code of law, many Serbs will see this not as a trial of Milosevic, but as victors' justice meted out to the Serbian nation.
They will be wrong. Nonetheless, political trials (and war crime trials are always political trials) must not only punish, but also teach.
The lessons from any trial of Milosevic should be taught to Serbia's citizens by Serbian judges, within a normative system that most Serbs accept as legitimate.
The international hue and cry for Milosevic to be brought to The Hague, regardless of political consequences, is understandable.
Yet this pressure is unwise, and somewhat hypocritical.
After all, the peacekeeping forces in Bosnia can, should they decide to act, arrest Radovan Karadzic and General Ratko Mladic, the leaders of the Bosnian Serbs who have been indicted by the Hague Tribunal.
They have not done so, and show no signs of doing so.
Why this inaction?
Clearly, political reasons are at the root of this: the British, US and French governments are reluctant to risk the lives of their own soldiers in order to bring these arch�criminals to justice.
Indeed, Karadzic and Mladic have evaded arrest for years; indeed, since the Dayton peace accords were signed.
Shouldn't equal consideration for the political constraints faced by President Kostunica and the sensitivities of the Serbian people be given?
Is it really worth the risk of destabilizing Yugoslavia's infant democracy to carry out trials that Yugoslavia's government shows every sign of being able to carry out?
That there will now be a Truth and Reconciliation Commission in Belgrade suggests that the current Yugoslav leadership understands that it needs to heal the wounds inflicted on its own people by the murderous Milosevic regime.
Let the international community show the same compassion and understanding to the Serbian people it applies when it has to decide whether to risk its own soldiers in an attempt to apprehend Karadzic and Mladic.
Are the Dollar's Days Numbered?
A year ago, the dollar bestrode the world like a colossus.
Now it is humbled and the euro looks triumphant.
Is the dollar on the way out as the world's unchallenged reserve and trade currency?
Or is "euro triumphalism" premature?
That question preoccupies not only speculators tracking the dollar's decline, but ordinary businessmen who wonder what currency to use when invoicing imports or exports.
Indeed, the part that currencies play in world trade through their role in invoicing receives too little attention.
Currently, the US dollar remains dominant.
Most US exports and imports are denominated in dollars, and the dollar is extensively used in trade that does not involve America.
Since 1980, however, the dollar has lost ground.
Estimates from the European Commission indicate that the dollar's share in world trade fell from 56% in 1980 to 52% in 1995 (the latest year for which statistics are available).
The Deutsche Mark's share remained relatively unchanged between 1980 and 1995.
The yen lags behind, but had the highest relative growth, with its share of world trade more than doubling from 2% in 1980 to almost 5% in 1995.
Among the reasons for the dollar's longtime dominance as the premier international currency are lower transactions costs in foreign exchange markets, the historical role of the dollar in world trade since 1945, and the sheer size of America's economy.
But the role of size is more complex than it seems.
The second biggest economy in the world is Japan's, but the fraction of its trade denominated in yen remains low, even when compared to the smallest European countries.
One factor that explains this is the large share of US firms in markets where Americans sell their goods.
To understand the reasons behind all this, consider what factors are in play when a firm chooses the currency it uses to invoice for goods.
Here an exporter faces two types of risk: price risk and competitiveness risk.
Consider a Japanese firm seeking to make the highest yen profits on goods sold in Switzerland.
If the Japanese firm sets the price in Swiss francs, it is exposed to price risk as the yen price will fluctuate with the yen-Swiss franc exchange rate.
This tends to make Japanese exporters prefer to price in yen.
But firms also care about what their competitors do.
If the Japanese firm sells its goods to a particular Swiss market dominated by Swiss firms (which invoice in Swiss francs), it would prefer to price in Swiss francs too.
If it priced in yen, it would risk losing its market share if the yen appreciated.
If Japanese firms are dominant in a particular Swiss market, they prefer to price in yen: a Japanese firm then would not have to worry about losing market share when the yen appreciated, because its competitors would face the same pressures.
These arguments explain the big role played by the dollar in trade.
The fact that the US is large makes it more likely that US firms are dominant in a particular market, either as an exporter or as import-competitors when foreign goods are sold in America.
This implies that US firms price in dollars, whether they sell at home or abroad, and foreign firms for competitive reasons will also price in dollars when they export to the US.
Because Japan has the second largest economy in the world, the yen should be a more important currency.
Competitiveness is a key reason for why it is not.
First, the US is Japan's largest trading partner: more than half of Japanese trade with industrialized countries is with the US.
Over 80% of Japanese exports to the US are priced in dollars, in markets where US firms tend to dominate.
Second, even when selling to countries other than the US, Japanese exporters often face stiff American competition.
Take Japanese exports to South East Asia, which are almost 50% denominated in dollars due to competition from US exporters.
These factors are unlikely to change soon and lead us to predict that the yen will keep a low profile in world trade.
They also explain why, over time, the euro should gain weight in international trade.
Euro-zone countries can be considered a single country when dealing with the currency denomination of trade.
This `country' has more market power than the individual countries that form the European Monetary Union.
So the euro should play a larger role in international trade in the future than the sum of the currencies it replaced.
Yet these changes will only occur gradually.
So the "euro triumphalism" that has greeted the dollar's decline is, indeed, premature.
Despite its current distress, the dollar should retain its predominance for some time to come.
European Discrimination on Trial
Although recent reports published in 2006 by the European Union's Monitoring Center on Racism and Xenophobia and the Council of Europe's Human Rights Commissioner note some improvements, they indicate Roma living conditions have stagnated, if not deteriorated.
Roma are still victims of discrimination in access to housing, employment, healthcare, and education, despite significant local efforts at the Council of Europe's instigation and with its support.
Discrimination in educational access is particularly important, given its profound effect on its victims' life prospects.
In the most extreme cases, the education system itself is segregated: isolated schools in remote camps; special classes for Roma children in mainstream schools; and an over-representation of Roma children in classes for children with learning difficulties.
The question was whether the children were victims of discrimination owing to their national minority status.
The Czech government admitted that some of the special schools' student bodies comprised 80% to 90% Roma children.
However, if there was discrimination, it was not direct, because under Czech law, such a move could be decided only by a school headmaster based on the results of an intelligence test at an educational psychology counseling centre, and subject to the approval of the child's parents or legal guardian.
A difference in treatment is not discriminatory in itself.
According to the case law of national supreme courts and the ECHR, discrimination exists only when people in a similar situation are treated differently.
Yet national and international case law recognizes that a non-discriminatory measure in theory can be discriminatory in practice.
So, in the current case, the alleged discrimination does not stem from the law itself, but from its effects, with the plaintiffs relying mainly on statistics showing the over-representation of Roma in special schools.
Many other reports on the situation of Roma in the Czech Republic, including by the Council of Europe, are available.
But, as the Court rightly noted, it should rule only on the cases to which it is referred, and should not make known its opinion on the Czech education system's legitimacy, as choices concerning educational opportunities fall under the jurisdiction of states and therefore can vary accordingly.
According to the Court, the law's legitimate purpose is to adapt teaching to the difficulties of a specific category of pupils, and psychological tests seem to be objective enough not to be suspected of racial bias.
As well-founded as the Court's reasoning may be, a feeling of unease persists.
The statistics showing the enormous proportion of Roma children in those schools are hard to ignore, and the suspicion of discrimination is difficult to avoid.
While laws have changed, mentalities do not always follow at the same pace, and we intuitively know that it is easy to get psychology to mean a lot of things.
Indeed, before announcing its decision, the Court felt it necessary to state that while it did not conclude that the Convention had been violated, statistics still revealed "worrying figures, and the situation in general in the Czech Republic regarding Roma children's education needs to be improved."
The Court's president, Jean-Paul Costa, expressed a similar view, without questioning the legitimacy of the decision, although Judge Cabral Barreto wrote a dissenting opinion.
Moreover, it is significant that the Court agreed, at the request of the parties, to refer the case on appeal to its Grand Chamber.
According to Costa, rejecting the ruling in February 2006 would contradict previous case law.
Will the Court, then, decide on the workings of the Czech education system itself?
Or will it follow Judge Barreto, who calls for recognition of an obligation to adopt affirmative action policies aimed at benefiting Romanies?
Whatever formula is adopted, it is certain that Roma children should be afforded the same opportunities as other children.
It is this imperative that underlies the importance of the coming decision, for it provides an occasion for the Court to reassert the fundamental principle of non-discrimination that defines our democratic societies.
African Muslims In The Islamic World
The Nigerian protests against the cartoons (so far the most violent in Africa) raise the question: what is the role and position of African Muslims (or more accurately, sub-Saharan African Muslims) in the "Islamic World"?
Muslims in sub-Saharan Africa do not share many characteristics with Muslims in other parts of the world, especially those of the Arab world.
Sub-Saharan African Muslims are less assertive, and they face considerably more difficulties in their attempts to articulate their rights and establish their presence in their respective states and regions.
Part of the difficulty arises from the perpetual African dilemma of identity.
Africa has been described as a continent having a triple heritage, and the African Muslim, too, has a split personality.
He must decide whether he is a Muslim first, then a member of his tribe, say, Hausa, and then of his nation, say, Nigeria.
Even though Muslim practice is strong in Africa, there is widespread incorporation of traditional African rituals in ceremonies like weddings and funerals.
For example, among the Luhya in Western Kenya, it is not uncommon for Muslims to slaughter animals during funerals, even though, strictly speaking, there is no such provision in Islam.
Muslims in many sub-Saharan African states are also minorities.
They do not form a formidable presence, as in Nigeria, where some Muslim-majority states in the north have even implemented Sharia Law, making them more or less Islamic states.
Nevertheless, the Federal Republic of Nigeria is a secular state, as are almost all sub-Saharan African states.
The colonial legacy also helps account for the relatively docile nature of Muslims in sub-Saharan Africa.
The colonial powers' arbitrary demarcation of borders lumped together in one state diverse ethnic groups which may have been historical antagonists.
Colonial political economy also concentrated "development" in resource-rich areas, while neglecting resource-poor regions and their populations, which in many cases were Muslim.
Moreover, Muslims in these mostly patron-client states have been forced to identify more with atomistic/parochial ethnic nationalism in order to enjoy the "fruits of independence" and thus acquire whatever political representation they have.
This has led to a related problem in countries bordering the Indian Ocean: disunity between coastal, more Arabized Muslims and the non-Arabized Muslims of the interior.
It is no exaggeration to argue that the more Arabized African Muslims along the Kenyan and Tanzanian coasts (including the island of Zanzibar) consider themselves "more Muslim" than the less Arabized Muslims inland.
The IMF as Global Financial Anchor
The IMF can play an important role in this regard, owing to its truly global perspective -- one that encompasses both advanced economies and emerging and developing economies, which are increasingly integrating into the global financial system.
Moreover, the IMF does not focus on financial markets per se , but has unique expertise on the linkages between the real and financial economy.
Finally, the IMF's perspective is universal, looking across sectors and markets.
So far, the Fund has not fully exploited its unique position, because it has often been passive in reaching out, giving clear messages, and making recommendations to its members.
But the current financial market turmoil has shown that there are regulatory and supervisory gaps and poorly understood international linkages that call for a global response.
We believe that the IMF needs to move decisively on financial stability issues and be more proactive to help prevent and mitigate future crises.
The IMF should work closely with the Financial Stability Forum, the Bank for International Settlements and other relevant international bodies.
To strengthen the Fund's financial stability role, we propose action in three related areas.
First, the IMF should promote financial stability through multilateral surveillance.
It should be positioned at the center of international financial markets and provide an analytical platform, not only for central banks and finance ministries, but also for regulators, standard setters, and market participants.
In particular, the Fund should enhance its understanding of the links between supervisory frameworks and macroeconomic conditions, including balance-of-payments and exchange-rate developments, by leveraging the wealth of cross-country information and expertise that it acquires through missions to its 185 members.
This would enable it to identify macroeconomic threats to stability and encourage best practices for supervisors and regulators.
Building on its research, the IMF could contribute more to the debate on the macroeconomic and financial implications of private equity, hedge funds, and sovereign wealth funds, and develop practical recommendations to enhance their contribution to international financial stability.
Second, the IMF should promote financial stability through bilateral surveillance.
It needs to rethink how to address financial stability in its day-to-day work with members. Financial sector analysis should become fully integrated into the IMF's surveillance activities.
The IMF should also be more proactive and speak with greater candor in systemically important countries, where shortcomings in financial supervision and crisis management have appeared.
It should assist emerging economies in shaping sound domestic financial markets.
These steps would require the IMF mission teams to become more diverse, bringing financial sector expertise in addition to the traditional macro and fiscal skills.
The Fund needs to hire more financial sector experts, relying less on academic professionals.
Third, the Fund should assist members who have well-defined programs for liberalizing and integrating their economy into the global financial system.
It should consider developing appropriate liquidity instruments to give confidence to emerging market economies that may be affected by a crisis beyond their control, rather than forcing them to build up ever-larger reserves or resort to regional arrangements for self-insurance.
Action in these three areas would help to create a multilateral institution with the authority and expertise to advise countries on supervisory and regulatory issues of systemic importance.
The current turmoil highlights the international financial system's need for such an institution.
The members that we represent -- advanced and emerging countries in Asia and Europe -- want to play a role in re-establishing a strengthened IMF at the heart of the international monetary system. 
For too long, all financial innovations were thought to promote economic development and help spread risk.
long it was hoped that market forces would solve all problems.
We need early-warning mechanisms with concrete follow-up.
This does not necessarily imply that the right answer is more regulation; the important thing is that measures are consistent.
Improved supervision is important, but countries should be prepared to coordinate their economic and exchange rate policies.
Owing to massive dollar purchases, emerging economies have for too long supported the credit culture in the United States that ultimately led to this crisis.
A stronger role for the IMF is especially important because all these issues are interlinked.
Indeed, the IMF, with its global membership and its accumulated international expertise, is best positioned to take the leading role in a multilateral approach to financial stability.
This role should go beyond the Fund's traditional tasks of adviser and lender of last resort.
