01/09/2015 08:33 PM

Assaulting Democracy

The Deep Repercussions of the Charlie Hebdo Attack


Photo Gallery: Comics and Killers
The terrorists in Wednesday's attack on Charlie Hebdo in Paris had a much broader target in mind: Western values. Will the attacks bring people together in this time of crisis or will fear of Islam prevail?

"Can we laugh about anything? Will we be able to laugh about anything tomorrow? These questions are worth asking. No limits to humor that is in the service of freedom of speech, because when humor stops, it is very often to make place for censorship or self censorship."

Cabu (Jan. 13, 1938 to Jan. 7, 2015), -- cartoonist at Charlie Hebdo

They knew what they were doing. The two masked men armed with Kalashnikovs ordered cartoonist Corinne Rey, who had just picked up her daughter from day care, to enter the door code. They then made their way to the second floor where, every Wednesday, the day of publication, the editorial staff of Charlie Hebdo gathered at noon to commence their weekly editorial meeting and discuss what they would put in the next issue.

It was a lively session, with around 15 people, including a police officer assigned to provide protection to Stéphane Charbonnier, the satirical magazine's 47-year-old editor in chief. In the end, neither stood a chance.

"Where is Charb?" the killers called out. "Where is Charb?" They shot him as soon as they found him. "I would rather die standing than live on my knees," Charb had once been quoted as saying. At the time, al-Qaida had just placed him on its death list in its online magazine Inspire. "Charb Doesn't Like People" was the name of a regular column he wrote for Charlie Hebdo, but he was in fact a quiet, reserved man who, like everyone here, stood for humanity as he saw it. They were people who fought for the freedom of the press, freedom of expression and, yes, for the right to occasionally trangress taste or to insult. In the end, they paid for it with their lives.

They were people like Cabu, whose real name was Jean Cabut. The 76-year-old with shaggy hair and a rough drawing style had a laugh so hearty it could literally lift him out of his chair.

His most famous character was "Grande Duduche," a perpetual college student hopelessly in love with the daughter of a university dean.

Or Georges Wolinski, 80, who, like Cabu and the entire first generation at Charlie Hebdo, was a figure cast in the spiritual mold of the 1960s -- hedonistic, libertarian, anarchic and cheerful -- a man who opposed censorship, racism, the war in Algeria, de Gaulle and narrow-minded and dull Catholic France.

Or Bernard Verlhac, 57, who called himself Tignous and once caricatured Front National leader Marine Le Pen featuring a clown nose with a swastika branded on it. He once went out of his way to mock Nicolas Sarkozy as a war president and a man who is positively spastic when it came to power and hyperactive to the point of hysteria.

Or illustrator Philippe Honoré, 73, whose last cartoon was a New Year's card to Islamic State leader Abu Bakr al-Baghdadi (wishing him "especially good health") that had been tweeted by the staff just minutes before the attack.

The hail of deadly bullets also struck left-wing economist Bernard Maris, 68, who wrote a regular column for the magazine, psychoanalyst and columnist Elsa Cayat, copy editor Mustapha Ourrad, police officers Franck Brinsolaro and Ahmed Merabet, a building maintenance man as well as local politician Michel Renaud, who had been paying a visit to the magazine.

A Rich Tradition under Fire

Few other countries in the world have a cartoon culture as rich as France, with its insatiable appetite for comics, or Bandes dessinées, as they are called. It's a culture that expresses an incredible understanding of humor -- be its aim contemptuous or educational, exclusionary or inclusive. It was a constant process, one called the freedom of opinion.

The cartoonists at Charlie Hebdo relished in jabbing at their targets and even reaching beyond them. That was all part of the bigger scheme of things. Reacting to the scandal over the Danish Muhammad caricatures in 2005, the editors of Charlie Hebdo initially wanted to run the headline, "Laughter kills," but they ultimately backed away from it, feeling it was too radical. Instead, in 2012, they ran a caricature of a naked Mohammed, showing his derriere, with his rear parts covered with a star and the caption, "A Star Is Born."

Was it funny? And who decides what's funny? They were determined to show that, when it comes to satire, there are no limits. At the time, US President Obama's spokesman Jay Carney said that the White House didn't question the magazine's right to publish the cartoons, only the "judgment behind the decision to publish it."

The final cartoon Charb published on the day of his death showed a mockingly caricatured jihadist, heavily armed, with the caption: "There still hasn't been an attack in France. Just wait, we still have until the end of January to send New Year's greetings." It was an eerie coincidence. But it also evoked the kind of stubborn spirit readers had come to expect from Charlie Hebdo over the years. It was what they wanted it to be.

Global Shock

The shock over the killings spread quickly across France as people registered that the attacks had in fact been also been aimed at France and democracy as a whole and not just some satirical magazine.

Judging from the outpouring of grief seen in France on Wednesday night, even an attack on the Louvre wouldn't have struck a deeper nerve. Jan. 7, 2015 has become for the French what 9/11 was to the United States. It was an attack on the country's proud history of Enlightenment and the French Revolution, but also one against Europe.

It goes far beyond the publication itself -- at issue are fundamental questions of freedom and humanity. Accordingly, politicians, journalists and everyday people around the world sought to express their solidarity. It happened en masse on social networks, but also in public spaces.

Hundreds of thousands of people attended vigils in cities spanning the globe from New York to Sydney on Wednesday, with further demonstrations planned for this weekend.

Newspapers dedicated their front pages to the tragedy, although not all dared to publish the cartoons featured in Charlie Hebdo. A number of cartoonists also drew images illustrating the inequality of weapons and pens. The pope prayed for the dead.

From Pakistan to Turkey, Muslim dignitaries took pains to distance themselves, using tough words to condemn the attacks. Tunisia's Islamist al-Nahda party issued a statement condemning the "cowardly and criminal act." Egypt's spiritual leader also sent his condolences, as did Russia and China.

A Turning Point

France is no stranger to terrorism, but Wednesday's attack marked the worst it had seen since 1961. The country survived the Organization of the Secret Army (OAS), a French dissident paramilitary group that fought against Algeria's independence during the 1960s. Later, during the 1990s, Algerian Islamists planted bombs in commuter trains. But the attack that took place on Wednesday against Charlie Hebdo was a siege against the very values that France embodies.

"This is a turning point -- quantitatively but for that reason also qualitatively," says Olivier Roy, a respected scholar of Islam at the European University Institute in Florence. "It was an attack designed for the maximum effect," he says. "They did it to shock the public and, in that sense, they were also successful."

