A united effort
Liu Mingli

THE U.S. financial crisis spread to Europe in late September, leading many financial institutions to the edge of bankruptcy. Consequently, European Union (EU) countries held a series of meetings to consider how to respond. Now the most pressing challenge for the EU is surviving the financial crisis. The impact of the U.S. financial crisis on Europe has been slow but destructive. In mid-September, the U.S. subprime mortgage crisis that began in 2007 progressed into a full-blown financial crisis, sending the American economy into a tailspin.
On September 20, the U.S. Government submitted a $700 billion rescue plan to Congress, triggering furious discussions over its proposals and another sharp drop in the stock market when Congress initially rejected it. Even though President George W. Bush signed a revised version of the plan into law on October 3, the financial crisis has cast a dark cloud over the U.S. economy.
While the United States was sweating over its financial future, its European allies displayed coolness, even schadenfreude. German Chancellor Angela Merkel claimed the U.S. financial crisis and the resulting global financial turbulence had limited impact on Germany, and described as “bearable” the losses suffered by the German financial sector after U.S. investment bank Lehman Brothers went bankrupt. German Finance Minister Peer Steinbrueck also said that although the United States was experiencing its worst financial crisis in decades, it would not likely trigger a domino effect in Europe-especially not in Germany, its largest economy. Meanwhile, French Finance Minister Christine Lagarde said the crisis would have limited impact on the French financial sector. This excessive optimism prevented European countries from taking early action against potential financial turmoil at home.
The crisis reached Europe in late September, felling large financial institutions like the British bank Bradford & Bingley, the Belgian-French Dexia Group, and Fortis, the Dutch-Belgian financial services company. Attracted by the prosperous U.S. real estate market and vigorous financial trading in recent years, these institutions had purchased a large amount of “poisoned” securities backed by bad mortgages. The U.S. financial crisis caused them huge losses and they now face serious financial problems. According to an October 13 Wall Street Journal report, the 30 largest European financial institutions hold over 1 trillion euros in debt that will mature by the end of next year, putting their solvency at risk.
Infected by the financial crisis, Europe is watching its real economy tumble as well. According to Eurostat, the Eurozone’s GDP in the second quarter saw negative growth compared to the first quarter. The financial crisis will intensify the credit crunch, depressing production as well as individual consumption. The global economic slowdown will harm European exports as well. In September, Eurozone economic confidence hit a seven-year low as officials reported the unemployment rate had increased to 7.5 percent. The EU and its members are scaling back their growth projections, while the largest European countries face the increasing possibility of recession.
EU bailout plan
Because European leaders misjudged the U.S. financial crisis in the beginning, they were caught unprepared when it arrived on their doorstep. The EU’s bailout process can thus be divided into two stages. During the first stage, EU members addressed the crisis on their own. Since late September, EU countries have taken various economic measures depending on their individual situations. For example, Belgium, Holland and Luxemburg announced on September 28 that they would spend $6.8 billion, $5.9 billion and $3.7 billion, respectively, to hold 49 percent shares of Fortis divisions in each of their countries. Meanwhile, the British Government partially nationalized Bradford & Bingley.
Ultimately, however, as a regional organization whose members have close financial and economic ties, the EU relies on teamwork. On October 4, Merkel, Nicolas Sarkozy, Gordon Brown and Silvio Berlusconi, along with European Commission President Jose Manuel Barroso, European Central Bank President Jean-Claude Trichet and Eurogroup President Jean-Claude Juncker, held an emergency summit in Paris, hoping to combat the financial crisis together. Before the summit, Sarkozy proposed a plan to set up a 300 billion euro ($415 billion) fund to help troubled European financial institutions. The summit ended with an agreement on several shared principles instead of any concrete bailout measures, and Sarkozy’s plan was vetoed by Britain and Germany.
Far from coordinating their efforts, EU members clashed with each other over their bailout strategies. For example, Ireland was the first EU member state to guarantee national bank deposits, which drew protests from British bankers as customers moved their savings to Irish banks. Finland criticized the Paris summit for excluding smaller countries. During the first stage of the crisis, the EU was in a state of disunity as stock markets kept falling and the situation grew worse. Now, however, EU members have realized the importance of coordinated action.
The second stage is a joint bailout process. The turning point came on October 15, when leaders from all 27 EU member states gathered in Brussels for a two-day summit. Brown, whose country has not yet joined the Eurozone, also participated in the summit together with Barroso. The leaders agreed on a plan to stabilize financial markets by purchasing stock in financial institutions and providing temporary finance guarantees. On October 16, Germany, France and Britain issued their massive bailout plans, valued at 500 billion euros (about $637.7 billion), 360 billion euros (about $459 billion) and 500 billion pounds (about $808 billion), respectively. By October 20, all the bailout plans of the EU and its member states totaled as much as 2 trillion euros (about $2.65 trillion), marking the biggest bailout action in European history.
The EU also planned to establish an informal early warning system to boost communication among its members and monitor financial sectors. In addition, the EU decided to change accounting rules so banks are less exposed to sudden declines in the value of their assets.
Now the EU is focused on reforming the international financial system to avoid another crisis in the future. European leaders said the global financial crisis stems from a broken international financial system and called for a complete overhaul. Sarkozy and Barroso also paid a special visit to Washington to lobby Bush for a global summit on financial reform, which will be held in mid November.
Where to go from here
The joint bailout demonstrates EU members’ commitment to fighting the crisis, contributing to a rebound in investor confidence. But recent fluctuations in European stock markets hint that investors are still unsure about the plan’s implementation and effects.
Judging by U.S. stock market activity since Congress approved the bailout, it is quite possible that the European financial crisis will not ease up any time soon and may even get worse. Because EU countries have different laws and accounting practices, transparency in financial markets also varies. Some financial institutions may have yet to fully reveal their losses. Moreover, as the U.S. financial crisis spreads worldwide, its impact on Europe may not be over.
Although the EU’s bailout action is a strong effort to stabilize financial markets, it contains risks as well. In 2001, when the dot-com bubble burst, the U.S. Government issued long-term, low-interest loans to stimulate the economy. That policy in turn created a housing bubble that led directly to the current financial crisis. Therefore, Europe needs to be alert to the negative effects the bailout might have on future economic stability.
It is still hard to say when Europe will emerge from the financial crisis, but it is certain that the financial crisis will lead to a credit crunch, economic slowdown and possible recession, which are all bad for the world economy. The EU is China’s top trading partner and its economic slowdown will put pressure on China’s export enterprises, which underlines two faults in the Chinese economy: insufficient domestic demand and over reliance on the world market.