Its advisory role renders the IMF vulnerable to criticism by developing countries that the industrial world does not heed its advice.
As IMF teams now work across the globe to assist governments in devising programs that can restore confidence, it is clear that the role of lender of last resort is not obsolete.
But this has a bitter undertone: the IMF must now clean up the mess in emerging countries caused by a financial crisis whose origin lay elsewhere.
On a global level, the IMF can assist in designing an overarching regulatory system for financial markets by providing a platform for key players.
The Fund can lend analytical support, identify regulatory gaps, and indicate where regulation needs to be enhanced.
It should monitor progress, but refrain from acting as a regulator itself.
That mandate remains with current supervisors and international groupings, such as the Financial Stability Forum.
But the IMF would become the "supervisors' supervisor".
On a national level, the IMF can assess regulatory systems and give recommendations.
Many IMF members have sought this on a voluntary basis.
Until now, however, the US has refrained from allowing the IMF to get involved.
Reviews under the IMF's Financial Sector Assessment Program should become mandatory, and their follow-up should be integrated into the Fund's regular surveillance activities.
Better policy coordination can profit from improved analytical work on the linkages between financial developments and the real economy.
Based on its independent analysis, the IMF should be authorized to bring policymakers of key member states to the table.
Multilateral consultations can help prevent countries from taking economic measures that negatively affect the financial and economic stability of other countries.
Global imbalances must be addressed more forcefully.
Finally, the IMF should be better equipped to deal with financial-sector problems.
Traditional IMF programs that focus on budgetary or monetary policy do not suffice in this financial crisis.
The Fund should establish credit lines for countries that conduct sound macro-economic policies.
In those cases, traditional IMF conditionality is not needed.
The New IMF
The IMF is well-positioned to help its members overcome the financing gaps resulting from the crisis.
In the run-up to the G20 summit access to the Fund's credit facilities was increased and policy conditions were streamlined.
In a watershed with former practice, a new non-conditional credit line was introduced for well-performing countries.
Mexico and Poland will be its first users and more countries will line up.
These more flexible lending policies reflect a new image of the IMF.
The negative stigma attached to IMF financing is a thing of the past.
Its financing role in this crisis secured, the IMF now needs to strengthen its position as guardian of an open international financial system.
The IMF was created to prevent crises like the current one and in this it has failed.
Admittedly, there were warnings, but policy makers, particularly in advanced countries, did not follow suit.
The ‘new' IMF should be an institution that communicates better with its members, balances the interests of its advanced, emerging and developing members in an evenhanded manner, and aligns its policies better to the needs of the moment.
Now that the IMF has been given a second lifetime, it needs to regain its central position in the international financial system.
For this, it needs to focus on three issues: improved surveillance of financial stability, strengthened international coordination, and an updated decision-making process.
The new IMF needs to become more vocal on global financial stability issues.
The IMF should see to it that there are no gaps in the surveillance of financial institutions.
It can help shape a more robust global supervisory system which needs to be built in order to preserve the benefits of global financial markets.
And it should help develop a vision on what the future financial landscape should look like.
To this end IMF surveillance should include regular updates on supervisory regimes in systemically important countries.
Early warnings, commissioned by the G20, should be specific and the IMF should monitor whether policymakers give follow-up to the Fund's advice.
The new IMF needs to take a fresh look at international policy coordination.
The demand for a different monetary order, as advocated by China, sets the stage for a renewed effort to avoid the international imbalances which were at the root of this crisis.
First, the US saving deficit will need to be addressed in a sustainable manner.
Second, China will have to make its currency convertible.
Third, the position of the euro will strengthen over time as more countries will join the euro zone.
With more key currencies in place, the perspective of a truly multipolar currency system comes in sight, with an increased role for the SDR.
This will lessen the need felt by emerging economies for self-insurance against financial instability, by building up large reserves.
Finally, the new IMF needs governance structures that better reflect today's new global realities.
The perception that advanced countries are running business in the Fund, but do not adhere to Fund advice, has undermined the IMF's authority.
The G20 summit marked the return of the United States to multilateralism.
This acceptance of collective responsibility should come with abandoning US veto power in the IMF by lowering required voting majorities, as well as abandoning Europe's prerogative of appointing the Managing Director.
One of the strengths of the IMF's present governance structure, the constituency system, should be duplicated at the G20 as well, so as to ensure inclusiveness.
The rapid growth of China, India, and other emerging countries should come with increased influence, to be implemented through the planned quota increase in 2011.
Advanced countries, including European countries, will see a relative decrease in voting power.
An increased say for emerging economies will imply taking more international responsibility as well, also in financial terms.
Now European countries finance 42% of IMF lending and 62% of concessional World Bank lending.
This task will have to be shared by emerging countries with large reserves.
These reserves are put to better use by assisting the IMF in maintaining an open and stable financial system and prevent crises like these from recurring
Why Wait for the Euro?
Although the EU's eastward enlargement has not yet happened, the debate is already shifting to ask what will follow: when should the new, predominantly postcommunist, members adopt the euro?
Assuming that they comply with the Maastricht Treaty's provisions concerning the EMU - and are not unfairly held to more stringent criteria - the core issue is whether new members would benefit more by waiting or whether they should seek early entry.
At the outset, it must be stressed that, in seeking earlier entry into the EMU a country assumes a more ambitious fiscal and structural program than would be needed if EMU membership is delayed.
Early entry, otherwise, would be an empty gesture.
I believe that early adoption of the euro is not only possible, but preferable to delay.
By early adoption I mean the shortest permissible period of time - two years - following a new member subordinating its monetary policy to the fiscal and monetary constraints of the exchange rate mechanism (ERM II).
Assuming entry into both the EU and ERM II in 2004, new members should aim to enter the eurozone around 2006.
Is this realistic?
Well, most candidate countries have already achieved a high degree of structural convergence with the EU.
Exports to the Union have soared since 1991, when the collapse of the Soviet-era COMECON trading system forced a radical reorientation of trade - helped by massive foreign investment from the EU - towards Western markets.
Most accession candidates now send more exports to the EU than Greece, Portugal, and Spain did when they entered the EU and EMU.
Progress on disinflation is similarly impressive.
Annual inflation in most candidate countries has fallen to 4-5% - not much higher than in many EU countries, and lower than in The Netherlands last year.
As with structural convergence, EU candidates already outperform Spain, Portugal, and Greece at a comparable time before their EMU debut.
Nor is there much risk of large, future corrective price swings because all but a few prices are completely liberalized.
Theoretical studies suggest that inflation in the accession countries will remain stubbornly higher than the Maastricht Treaty allows.
The culprit in this pessimistic view is the so-called "Balassa-Samuelson" effect: rapid productivity growth in the accession candidates' tradable sectors - export manufacturing, for example - is pushing up real wages throughout their economies, including in non-tradable sectors like services.
This overall rise in real wages in the face of lower productivity growth for the service sector boosts relative prices and keeps inflation above the eurozone average.
The Balassa-Samuelson effect is still evident in Greece, Spain and Portugal.
But as empirical research prepared by the CEC5 National Banks estimates, its contribution to total price growth in the candidate countries is 1-2%.
With the Balassa-Samuelson effect so subdued and limited scope for future corrective inflation, the EMU criterion regarding price stability - of annual inflation within 1.5% of the average rate for the three best-performing economies in the EU - is within reach.
But is early admission to EMU preferable to postponing membership?
From the standpoint of current member states, would admitting Hungary, Latvia, Poland, or Slovakia, sooner rather than later, drag down the euro as many fear?
Fears that extending EMU to new states "too soon" would undermine the euro's external exchange rate are irrational.
If all candidate countries join the EU at around the same time, they will together account for a mere 6% of its total GDP.
So any negative impact on the euro from rapid accession to EMU would at worst amount to little more than a rounding error.
Delaying entry into EMU could make sense if a longer wait produced more information.
But a wait of greater length might produce nothing but added noise.
Equally, the transition period is already turbulent, with convergence-driven capital flows driving up exchange rates and complicating monetary policy in several candidate countries, including Poland, the Czech Republic, and Hungary.
Indeed, capital-flow volatility could make short work of the flexible exchange rate on offer under ERM II - a 15% fluctuation band either side of a central parity.
Some argue that ERM II membership should be viewed as a longer-term proposition - possibly lasting until 2010 - for the benefit of candidates themselves.
The benefit is simple: ERM II permits some exchange rate flexibility, as opposed to the fixed rates implied by adopting the euro.
This would help keep the candidates' economic output high and thus sustain real convergence with average EU income levels.
This is an exceptionally weak argument, and a politically suspect one, too.
As European Central Bank data shows, average per capita GDP in the accession candidates is 44% of the eurozone level.
The size of the income gap combines with the small growth differentials to imply that the process of real convergence will extend far beyond even the most cautious dates for EU and EMU entry, probably lasting several decades.
More important, long-lasting economic growth does not depend on the type of exchange rate - whether flexible or fixed (EMU) - while early accession will speed up crucial reforms.
A few years of limited exchange rate flexibility is a poor substitute for rapid completion of structural reforms.
In almost all candidates, further disinflation and long-term economic growth require fiscal consolidation, more flexible labor markets, and completion of privatization.
Delaying EMU entry risks weakening the incentive to complete these politically costly but necessary reforms.
Any delay in completing reforms will ultimately slow the process of real convergence that EU officials rightly hold dear.
Early adoption, by contrast, would be more conducive to these reforms, and thus to real convergence.
Success here would allow candidate countries to start reaping the benefits of greater price transparency, reduced transaction costs, and a solid macroeconomic framework.
This strategy, not one of deferred entry, promises the most for both the EU's current and its future members.
Liberty's Revolutionary Muse
For decades, Friedman remained stranded in the intellectual wilderness, spurning the postwar Keynesian consensus that governments should use fiscal policy to manage aggregate demand -- a view that sustained statist economic policies through the 1970's.
Indeed, in the context of his age, Friedman was a true intellectual revolutionary, combining rigorous academic research and gracefully written popular books and journalism to argue for free-market policies -- and to affirm the link, defended by writers from Adam Smith to Friedrich von Hayek, between economic freedom and political liberty.
In economics, Friedman revived and developed the monetarist theory that the quantity of money in circulation is the main determinant of how economies perform.
In his masterpiece A Monetary History of the United States, 1867-1960 (written with Anna Schwartz), he famously attributed recessions, including the Great Depression of the 1930's, to a decline in the money supply.
Likewise, he argued that it was an oversupply of money that caused inflation.
In the 1960's, Friedman showed that Keynesian demand management through government spending constantly increased the money supply, accelerating wage and price growth.
Together with Edmund Phelps -- this year's Nobel Prize laureate -- he proved that there is no stable tradeoff between unemployment and inflation.
Any attempt to use expansionary government policies to drive unemployment below a certain level, they demonstrated, would fuel inflationary expectations and undermine both economic growth and employment.
That analysis both anticipated and explained the combination of rising inflation and rising unemployment of the 1970's that came to be known as "stagflation."
Friedman was the catalyst for a profound shift in how governments conduct economic policy.
Rather than fiscal stimulation and control, the main tool of economic management nowadays is monetary policies conducted by independent central banks.
Keynesian demand management was thus displaced by a new understanding -- which we owe largely to Friedman -- that pursuing fiscal discipline and price stability is the best guarantee of macroeconomic sustainability.
Equally important were Friedman's contributions to influencing public opinion through works that addressed the role of the state in society.
Alongside Hayek, his colleague at the University of Chicago, Friedman launched a more general intellectual assault on Keynesianism, arguing that any government permitted to regulate the economy in the name of equality posed a threat to individual liberty.
In his Newsweek columns published between 1966 and 1983, and in his books Capitalism and Freedom , Free to Choose , and The Tyranny of the Status Quo (written with his wife, Rose), Friedman offered a vision of liberty that was both appealing and achievable.
Indeed, Free to Choose -- later the basis of a popular television series that he hosted -- was published illegally in Poland in the 1980's, helping to inspire me, and many others, to dream of a future of freedom during the darkest years of communist rule.
With remarkable clarity, his popular writings advanced a compelling political philosophy, together with concrete policy proposals.
For example, he pioneered the idea of school vouchers, arguing that private competition would ensure better educational performance than government systems.
Friedman's views made him a guiding light for economic conservatives worldwide.
His influence on Margaret Thatcher's government helped transform Britain from a post-industrial basket case dominated by class struggle into Europe's dominant economic power.
When Vietnam launched free-market reforms in the 1980's, senior government officials pored over his writings.
He also initiated the now common practice of measuring and comparing political and economic freedom across countries, helping to shape opinion in countries that are viewed as limiting freedom.
But Friedman's consistent anti-statism also led him to embrace positions that ran afoul of many conservatives' political sensibilities, underscoring the intellectual honesty that was the hallmark of his career.
For example, his opposition to governments' authority to prohibit or regulate human behavior extended to licensing requirements for doctors and car drivers, as well as to anti-drug laws, which he believed operated as a subsidy to organized crime.
Likewise, he expended considerable effort agitating against America's military draft.
Although he did not win all his intellectual battles, rarely can it be said with as much certainty that a man was great, and that the work that he has left behind will retain enduring influence.
I live in a Poland that is now free, and I consider Milton Friedman to be one of the main intellectual architects of our liberty.
How Can the New Members Catch Up?
Of the ten new EU member states, eight have undergone a transformation whose speed and scope has been unprecedented.
Wherever one looks in the postcommunist accession countries ­­- at money, markets, ownership structures, banking sectors, foreign trade, health care, environmental protection, and education - one sees institutions that have been reconstructed from the ground up.
In many of the transition countries, inflation was brought down from majestic heights - 251% in Poland in 1989 - and all now have fully convertible currencies.
Private enterprise dominates production and employment, whereas it accounted for only 23.1% of GDP in Poland in 1989 and just 4% in the Czech Republic and Slovakia.
Similarly, after the collapse of the Council for Mutual Economic Assistance (COMECON) in 1991, the transition countries quickly redirected their foreign trade to the West.
Educational opportunities have multiplied, air and water pollution have plummeted, and life expectancy has increased almost to West European levels across the region.