At the same time, at least for a short period, the attackers united a country that in recent years had appeared to be frightened, beat down and hopeless in a way rarely seen before in its history. The day after the attacks, President Hollande even met with his political nemesis, Nicolas Sarkozy, in Elysée Palace. "This isn't just about democracy," the former president said. "It's about civilization."

Hollande also invited right-wing populist Marine Le Pen, a woman considered to be an outsider in the French political system who normally wouldn't get invited to the presidential palace.

Meanwhile, leftist Interior Minister Bernard Cazeneuve visited the editorial staff of the conservative daily Le Figaro on the day of the attacks. It may not sound like much, but these are meaningful gestures in today's politically polarized France.

Anxiety about Islam

This week's events in France could ultimately pour fuel on the flames of widespread French anxiety about an Islam that many believe is threatening the fabric of the country's very identity along with fears that other radical Islamists might conduct similar attacks.

Of course, that applies not only to France, but to the entire Western World, including Germany, which has so far been spared attacks comparable in scale. Nevertheless, Germans too harbor a diffuse fear of Islam, which has been manifesting itself of late on the streets of Dresden in the form of protests held by the loose-knit group calling itself Patriotic Europeans Against the Islamization of the West (Pegida). All over the place, it seems, people incapable of differentiating between Muslims and murderous assassins feel affirmed in their views.

The debate is raging particularly intensely in France, where Marine Le Pen's Front National has been winning big with voters for years with its Islamophobic messages. Still fresh on the minds of the French is the March 2012 killing spree waged by 23-year-old Mohamed Merah, who hunted down soldiers, Jewish children and their teacher in Toulouse with a handgun and a scooter, killing seven.

Merah sowed the seeds of fear in the hearts of the French, raising concerns that the country could become the focus of a bloody jihad -- one led not by foreign perpetrators but by French citizens who have gone astray. Merah was French, just like the two suspects in the Charlie Hebdo terror attack, the brothers Saïd und Chérif Kouachi, aged 34 and 32.
From Smoking Pot to the Jihad

The attack in Paris was one targeted at the entire world, but it's also one that hit, with great precision, a country that is experiencing significant uncertainty. There have been few times in postwar French history when public sentiment has been as downtrodden as it is now. After two and a half years of Hollande's Socialist government, there are no signs that France's decline is reversing.

The country's key indicators are a disaster. During the first half of Hollande's term, the number of unemployed has risen to 3.5 million, with particularly high youth unemployment.

Hollande's government has to answer to accelerated deindustrialization and an economy that is ailing with zero growth.

If you add to that the president's historically low popularity ratings, the picture is a profoundly negative one. The days following this week's attacks actually provide a moment of opportunity in which the French president could seek out words to ease the pain his compatriots are feeling.

It also presents an opportunity for Hollande to stand up for France after the weak performance he has shown so far as president.

Indeed, it may be possible to transform shock over the attacks in rue Nicolas Appert into strength. One of Queen Elizabeth II's crowning moments came after the London bombings in 2005. In a remarkable speech, the Queen directed some of her remarks right at terrorists: "Those who perpetrate these brutal acts against innocent people should know that they will not change our way of life."

There's also a chance France could fall prey to right-wing populists. In a tweet on Thursday, Le Pen reiterated her demand that the country hold a referendum on the death penalty, which is banned in France, a prohibition enshrined in the Charter of Fundamental Rights of the European Union. Le Pen's standing was soaring in public opinion polls even prior to Wednesday's attack. Whether support for her will now rise or fall hinges on how the French public ultimately reacts to the murders.

Shows of Solidarity

The street was always the place where France sought to reassure itself and where its citizens engaged in politics. This fateful Wednesday, thousands took to the streets to defend French values. A mass demonstration was held in Paris, but numerous others were also staged in other major cities, in villages and in small towns. Organizers mobilized people using SMS text messages and social networks. In France and across Europe, people gathered under the, "Je suis Charlie" slogan. I am Charlie. The slogan could be seen on digital display boards on highways, someone tweeted a picture of a newborn baby wearing a "Charlie" arm band, others wore buttons bearing the slogan and editorial staffs of entire media organizations, including SPIEGEL, were photographed holding up "Je suis Charlie" signs in solidarity.

It has become the emblem of a country and a Continent that has no intention of allowing itself to cower in the face of terrorism. France is a proud nation that can be defiant and rebellious.

And Europe, as the French would say, has character.

On Wednesday, an icy gray day, Paris was in a feverish state. It was the first day of annual winter sales, but the stores were emptier than usual in the afternoon. Special forces patrolled the department stores to protect against the threat of terror. At the bakeries, people exchanged encouraging words, wishing each other "a nice day, despite everything." Of course, they said, they would be joining the masses later at Place de la République, one of Paris' most famous squares.

In the center of the large square, a statue of Marianne, a depiction of the Goddess of Liberty, stands guard over a relief featuring the three founding principles of the French Republic -- Liberté, Égalité, Fratenité. Someone had slipped a black ribbon of mourning over Fraternité

Soldiers patrolled the capital city together with police and security checks were established at schools and at all major shopping centers and cinemas. "The daily life of the French is going to change dramatically," said one host of French news channel BFM TV.
The French are outraged by Wednesday's events, but they have remained calm. The prevailing sentiment is one of mourning and not thirst for revenge. It's almost as if the French had sensed something like this might happen one day. Now that it has, they want to maintain their composure, without showing any signs of backing down.

A New Dimension

This is, after all, an old battle that has been waged for years now between the friends and foes of freedom. In 2004, Theo van Gogh was stabbed to death by Mohammed Bouyeri, a Dutch-Moroccan Islamist, on an open street in Amsterdam. The Dutch filmmaker had repeatedly attacked Islam, at times in tasteless ways, prior to his slaying. Ten years later, the attackers, dressed in black, wore bulletproof vests and carried Kalashnikovs.

Although they've become more professional, the intention remains the same. France has chalked up many successes in the battle against terror, even preventing attacks on its soil. The French police and secret services have been repeatedly criticized for their at times brutal approach, but they have also been relatively effective.

But there's an altogether new dimension now, with more French youth answering the call to jihad in Syria and Iraq than in any other Western country. The authorities have been pushed to their limits. On Thursday, French Prime Minister Manuel Valls said, "Our services have dismantled many groups and foiled plans for attacks. That is proof that we are acting.

