This week the Greek debt crisis entered a new phase, with Athens defaulting on it's €1.5 billion loan repayment to the IMF. A referendum has been called by Tsipras Government for this Sunday, which will ask the Greek population whether they accept to reject bailout conditions set by Greece's creditors. Tristram Sainsbury commented on the bizarre referendum:
The long term perspective is that we are witnessing an at-times painful series of negotiations that all contribute to the grand bargain of the European project. In this view, we are simply in a particularly dramatic stage of a complex negotiation path that has already delivered political, monetary and banking union and which will, at some point, result in fiscal union. The Greece case shows that the participation of countries in the project only works up until the point where their populations (and the parliaments they elect) are willing to tolerate the arrangements they are asked to bear.
Here is Daniel Woker on how the crisis fits into the larger European project:
The Eurozone is not a monetary union such as we have seen before but an economic reaction to the fact that the EU some time ago become one large manufacturing and service-providing area made up of countless cross-border value chains. An area-wide currency provides for a level playing field for suppliers and assemblers regardless of national borders. Contrary to what is often claimed, the political decision to create a single currency (and with it a common banking, regulatory and eventually fiscal union) followed economic reality rather than leading it. As a result, national sovereignty was transferred for the greater good of all. (This is of course anathema to nationalists all over the EU, yet the idea that the UK prefers to opt out of full European integration continues to baffle observers on the continent. After all, Britain without Europe is just an island adrift.)
In other developments concerning the international economy, the AIIB's Articles of Agreement were announced. First, Philippa Brant had a great breakdown of all of the key provisions:
China was successful in getting its favourite language into the Agreement: 'The Bank, its President, officers and staff shall not interfere in the political affairs of any member, nor shall they be influenced in their decisions by the political character of the member concerned.' Interestingly, this was taken even further, by stating that 'only economic considerations shall be relevant to their decisions.' I suspect this latter point will in reality be relaxed, as it will be challenging to make sound investment decisions without taking the political economy of a country into account.
Mike Callaghan warned that China needs to hasten slowly on establishing the Bank: [fold]
It will be important for the AIIB to have in place thorough processes and procedures before it starts lending. Among the steps necessary for the AIIB to be fully functional: the establishment of a treasury function so that the bank can access international capital markets; the recruitment of an international (and not predominantly Chinese) workforce with the appropriate expertise; and the development of rigorous procurement procedures and safeguards policies covering the environmental and social aspects of the bank's activities.
What appeared to be coordinated terrorist attacks occurred last week in Kuwait, Tunisia and France. ISIS, or ISIS-affiliated groups claimed responsibility for two of them, while the attack in France was likely a 'lone wolf' operation. Rodger Shanahan on the bombing in Kuwait:
Kuwaiti authorities have indicated that the mosque bomber was a Saudi national who flew into Kuwait on the morning of the bombing, which would indicate that there are some linkages between Saudis willing to blow themselves up and regional ISIS support cells who want to use them. There are already more than 3000 Saudis fighting with ISIS in Syria and Iraq, and one English-language Saudi newspapers reported that more than 1300 ISIS sympathisers have been arrested in the Kingdom in the last eight months. As with its al Qaeda problem a decade ago, Saudi Arabia's educational and social system makes it a rich hunting ground for would-be jihadists.
Here is former intelligence analyst David Wells on the broader 'attribution' strategy ISIS may be employing:
So preventing Australian citizens (dual or otherwise) from becoming ISIS cannon fodder in the Middle East is responsible governance. As is doing everything we can to prevent terrorist attacks occurring in Australia. But fundamentally, a much bigger problem is emerging across the Middle East and North Africa, one that could lead to more failed states, civil wars, and the continued forced migration of millions of innocent civilians from war zones.
International Security Program Director Euan Graham wrote on the upgraded strategic partnership between Australia and Singapore announced this week:
The upgrading of Australia-Singapore security relations should be appreciated in a broader strategic context that extends to the South China Sea, as well as in the political context of the currently under-performing relationship with Indonesia. Asked about the South China Sea at a joint press conference with Prime Minister Lee Hsien Loong, Tony Abbott was keen to stress that 'like Singapore', we 'deplore any unilateral alteration of the status quo' and 'uphold freedom of navigation on the sea and in the air'.