Since the early 1990's, the prospect of eventual admission to the EU has helped spur these institutional changes.
Membership itself will certainly help.
Increased policy credibility will boost inflows of foreign direct investment (FDI), while EU structural funds will support further institution building, infrastructure investment, and environmental protection.
There is little empirical doubt about the positive impact of FDI inflows.
FDI promotes technology transfer and contributes relatively more to economic growth than domestic investment, because it increases total investment in the economy more than one for one, owing to complementarities with domestic firms.
EU structural assistance has increased annual GDP growth, on average, by 0.4-0.9% in Greece, Portugal and Ireland, and by 0.3 to 0.5% in Spain, thereby helping poorer countries catch up with richer member states.
The benefits of the single market are evident, not least by creating a much more attractive location for foreign investors.
Surveys indicate that the internal market has helped more than 60% of companies that export to more than five EU countries boost their cross-border sales, and that 80% of consumers believe that the range of goods has increased, while 67% say that their quality has improved.
Cross-border trade in goods has grown by around a third since the creation of the Internal Market in 1992 due to two principles: mutual recognition, which allows companies to apply their own national rules, and EU directives that harmonize national rules.
Pre-tax prices of new cars can differ up to 70% between member states due in large part to regulations that suppress competition.
Services are even more susceptible than goods to internal market barriers.
For example, a new directive requires non-household customers to be able to choose their electricity supplier by July 2004 and their gas supplier by July 2007.
But the directive ignores household customers, who in 2001 were able to choose their electricity supplier in only five EU States and their gas supplier in only three.
As for labor mobility, practice has yet to catch up with theory.
Integration of EU financial markets - launched in 1999 with the adoption of the Financial Services Action Plan (FSAP) - also needs to accelerate.
According to the European Commission, creating a single European capital market would reduce the cost of equity capital for EU businesses by 0.5% and lower the cost of corporate debt financing by 0.4%.
It would also boost GDP in the EU-15 over ten years by about 1.1% and raise employment by 0.5%.
But, by 2002, only 31 of the FSAP's 42 provisions had been implemented.
Target early EMU entry. Entry into the euro as soon as possible is the best strategy for the accession countries, because it will mobilize them to complete structural reforms in order to meet the Maastricht criteria for inflation, interest rates, fiscal deficits, and public debt.
This would have obvious benefits for long-term economic growth, as would elimination of exchange-rate risks, hedging costs, and transaction costs in foreign trade.
The accession countries are already highly integrated with the EU economy, with pronounced cyclical convergence between the accession countries and the EMU countries.
Continuing EU integration is likely to align the business cycles of these countries in a manner similar to the synchronization of supply and demand shocks in the EU in the 1990's.
Thus, costs associated with giving up an independent monetary policy and a flexible exchange rate would not be significant.
In each of these areas, the Union's new members still face a difficult path to full integration.
In many of them, so does the EU.
Lessons from the Kaczyński's Poland
Many governments waste good economic times by postponing the reforms needed to build a prosperous future.
The PiS-led government, elected in 2005, inherited a fast-growing economy, but did nothing to strengthen that legacy.
Instead, privatization was blocked, while fiscal reforms and deregulation remained paper proposals.
Indeed, the Kaczyński government embarked on a program of anti-reform.
The separation of powers (an independent judiciary and central bank) was undermined in favor of a "strong" state.
The PiS captured the public media, the general prosecutor's office was politicized, and, with the use of the media, was turned into a tool of party propaganda aimed at showing that Poland was ruled by malicious hidden forces, known as the układ , which cheated Poles and kept them poor.
Anyone who disagreed with this diagnosis or criticized the PiS's methods, particularly those used by its leader, Jarosław Kaczyński, was promptly classified as belonging to the układ . No one was spared.
Indeed, Lech Wałęsa and Władysław Bartoszewski, the Polish Mandela, were ruthlessly attacked.
Contrary to popular cliché, PiS's victory in 2005 did not result from "reform fatigue," since there were not many reforms implemented in 2000-2005 (except for an ambitious but partially blocked attempt at fiscal consolidation).
This explanation seems dubious elsewhere, too.
In Slovakia, the reformist leader Mikuláš Dzurinda won the 1998 elections after having implemented a tough stabilization program, and he could have continued to govern after the 2006 elections if not for disagreements in his coalition.
In the Czech Republic, a reformist government was elected in 2006, and in Hungary, political divisions rather than reform fatigue dominates electoral campaigns.
Of course, it is not easy for reformers to win elections.
On the contrary, reforms usually are undertaken only when the signs of an impending crisis are so strong that it is increasingly difficult to ignore them, or after the crisis has already "educated" voters.
(However, if the crisis follows reforms, populist politicians may win by blaming the reforms, instead of their incomplete nature, as in Argentina.)
Reformers can win elections if they are better at public communication than the populists.
Bad policies are, more often than not, easier to sell than good ones.
In Poland in 2005, the issue was mainly corruption.
The PiS jumped on the anticorruption bandwagon and strengthened its appeal by linking the fight against corruption to the vision of hidden forces supposedly perverting Polish society and democracy.
If not for that, the results of the 2005 elections would most likely have been quite different.
To criticize anticorruption campaigns is risky, because words can be twisted to imply indifference.
Therefore, let me first present my anticorruption credentials: as Deputy Prime Minister in 1999 I was the first Polish politician to ask the World Bank to prepare a report on corruption in Poland and ways to eradicate it.
In my public life, I emphasized eliminating discretionary regulations -- the main source of both inefficiency and corruption.
But we should not be blind to what can happen when political demagogues hijack the anticorruption card.
Interestingly, all the available measures of actual corruption were already declining before the Kaczyński twins were elected.
For example, the index of the frequency of paying bribes, calculated by the World Bank and EBRD, was 2.7 in 1999 and 2.03 in 2005 (the value of 1 is the minimum).
The corruption tax (the percentage of sales paid in bribes) declined from 1.22% in 2002 to 0.7% in 2005.
Poland now has a huge gap between the levels of perceived and actual corruption.
On perception, it fares much worse than Slovakia, the Czech Republic, Hungary, and Greece, while it fares better -- or at least not worse -- on indicators of actual corruption.
For example, the percentage of respondents admitting to paying bribes in 2006 was 5% in Poland and 17% in the Czech Republic and Greece.
The index of the frequency of paying bribes in 2005 was 2.03 in Poland, 2.22 in Slovakia, 2.09 in the Czech Republic, and 2.37 in Greece.
The corruption tax in 2005 was 0.7% in Poland, 0.93% in Slovakia, and 0.63% in Hungary.
Of course, Poles should not settle for today's levels of corruption.
Instead, the battle with corruption should aim at removing its root causes: the scope of the discretionary public sector and the suppression of market forces.
This is the only path that promises both less corruption and more economic growth.
Combating corruption through increased punitive action, while leaving intact a bloated and discretionary public sector, will only paralyze public officials, delay important decisions, and play into the hands of cynical demagogues and political fanatics.
That nuclear fusion is a source of energy has been known since the invention of the hydrogen bomb.
But its control is still a fundamental challenge for research institutes, not some minor technical difficulty that can be easily overcome.
Confining a little sun inside a box is an extremely difficult task for three main reasons.
First, the nuclear fuel is not seawater, but a mixture of the two heavy isotopes of hydrogen, deuterium and tritium, a radioactive element that has been produced in small quantities for hydrogen bombs.
Any development of fusion reactors would require producing tritium with industrial methods that have yet to be invented.
Second, the deuterium-tritium fusion reaction starts at around 100 million degrees.
To achieve this requires using a magnet to accelerate a plasma that is a big flame of deuterium and tritium nuclei.
This must be done in a ultra-high vacuum in a large chamber.
ITER is not designed to produce electricity, but to study the stability of the flame in the magnet.
Since the fusion reactions produce alpha particles, which pollute the plasma, one has to insert a "divertor" inside the flame at 100 million degrees in order to clean it.
Third, fusion also emits neutrons that will produce helium gas bubbles inside the wall material, which tends to explode.
The supporters of ITER explain that if the walls are porous, the bubbles can escape.
But nothing can be both leak-proof and porous, and ITER is not designed to study this contradiction.
In the future, a "blanket" should be inserted between the plasma and the walls, with two objectives: to protect the outer walls and to produce tritium from nuclear reactions within a circulating fluid containing lithium.
This might work, but the first wall of the blanket will need to be not only leak-proof and porous, but also sufficiently permeable to neutrons, which have to hit the lithium atoms beyond it.
The problem of materials is an entire research field in itself.
In order to study it, it has been decided to build the International Fusion Materials Irradiation Facility (IFMIF) in Japan.
Some scientists have argued that the neutron irradiation in IFMIF won't be the same as in fusion reactors, but it should be noted that its cost, at one billion euros, will be one-tenth that of ITER.
So why can't we wait for IFMIF's results before building ITER?
It all depends on one's budget.
If ITER could really solve the planet's energy problem, €10 billion would be a negligible investment -- less than the net profit of the oil company TOTAL (€13 billion in 2006) and equivalent to ten days of waging the war in Iraq.
But if fusion is ever to work in industrial power stations, it will take many decades.
Even if ITER is successful, and if one solves the tritium and material problems, everything would need to be tested in real size, and only then could a first prototype of an industrial reactor be built.
A drastic reduction of CO2 emissions is an urgent priority, but fusion is unlikely to produce sufficient energy to achieve that goal before the twenty-second century.
In fact, ITER is a big instrument for fundamental research, so its €500 million Euros annual cost needs to be compared with similar scientific initiatives, such as the European Organization for Nuclear Research (CERN), which costs one billion Swiss francs per year.
In my opinion, searching for the fundamental structure of particles is far more important than studying the stability of a plasma.
In France, the contribution to ITER is more than all the available funding for research projects in all our physics laboratories.
So the danger is that ITER will squeeze out funding for other vital research.
We already have the bad example of the International Space Station, a waste of $100 billion that has produced no scientific results.
ITER will not solve our energy problem.
Although it has some scientific interest in plasma physics, the participating countries should clearly state that funding it won't affect the rest of their research efforts.
At the same time, the international community should support research on energy saving and storage, and accelerate the development of fourth-generation nuclear reactors, which will use fission and be both clean and durable.
Europe's Unity in European Values
Alongside the debate about the European Union constitution, a debate about European values has also developed.
This debate is important not only for implanting meaning in the constitution, but will also determine the vitality and energy of the EU itself.
The EU, being the product of several great religious and philosophical traditions, is a community of values.
The ideas of the Greeks and Romans, Christianity, Judaism, humanism, and the Enlightenment have made us who we are.
Dialogue with Islamic and Arabic cultures also helped form our identity.
The pattern of our values has been woven over hundreds of years.
Europe is the continent of Michelangelo and Montesquieu, but also of the guillotine and the gas chamber.
Indeed, the bitter experience WWII taught Europeans how fundamental is the importance of shared values.
In an impoverished, war-ravaged Europe, people yearned for peace, freedom, stability, and a new chance to prosper.
The architects of European integration - Monnet, Schuman, Adenauer, De Gasperi, and others - understood that these ideals could be achieved only by combining and interweaving the practical interests of Europe's countries.
They built their fragile house of peace on a foundation of coal and steel.
The founders passed the torch on to the generation of Jacques Delors, Helmut Kohl, François Mitterrand, Václav Havel, Valéry Giscard d'Estaing, and others. They broadened and deepened European cooperation.
Their leadership made it possible for Europe to make great strides towards its post-war ideals - peace, stability, and prosperity.
We now stand at the threshold of a new phase of European cooperation.
In late October, the EU's Constitutional Treaty will be signed.
A new generation of politicians is ready to carry the torch onwards.
But is the torch still burning bright?
In the early 1950s, Jean Monnet wrote: "We are not forming a coalition of states. We are uniting people."
Apparently not.
As the Union races ahead, it seems that it has lost Europe's citizens along the way.
Many are turning their backs on the whole project.
They have trouble seeing what is common to Europe.
They do not feel part of the great whole.
Even in the new member states, enthusiasm for the European family of democracies is cooling.
We have achieved a united Europe without uniting Europeans.
Today's post-war generations, lacking direct memory of WWII, view Europe's great achievements - liberty, peace, and prosperity - as a given.
The idea of Europe as a heritage and a mission does not mean much.
But, without ideals, Europe's foundations will erode.
The emphasis on pure self-interest increases this threat.
My generation grew up with the image of Europe as an economic form of cooperation.
Political motives behind European integration were overshadowed by the economic project. The result is an impression of Europe as a marketplace.
A Europe of markets and money, not of man and morals, dominated the project.
But without a moral foundation, there can be no free-market economy.
Today, we are paying the price for not attending to Europe's shared values and common mission. Until Europeans know precisely what Europe stands for, what inspires and motivates us, the Union will not be able to take joint action in the world.
The EU Constitution will make Europe more democratic and more transparent.
It provides further guarantees that decisions will be taken by those closest to citizens, and it acknowledges the significance the values on which the Union rests: respect for human rights and dignity, liberty, democracy, equality, and the rule of law.
These shared values are the glue that binds governments together in the recognition that clinging to pure self-interest is no longer reasonable when common concerns call for a common strategy.
For what is the point of doing away with Europe's physical borders if borders between its citizens remain?
How can Europeans be happy that the Iron Curtain is gone if individuals and groups across the Union barricade themselves behind private iron curtains?
Indeed, fear, insecurity, and nationalism are again raising their heads.
It is important for Europeans to reflect on that as they prepare for further rounds of enlargement and consider starting accession negotiations with Turkey.
The preamble of the Constitution states that Europe is "united in its diversity."
This may be the most concise statement of what makes Europe Europe.
But the words "united in diversity" raise the question of where this unity lies.
The answer lies in the values on which the Union is based.
They are contained in three concepts: freedom, solidarity, and mutual respect. These three together make it possible for Europe to open its doors to a great diversity of peoples and at the same time to speak as a community of peoples prepared to take responsibility for one another.
Making such a community a reality will not come about by believing that Europe's culture is better than others.
We will make it a reality through dialogue and deep reflection about Europe's common values.