Hundreds of people are followed, dozens have been questioned, dozens have been jailed. That shows the difficulties facing our services: the number of individuals who pose a threat."

The Suspects

On Wednesday night, just eight kilometers north of the Place de la République, where the mourners had converged, few lights were on and only silhouettes could be seen behind the curtains in the darkness of rue Basly, the street where suspected killer Chérif Kouachi resided in the suburb of Gennevilliers. Until last Wednesday, Kouachi had resided on the fourth floor of this brick building with cacti in the windows behind a violet-colored door in Apartment 143.

As a youth, Kouachi smoked pot and drank alcohol. In 2005, he tried to go to Iraq because he wanted to join up with al-Qaida. He and his brother Saïd were born in Paris and grew up in a children's home in Rennes. Their parents, who were of Algerian origin, died when they were young. Chérif trained to be a fitness instructor and moved to Paris, where he made a living delivering pizzas. At the time, he described himself as an "occasional Muslim." Then he became acquainted with the Farid Beyettou a janitor and fanatic self-styled preacher, who recruited Chérif for the jihad.

A video filmed in the summer of 2004 by a neighborhood group shows Chérif as a young man wearing tennis shoes, light blue jeans and closely shorn hair, with a clean-shaven face. He can be seen rapping, doing his best to act cool like kids of that age do, and greeting his friend with a high-five.

'It's Good to Die a Martyr'

Police arrested Chérif in 2005 as he prepared to travel to Damascus on his way to Iraq, where he wanted to kill Americans. During his trial in 2008, he said he had been radicalized by the images of Abu Ghraib. His lawyer described him as a "loser" who had no idea what he wanted to do with his life. The judge sentenced Chérif Kouachi to three years in prison, with half of the time to be served on probation. At the time, French TV station FR 3 interviewed Chérif as part of a documentary film. In it, he said, "Farid (Benyettou) told me that the scriptures offered proof of the goodness of suicide attacks. It is written in the scriptures that it's good to die a martyr."

After his release, he worked as a fish vendor at a branch of the Leclerc supermarket chain. Anti-terror authorities found themselves back on Cheríf's trail again in 2010. They arrested him because they believed he was planning to help a convicted terrorist escape from prison. Police also took notice of his brother Saïd at the time. French authorities registered the two for monitoring by intelligence agencies across Europe. Cheríf starting in 2010 and Saïd since 2011. Sources in German security circles told SPIEGEL that one of the two spent time in 2011 in Oman and has ties to al-Qaida on the Arab Peninsula.

The New York Times also reported that Saïd spent several months in 2011 at an al-Qaida training camp in Yemen. At the time, US-born hate preacher Anwar al-Awlaki had been successfully recruiting fighters from the West. Both Saïd and Cheríf had reportedly been placed on the US government's no-fly list.

Police found Saïd's ID card in the car used to flee the crime scene on Wednesday.
People on the street in Gennevilliers, including many youth, said they couldn't fathom that Chérif, a friendly young man they described as "harmless" and "normal," could have been involved in the murder of 12 people.

At midday on Thursday, Chérif's neighbor was standing in front of the suspect's violet-colored door -- Eric Badday, an older man with horn-rimmed glasses who was born in Tunisia but has lived for more than 40 years in France. As he tried to proceed, he got bombarded with questions by TV crews that had crowded in to the building. All he wanted to do was take out his trash.

Kouachi was the perfect neighbor, says Eric Badday, shaking his head and still clutching his bag of garbage. "He was honest and decent and was never loud or aggressive." In contrast to himself, Badday said, the young man frequented the mosque, but he neither wore a beard nor dressed conspicuously. "Jeans and a T-shirt, just like me," Badday says. When you think about it, Badday continues, Kouachi was almost conspicuously inconspicuous. In hindsight.

Kouachi's wife, on the other hand, was an anomaly, even in a building where many Arabs live, Badday says. She was little more than a black shadow in a hooded abaya cloak and never showed her face. "When I got on the elevator, she would step out." He says he never saw Kouachi's brother Saïd, the second suspect, here in the building. He only learned of his existence from the television.

'No Murderers Lived Here'

The sandwich seller down the street says that Chérif "was a good customer. I never noticed anything strange about him." He has a hard time believing that Kouachi once wanted to fight in Iraq and that he may have been in Syria. He demands to see the police photo once again and shakes his head. "This has always been a quiet street," he says. "No murderers lived here." Then he adds: "Until now."

In the best known video of the attack, one sees shabby, 1970s-era office buildings lining a narrow street with sidewalks on both sides, separated from the road by metal posts. At the corner of one building stands a black car, a small Citroën 3, its doors open.

The image wobbles, you can hear shots being fired, salvos. They come loud and fast, one after the other. "An automatic weapon," says a man's gasping, emotionless voice. "Pssst. Be quiet," another whispers. The image rotates and becomes unfocused. "Don't move, just don't move." The film continues as people hunch down behind chimneys. Occasionally, the camera pans across faces, pale and with wide, fearful eyes.

They are journalists from the news agency Premières Lignes, whose offices are in the same building as those of Charlie Hebdo. They fled to the roof to escape the shooting. One of them, who had been smoking a cigarette on the street in front of the door, saw two men in black with heavy, automatic weapons as they called out: "Where are the offices of Charlie Hebdo?" The assailants had trouble finding their way inside the building at first.

At 11:30 a.m., Laurent Richard, an editor at Premières Lignes, parks his scooter around the corner in the Rue Saint-Sabin. He tries to head through a small street to the big white building at Rue Nicolas Appert 6-10.

The agitated waiter of a small restaurant tells him of two heavily armed men who disappeared into number 10. He hears his colleagues who, from the roof, indicate to him that he shouldn't go inside. He turns around and waits a couple of minutes. And then he goes in.
The Sources of Extremism

"It was unimaginable. A slaughter," Richard says. In the foyer, two firemen are trying to resuscitate a receptionist. In the editorial offices on the second floor, he sees dead bodies and wounded people. He tries to help first responders find those who had survived and to help the wounded. The terrorists, he is told, called out the journalists by name before they opened fire.

He can't say anymore exactly how long the shooting lasted and those who fled to the roof have a hard time remembering for sure as well. But they were watching as the men left the building with their weapons.