—The Daily Mail-Beijing Review Articles Exchange Item

Burning anger, smouldering silence
Ayaz Amir

THE Predator strike on a Bannu village marks a first: the first missile strike outside FATA (the acronym to describe the seven tribal agencies—-now the scene of the mayhem the United States and its blundering ways are visiting upon Pakistan).
Predator drones we foolishly supposed would not venture outside the tribal belt. Our American friends have surprised us once again, drawing another circle of riotous laughter around the streaming banner of our constantly-embattled sovereignty. We will of course protest and say this is unacceptable. The Prime Minister — poor, helpless, likeable Yousaf Raza Gilani — will go into another paroxysm of high-flying indignation. But nothing will change and our American friends will not be deterred because they know what feigned Pakistani indignation is worth.
The Washington Post was not far wrong. It touched a raw nerve when it suggested that a ‘tacit’ understanding had been reached between Washington and Islamabad whereby America could launch what missile strikes it wanted in the tribal borderlands while Pakistan was free to rail and beat its chest, which is what Pakistan is doing. Indeed, in defence of American interests we are proving to be amongst the world’s most accomplished liars, every day our government issuing denials which no one believes. Our responses can also be comical. Because from President Asif Ali Zardari to Prime Minister Gilani the pious hope is embraced that these missile strikes, violations of our precious sovereignty, will hopefully cease when Barack Obama enters office. Such investment in unmerited hope can have few parallels.
The Americans can pat themselves on the back for the change they have helped engineer in Pakistan: replacing a yes-man — Pervez Musharraf — who had outlived his utility and had become a liability with a fresh yes-man — President Zardari — who is all too keen to do America’s bidding and prove his usefulness to his American benefactors, who helped his rise to power.
Musharraf had no popular backing and his creation, the Q League, was an artificial construct, a king’s party shored up by government help and patronage. Zardari heads a popular party and indeed, on present reckoning, the country’s biggest party, the PPP. The rank-and-file of the PPP certainly don’t want to toe any American line.
If they were to be true to their culture they would shout that any friend of America’s is a traitor. But the PPP leadership in the person of Mr Zardari is sold on proving its usefulness to America. Which is a strange role for the party of Zulfikar Ali Bhutto: playing Uncle Tom to America’s master. But with an NRO-whitewashed leadership what could we have expected?
I am sure Musharraf’s biggest regrets are (1) trying to get rid of Chief Justice Iftikhar Chaudhry and (2) granting a blanket pardon to Zardari. The move against Chaudry triggered the lawyers’ movement which fatally weakened Musharraf. Zardari is wrong to downplay the significance of that movement. Without it Musharraf would have been under little compulsion to reach out to Benazir Bhutto and bring Zardari in from the cold.
Without the NRO whitewash — the biggest dry-cleaning operation in Pakistan’s history — Zardari would not be where he is today: lord of the Presidency and, by virtue of commanding a popular party, more powerful than Musharraf in his tinselly uniform.
But Zardari’s gain has been Pakistan’s tragedy. Musharraf put the army, which was all that he had at his disposal, at the service of American interests. He did not rule the hearts and minds of anyone save those dejected remnants of the Q League who still pine for his restoration. Zardari has more going for him: a popular party and the stamp of public approval. He is after all an elected president, the army’s ‘crack’ 111 Brigade —that great instrument of constitutional arbitration, its interpretation of the Constitution sounder than the Supreme Court’s — having had nothing to do with his elevation. All these gifts Zardari has put at the service of the United States.
Musharraf can cry his heart out. He was never this effective. He was good enough for 2001; without his uniform not good enough for 2008. In any event, he was Bush’s boy. Bush has passed from history. The USA of Obama requires a new Uncle Tom, with democratic plating, the role into which President Zardari is growing. As the Iraq war is downgraded and the focus shifts to Afghanistan, as Obama has promised to do, more will be required from Pakistan. Zardari, on prevailing evidence, is not likely to disappoint.
What a host of ironies the February elections threw up. The people of Pakistan, chumps as ever, thought they were knocking at the gates of a new redemption. Little could they have realised that they were merely tinkering with the old and giving it a new facelift. The people of Pakistan haven’t been betrayed. That would be to put too apocalyptic a meaning on current events. They have merely been used to lend the semblance of popular backing to an unpopular cause.
Pakistan’s democracy is now hitched to America’s war chariot which is not quite what the people of Pakistan were expecting when they marched to the polling booths on Feb 18.
The army, lest we forget, is a willing accomplice of these developments. It is not averse to the task of performing sentry duty for America and fighting its war. Indeed, under its new command, it has brought to this task a new zest. Musharraf never carried out such sustained operations as in Bajaur. He did not use F-16s in FATA.
He carried out American orders but only up to a point. That is why our American friends had begun to nurse grievances against him.
That is also why there was no end to the refrain “do more”. Now we hear less of this refrain because the army under Gen. Ashfaq Pervaz Kayani, Allah be praised, is doing more and the Americans don’t know how to hide their satisfaction.
Up to a point Musharraf knew how to play the Americans. The new combo we have, Zardari and Kayani, is not playing the Americans. They are playing the Pakistani people by leading a loud chorus about sovereignty when in fact Pakistani sovereignty, or what remains of it, lies fatally compromised because of Pakistan’s servitude to American interests. There is no winning this war. The Americans eventually will get out. Invaders throughout history have not stayed in Afghanistan for long. We will be left holding the dishes as we did in 1988 when the Americans lost interest in Afghanistan after the Geneva Accords. Why are we so adamant about not learning from history?
Kayani has rehabilitated the army’s image to a certain extent but not to change direction in FATA, only to fight America’s war better. Of what use such rehabilitation? But the sorry thing is that where there should be an anti-war movement there is none. Ordinary Pakistanis feel dismayed but there is no one to give voice to their discontent. Parliament is not the tribune it should be. From the MQM to the ANP to the Q League, every party is marching to the tune being played by the Presidency and General Headquarters and composed by the US. The PML-N is betwixt and between, not happy with the way things are turning out but not shedding its reservations and not adopting a clear-cut or loud enough stand.
A counter-voice is thus missing. Those trying to speak out against the threat that this war represents are too small or weak to have an impact. So, this is turning out to be a land of the speechless, a land in pain but because of some conspiracy of the stars or of history (I can think of no other explanation) unable to give voice to its misgivings. The resulting void is being filled by the cult of the suicide bomber. Has Pakistan nothing better to offer?