Values must be the road that leads to what cannot be reached by markets and institutions alone - the accession of Europe's citizens to the European Union.
Only by embracing their shared values can Europeans prevent their Union from becoming a spiritless machine.
Together, Europeans must find what connects them, and derive new enthusiasm, new spirit from what they find - a spirit sorely needed to tackle the great issues of today. No country can address these issues along.
After more than fifty years, Europe as a community of values remains as necessary as ever.
Europe's New Dawn
Today in Rome, the heads of state and government of the EU's 25 member states will sign the Treaty establishing a Constitution for Europe.
We have come a long way since the six founding members formed the European Economic Community back in March 1957 - also in Rome.
After the Treaty is signed, it will go before the national parliaments for approval.
So it is crucially important to understand why the Treaty deserves to be ratified.
Simply put, it places the interests of Europe's citizens more than ever at the heart of the European Union's activities.
It does so in four ways.
First, the Constitutional Treaty guarantees that the Union's institutions will respect the fundamental rights of everyone within the EU.
The "catalogue of fundamental rights" included in the Constitution is extensive, centering on respect for human dignity, freedom, and equality, and also on the principles of democracy and the rule of law.
By enshrining them in the Constitution, these fundamental rights and principles become legally binding, and citizens will have greater scope for bringing appeals to the Court of Justice.
In this respect, the EU leads the world in the protection of fundamental rights.
Second, the Treaty makes the EU more democratic and brings government closer to Europe's citizens.
The Union has no business interfering in matters that can be dealt with successfully at the local, regional, or national level.
The EU's objectives are precisely those that countries are unable to achieve on their own, for example, a stronger economy and greater security.
The Constitutional Treaty includes guarantees to ensure that the EU adheres to this principle strictly.
National parliaments will be able to call a time-out if Brussels makes proposals that seem to interfere unnecessarily.
Should one-third of national parliaments so wish, the European Commission will be required to reconsider a proposal.
In addition, the Constitutional Treaty gives citizens the right to ask the European Commission to take action on a specific point.
A citizens' initiative of this kind will require one million signatures, obtained in different countries.
At the same time, the European Parliament will have far greater powers.
It will have joint decision-making authority in many more areas, including the budget.
As a result, European citizens' elected representatives will be better able to scrutinize the work of the Commission.
Third, the Treaty makes the EU more open and more transparent.
Citizens want powers to be clearly defined and decisions to be taken openly in a way that they can understand.
Many people despair of finding their way through the maze of current EU treaties and their numerous amendments.
Outside Brussels, few people can explain the "pillar" structure and the distinction between the Union and the Community.
The Constitution consigns these complexities to history.
It also gives people far greater access to official information, extending their right of access to documents from all institutions, organs, and bodies.
Finally, the Treaty will make Europe more effective.
This is essential if the issues that affect people's lives are to be tackled successfully.
Two themes that people consider crucial are a stronger European economy (more jobs and more growth) and greater security (reducing cross-border crime).
European countries are heavily reliant on each other in addressing these issues.
People are counting on Europe to take action.
But, because EU decisions often have to be taken unanimously, this can be difficult.
Moreover, the means to work together effectively are often lacking.
The Treaty introduces major improvements here, enabling us to work together more effectively to achieve our aims.
In sum, the Constitutional Treaty firmly enshrines fundamental rights in law, and also makes the EU more democratic, more transparent, and more effective.
This makes it a good deal for everyone - for people who expect more cooperation and more concrete results from the Union, but also for those concerned about excessive interference by Europe in questions that can be better dealt with by the member states themselves.
Next year, we will celebrate 60 years of peace across a large part of Europe.
Never before in our history have we enjoyed such a long period of concord, a period that has seen an enormous growth in prosperity.
Democracy has taken root in almost every corner of Europe, and Europeans now have far greater freedom to live, work, and study where and how they wish.
These achievements are largely due to European cooperation.
The Constitutional Treaty is a reflection of our wish to continue in the same vein, to carry on working together.
We want to reaffirm our commitment to a life without war and injustice, and to the freedom that we hold so dear.
The Constitutional Treaty provides solid foundations for our shared future.
Peace, security, and prosperity are as vulnerable as they are valuable.
This Treaty makes them stronger.
And that makes us stronger.
The signing ceremony is therefore a message of hope.
It is a new beginning.
Using and Abusing the Hague Tribunal
The International Tribunal in The Hague was intended as a Sword of Damocles for human rights violators in the Balkans.
Within the Balkans, however, it has become a political tool that both nationalists and their opponents exploit in a never-ending game of divide and (hope to) rule.
Croatia provides a textbook case of this.
Snags and fissures now bedevil Croatia's infant democratic reforms.
The reasons are connected to Premier Ivica Racan's unwillingness to tackle the centers of power left behind by the regime of the late President Franjo Tudjman, whose nationalist-minded party, the Croatian Democratic Union (HDZ), was voted out of office in January 2001 following Tudjman's death in December 1999.
Tudjman forged an authoritarian regime that blurred the distinctions between HDZ and state agencies, in particular the army and police.
This muddied legacy remains at the heart of Croatia's current problems and its relations with the Hague Tribunal.
In January 2001 the then new Premier Ivica Racan faced a sharp choice: swiftly purge state bureaucracies of Tudjman's partisans or yield to the obstructive ploys of HDZ loyalists.
True to Racan's instinctive indecisiveness, the Prime Minister dallied.
He preferred to concentrate on constitutional reforms that were largely interpreted as a bid to strip the new president, Stjepan Mesic (himself a longtime opponent of Tudjman) of the robust executive powers Tudjman wrote into the constitution for himself.
Meanwhile, the new government failed to investigate numerous war crimes, miscarriages of justice, and the corruption of the Tudjman era.
This failure emboldened HDZ loyalists to test the Racan government's resolve.
One favorite trick was to create enormous obstacles to even minimal attempts at cracking down on war criminals.
In September 2000, following the assassination of a Hague Tribunal witness and the arrest of a Croatian commander accused of massacring Serbs in 1991, twelve army generals published a letter calling for the defense of Croat veterans and a halt to ``the negative and historically unfounded representation'' of Croatia's record in the Balkan wars.
In a rare show of state determination, President Mesic suspended and forced into retirement all twelve officers.
Several went on to join and lead a new party - Croatian Integrity and Prosperity (HIP), organized by Tudjman's eldest son Miroslav, the former chief of the Croatian intelligence service.
Parrying with Tudjman loyalists continued into the spring of this year, with the arrest of Mirko Norac, one of the twelve generals, who was accused of massacring Serb civilians in 1991.
Various veterans' organizations staged mass rallies against the ``treacherous'' government of Mesic and Racan.
These pressures would not have been as damaging had they not met with approval in parts of Racan's ruling coalition, especially from Drazen Budisa's Croatian Social Liberal Party (HSLS), and also among influential Catholic bishops.
Weakened, the government became psychologically prepared for still greater concessions.
In July, the Hague Tribunal for the Former Yugoslavia charged two Croatian generals - Rahim Ademi and Ante Gotovina - with war crimes.
Instead of turning them over to the tribunal, Racan used the opportunity for a power play, requesting a parliamentary vote of confidence for what was intended to be a soft-pedaling of the Hague Tribunal's warrants.
This provoked the resignation of Budisa from the presidency of the Social Liberal Party, inciting a virtual split in this key coalition partner, the only party in the government coalition that wanted to resist the Hague Tribunal.
Despite this, Racan won his vote of confidence and secured a modicum of stability within his cabinet.
Still, the various factions that comprise the Tudjmanite opposition gained a chance to pull Budisa toward them, creating a new center of political gravity for the next crisis.
The Hague Tribunal is often blamed for burdening fragile reform governments in Croatia and Serbia with unreasonable requests that play into the hands of nationalist politicians.
This is true to the extent that the Tribunal is insensitive to the intricate balancing expected of officials in the countries of the former Yugoslavia.
For example, the pre-trial release of Biljana Plavsic, one of the most culpable of Bosnian Serb leaders, in exchange for her evidently ample testimony would make more sense had the Tribunal been equally accommodating on less culpable non-Serb defendants.
A reluctance to prosecute war criminals is an asset that Balkan governments use in order to pacify their nationalist audience and, indeed, to avoid the thorny problems of a thoroughgoing reform.
Racan would not have had to deal with the Hague Tribunal had he the courage to begin his own housekeeping and investigations of Tudjman's cronies and the war criminals the deceased president protected.
Now, Premier Racan is cashing in on his procrastination over Tudjman acolytes, hoping that they will be as generous with him should they return to government.
For in Croatia, every new regime issues a plenary absolution for its predecessors.
A tiny elite is thus insulated from serious challenges and, ultimately, of responsibility for anything, even the most heinous of crimes.
The Three Mis-Represents
It is two years since the Chinese Communist Party (CCP) unveiled its new ideological credo, called the "Three Represents."
What good fortune it is that China's most sacred, encompassing, and powerful doctrine built around the triumvirate of "the interests of the majority of the people" "advanced culture," and "advanced productive forces" found one political party to be its representative!
Good fortune, that is, for the CCP, not for China and its people.
The "Three Represents" has several official versions, each including the words "always," "China," and "represent."
Their meaning is clear.
On the other hand, "majority of the people," "advanced culture," and "advanced productive forces," as well as some other phrases that dominate the doctrine, are vague, perhaps deliberately so.
Common sense suggests that the "majority of the people," whom the CCP is supposed to "represent," should include workers.
But the CCP long ago abandoned the workers.
How many lost their jobs last month?
How many were forced to take early retirement?
How many mining accidents were there?
How many workers' protests?
Who jailed their organizers?
The "Representative of the Three Represents" refuse to say.
Workers who protest and strike are "rioting."
Whoever reports such events is "anti-revolutionary."
The same is true of the Party's relationship with the peasants, who provided Mao Zedong with the soldiers and supplies he needed in battles that lasted decades.
Peasants followed Mao because the CCP promised them land.
But Mao decided to take back the land from the peasants even before it was given to them.
"The serious problem is the education of the peasants," he said.
So he taught them that all land belongs to the state.
The "representatives" of the peasants are the new landlords.
In a China without democracy, student sentiment is a key political barometer.
Unlike workers or peasants, students include people from all levels of society, so whatever mobilizes them represents society's focus at that time.
From April 15th to June 4th, 1989, students demonstrating in Tiananmen Square, and their supporters, conducted the saddest opinion poll in Chinese history, expressing a common will to end totalitarianism, build democracy, and eliminate corruption.
Those who defend the Party's bloody crackdown of those students have no right to call themselves the representatives of the majority of the people.
Their claim to be "always representing the progressive direction of advanced culture" is yet another grand and empty declaration.
Chinese culture stretches three thousand years into the past and perhaps thousands of years into the future.
Is it to be "always represented" by a lone political party?
I do not know what "the progressive direction of advanced culture" is, but advanced culture played no part in the CCP-inspired "Wipe Out Poisonous Weeds Campaign," the "Anti-Rightist Movement," or the "Eliminate Demons and Evil Heresy Campaign."
Such obscurantism only creates a culture of stultifying uniformity.
Like a blade of grass beneath a stone, culture knows how and in which direction to seek light.
It does not need to be "represented."
Of the three "represents," the clearest meaning is to be found in the CCP's vow to "always represent the demands of advanced productive forces."
This means representing the interests of the da-kuan, those who suddenly became rich, usually through government connections.
The phrase has no deeper meaning.
The union of power and money in today's China originates from the steady inflation of bureaucracy.
Before the Great Leap Forward, townships could barely afford a few full-time cadres.
Today, each township has hundreds.
Their basic salary is paid by the central government, but bonuses and extra benefits depend on contributions from the "advanced productive forces" at the county and township level.
Whatever the rich ask of the CCP - land leases, low interest loans, violation of labor laws, environmental standards, contracts, and intellectual property - can be considered "the demands of advanced productive forces."
Even under less corrupt conditions, representing "the most advanced productive forces" is a flawed idea.
Imagine that the Olympic Committee represented only the interests of gold medal winners, or that the Education Ministry represented only post-doctoral programs but ignored elementary schools.
While the high-tech sector at the top of the economic pyramid is important, the traditional sectors at the bottom still form the foundation.
What will become of several hundred million rural peasants and jobless workers in sunset industries?
Who will address inequality and divergent social interests?
An increasingly pluralistic society is being forced into a procrustean structure that allows only one voice, one need, and one kind of interest: the voice, needs, and interests of the party.
But the theory of the Three Represents is nevertheless necessary, because a new situation has emerged.
When the CCP came to power in 1948, it could claim to embody socialism, Marxism, and the proletariat's historical mission.
Fifty years later, socialism's advantages, Marxism's truth, and the proletarian character of the Party have all been unanswerably challenged.
So the Three Represents is an effort to salvage one-party rule.
You may doubt socialism, but you cannot doubt "advanced productive forces."
You may not believe in Marxism, but you must believe in "advanced culture."
The CCP no longer represents workers and peasants, but it can represent the "majority of the people," including "red" capitalists.
Indeed, whether CCP members who have become "revolutionarily" wealthy remain "red" is determined solely by their acceptance of one-party rule.
Welcoming "red capitalists" therefore does not imply democratization.
Such people are more likely to seek to strengthen their privileges than promote pluralism and the rule of law.
Totalitarianism, not political reform, is their livelihood.
It is this, above all else, that the theory of the Three Represents comprehends.
Remembering Zhao Ziyang
The conditions under which Zhao Ziyang lived at the time of his death, in utter isolation from Chinese society due to an illegally imposed 16-year house arrest, shames both Chinese justice and the Chinese Communist Party (CCP).
Zhao's persecution was the persecution of a leader who dedicated himself for over a decade to groundbreaking efforts that became the foundations of China's economic reform.
In the late 1970's, Chinese peasants had long since lost their rights to own their land, owing to collectivization and the establishment of the People's Commune.
It is a right they have never regained.
Zhao, however, was the first to advocate giving autonomy back to the peasants and so initiated the first pilot tests to abolish the People's Commune.