A nearby resident films from his balcony as the assailants execute a policeman with a close-range gunshot. The car in the video is now parked in the middle of the street. The men yell in French: "We have avenged the Prophet" and "We have killed Charlie Hebdo!" They jump into their car and drive away. Witnesses say that the attackers never seemed particularly agitated. Rather, they seemed to know exactly what they were doing.

Haunting Scenes

The perpetrators flee toward Porte de Pantin across the Place de la République to the north of Paris. They change cars in the Rue de Meaux in the 19th Arrondissement, threaten a driver and run into a pedestrian. In the car left behind, investigators find 10 Molotov cocktails and jihad flags. Had the pair planned additional acts of violence?

That night, haunting scenes are visited upon Reims, a city 90 minutes by car northeast of Paris. Anti-terror police units comb through the suburb of Croix-Rouge -- heavily armed and trailed by a horde of improvident journalists who broadcast the apparently aimless search live. The next day, it is announced that several people have been arrested, including Chérif's wife and brother-in-law.

At midday on Thursday, the suspects are spotted again in northern France, this time in Villers-Cotterêts, a town halfway between Paris and Reims, where they hold up a gas station, stealing fuel and food. They are said to be traveling in a gray compact on their odyssey through France, together with Kalashnikovs and a rocket launcher.

On Friday morning, the two brothers take cover in a factory building in Dammartin-en-Goële near Paris' Charles de Gaulle airport after a wild, high-speed chase. They have taken a hostage.

Midday on Friday, a second hostage situation takes shape at Porte de Vincennes in Paris, where a heavily armed man storms a Jewish supermarket and kills at least two people. The man is reported to have connections to the Kouachi brothers and shot a policewoman in the suburb of Montrouge on Thursday.

Thousands of soldiers and police in battlegear take to the streets and the Paris ring road is closed to traffic. Service is suspended on Metro lines and schools are evacuated. Paris is a city in a state of emergency. On Friday afternoon at 5:20 p.m., special forces storm the factory building near Charles de Gaulle and the supermarket at Pote de Vincennes. The two brothers and their accomplice, Amedy Colibaly, as well as another hostage-taker are killed during the deployment. The country is shaken and fears of further attacks are unabated.


France has long been plagued by a growing fear of Islam, a worry which has spread through both society and the political classes like a poison. Today, there is an entire class of young Muslims who were born as French citizens but who never found their way into the labor market due to the country's chronic economic troubles. With limited educations and nothing to do, the ghetto-like feel of the banlieues, or suburbs, surrounding Paris and other large French cities led many of them to a feeling of alienation from, or even hostility to, the Repubic.

The radicalization of French youth is hardly a recent phenomenon. For 15 years, the anthropologist Dounia Bouzar has been studying the issue. She has observed that a growing number of young French have found refuge in religion because, as Bouzar says, "reality no longer offers them a future."

They used to be primarily young men and women from the suburbs who grow up in broken families or orphanages, like the gunman Merah, for example. But the profile has changed. Now, even children from the middle classes are attracted to an absurdly radical form of Islam.

Those who are now doing the killing, Bouzar is convinced, are the little brothers of those who tried hard to succeed, but who were unable to. They used to believe in the Republic and its values and thought that, if only they did well enough in school, they would find a job. But unfortunately things didn't turn out that way: Because they had the wrong names and lived in the wrong part of town. "That engenders hate," says Bouzar.

In her books, Bouzar has repeatedly addressed the state's disastrous approach to Muslims and the resulting failure of integration. "Policymakers failed because they were unable to differentiate between a 'normally religious' Muslim and a radical," she says. That made things more difficult for moderate Muslims; they were, she says, excluded, whether they followed the rules laid down by the Republic or not. But the really radical ones, the fundamentalists, Bouzar says, were left alone.

These days, Bouzar is an advisor to the Interior Ministry. With more than 1,000 young men and women, many of them minors, having gone to war in Syria and Iraq, French politicians have finally recognized that they have a problem. Bouzar doesn't believe it is a problem specific to France.

Everywhere in Europe, she says, Muslims are given the impression that they don't belong. But in France, where the idea of equality is constantly proclaimed, the disappointment is more intense, she believes. "The difference between theory and practice is starker here," Bouzar says. The French ideal of equality may provide a rationale for the fact that people of different cultures live together and tolerate one another. But it doesn't create equal treatment, much less equal opportunity.

A Debate over National Identity

Just a few years ago, she says, it was unthinkable on both the left and right side of the political spectrum to openly question the success of integration in France. Since then, though, much has changed. During the presidency of Nicolas Sarkozy, for example, statistics on place of origin were gathered for the first time. There was even a ministry for immigration and integration for a short time. It was established by Sarkozy in 2007 following his election victory as a more or less subtle concession to voters he had poached from the Front National. Two years later, in October 2009, he launched a debate over "national identity." The French, he said, should "as openly as possible" ponder what it means to be French.

The search for a national identity quickly became an open forum for xenophobes of all stripes. What was said in town hall meetings, in the Internet or on talk shows sounded like anything but an internalized catalogue of French values. The consensus seemed more to center on a fear of an inundation of foreigners -- or, to be more precise, of Islamization. In one program on the issue, a village mayor complained of immigrants on live Television, saying "France pays them so that they can lie around on their lazy skins."

On the evening of the attack, four men and two women are sitting on school benches drawn together in the neon-lit room of a youth and cultural center located 17 kilometers north of the Place de la République, in one of the most notorious banlieues surrounding Paris. They are between 28 and 36 years old, three of them are unemployed, four are Muslims and, in contrast to their parents, all of them grew up in France. They have gathered here because they want to talk about the attack -- one which shocked and unsettled them just as it did all of their countrymen. But they also want to talk about what it might mean for them as the children of immigrants in the banlieues. Paris is so close, but it is worlds away here in Sarcelles, a collection of identical housing projects that has the dubious honor of being the source of the French term "sarcellite," a word used to describe a hopeless existence on the fringes of society.

"I am horrified," says 36-year-old Farouk Zaoui, a member of the Sarcelle municipal council. One of 16 children, his parents emigrated from Algeria. "Freedom of expression is a fundamental right in this country," he continues, adding that it must remain so. The others nod in agreement. "Charlie Hebdo provokes everybody, not just Muslims but also Christians and Jews," says Laetitia Ritucci-Gauthier, 34, a French-Italian woman who works at an insurance company. For her tastes, she says, the magazine sometimes goes a bit too far, but that's just the way it is.