Has the IMF begun to rethink austerity? Stephen Grenville:
If a country pays down its debt, it has to do so by raising revenue or lowering spending, which will slow growth. On the other hand, once the debt is down, underlying growth will be faster because the cost of servicing debt will be a smaller burden on the economy. What's the trade-off here? The IMF authors argue that these two effects are equal, so there is no compelling reason to think that getting the debt down is a policy priority. As they say, 'When and only if countries have ample fiscal space, there is no need to obsess about paying down the debt. Living with the debt is likely to be the better policy.'
There are rumours circulating that Turkey is considering a military intervention into northern Syria. Lauren Williams doubts it will happen after the recent election:
It's highly unlikely that a large-scale military invasion of Syria could be made by an outgoing government. Sources close to the Government say talk of intervention is genuine, but one has to wonder whether the leak was aimed at denting the AK Party's standing as it courts potential partners to form a coalition. An invasion of Syria aimed at the Kurds would almost certainly end Turkey's peace process with the Kurds, a key achievement of Erdogan's leadership and a campaign platform.
Julian Snelder with a piece on the container trade:
A conflict in the South China Sea is just one threat to world trade. But there will be plenty of consequences of 'peak Box' in any case. For instance, the value of trade could continue to rise while the mix moves towards more information products and services (where Washington's trade interests are focused) and away from physical merchandise and bulk materials. China may have already passed its maximum steel and coal demand, years ahead of miners' expectations. The miners know there will never be another China. Its urbanisation and trade globalisation have been the two pillars of world economic growth.
China announced its climate change pledge ahead of the international climate change negotiations in Paris in November. Frank Jotzo believes it is a significant commitment:
China's target is a 60% to 65% reduction in the emissions-intensity of the economy by 2030 pegged at 2005 levels, with carbon dioxide emissions peaking around 2030, perhaps earlier. China has also pledged to increase the share of non-fossil fuels to 20% of total energy use and a large increase in forest carbon stocks…
The emissions-intensity target means reducing the ratio of carbon dioxide emissions to GDP by 60% to 65%, or conversely, increasing the amount of economic output per tonne of carbon by almost two-thirds. It's the only new commitment in addition to what China pledged at a joint announcement with the US at last year's APEC meeting. And it packs some punch.
Nick Bryant on New Zealand's efforts on the UN Security Council as it takes over the Presidency:
Benjamin Netanyahu, after meeting Murray McCully in Jerusalem earlier this month, sounded a warning to New Zealand and others pushing for a Middle East peace resolution. 'The main thing we have learned,' the Israeli Prime Minister said pointedly, 'is that peace is achieved, as we did with Jordan and with Egypt, through direct negotiations between parties, and not by fiat.' But the very fact that Israel is even paying attention to New Zealand is testament to the diplomatic clout that comes with membership of the Security Council. On the most nettlesome international issue of them all, Wellington* has become a significant player, if not a decisive or central one.
Here is Dina Esfandiary with an update on the Iranian nuclear negotiations, which have been extended a week:
As part of a final agreement, Iran will sign up to the Additional Protocol (AP), the most intrusive legal verification regime to date. While the framework agreement didn't outline when and how long for, US Energy Secretary Ernest Moniz explained that AP ratification would be immediate and indefinite. Implementation of the AP (and Iran's commitments under the Non-proliferation Treaty, of course) will extend beyond its P5-1 agreement, which is why the 'sunset clause' criticism of the agreement is unfounded.
Finally, Bob Bowker reported on the deteriorating situation in Egypt:
Draconian measures from the Egyptian Government will barely impede the jihadists. The Sinai conflict will continue to grind along its deadly path, mainly at the expense of ill-prepared and poorly-led conscripts in the military and police. Unless the Government radically changes its tactical and strategic approaches, the result will be a growing number of impoverished and bereaved Egyptians disillusioned with the Government and opposition alike.
Photo courtesy of Flickr user thierry ehrmann.