Chinese industry had been transformed into subsidiaries of government through nationalization and central planning.
Zhao was the first to propose "expanded autonomy for Chinese enterprises" and "restoration of a healthy relationship between government and industry."
Expanded autonomy for enterprises and the peasantry were critical first steps whose success led eventually to full-blown economic reform.
These were among the many incremental victories Zhao won to help China's people break out of the suffocating stagnation of Maoist socialism.
As China's Premier, Zhao implemented ten years of economic reforms that brought steady progress in which the people, especially the peasantry, enjoyed tangible improvements.
But Zhao was also the only CCP leader to propose a political reform package to tackle China's system of one-party rule.
The Party's unchallenged monopoly on political power systematically ensured that every mistake it made -- such as the dreadful decade of the Cultural Revolution -- turned into a prolonged nationwide crisis.
For genuine and long-term stability, Zhao proposed reforms that ultimately aimed at the legalization and systemization of democracy.
He wished to establish the kind of democratic politics that could support and nurture a healthy market economy.
Although the short-term practical objectives of Zhao's political reforms were limited by the circumstances in which they were proposed, the measures all aimed at containing Communist Party power and represented a concrete step toward returning, peacefully, power to China's people.
Zhao's package -- a sharp break with Mao's totalitarianism -- was approved by the 13th Party Congress, officially the highest authority within the CCP.
During his twenty months as CCP General Secretary, Zhao created a culture in which the Politburo refrained from interfering in the courts, and he stopped its attempts to control literature and the arts.
Zhao abolished the policy of enterprises being run by Party organizations and the system by which fa ren ("legal representatives") were the core of enterprises.
Unfortunately, Zhao's political reforms were terminated upon his fall from power.
The dreadful result was the indiscriminate denial of civil rights and the principles of democracy, and the rise of what today's leaders call "socialism with Chinese characteristics" -- a bitter euphemism for unchecked Party and government power entwined with commercial interests.
Zhao's fate is also a chilling reminder of other injustices that are on the consciences of those now in power.
The only reason for Zhao's continued ill treatment was his opposition to the violent repression of the Tiananmen Square protest in 1989. It should have been his decision to make as General Secretary, but things were not as they should have been.
It should be remembered that former General Secretary Hu Yaobang, who had been forced to step down two years earlier by Deng Xiaoping because of his liberal stance, died in April 1989, triggering spontaneous and peaceful student demonstrations in Beijing, which spread across the country.
Half a million college students in Beijing alone were involved in this movement.
It lasted 50 days and was heartily supported by Beijing residents and people all around the country, from all walks of life.
Zhao pointed out to the Politburo that the sentiments expressed by the students and residents in their commemoration of Hu, in their protests against corruption, and their desire for democracy were really the same sentiments that they themselves held.
He believed that it should be possible to resolve the student protests and respect the principles of democracy and the rule of law.
Under Zhao's direction, the Politburo and its Standing Committee called for dialogue with the students.
This hopeful direction changed completely, however, when Deng Xiaoping revealed his desire for a violent crackdown.
In the end, it came down to a fight among five members of the Politburo Standing Committee: Li Peng and Yao Yiling sought to deploy the military.
Zhao opposed this.
Qiao Shi and Hu Qili initially sided with Zhao, but then withdrew their support and, instead, asked Deng Xiaoping to make the final decision.
With deep divisions evident, Deng chose to bypass all existing institutions, the Party's Politburo, the Central Committee, and the National People's Congress and its Standing Committee.
Without further discussion, Deng mobilized 500,000 troops to enter Beijing to crack down on the unarmed students and civilians.
The Tiananmen Square Massacre of 1989 was a tragedy for China, and another tragedy for the twentieth century.
Sixteen years have passed, but the pain remains, buried in the hearts and minds of the people.
In the years that have passed, China's leaders were responsible not only for Zhao's unlawful house arrest but also for a systematic effort to erase his name from history.
But their attempts to conceal the truth about the past only reveal their weakness and their shamelessness.
For one thing they cannot change: Zhao Ziyang remains with us, in the Chinese people's ongoing struggle for rights and democracy.
A New Start for Non-Proliferation
Obama has pledged to revitalize the 1970 Nuclear Non-Proliferation Treaty (NPT), which aims to prevent the spread of nuclear weapons. The non-proliferation regime, of which the NPT is the cornerstone, is in disarray.
The main problems are easily identified.
First, the five main nuclear-weapon states have not taken seriously their NPT obligation to work for nuclear disarmament.
Instead, they have insisted that nuclear weapons are essential for their security and continued to modernize their nuclear arsenals. This naturally robs them of the moral authority to persuade others not to acquire nuclear weapons, which continue to be perceived as a source of power and influence, and an insurance policy against attack.
Second, as we have seen in the case of North Korea, there is nothing to stop countries that sign the Treaty from simply walking out after declaring that "extraordinary events" have jeopardized their supreme interests.
Third, the International Atomic Energy Agency, which is supposed to police the non-proliferation system, is shamefully underfunded.
When it comes to determining whether or not a country is conducting a covert nuclear weapons program, IAEA inspectors often have their hands tied, either because they lack the legal authority to gain access to all the locations they consider necessary, or because the IAEA's analytical laboratories are outdated, or because the Agency does not have adequate access to satellite imagery.
Fourth, export controls have failed to prevent the spread of sensitive nuclear technology, not least due to the sophisticated efforts of clandestine networks like the one run by Pakistani nuclear scientist A.Q. Khan.
Nine countries already have nuclear weapons, and it would be naive to presume that others, particularly in regions of conflict, will not try to get hold of them.
In addition, a number of countries with nuclear energy programs have the capability, if they choose, to manufacture nuclear weapons within a matter of months if their security perceptions change, because they have mastered the critical technology -- uranium enrichment and plutonium reprocessing.
If more countries take this path, it could prove to be the Achilles' heel of non-proliferation.
Fifth, the international community, spearheaded by the United Nations Security Council, has more often than not been paralyzed in the face of challenges to international security and ineffectual in responding to suspected cases of nuclear proliferation.
These issues will not be resolved overnight. But there is much that can be done relatively quickly.
The United States and Russia have started negotiations on deep cuts in their nuclear arsenals, which together account for 95% of the world's 27,000 warheads.
Other key steps include bringing into force the Comprehensive Nuclear Test Ban Treaty; negotiating a verifiable treaty to end production of fissile material for use in weapons; radically improving the physical security of nuclear and radioactive materials, which is vital to prevent them from falling into the hands of terrorists; and strengthening the IAEA.
Last month, I proposed a key measure to strengthen non-proliferation to the IAEA's Board of Governors -- establishing an IAEA bank of low-enriched uranium (LEU) to guarantee supplies to countries that need nuclear fuel for their power reactors.
LEU cannot be used to make weapons.
Some such mechanism will be essential in the coming decades as more and more countries introduce nuclear energy.
My proposal is to create a physical stockpile of LEU at the disposal of the IAEA as a last-resort reserve for countries with nuclear power programs that face a supply disruption for non-commercial reasons.
This would give countries confidence that they can count on reliable supplies of fuel to run their nuclear power plants, and therefore do not need to develop their own uranium-enrichment or plutonium-reprocessing capability.
This could help to avoid a repeat of Iran's experiences after its 1979 revolution, when contracts for fuel and technology for its planned nuclear power program were not honored.
Thirty years later, some of the consequences are still being felt.
The LEU would be available to countries in need on the basis of non-political and non-discriminatory criteria. It would be accessible at market prices to all states in compliance with their nuclear safeguards obligations.
No state would be required to give up the right to develop its own fuel cycle.
The money needed to launch an LEU bank is in place, thanks primarily to a non-governmental organization -- the Nuclear Threat Initiative -- and initial funding from Warren Buffett. But this can only be a first step.
It should be followed by an agreement that all new enrichment and reprocessing activities will be placed exclusively under multinational control, and that all existing such facilities will be converted from national to multinational control.
This is a bold idea, but bold ideas are needed now more than ever.
The opportunity to put the nuclear fuel cycle under multinational control was missed 60 years ago because of the Cold War.
The spread of nuclear technology and the growing risk of nuclear terrorism make it imperative that we get it right this time.
Europe's Corner of Despair
-- Three floors of Moldova's parliament building are a charred ruin.
So is democracy in Moldova, a former Soviet republic that is now Europe's poorest country.
Of Moldova's 3.5 million people at the time of independence, 15% have already left the country to seek better lives elsewhere. More than 63% of Moldova's young people say they want out.
In early April, a disputed election victory by Moldova's ruling Communists triggered protests.
Political opponents and disaffected people, many of them young and with few prospects of finding jobs, took to the streets.
A violent few broke into the offices of the country's president and its parliament building, which was set on fire.
In response, the Communists blamed the violence on the opposition political parties, which it called "fascists," and on Romania and Romanian irredentists in Moldova.
The police cracked down on young people and took hundreds into custody.
Several died, apparently from beatings.
President Vladimir Voronin later granted the detainees amnesty.
Nevertheless, many remain in detention and Voronin continues to hurl accusations at the opposition and Romania of organizing a coup d'état.
Legal proceedings have been opened against opposition parties.
Restoring stability and a fair democratic system to Moldova is important, first and foremost, because Moldovans deserve a government that is accountable.
Stability is also important because the country borders on Romania, a European Union member state.
The two countries share a language and culture, and, until Stalin separated them, were even part of the same state.
A vocal minority of Moldova's people believe that merging their country with Romania would put the country into the express lane to EU membership, with its generous financial perks and, perhaps most enticing of all, passports that would enable them to escape a no-hope economy to build lives elsewhere.
Many Moldovans, indeed, already have Romanian passports so that they can travel and work in the EU.
Some Romanian officials, including President Traian Basescu, have bandied about the idea of distributing Romanian passports to as many as a million Moldovan citizens, a quarter of the entire population.
Of course, the Moldovan government balks at any attempt to lure away its citizens.
The United States should do more to help bring stability to Moldova.
Together with the EU, the US can help ensure a credible investigation of the post-election violence and complaints against the police.
Amerca should be more energetic in demanding that the Moldovan authorities respect the rule of law, issue a roster of all detained persons, provide them access to lawyers and family members, and guarantee that they are not harassed.
Opposition leaders and democracy watchdogs say Moldova's election process was fundamentally flawed.
The country's broadcast media, especially its television stations, gave a disproportionate amount of air time to the ruling Communists during the election campaign.
The Communists are alleged to have rigged the balloting by adding names to the voter rolls and reviving the dead for the day.
In the long run, the US and EU should support civil society organizations in pressing Moldova's government to guarantee more equitable distribution of television time, to stop police harassment of opposition political leaders and workers as well as journalists, to reform the police and end the ruling party's abuse of state institutions, and to allow all political parties more opportunity to inspect election rolls and monitor polling stations.
They should insist that opposition parties are included in a dialogue.
The US can put weight behind its demands by placing conditions on its financial assistance to Moldova.
The EU has even more leverage. Moldova is more dependent on the EU than any other former Soviet republic.
More than half of the country's trade is with the Union, and Moldova receives significant EU financial assistance.
Most Moldovan emigrants work in the EU, and almost 75% of Moldova's population support EU membership.
Romania, too, should play its part and offer to sign a basic treaty and a border agreement with Moldova.
The last thing impoverished Moldovans need is an autocratic, unaccountable government that lacks sufficient imagination to find a way to revive the country.
And just about the last thing the EU needs is an influx of hundreds of thousands of migrants fleeing poverty, political repression, and despair in Moldova and other countries of the former Soviet Union.
Poor Little Rich Country
Feeling sympathy for Norway is hard. Thanks to its massive North Sea oil reserves, the country has achieved a level of wealth unimaginable only a generation ago - and which has allowed it to cold-shoulder the European Union since 1994.
But Norway's problems, while hardly on a par with Sub-Saharan Africa or Afghanistan, are nonetheless serious enough to elicit concern, if not pity.
When a country's newly discovered natural resource abundance leads to windfall wealth, investment in the rest of its economy shifts away from the tradeables sector (mainly manufactured exports) and into the nontradeables sector (mainly consumer goods and services).
The diagnosis is a familiar one known as "the Dutch disease."
If and when the natural resource generating the windfall wealth (in this case, oil and gas) disappears, the economy is left with too few competitive industries and too many empty bookstore-cafes.
Painful restructuring is sure to follow.
So far, Norway has avoided the worst pitfalls of the Dutch disease by using its massive oil revenues to establish a national savings scheme, the Petroleum Fund, which is permitted to invest only in foreign assets.
This rule serves to curb inflationary demand pressure while preventing elected officials from squandering the country's riches on politically rewarding but economically wasteful projects.
On both counts, however, Norway has recently lowered its guard and is heading for trouble.
Wages throughout the economy have soared, with the average increase likely to hit a whopping 6% this year.
To compensate, firms have been raising prices, fueling inflation.
But with the central bank committed to holding annual inflation to an average of 2.5%, Norway's interest rates are currently among the highest in Europe.
This has helped cause the exchange rate to strengthen by nearly 10% over the last year against the currencies of Norway's main trading partners, making the tradeables sector even less competitive.
Domestic industries that face foreign competition are beginning to close down or relocate abroad.
As a result, in one of the world's richest countries, unemployment is rising.
But the real problem is the public sector.
Government spending is now increasing by 4% annually because of a new "action rule," enacted in 2001, that allows revenue from the Petroleum Fund to be phased into the domestic economy.
But the additional budget revenue has merely offset lower taxes, while high wages and interest rates are jacking up public expenses.
So more government spending is needed to maintain public services at the same level - and to keep unemployment down.
The cycle thus takes another vicious turn: higher interest rates, continuing currency appreciation, further decimation of the tradeables sector, and the risk of more unemployment.
If Norway is to avoid succumbing to the Dutch disease, there can be only one solution. With the importance of the tradeables sector dwindling away, the nontradeables sector must increase its productivity and output.
There is only one main way that the necessary productivity and outcome gains can be achieved: excess demand in the public sector must be shifted elsewhere.
After all, the demand will not disappear on its own.