"Whether you like it or not," Fatima Idhammou, 28, interjects, "caricaturists are people and my religion tells me that I must respect other people." Idhammou is Muslim; her parents are from Morocco and she grew up in Sarcelle. She is currently looking for a job even as she keeps busy as the vice president of the youth and cultural center. She and her friends meet here to exercise or to attend English courses. Sometimes she takes advantage of services on offer to help with writing application letters. "This attack is difficult to comprehend," Idhammou says. "I can only describe the societal climate within which it took place." It is, she says, one that is increasingly hostile, poisoned and Islamophobic.

Justifying Racism?

Zaoui stares down at the table they are seated around. His father, he says, used to work in a factory where all Muslim employees were referred to as Mohammed. His father is named Amar.

What would have to happen for young French citizens like the six gathered here this evening to feel completely at home in France? You would have to completely replace all politicians in the country, they say laughing. Then silence falls. In the final analysis, says Fatima Idhammou, it has to do with work -- the chance of finding a good job that makes a good life possible. And respect. "That has become more difficult in recent years if you are Muslim," says Farouk Zaoui. "But without work, there is no stability."

In recent years, Muslims in France have been increasingly stigmatized, says Zaoui. "People point their fingers at us, and are now doing so again. We are supposed to apologize for a crime committed by terrorists." He is a French citizen of the Muslim faith -- and faith, he says, is a private matter, particularly in secularist France. "These days, an Islamophobic theory is being developed as a way to justify racism," another says.

French intellectuals are also taking part in this debate about French identity, and sometimes the tones they strike are shrill indeed. The philosopher Alain Finkielkraut, for example, himself the son of immigrants, has repeatedly warned of the problems associated with immigration, a position he once voiced in an interview with SPIEGEL. He presents his arguments, however, as a concern for France's cultural heritage.

Another prominent case is that of broadcast journalist Eric Zemmour, who approaches the debate over the role of France's Muslim population with a crude mixture of clichés and indignation.

Zemmour is a best-selling author in France -- akin to the populist Islamophobe Thilo Sarrazin in Germany -- and an apostle of those who do battle against what they see as the dictatorship of political correctness. In doing so, they transgress all boundaries of decency on the way to reactionary impropriety. Zemmour complains of a "lobby" of gays and other minorities, of Muslims and feminists, of foreigners and other domestic enemies. Their goal, he argues, is to destroy freedom of thought. Just like ancient Rome, the France of today is threatened by "barbarians." A "cult of intermixing" is dominant, he says, and it is one that is propelling the country toward the abyss.

Such comments provide the ambient noise surrounding the national debates over the burqa and headscarf that have raged in recent years. They have been informed to a significant degree by France's understanding of itself as a great, indivisible republic -- and it has become commonly accepted that the country takes the separation of church and state extremely seriously. Indeed, many have taken to expanding the holy French trinity of freedom, equality and brotherhood with the word laïcité, or secularism. But the degree to which secularism has penetrated the French identity is not entirely clear.

The Birth of Fear Mongering

The law pertaining to the separation of church and state comes from 1905 and has been continually expanded, as in 2004 when the wearing of visible religious symbols in schools was banned. Fully 494 of 577 parliamentarians voted in favor of the law. But the law, which forbids the wearing of headscarves, crosses, turbans and kippas, also triggered the populist exploitation of Islam.

The philosopher Raphaël Liogier says that this law -- later expanded to include the wearing of the burqa in public -- was a first step in the direction of fear mongering. The parliament's moves helped create a feeling that the country was being besieged by Islam, he says. Liogier speaks of the "destructive myth of Islamization" -- one, he says, which is rooted in France's narcissistic agony at no longer being the center of the world.
But secularism is also, particularly for the French left, a deeply felt element of the state's ideology. It is proof of the victory over Catholic conservatism following the French Revolution -- a tradition that Charlie Hebdo always stood for.
"It should be as normal to criticize Islam as it is to criticize Jews or Catholics," Charlie Hebdo publisher Charb told SPIEGEL ONLINE two years ago. When asked if he was afraid of attacks, he said: "I have neither a wife nor children, not even a dog. But I'm not going to hide."
What united all of the cartoonists was their mockery of religion and the fight against ideology. Charlie Hebdo has never been a political magazine first and foremost. It seeks to make people laugh, and to make them more tolerant by doing so.

'An Act of War'

Caricatures, as presented in France by Charlie Hebdo and the country's other satirical weekly, Le Canard Enchainé, are part of the intellectual debate and often go well beyond the op-ed pages. They are often more radical -- and often more accessible to readers.

Cabu, Wolinski and all the others were part of their readers' lives -- a fact that has become even more apparent through the moving responses to the attack. They gave voice to both desires and anger and they represented the best side of French culture: argumentative, vivacious, diabolic and warm hearted.

Former Charlie Hebdo Editor-in-Chief Philippe Val spoke on the radio on the afternoon following the attack. How is he doing, the host wanted to know. "I am doing poorly," he answered with a quiet, puzzled voice. "Very poorly. I have lost all of my friends today." Then he launched into a tearful speech that didn't just express his own shock, grief and bewilderment. He spoke as though he was speaking for the entire country. It was the speech that the president couldn't hold.

"They were such spirited people," Val said, "who wanted to make us laugh. They were the best among us. They wanted to defend freedom and now they have been murdered in an unbearable slaughter. We cannot allow silence. Terror cannot be allowed to be victorious over joie de vivre and the freedom of expression. We cannot allow that. What took place is an act of war."

He didn't try to stop his tears. "Many Muslims are certainly also devastated today. Maybe we in the media were no longer at the cusp. We didn't talk enough about the rise of Islamists in France; we didn't sound the alarm soon enough. It is so terrible. There will be a before and an after. Our country will never again be the same."

Then he quoted the French philosopher Elisabeth Badinter. During the caricature trial against Charlie Hebdo in 2007, she said that if the magazine lost, "a vast silence will fall over us."

Reported by Georg Diez, Ullrich Fichtner, Hubert Gude, Julia Amalia Heyer, Romain Leick, Mathieu von Rohr, Britta Sandberg, Fidelius Schmid, Samiha Shafy and Jonathan Stock

The attack on Charlie Hebdo

Terror in Paris

Islamists are assailing freedom of speech; but vilifying all Islam is the wrong way to counter bloody medievalism

Jan 10th 2015       

THE latest issue of Charlie Hebdo, a satirical French magazine, spotlights Michel Houellebecq, author of a new novel that imagines the Islamisation of France and then the European Union.