—Khaleej Times

The Washington meeting
Fidel Castro Ruz

ACCORDING to recent statements, some supportive governments do not cease to say they want to facilitate transition in Cuba. What kind of transition? Transition to capitalism, the only system they have absolute faith in. They do not say a word about the merits of our people, which for almost half a century of harsh economic sanctions and aggressions, has defended a revolutionary cause that together with its morale and patriotism, has given it the strength to put up a resistance. They seem to forget that after laying down lives and making sacrifices in defense of sovereignty and justice, Cuba cannot be expected to end up on the side of capitalism. They ingratiate themselves with the United States hoping that it will help them face their own economic problems injecting huge amounts of paper money to their shaky economies which maintain unequal and abusive terms of trade with the emerging nations.
This is the only way they can ensure the multimillion profits of Wall Street and the US banks. The non renewable natural resources of the planet and its ecology are not even mentioned. There is no claim for the end of the arms race and the banning of the potential and probable use of weapons of mass destruction. None of the participants in the conclave hurriedly convened by the sitting President of the United States has said a word about the absence of over 150 nations facing the same problems or even worse. These will not have the right to speak on the international financial order as the pro tempore President of the UN General Assembly Miguel D’Escoto had proposed, even when they include most of the countries from Latin America, the Caribbean, Africa, Asia and Oceania. The G-20 meeting will open in Washington tomorrow. Bush is delighted. He has stated that a new international financial order will result from the meeting and that the institutions set up at Bretton Woods should be more transparent, accountable and effective. It’s as much as he would admit. Referring to Cuba’s prosperity in the past, he said that it had once been full of sugarcane fields. By the way, he failed to mention that it was manually cut and that, for over half a century, the empire has deprived us from our quota. Also that this action was taken when the word socialism had yet to be spoken in our country, although we had certainly proclaimed: Homeland or Death!
Many seem to dream that after a simple change of leadership in the empire, this would be more tolerant and less hostile. Apparently, contempt for the incumbent ruler makes some entertain illusions about a probable change in the system. The innermost ideas of the citizen who will take over the issue are yet unknown. It would be extremely naïve to believe that the good will of a smart person could change what is the result of centuries of selfishness and vested interests. Let’s watch attentively what everyone says in that major financial conclave. There will be plenty of news. We shall all be a bit better informed.