Waiting lists for medical and nursing services in Norway already seem endless, and school buildings are deteriorating - some have even been closed down by the public health authorities.
A range of public services will therefore have to be privatized.
As always, this will be a politically contentious and challenging process. But it will also provide a golden opportunity to realize the country's potential through a strategy of sensible investment - the original purpose of the Petroleum Fund.
This strategy should include significant investments in human capital: education, training, and basic scientific research.
But brilliant ideas cannot be made to order.
Any government effort to sustain dying industries or to allocate investment by picking all sorts of "innovative" projects will be a recipe for economic disaster.
As so often in the rest of the world, windfall wealth such as came to Norway because of its oil and gas, can be a curse as much as it is a blessing.
With just 10-15 years of estimated oil reserves remaining, the United Arab Emirates last year dropped visa requirements for most Westerners in an effort to accelerate the development of a viable tourist trade.
With the recent discovery of its huge Caspian Sea reserves, Kazakhstan stands at the start of this process.
These countries, like Norway, were winners in the natural resource lottery. But that is no guarantee that they will remain rich after the payments stop.
A Way out of Tibet's Morass
A year ago, Chinese and Western intellectuals competed in dismissing popular interest in Tibet as a childlike confusion with the imaginary Shangri-la of the 1937 film Lost Horizon .
But after more than 150 protests in Tibet against Chinese rule over the past 12 months, concerns about the area seem anything but fanciful.
Indeed, Tibet could soon replace Taiwan as a factor in regional stability and an important issue in international relations.
The areas populated by Tibetans cover a quarter of China; to have such a large part of the country's territory under military control and cut off from the outside world weakens the Communist Party's claims to legitimacy and world power status.
Last year's protests were the largest and most widespread in Tibet for decades.
Participants included nomads, farmers, and students, who in theory should have been the most grateful to China for modernizing Tibet's economy.
Many carried the forbidden Tibetan national flag, suggesting that they think of Tibet as a separate country in the past, and in about 20 incidents government offices were burned down.
In one case, there were even attacks on Chinese migrants, leading to 18 deaths.
It is hard not to see these events as a challenge to China's rule.
The government's reaction was to blame the problem on outside instigation.
It sent in more troops, hid details of protestors' deaths, gave a life sentence to an AIDS educator who had copied illegal CDs from India, and for months banned foreigners and journalists from the Tibetan plateau.
In November, Chinese officials, live on national TV, ridiculed Tibetan exiles' proposals for negotiation.
They canceled a European summit because of a meeting between French President Nicolas Sarkozy and the Dalai Lama, and regularly imply that Tibetans are terrorists.
On March 28, Tibetans in Lhasa had to celebrate "Serf Emancipation Day" to endorse China's explanation for its take-over 50 years ago.
But such class-struggle terminology reminds people of the Cultural Revolution and, since such language would be unimaginable in inland China today, only makes Tibet seem more separate.
Although both sides claim to be ready for dialogue, they are talking at cross-purposes: the exiles say that talks must be based on their autonomy proposals, while China says that it will discuss only the Dalai Lama's "personal status" -- where he would live in Beijing should he return to China.
Visceral sparring matches are continuing, with the Dalai Lama recently describing Tibetans' lives under China as a "hell on earth."
He was almost certainly referring to life during the Maoist years rather than the present, but his remarks enabled China to issue more media attacks and raise the political temperature further.
Western governments have been accused of interference, but it is unlikely that any want to derail their relations with China, especially during an economic crisis.
Last October, British Foreign Minister David Miliband was so anxious to maintain Chinese good will that he came close to denouncing his predecessors' recognition of Tibet's autonomy 100 years ago.
But foreign concerns about the status of China's mandate in Tibet are understandable: Tibet is the strategic high ground between the two most important nuclear powers in Asia.
Good governance on the plateau is good for everyone.
China could help to lessen growing tensions by recognizing these concerns as reasonable.
The Dalai Lama could cut down on foreign meetings and acknowledge that, despite China's general emasculation of intellectual and religious life in Tibet, some aspects of Tibetan culture (like modern art, film and literature) are relatively healthy.
Western observers could accept the exiles' assurances that their proposals on autonomy are negotiable and not bottom-line demands, rather than damning them before talks start.
All sides would gain by paying attention to two Tibetan officials in China who dared to speak out last month.
A retired prefectural governor from Kardze told the Singapore paper Zaobao that "the government should have more trust in its people, particularly the Tibetan monks," and the current Tibet governor admitted that some protesters last year "weren't satisfied with our policies," rather than calling them enemies of the state, the first official concession from within China that some of its policies might be connected to the recent protests.
The Party has so far been following a more conventional strategy: last week it sent a delegation of officials to the US (the first ever sent, it said, to have been composed solely of Tibetans -- a fact that one might expect them to have been embarrassed to admit) and had its leader, Shingtsa Tenzin Choedak, tell journalists that Tibetans enjoy freedom of religion.
As anyone who has worked in Tibet recently knows well, this was an inexactitude: since at least 1996, all Tibetans who work for the government and all Tibetan students in Tibet have been forbidden any Buddhist practice, even though it is illegal under Chinese law to stop people from practicing an official religion.
China's government could improve the situation overnight by sacking the officials responsible for such illegal policies, and by apologizing to Tibetans for having overlooked such abuses for 15 years.
And it could start reassessing its Tibetan policies instead of increasing controls and allegations.
Until then, China's quest for international respect is set to remain elusive and Tibet is likely to stay on the world's agenda.
Europe and the Global Food Crisis
But there is more to finding a solution than simply identifying those nations that are capable of feeding the rest of the world.
It is increasingly urgent that every nation gain the means of feeding itself.
This means that agriculture should become an international priority, with the poorest countries helped to safeguard the security and independence of their food supplies.
Countries and organizations are already mobilizing.
The United Nations' Food and Agriculture Organization argues that rising food prices could lead to increasing global conflicts.
The Davos World Economic Forum ranks food insecurity as a major risk to humanity.
The World Bank has forcefully emphasized the importance of agriculture to jump-starting economic expansion and breaking the cycle of poverty.
UN Secretary Ban Ki-moon has created a working group to define a common plan of action, and France's President Nicolas Sarkozy has proposed a global partnership for food.
Sarkozy's proposed partnership has three pillars.
First, an international group should draft a worldwide strategy for food security.
Second, an international scientific platform should be charged with evaluating the world's agricultural situation, sending out warnings of upcoming crises, and possibly facilitating governments' adoption of political and other strategic tools to deal with food crises.
Finally, the international finance community, despite its current problems, must be mobilized.
The reliability and size of the European Union's farm output means that it can and should play the role of regulator in global markets.
If Europe cut back on its agricultural production, the increase in its own food imports would contribute significantly to a worldwide increase in food prices.
This makes it imperative that EU food production levels be held steady -- for the sake of Europeans and of people in the world's poorest countries.
But Europe cannot build up its own agriculture to the detriment of the less fortunate. So the EU must harmonize its policies with poorer countries.
At present, export subsidies and support payments represent less than 1% of the European agricultural budget, and the EU has undertaken to eliminate them once it receives reciprocal undertakings from major food-exporting countries.
Since 2001, with the "Everything but Arms" initiative, all products from poor countries -- with the exception of weapons and munitions -- can enter the EU single market on a duty-free basis. This has led to the EU becoming the primary market for the poorest countries' products.
The EU is also developing ways to respond to new global challenges through changes to its Common Agricultural Policy. This was reflected in the decision to suspend the "set aside" rule that requires a proportion of agricultural land to lie fallow.
Now the EU is preparing to increase dairy quotas progressively, and evaluating the impact on world markets of its decisions regarding bio-fuels.
But Europe's focus must be on encouraging the development of local agriculture. Doing so is the only way to achieve greater global food security and reduce poverty.
It will also make it possible to ensure that today's high prices for agricultural products are transformed into opportunity for poor farmers.
This is vital because, according to the World Bank, growth in farming eliminates poverty twice as much as growth in any other economic sector.
Indeed, agriculture remains the primary productive sector in the world's poorest countries, employing 65% of the working population and, on average, contributing more than 25% to GDP.
But over the past 20 years, support for agricultural development has been declining.
Only 4% of public development assistance is now earmarked for agriculture.
The European Commission and EU member states are therefore planning to increase their assistance, both through the European Development Fund and by developing new sources of financial support.
Further liberalization of farm trade will not ensure food security.
Faced with the erratic nature of agricultural markets, regulation is needed to soften the impact on poorer countries of volatile food prices.
This does not mean that protectionism is the way forward, only that taking account of specific issues that affect international farm trade -- weather, price volatility, or health risks -- may be necessary from time to time.
But, in a world where productivity differentials can be as great as one to 1,000, it would be unwise to rely on markets alone to enable the poorest countries to expand their economies.
Nor is it likely that much economic expansion will result from competition between multinational food distributors and producers in countries where famine still stalks the land.
Instead, bringing together outside expertise and local knowledge of the geography and environmental and economic constraints in order to spread risks and share the management of resources and projects is far more likely to help poor countries achieve food independence.
It was such an approach that, in less than 20 years, helped postwar Europe achieve food sovereignty.
Countries that have protected their agricultural development from the threats posed by international markets -- such as India or Vietnam -- have achieved substantial reductions in agricultural poverty.
The time has also come to prioritize agriculture in order to ensure growth with a more human face.
At the heart of the EU, France wants to play its part in a collective effort that is fast becoming a major issue for us all.
capitalism characterizes economies where large firms -- often so-called "national champions" -- dominate production and employment.
Smaller enterprises exist, but are typically retail or service establishments with one or only a few employees.
Firms get to be large by exploiting economies of scale, refining and mass-producing the radical innovations developed by entrepreneurs (discussed next).
Western European economies and Japan are leading exemplars of managerial capitalism, which, like state guidance, also has delivered strong economic performance.
But managerial capitalism, too, has its Achilles heel.
Bureaucratic enterprises are typically allergic to taking big risks -- that is, developing and commercializing the radical innovations that push out the production-possibility frontier and generate large sustained jumps in productivity and thus in economic growth.
Large firms are relatively risk-averse not only because they are bureaucracies, with layers of management required to sign off on any innovation, but also because they are reluctant to back innovations that threaten to render obsolete the products or services that currently account for their profits.
In our view, the limits of managerial capitalism explain why, after approaching US levels of per capita income in the late 1980's, both Western Europe and Japan failed to match America's information-technology-driven productivity resurgence that began in the 1990s.
This leads to the fourth type: entrepreneurial capitalism .
Economies in which dynamism comes from new firms historically have commercialized the radical innovations that keep pushing out the production-possibility frontier.
Examples from the last two centuries include such transformative products and innovations as railroads, automobiles, and airplanes; telegraph, telephones, radio, and television; air conditioning; and, as just noted, the various technologies responsible for the IT revolution, including both mainframe and personal computers, routers and other hardware devices, and much of the software that operates them.
To be sure, no economy can realize its full potential only by having entrepreneurial firms.
The optimal mix of firms contains a healthy dose of large enterprises, which have the financial and human resources to refine and mass-produce radical innovations, along with newer firms.
The Paracetamol Dilemma
Substitution of paracetamol for aspirin, researchers proposed, may have led to an enhanced allergic immune response, thereby increasing susceptibility to asthma and other allergic disorders.
Since then, a number of epidemiological studies have reported an association between asthma and exposure to paracetamol in the womb, in childhood, and in adulthood.
These studies led to the suggestion that the use of paracetamol may represent an important risk factor in the development of asthma.
The latest evidence to support this hypothesis comes from a large international epidemiological study of childhood asthma that was recently published in the medical journal The Lancet .
This analysis, from the International Study of Asthma and Allergies in Childhood (ISAAC), involved more than 200,000 six- and seven-year-old children from 73 centers in 31 countries.
The children's parents or guardians completed written questionnaires about current symptoms of asthma, rhinitis (hayfever), and eczema, and about several risk factors, including use of paracetamol for fever in the child's first year of life and frequency of paracetamol use in the past 12 months.
The study identified that the reported use of paracetamol for fever in the first year of life was associated with symptoms of asthma in the six- and seven-year-old children.
The association was present in all major regions of the world, with an estimated 46% increased risk following adjustment for other risk factors.
A dose-dependent association between asthma symptoms at 6-7 years and paracetamol use in the previous 12 months was also observed.
Similar associations were observed between the use of paracetamol and the risk of severe asthma symptoms.
The proportion of asthma cases that could be attributed to exposure to paracetamol was calculated to be between 22% and 38%.
Paracetamol use both in the first year of life and in children aged 6-7 was also associated with an increased risk of symptoms of rhinitis and eczema.
This suggests that the potential effect of paracetamol is not restricted to the airways and may affect a number of organ systems.
Identifying the potential mechanisms that might underlie the association between paracetamol and asthma (and other allergic disorders) was not a part of this study.
But other researchers have proposed a number of plausible mechanisms, primarily related to paracetamol's negative effect on the body's ability to withstand oxidant stress and its potential enhancement of the allergic immune response.
The authors emphasised that causality could not be established from a retrospective study of this design due to the numerous potential biases that may confound the association.  For example, it is known that viral respiratory tract infections in infancy such as respiratory syncytial virus (RSV) are associated with an increased risk of asthma in later childhood and that paracetamol use for such episodes could have caused confounding in the study.
The study has contributed to the debate as to whether it is beneficial to treat fever in children, an issue comprehensively reviewed by Fiona Russell and colleagues in the Bulletin of the World Health Organization.
They propose that the available scientific evidence suggests that fever is a universal, ancient, and usually beneficial response to infection, and that its suppression under most circumstances has few if any demonstrable benefits. 
On the contrary, they suggest that suppressing fever may occasionally produce harmful effects, and conclude that widespread use of drugs to reduce fever should not be encouraged.
They recommend that in children their use should be restricted to situations of high fever, obvious discomfort, or conditions known to be painful. 
What is agreed is the need for randomized controlled trials of the long-term effects of repeated use of paracetamol in children.
Only then will it be possible to develop evidence-based guidelines for its recommended use.