Critics had denounced Mr Houellebecq’s book (see article), which depicts a near future in which Islamists win France’s presidency and compromise its freedoms, as Islamophobic scaremongering. Then, on the day of its publication, masked gunmen attacked Charlie Hebdo’s offices in Paris. They yelled “Allahu Akbar” as they murdered 12 people and wounded others, in France’s worst terrorist attack for half a century. The gunmen fled; police have named two brothers as suspects. As anti-immigrant sentiment—especially the anti-Muslim kind—seeps across Europe, from street protests in Dresden to English ballot boxes, the atrocity in Paris seemed ghoulishly to realise the continent’s darkest nightmare; almost, in fact, to caricature it.

For all the grim, incessant warnings of terrorist threats, naturally the first reaction to this massacre, in France and elsewhere, was outrage. Yet the murders also demand a fuller response. The magazine was targeted because it cherished and promoted its right to offend: specifically to offend Muslims.

That motive invokes two big themes. One is free speech, and whether it should have limits, self-imposed or otherwise. The answer to that is an emphatic no. The second is Muslim Europe—and whether episodes such as this are part of a civilisational struggle between Western democracies and extreme Islam, on a battlefield stretching continuously from Peshawar to Raqqa to the centre of Paris. Again, the answer is no.

Cartoons versus Kalashnikovs
Charlie Hebdo has been hit before. In 2006 its decision to reprint inflammatory cartoons of the Prophet Muhammad, first published in Denmark, was described by Jacques Chirac, then France’s president, as a “manifest provocation”. In 2011 the magazine’s offices were firebombed after it published an issue purporting to be guest-edited by the Prophet. That did not deter it: despite pleas from some French politicians, it insisted on its right to free speech.

This week, when the gunmen came, they reportedly called for the offending cartoonists by name.

The magazine had the right to publish everything it did, and French law is right to allow it to.

There can be no “but” in that sentence. Even when a picture or opinion is imprudent or tasteless, unless it directly incites violence it should not be banned. Charlie Hebdo lampoons all religions, not just Islam—but it would have the right to single out that faith if it wanted to, just as Islamists in Europe are entitled to denounce Western decadence if they so choose. In any case, there is a world of difference, and several centuries of liberal political thought, between giving and taking offence and killing people over it. Nothing can be done with a pencil or a keyboard that warrants a reprisal with a Kalashnikov.

This attack was more insidious than a random fusillade on a street or train. Part of the aim, probably, was to cow the Western media in their treatment of Islam. It must not. If the proper first response to the slaughter was outrage, after considering the argument that Charlie Hebdo made about free speech, the second response should be outrage, too.

Many observers will connect this fresh footage of gun-wielding men not to cartoons but to another kind of image: chaos in northern Nigeria, the snuff videos of Islamic State (IS) and Taliban-inflicted carnage in Afghanistan and Pakistan. All can seem part of a long, ongoing conflict between the values of the Enlightenment and obscurantist barbarism. For those who see things that way, the only solution is to fight back, by cracking down at home and engaging the enemy abroad.

Criminals, not clashing civilisations
They have a point: there may well be a connection between Paris and foreign jihad. Part of it is ideological: in their minds, at least, terrorists in the West are often waging a worldwide battle for their faith, powered by ideas they pick up on the internet. There is a practical link, too.

Some of those involved in recent European plots—and one of the suspects in the Charlie Hebdo attack—have been radicalised and trained in the Middle East, Afghanistan and Pakistan.

Nearby and accessible, Syria is the main destination. This reflux is a worry for security services in France (home of the European Union’s largest Muslim population) and across the continent, precisely because, newly expert and inflamed, the returnees can perpetrate commando-style attacks like that on Charlie Hebdo. Involving small numbers of assailants and “soft” targets, these are much harder to detect and prevent than elaborate plans to blow up airliners.

But preventing them is not impossible—indeed European security services frequently do. Slow though some were to spot the danger, the French and other governments have introduced measures to stop their citizens travelling abroad to fight, and to intercept them if they come back. Still, more pressure could be applied to Turkey, notionally an ally, to help stop the flow into Syria.

“Deradicalisation” programmes for returnees, which might turn some of them into reverse missionaries for the awful truth about IS, are still in their infancy.

For all that, thinking of Islamist terrorism as a single, coherent adversary is misleading and dangerous. The various groups have different backgrounds and goals, just as Muslim diasporas in the West originate in different countries and cultures. Many French Muslims, for example, have roots in north Africa; some are angered by the ban on wearing burqas in public places.

Neither factor applies in, say, Britain. Thinking of Muslims overall as a homogenous group is still more foolhardy—however much some of the West’s demagogues encourage voters to. Most are not extremists; fewer still support violence, as mainstream French imams swiftly pointed out.

The terrorists themselves, of course, are often keen to prove that the West does indeed anathematise all Muslims. To see such killers as representatives of a religion, and to reduce a complex picture to their preferred caricature, would be to reward their crimes—just as circumscribing the principle of free speech would be to bow to their medieval fantasies.

Markets Insight

January 6, 2015 8:28 am

Deflation is a rising threat for markets

John Plender

The world is prey to the growing problem of deficient demand

Why did so many market pundits fail to foresee the decline in yields across the developed world in 2014?

The short answer is that they were obsessed with the potential impact of the US Federal Reserve’s retreat from unconventional measures while neglecting the importance of global imbalances. In effect, the world has been prey to a growing problem of deficient demand, leading to disinflation, while the US has been growing too sedately to spark the inflationary pressures that would have called for much tighter monetary policy. There is a risk that forecasters will make the same mistake in 2015.