Pending the results of such research, paracetamol remains the preferred drug to relieve pain and fever in childhood, to be used in accordance with WHO guidelines, which recommend that it should be reserved for children with a high fever (38.5Co or above).
The use of aspirin in young children is contraindicated, owing to the risk of Reye's syndrome, a rare but serious complication.
Paracetamol also remains the preferred drug to relieve pain or fever in children or adults with asthma, because aspirin or other non-steroidal anti-inflammatory drugs may provoke attacks of asthma in susceptible people with this condition.
The False Promise of Global Governance Standards
The notion of a single set of criteria to evaluate the governance of publicly traded firms worldwide is undoubtedly appealing.
Both investors and publicly traded firms are operating in increasingly integrated global capital markets. But the quest for a single set of global governance standards is misguided.
Yes, over the last decade, there has been growing use of global governance standards, largely developed in the United States, to assess how countries and companies around the world protect minority investors.
But these efforts have overlooked fundamental differences between controlled companies, which have a controlling shareholder, and widely held firms that lack such a controller.
While widely held firms dominate the capital markets of the US and the UK, controlled companies dominate in most other countries.
Widely held and controlled companies differ considerably in the governance problems their investors face.
In widely held firms, the concern is about opportunism by managers, who exercise de facto control; in controlled firms, the concern is about opportunism by the controlling shareholder at the expense of minority shareholders.
Because the basic governance problems in the two types of firms are considerably different, arrangements that benefit investors in widely held firms might be irrelevant or even counterproductive in controlled firms, and vice versa.
As a result, applying a single standard for assessing investor protection worldwide is bound to miss the mark with respect to widely held firms, controlled firms, or both.
Consider, for example, the Corporate Governance Quotient system, developed by the US firm RiskMetrics, the world's dominant shareholder advisory firm.
RiskMetrics' system, which is used by institutional investors around the world, attaches considerable weight to the arrangements governing contests for control.
These arrangements are, indeed, important for investors in widely held firms.
When a company has a controlling shareholder, however, control contests are not possible, and the arrangements governing such contests are thus irrelevant.
Investors and public officials in countries where controlled companies dominate should stop using global governance standards based on the designers' experience with widely held firms in the US.
Rather, they should strive to develop standards appropriate for controlled firms.
Most obviously, assessments of controlled companies should not give significant weight to arrangements governing contests for corporate control.
Similarly, arrangements that make the firm's board of directors more responsive to the wishes of a majority of shareholders, such as making it easier for shareholders to replace directors, can serve the interests of investors in widely held firms, but are counterproductive for investors in controlled firms.
In controlled firms, where the concern is diversion from minority shareholders, making directors even more responsive to the controller will likely make minority investors still more vulnerable.
Moreover, in countries that have many controlled firms, close attention should be paid to related-party transactions and to the taking of corporate opportunities -- the main ways in which value may be diverted from minority investors in such firms.
To address such problems, arrangements that enable a minority of shareholders to veto related party transactions -- arrangements which are not warranted in widely held firms -- could well be valuable.
Finally, when assessing controlled companies, the independence of directors should not be judged largely by looking at the extent to which they are independent of the company on whose board they serve. Rather, considerable attention should be given to their independence from the controlling shareholder.
To improve corporate governance and investor protection, public officials and investors in countries whose capital markets are dominated by controlled companies should be wary of global governance standards developed for US companies.
They should focus on the special problems of controlled companies and on the rules that would work best for protecting smaller investors in such companies.
Toxic Tests
Many people have inferred from this sequence of events that US banks -- which are critical to both the American and world economies -- are now out of trouble.
But that inference is seriously mistaken.
In fact, the US stress tests didn't attempt to estimate the losses that banks have suffered on many of the "toxic assets" that have been at the heart of the financial crisis.
Nevertheless, the US model is catching on.
In a meeting this month, finance ministers of G-8 countries agreed to follow the US and perform stress tests on their banks.
But, if the results of such tests are to be reliable, they should avoid the US tests' fundamental flaw.
Until recently, much of the US government's focus has been on the toxic assets clogging banks' balance sheets.
Although accounting rules often permit banks to price these assets at face value, it is generally believed that the fundamental value of many toxic assets has fallen significantly below face value.
The Obama administration came out with a plan to spend up to $1 trillion dollars to buy banks' toxic assets, but the plan has been put on hold.
It might have been hoped that the bank supervisors who stress-tested the banks would try to estimate the size of the banks' losses on toxic assets.
Instead, supervisors estimated only losses that banks can be expected to incur on loans (and other assets) that will come to maturity by the end of 2010. They chose to ignore any losses that banks will suffer on loans that will mature after 2010.
Thus, the tests did not take into account a big part of the economic damage that the crisis imposed on banks.
Although we don't yet have an estimate of the economic losses the stress tests have chosen to ignore, they may be substantial.
According to a recent report by Deutsche Bank, for example, borrowers will have difficulty refinancing hundreds of billions of dollars of commercial real estate loans that will mature after 2010.
Rather than estimate the economic value of banks' assets -- what the assets would fetch in a well-functioning market -- and the extent to which they exceed liabilities, the stress tests merely sought to verify that the banks' accounting losses over the next two years will not exhaust their capital as recorded in their books.
As long as banks are permitted to operate this way, the banks' supervisors are betting on the banks' ability to earn their way out of their current problems -- even if the value of their assets doesn't now significantly exceed their liabilities.
But doesn't the banks' ability to raise new equity capital indicate that, regardless of whether the stress tests are reliable, investors believe that their assets' value does significantly exceed their liabilities?
Not at all.
Consider a bank with liabilities of $1 billion.
Suppose that the bank has assets with long maturity and a face value of $1.2 billion but whose current economic value is only $1 billion.
Although the value of the bank's assets doesn't exceed its liabilities, depositors won't flee as long as the government backs the bank by guaranteeing its deposits.
If in two years the bank's assets have a 50-50 chance of appreciating to $1.2 billion or declining to $0.8 billion, the bank will be able to raise new equity capital: new investors will be willing to pay for the prospect of sharing in the excess of the value of assets over obligations if things turn out well.
To get a good picture of banks' financial health, estimating the value of their toxic assets is unavoidable.
Regulators could encourage each bank to sell part of its toxic portfolio and extrapolate the portfolio's value from the price obtained in such a sale, or they could attempt to estimate the portfolio's value as well as they can on their own.
Either way, the true value of banks' toxic assets must be estimated before concluding that banks are armed with sufficient capital to carry out their critical roles.
The kind of stress tests that the US conducted, and that other countries are being urged to emulate -- and the ability of banks to raise additional equity capital -- cannot provide a basis for such a conclusion.
Let the Good Times Roll Again?
Not without reform.
Indeed, one key lesson of the financial crisis is that an overhaul of executive compensation must be high on the policy agenda.
Indeed, pay arrangements were a major contributing factor to the excessive risk-taking by financial institutions that helped bring about the financial crisis.
By rewarding executives for risky behavior, and by insulating them from some of the adverse consequences of that behavior, pay arrangements for financial-sector bosses produced perverse incentives, encouraging them to gamble.
One major factor that induced excessive risk-taking is that firms' standard pay arrangements reward executives for short-term gains, even when those gains are subsequently reversed.
Although the financial sector lost more than half of its stock-market value during the last five years, executives were still able to cash out, prior to the stock market implosion, large amounts of equity compensation and bonus compensation.
Such pay structures gave executives excessive incentives to seek short-term gains -- say, by making lending and investment decisions that would improve short-term earnings -- even when doing so would increase the risks of an implosion later on.
Following the crisis, this problem has become widely recognized, including by business leaders such as Goldman Sachs' CEO Lloyd Blankfein.
But it still needs to be effectively addressed: Goldman's recent decision to provide record bonuses as a reward for performance in the last two quarters, for example, is a step in the wrong direction.
To avoid rewards for short-term performance and focus on long-term results, pay structures need to be re-designed.
As far as equity-based compensation is concerned, executives should not be allowed to cash out options and shares given to them for a period of, say, five years after the time of "vesting" -- that is, the point at which the options and shares have been "earned" and may not be taken away from the executive.
An executive's inability to cash out shares and options for a substantial period would tie his or her payoff to long-term shareholder value.
The length of this period should be fixed, and should not depend on actions or conditions that are at least partly under executives' control.
By contrast, prohibiting executives from cashing out shares and options until they leave the firm would provide executives who have accumulated shares and options with a large monetary value with counter-productive incentives to depart.
Similarly, bonus compensation should be redesigned to reward long-term performance.
For starters, the use of bonuses based on one-year results should be discouraged.
Furthermore, bonuses should not be paid immediately, but rather placed in a company account for several years and adjusted downward if the company subsequently learns that the reason for awarding a bonus no longer holds up.
In addition to the excessive focus on short-term results, a second important source of incentives to take excessive risks has thus far received little attention.
The payoffs of financial-sector executives were tied to highly leveraged bets on the value of their firms' capital.
Why Financial Pay Shouldn't be Left to the Market
Perhaps not surprisingly, many financial bosses are up in arms over such moves.
They claim that they need the freedom to set compensation packages in order to keep their most talented people -- the ones who will revive the world's financial system.
So, should governments step back and let financial firms reform themselves?
The answer is clearly no.
In the post-crisis financial order, governments must take on the role of monitoring and regulating pay in financial firms; otherwise, the perverse incentives that contributed to the current crisis could easily recur.
It is important to distinguish between two sources of concern about pay in financial firms.
One set of concerns arises from the perspective of shareholders.
Figures recently released by New York's attorney general, Andrew Cuomo, indicate that nine large financial firms paid their employees aggregate compensation exceeding $600 billion in 2003-2008 -- a period in which their aggregate market capitalization substantially declined.
Such patterns may raise concerns among shareholders that pay structures are not well designed to serve their interests.
Even if financial firms have governance problems that produce pay decisions deviating from shareholder interests, however, such problems do not necessarily warrant government regulation of those decisions.
Such problems are best addressed by rules that focus on improving internal governance processes and strengthening investors' rights, leaving the choices that determine compensation structures to corporate boards and the shareholders who elect them.
But pay in financial firms also raises a second important source of concern: even if compensation structures are designed in the interests of shareholders, they may produce incentives for excessive risk-taking that are socially undesirable.
As a result, even if corporate governance problems in financial firms are fully addressed, a government role in regulating their compensation structures may still be warranted.
Suppose that most financial firms could be relied upon by regulators to be run in the interest of their shareholders.
Would this justify exempting these firms from existing regulations that constrain their decisions with respect to lending, investment, or capital reserves?
Clearly not, because shareholders do not bear the full costs of a firm's collapse, and, as the recent crisis demonstrates, the bill for such a downfall must be picked up, at least in part, by taxpayers and the economy.
So shareholders' interests might sometimes be served by business decisions that are too "risky," and regulating such decisions is justified -- indeed, necessary.
Regulation of pay in financial firms is called for by the same reasons that justify the traditional regulations of the firms' business decisions.
The incentives generated by compensation structures determine how firms' managers behave within the boundaries permitted by such traditional, direct regulations.
And as traditional regulation of business decisions is bound to be imperfect, regulating compensation structures can be a useful additional tool to control the risks posed by financial firms' behavior.
If choices of compensation structures can be expected to affect financial firms' stability, regulating these choices can also be useful for protecting this stability.
Financial firms opposed to pay regulation will likely warn against "micro-managing" compensation, and argue that compensation choices must take into account information about each individual manager that regulators are almost certain to lack.
But pay regulation can improve matters without micro-management by setting general standards from which firms may not deviate but that still leave them with significant freedom to account for the individual circumstances of managers.
For example, regulatory standards could require equity-based plans to preclude managers from cashing out awarded shares and options during a certain minimum period after vesting.
In such a case, firms could still remain free to choose the number of shares and options awarded to any given manager, as well as to adjust somewhat the length of the post-vesting period during which cashing out would be precluded. 
Finally, those opposing pay regulation are certain to warn us about "unintended consequences."
But this warning should not carry the day.
We have experienced over the last several years the real and costly consequences of a compensation regime that left financial firms free to set their own pay structures.
Are we to believe that those consequences are preferable to the unintended consequences of pay regulation?
The effort to avoid the harm of flawed compensation decisions in the future should not be deterred by speculative arguments about unintended consequences.
Financial firms should not retain the freedom to create perverse incentives that put all of us at risk.
Should Bondholders be Bailed Out?
It is now widely expected that, when a financial institution is deemed "too big to fail," governments will intervene if it gets into trouble.
But how far should such interventions go?
For example, bondholders were fully covered in the bailouts of AIG, Bank of America, Citigroup, and Fannie Mae, while these firms' shareholders had to bear large losses.
The same was true in government bailouts in the United Kingdom, Continental Europe, and elsewhere.
Bondholders were saved because governments generally chose to infuse cash in exchange for common or preferred shares -- which are subordinate to bondholders' claims -- or to improve balance sheets by buying or guaranteeing the value of assets.
A government may wish to bail out a financial institution and provide protection to its creditors for two reasons.
First, with respect to depositors or other creditors that are free to withdraw their capital on short notice, a protective government umbrella might be necessary to prevent inefficient "runs" on the institution's assets that could trigger similar runs at other institutions.
To enable small creditors to use the financial system, it might be efficient for the government to guarantee (explicitly or implicitly) their claims.
On Censorship in Hong Kong
No jackboots are to be seen marching through Hong Kong's sleek shopping malls, but a distinct whiff of totalitarianism is in the air.
The tell-tale phrases are on everyone's lips: talk of the need for anti-subversion laws, press controls, strong leadership, of adjusting to Hong Kong's new reality.
Everyone looks to the great Northern neighbor for direction and mutters about expediency.
Most of the world lost interest in Hong Kong after 1997 when the "Anschluss" with China did not instantly deliver vast changes.
Over the last year or two, however, the pace of integration into the People's Republic of China has quickened decisively.
Life at the South China Morning Post , Hong Kong's leading English language newspaper, and so a visible political gauge, offers a window into what is going on all across Hong Kong's institutions.
The atmosphere at the paper began to darken noticeably as one after another of its leading editorial lights was pushed out.