Consider the state of the world’s excess savers, starting with Japan. There Abenomics is having difficulty addressing deflation and raising economic growth. Weak demand resulting from adverse demographics and the recent consumption tax increase means the country is dependent on yet more bond buying and further yen devaluation to generate the cost-push pressure that would enable the Bank of Japan to meet its 2 per cent inflation target.
China, meantime, is going through an awkward transition whereby its astonishingly high rate of investment is beginning to decline. Domestic demand growth has flagged. This has contributed to the fall in global commodity and energy prices. At the same time China faces a more competitive export environment as others, spurred by Japan, engage in competitive devaluations.
As for the eurozone, it is being driven towards deflation by a moralistic drive for austerity which does nothing to arrest rising debt as a percentage of gross domestic product because the harder hit economies have shrunk. Disagreement on the governing council of the European Central Bank ensures a crabwise progression towards full scale government bond buying without which its inflation target will not be met.
From a rather different perspective Richard Batley of Lombard Street Research argues that global deflationary pressure has also increased as a result of the relative decline in US economic power. For much of the postwar period the US acted as a clearing house for global demand and supply by maintaining open markets that absorbed the rest of the world’s goods. But the supply clearing capacity of the US ran out after 2008 because it had exhausted its debt capacity. Instead of excess supply being cleared through ever higher US household debt, it is now being cleared through lower prices.
All the high saving economies run current account surpluses that require equivalent capital outflows. As their currencies weaken, capital in these countries confronts low yields at home — spectacularly so in the case of Japan and the eurozone — and higher US Treasury yields, along with further potential strengthening of the dollar. This provides much of the explanation for last year’s decline in Treasury yields despite the maturing of the economic recovery, which would normally have prompted rising yields.

The combination of dollar strength and declining Treasury yields seems likely to persist.

Elsewhere in the developed world yields are set to rise, chiefly where default risk enters the picture, as in Greece on the basis of recent political instability.
Markets are proving remarkably sanguine about other peripheral eurozone sovereign debt.

Given the structural flaws in the monetary union, the ECB’s dilatory approach to quantitative easing and German-led fiscal conservatism, that may not last. More generally, against the background of a rise in non-financial debt in advanced economies from 212 per cent of GDP in 1999 to 279 per cent in 2014, of which more than half has taken place since the global financial crisis, occasional neurotic spasms in the markets are inevitable.

Emerging markets will have a much tougher time in this deflationary world. They may again become an important locus of global financial instability, and not just in Russia. US dollar denominated non-financial debt outside the US now stands at more than $9tn, according to the Bank for International Settlements, compared with $6tn at the start of 2010. The biggest increase has been in corporate bonds issued by emerging market companies tapping investors desperate for yield. The currency mismatch means a strengthening dollar tightens financial conditions as attempts to pay down dollar debt forces the dollar higher, causing a vicious circle.
This is a fearful world in which geopolitical risk, competitive devaluations and protectionist pressure could bring a descent into intractable deflation and long-depressed yields in the absence of robust policy.

The writer is an FT columnist

Wall Street's Best Minds

Byron Wien Lays Out 10 Surprises for 2015

Among the Wall Street veteran’s predictions: the Fed will raise interest rates earlier than expected.

By Byron Wien           

January 5, 2015

Editor’s Note: This is the 30th year that Wien has given his views on a number of economic, financial market and political surprises for the coming year. Wien, a senior advisor to Blackstone , defines a surprise as an event which the average investor would only assign a one out of three chance of taking place but which Byron believes has a better than 50% chance of happening.

1. The Federal Reserve finally raises short-term interest rates, well before the middle of the year, encouraged by the improving employment data and strong Gross Domestic Product growth. The timing proves faulty, however, as the momentum of the economy has begun to flag and a short-term slowdown has started. The end of monetary accommodation and rising rates precipitate a correction in equities. Long-term Treasury rates stay where they started and the yield curve flattens.

2. Our luck runs out on cyber terrorism. Hackers invade the personal and corporate accounts of a major money center bank and the Federal Reserve orders the institution to suspend transactions for five business days while the accuracy of its balances is verified. Various government departments and agencies are mobilized to deal with the problem caused by the hackers having proved to be more skillful than our corporate cyber security efforts.

3. The year-end 2014 rally in United States equities continues as the market rises for a strong performance in 2015. A growing economy, fueled by housing and capital spending and favorable earnings, enables the Standard & Poor’s 500 to increase 15% during the year, outperforming equities in most major industrialized countries throughout the world.

4. Mario Draghi finally begins to expand the balance sheet of the European Central Bank aggressively by buying sovereign debt, mortgages and corporate bonds. In spite of this expansion, Europe falls back into a serious recession. Germany is particularly weak as reduced demand from various trading partners has a major impact on its exports. The European policy makers fail to embrace the one option, fiscal spending, that could turn the economy around, and European stocks decline. Politically, Europe moves dangerously toward the right.

5. Shock and awe no longer works in Japan. The recession which began in the third quarter of 2014 continues throughout 2015 in spite of further fiscal and monetary stimulus and the suspension of the second planned sales tax increase. The Nikkei 225 is flat for the year in yen and down in dollars.

6. China reports that it is no longer growing at 7% and that more fiscal and monetary stimulus is needed to grow at even 5% and to prevent a hard landing. It also acknowledges that it must rebalance the economy toward the consumer and away from credit-based investing in state-owned enterprises and infrastructure.

What money is spent on infrastructure is focused on air, water and ground pollution, not roads and housing.

A lower rate of job creation leads to protests but they are contained without excessive violence.

7. The drop in the price of oil finally has an impact on Iran. The country was dependent on its sale of crude to offset the impact of sanctions. The economic weakness resulting from the unexpected decline in oil finally forces a conciliatory attitude on the part of its nuclear negotiators. Pressure to cease nuclear weapons development comes from the Iranian people as well, as they seek more economic opportunity. An agreement to roll back its weapons program is greeted positively throughout the region and world equity markets rally briefly on the news.

8. Brent slips into the $40s. The low price of crude oil, which continues throughout the first part of the year, has a major impact on Russia. A peace settlement with Ukraine is signed, giving Eastern Ukraine substantial autonomy but guaranteeing the sovereignty of the rest of the country. President Putin seems to be trying to win back the respect of the international community as the country reels from its economic problems, but the Russian citizenry finally turns on him. His approval rating plummets and he resigns by year-end. During the second half of the year, West Texas Intermediate and Brent crude are both above $70, as emerging market demand continues to increase.

9. The year-end 2014 meltdown in the high yield market, as a result of the collapse in the price of oil, creates a huge buying opportunity. The spread between high yield and Treasurys is cut in half, and high yield becomes the best performer of the various asset classes as the U.S. economy continues to grow with no recession in sight.

10. The Republicans decide to position the party as the one that can get something done in Washington. They argue that President Obama was ineffective in his first six years, but when they got control of both the Senate and the House, legislation was passed. The Keystone pipeline finally is approved, as well as minor tax code revisions and even some changes in immigration policy. The Republicans are determined to strengthen their position with Hispanics in 2016. They want desperately to hold the nation’s highest office and they see Jeb Bush as a winner for them.

Here are some “also ran” surprises.