It would be an exaggeration to compare the situation to the way the Nazis took over institutions in Germany in the 1930s, and to how people back then fell in line, because no one is disappearing into concentration camps.
Hong Kong remains a rich and prosperous place.
Yet the dictatorship in Beijing has made its presence felt, if only through proxies and collaborators.
Before I chose to protest to the editor who sacked me a week ago, I was guilty of complicity too.
I stayed silent when the paper's popular cartoonist (Larry Feign) was unjustly dismissed, and remained silent even after its best satirical writer (Nury Vittachi) was sacked.
I only became uneasy when the British editor (Jonathan Fenby) was fired and replaced.
"I am still OK," I reasoned. "They still let me write what I want..."
My job as bureau chief in Beijing isolated me from the struggles in the head office in distant Hong Kong.
Besides, working in Beijing is itself a constant struggle of conscience and compromise.
Foreign reporters are under constant surveillance and risk compromising their contacts.
That means one begins to avoid tough subjects, like the repression of Falun Gong and its followers.
Gradually, you also noticed a change in the behavior of your HK colleagues.
As the government proposed to introduce an anti-subversion law and strengthened its control over the civil service, they became guarded in what they said and tightlipped about mentioning the pressures from above.
Whispered rumors of daily interference from management were only confirmed in private.
Some people responded opportunistically, seeing the way to promotion open as talented colleagues disappeared.
So the internationally recognized editor, Willy Lam, was replaced by a mainlander, Wang Xiangwei.
Those who organized this coup hoped that it would lead to greater things for themselves; those who signed a petition of protest were fired not long after.
Management then began to quietly spread word that the paper needed people able to "negotiate" with the sensibilities of the Communist Party.
Curiously, some officials in Beijing complained about the crude tactics of those sent to run Hong Kong.
It seemed the urge to collaborate actually ran ahead of the party's demands.
The paper's tone began to change, becoming increasingly deferential toward China's rulers.
Reporting became blander and blander.
Management talked of the virtues of writing to allow readers to read between the lines.
These changes speeded up over recent months.
Even the office photographer began to notice different photographic choices.
The Hong Kong and Macao Affairs Office took charge of the paper's correspondents based on the mainland, demanding that they be replaced by ethnic Chinese.
Then they began to offer guidance on reporting in exchange for favors like access to officials.
Despite the obviousness as to where all this was leading, individuals responded differently.
Some continued to deny what was happening, and became indignant if the issue was raised. Others reasoned that if they kept their head down and compromised, the crisis would pass.
A sort of listlessness now grips Hong Kong, particularly the civil service.
The business sector remains unaffected and continues to talk optimistically of the prospects opened up by closer integration with the mainland.
But Hong Kong is surrendering the uniqueness and exceptional position it once held over the Chinese world.
As other Chinese cities become more free and more confident, Hong Kong is submissively abandoning the freedoms it once held with pride.
In 1997, China promised to preserve these freedoms for 50 years under the one county, two systems mantra.
Now Hong Kong itself is undoing the system.
Many of its tycoons (one of whom, Robert Kuok, controls the South Morning China Post ) are jettisoning their autonomy for the sake of business - even when such action is not requested.
They seem blind to the value of what they are sacrificing.
The intangibles of freedom will determine the vitality and future of Hong Kong.
Tragically, such losses never appear on the profit sheets measured by accountants.
Damming China's Rivers
Yunnan is home to three great Asian rivers: the Mekong, the Salween (or Nu), and the Jinsha.
All start on the great Tibetan Plateau and flow in parallel through the northwest corner of the province into Southeast Asia.
They are China's last pristine rivers, but are now slated for sacrifice to satisfy the country's insatiable thirst for power.
Plans call for dozens of dams to be placed along their serpentine courses through the mountains of Yunnan.
I had the chance to see one of these rivers -- and the proposed site of one of the country's most controversial dams -- on a recent trek through the stunning Tiger Leaping Gorge, north of the town of Lijiang in northern Yunnan.
On its descent from the roof of the world, the Jinsha River, tributary of the mighty Yangtze, cascades through this ten-mile gorge on its way to Shanghai and the East China Sea.
If, or rather when, the river is dammed, it will help power the cities and factories of coastal China.
The sun was high above white-crowned Jade Dragon Snow Mountain when my guide pointed down the gorge at the brown waters churning thousands of feet below.
"That's where they will build the dam," Xiao Chun, a 17-year-old Naxi, one of Yunnan's 22 ethnic minorities, said.
"It will be very bad for us.
There will be a lot of pollution.
I hope it doesn't happen."
The dam will have its uses.
Dianchi Lake near the provincial capital, Kunming, is so shrunken and polluted that the city faces a serious water shortage.
Water from the Tiger Leaping Gorge will be diverted to flush out Dianchi Lake, without which Kunming will not prosper.
As China seeks to keep its economic engine running, dams and hyrdopower do represent a cleaner alternative to coal.
China plans to double its hydropower capacity to over 120 GW by 2010 and to build more hydropower-projects for at least another 20 years.
Experts reckon that only a quarter of China's hydropower has yet been tapped.
Yet the costs may outweigh the benefits.
Northwestern Yunnan is one of the world's most biologically diverse areas, home to half of China's animal species and a quarter of its plant species.
Whatever portions of this ecosystem that the dams don't submerge are certain to be disrupted in potentially disastrous ways.
A more immediate concern is the immense number of people who will need to be resettled when reservoirs inundate the region's densely populated valleys.
Since 1949, 16 million people have been displaced by reservoirs.
Some 10 million of them still live in poverty.
At Tiger Leaping Gorge, where a mere 100,000 residents will have to be relocated, residents fear that they will be ordered to move up the steep mountainsides to open marginal land at 6,000 to 9,000 feet.
Dam opponents, including vocal indigenous environmental groups, have waged a seemingly successful battle to protect Tiger Leaping Gorge and the Salween (the Nu River).
In early 2005, three years after a new law on environmental impact assessments (EIA's) was passed, the State Environmental Protection Bureau (SEPA), ordered the halt of 30 large projects, including 26 hydropower plants that had failed to submit proper EIA's.
Among the suspended projects was the first dam across the Nu/Salween.
These efforts appear to have catalyzed greater environmental sensitivity among the country's leaders.
The government recently called for more balanced development, even proposing a "green index" to measure growth.
Indeed, Prime Minister Wen Jiabao has declared that he wants to see more "scientific development" in China's approach to its problems, and even called for a temporary halt of the Salween (Nu) River dam.
Environmentalists were even permitted to take part in a public hearing on the Tiger Leaping Gorge project, a first for China.
Unfortunately, the Communist Party's tolerance of such civic activity blows hot and cold.
The Party, alarmed by the "color revolutions" that toppled post-Soviet leaders in Georgia, Ukraine, and Kyrgyzstan, is cracking down on domestic non-government organizations for fear that they, too, might become catalysts for popular uprisings.
Support for "green development" inside central government organizations like SEPA offers little assurance of an effective countervailing force.
"We must sharpen our teeth," Pan Yue, SEPA's deputy director, said when the agency halted the dam projects.
But China has seen a steady decentralization of power in recent years, making it harder for SEPA to affect policies at the regional and local levels.
Indeed, local governments appear less afraid of Beijing's bite than before.
When boundaries were negotiated for Three Parallel Rivers Park -- designated a UNESCO World Heritage site in 2003 -- local authorities won a fight to exclude Tiger Leaping Gorge, knowing that a dam there would triple tax revenues.
China urgently needs to maintain an annual growth rate of over 9% as a bulwark against social disorder.
As a result, however, China is slowly consuming itself, and no major part of China may remain pristine.
The Poverty of Thinking About Poverty
The World Summit on Sustainable Development in Johannesburg is, as expected, contemplating numerous bold promises, but the meeting itself is doomed to be an exercise in futility.
For if we mean by `development' human development in its widest sense, the only development that is sustainable is one that enables people to live together in peace and with respect for basic human rights.
There is very little scope for international action to eliminate the violation of these rights in many - if not most - countries of the world today, particularly those that are trying to turn the `Earth Summit' into a sounding board for criticism of the failure of advanced countries to do more to eradicate world poverty or to protect the environment.
At least we should welcome the fact that these two topics - poverty and the environment - are the two main themes of the Earth Summit.
This is a retreat from the usual fixations of the earlier sustainable development pressure groups, such the supposed exhaustion of raw materials for growth, or the sheer technical inability of the world to feed its expanding population, or biodiversity.
The wild exaggerations of environmental activists are at last being seen through by most informed commentators.
The laws of economics state that when the demand for a commodity begins to outstrip supply the price will rise. Leaving aside short-term speculative markets, demand will then decrease and supply (including the supply of substitutes) will increase.
These laws have ensured that none of the doomsday scenarios of the 1960s and 1970s - remember the forecasts of the "Club of Rome"? - have come to pass.
Indeed, in the long run, prices of almost all minerals have followed a downward trend.
The world can never run out of any mineral resources.
Similarly alarmist predictions about imminent worldwide famine have also been falsified.
Famines do occur, of course, but rarely, if ever, in genuinely democratic countries.
From the days of Soviet collectivization in the 1930s down to President Mugabe's racist policies in Zimbabwe today, famines result from civil wars or ideological lunacies.
Local climate change can, of course, exacerbate the situation, but given the scope for world trade and the existence of surpluses in many food producing areas, democratic governments can deal with the consequences.
As for biodiversity, the most important species threatened with extinction today is the human race.
True, international action can help to deal with the twin problems of poverty and environmental degradation.
For example, rich countries should reduce agricultural subsidies and open up their markets more to Third World food exports.
International action can also help deal with global environmental problems.
There are many examples of such action, such as the Montreal Protocol to help reduce the threat to the ozone layer.
So it is unfortunate that America abandoned the Kyoto process for combating global warming, instead of trying to move that process toward sensible market-based solutions and away from the regulatory mechanism beloved of bureaucrats everywhere.
But a reduction in poverty and environmental degradation - such as lack of access to clean drinking water - that affect the lives of billions of people in the Third World will always depend chiefly on local policies.
These include, above all, increased respect for the rule of law, for property rights, for freedom for people to take advantage of their entrepreneurial spirit and to express their discontent with their lot, not to mention other basic freedoms set out in numerous international conventions to which almost all the countries participating in the Earth Summit are signatories and which many flagrantly ignore.
Greater respect for human rights is not, of course, merely a desirable means towards the ends of poverty reduction and environmental protection. It also happens to be an important - often the most important - item of human welfare and development.
The events of the last twelve months have surely driven home to most people that the most dangerous conflict facing humanity in the future is not the conflict between Man and the environment, but between Man and Man.
Unfortunately, given the respect accorded to national sovereignty, the scope for international action to improve respect for basic human rights in the many countries where they are violated is limited.
For this reason, whatever fine, ringing pronouncement, do emerge from the Earth Summit, they are doomed to failure.
New Europe Catches Old Europe's Cold
Two countries -- Hungary and Ukraine -- have already asked for large packages of support.
Several more could do so over the next month if frozen credit markets do not thaw.
If the situation continues until the end of the year, which cannot be ruled out, many more countries could experience serious banking crises.
Over the last two decades, Eastern Europe has undertaken wide-ranging reforms and embraced global financial integration.
Foreign, mostly European, banks have entered these markets with unprecedented speed and force. These banks have increasingly reached out to more risky small- and medium-sized enterprises and helped people buy their own houses and start new businesses.
But successful financial development is now coming back to haunt these countries.
Until now, the countries of emerging Europe withstood the global financial squeeze remarkably well, coping with the slowdown in important export markets and increased borrowing costs.
But no open economy can resist a complete shutdown of the lending markets.
Perhaps they became too dependent on cheap credit, but they were not alone in this respect.
Some foreign banks are now withdrawing liquid funds from subsidiaries in emerging Europe.
According to the National Bank of Russia, foreign banks withdrew more than $10 billion in that country in September alone. Other central banks make similar claims.
To be fair, Raiffeisen International has announced that it was supporting its Ukrainian subsidiary, Bank Aval, with an additional €180 million.
Whether other parent banks active in the region stand by their subsidiaries depends on how severe the crisis in Western Europe becomes.
But the Western European bailout packages could make the situation in emerging Europe worse.
While most parent banks in the region are likely to benefit from these measures, this does not necessarily translate into support for their foreign subsidiaries.
In fact, there is a serious risk that these bailouts will come at the expense of Eastern Europe.
Several governments have declared that taxpayer money cannot go into operations abroad.
Governments in emerging Europe should, of course, play their part in stabilizing their financial systems.
But at this point there are severe limits to what they can do.
Most do not have the financial clout to counter the extraordinary pressures from financial markets.
An offer by Hungary's government to extend a general guarantee of deposits or to ensure liquidity in interbank markets has limited credibility.
To survive this crisis, emerging Europe needs support from outside.
First and foremost, West European leaders must ensure that the crisis is resolved at the core, and many observers doubt that they have done enough.
Second, they must prevent the crisis measures already taken from discriminating against subsidiaries in Central and Eastern Europe, independently of whether they are within or outside the European Union.
Third, they must combine forces, as in Hungary, with international financial institutions in supporting these economies.
Georgia's experiences following its recent war with Russia offer a possible model.
The International Monetary Fund provided an emergency credit line to support the currency, the World Bank coordinated the relief effort (much of it financed by the United States and the EU), and the European Bank for Reconstruction and Development used its knowledge and resources to lead the effort to save the financial system.
The Georgia package is not a done deal, and circumstances elsewhere are different, but it shows that standard instruments can go a long way.
Yet more resources and new instruments will be needed.
The case of Hungary shows that the EU can tweak an existing instrument -- balance-of-payment support -- and use it creatively.
For non-EU countries, like Turkey and Ukraine, innovative ideas are also urgently needed.
There should be no doubt about what is at stake.
It is has been little noticed, but in the last few years, Eastern Europe, including Russia, surpassed the US and the United Kingdom as the euro zone's most important export markets.
Many of these markets now face slowdown or even negative growth.
Moreover, Western European companies have invested on a previously unimaginable scale.