11. Water becomes the central environmental issue of 2015, eclipsing carbon-caused air pollution. While a shortage of water has always been a potential problem in the Western United States, it becomes a source of considerable tension in India and China, where large parts of the population do not have safe drinking water on a consistent basis.

12. Internet commerce runs into trouble. Established hotels push legislators to make Airbnb pay the same taxes and fees that they are required to charge customers. Uber is asked by local authorities to prove that its drivers have commercial insurance to protect passengers. The stocks affected decline sharply.

13. Brazil provides an emerging market favorable surprise. President Dilma Rousseff abandons some of her long-held socialist ideas and moves to the center. She introduces a number of business-friendly policies and the economy improves. It is helped more than it is hurt by the drop in the oil price. Brazil becomes a favorite of emerging market investors once again.

14. I liked this one, but I didn’t have more than 50% conviction about it. Hillary Clinton decides not to run for President. She fears that Jeb Bush would siphon off some of the votes of Hispanics, who substantially voted for Obama. Many liberals are disenchanted with Clinton and may not vote for her. She wants to be the first woman President but she doesn’t want to lose.

Review & Outlook

The Double-Edged Dollar

The rising buck is good for consumers, but watch out for overshooting.

Jan. 6, 2015 7:19 p.m. ET

The most important economic story these days is the relentless rise of the dollar, with effects good and ill. We’d be more confident of the benefits if the world’s central bankers appeared to be navigating this monetary weather with any kind of rudder.

As notable as the magnitude of the greenback’s rise has been its rapidity: 13% against the euro and some 15% against the yen since the end of June. Capital that had flowed into emerging markets since the world financial panic is now heading back to the land of the free and its relative economic strength.

In some ways this is good news for the U.S. because it marks a recovery from the weak-dollar Bush and Obama years and echoes of the strong-dollar mid-1980s and late 1990s. Both strong-dollar eras featured disinflation, falling interest rates, investment flows into the U.S. and economic booms. They were also notable for falling prices for commodities traded in dollars, such as oil, which nearly reached $10 a barrel in 1998 as the dollar soared. One reason Bill Clinton survived impeachment is that gasoline sold for 89 cents a gallon.

The greenback’s current rise is contributing more than is commonly understood to a similar plunge in oil, with the world price falling to $51 a barrel from $112 as recently as June.

Gasoline has fallen by more than $1 a gallon in much of the country. This is great news for consumers who can now devote less of their after-tax income to energy.

All other things being equal, we prefer a strong and stable dollar to a falling one. But note the word stable. Currency volatility has costs, as Nobel laureate Robert Mundell teaches, and movements as far and fast as the dollar’s could create some economic wreckage.

One consequence is the rush out of emerging markets of the kind that hasn’t been seen since the late 1990s. Energy- and commodity-related stocks and bonds are also taking a hit, and there may be major casualties. The U.S. Farm Belt and oil patch will suffer. While the pain follows an extended boom, this will be small consolation to over-leveraged companies and investors. Texas and other oil boom states should adjust their budgets now.

Readers may recall that the late 1990s saw the Asia currency crisis, the collapse of Long-Term Capital Management, and the first run on the ruble. Bad things happen amid rapid price shifts.

In the 1990s the Federal Reserve could and did help the economy adjust to those shocks by cutting interest rates, but the Fed has no such leeway today with its short-term rate set at near-zero.

Perhaps the best reason for mixed feelings is that much of the dollar’s rally is rooted more in economic weakness overseas than in U.S. strength. The global economy has slowed sharply, with Japan, France and Russia in recession, China decelerating as it adjusts to previous malinvestment, and Europe overall barely growing.

Japan and Europe are contributing to the dollar’s surge by actively pursuing yen and euro devaluation—cheered on by the U.S. Treasury. The play is to help their exporters ride on the back of what they hope will be an accelerating U.S. expansion. For Europe and Japan, monetary policy has become the default alternative to supply-side economic reform.

But as Japan has shown since Prime Minister Shinzo Abe and the Bank of Japan began their weak-yen policy in 2013 (see nearby chart), devaluation may help some exporting companies but it can’t stimulate domestic competition and demand. It isn’t likely to work much better for Mario Draghi and the European Central Bank.

The U.S. Federal Reserve, meanwhile, is signaling a possible monetary move in the opposite direction, getting off zero-bound interest rates for the first time in more than six years. This lack of central bank coordination contributes to currency volatility, as each nation pursues what it sees as its own economic interests, no matter the impact abroad.

San Francisco Fed President John Williams gave currency traders a jolt on Monday by saying the strong dollar means there is less urgency for the Fed to raise rates or begin reducing its $4.5 trillion balance sheet. But delay runs the risk of increasing the distortions in financial markets caused by the Fed’s monetary exertions, especially if U.S. growth accelerates. And the irony of the last year is that U.S. growth has increased even as the Fed ended its program of bond purchases.

The biggest danger would be if the dollar overshoots on the strong side, as it arguably did in the 1990s. This could mean far more destruction here and abroad, in the commodity economy in particular, including to the U.S. energy boom. As U.S. companies suffer from Japanese and European competition, protectionist pressure could increase just as President Obama and Republicans are trying to pass trade-opening legislation.

All of which is a reminder that there is no free market in currencies, because their supply is controlled by the world’s central banks. The major central bankers need to pay attention as much to currency fluctuations as they do to their national economies. A stronger dollar would help the world more if it were also stable.

January 6, 2015 12:27 pm

An economist’s advice to astrologers

Martin Wolf

The world economy shows growth prospects for the year

James Ferguson illustration©James Ferguson
As the late John Kenneth Galbraith remarked: “The only function of economic forecasting is to make astrology look respectable.”

But that does not mean we can say nothing useful. One can at least identify economic trends and a few known unknowns.
The world economy is extremely likely to grow. It has, after all, grown every year since the second world war, with the sole exception of 2009, the year of the global financial crisis, when it shrank 2 per cent at market exchange rates and remained roughly constant at purchasing power parity. The International Monetary Fund believes the world economy will grow at nearly 4 per cent, at PPP. This is a good starting point. It is also a remarkable one: at 4 per cent annual growth, the world economy doubles every 18 years.
We can also be fairly sure emerging economies will grow faster than high-income ones and Asian emerging economies — those of east Asia and south Asia — will grow fastest of all. This, too, has been a long-term pattern.

Asian emerging economies have grown faster than emerging economies as a whole in every year at least since 1980, even (though only just) in 1998, the worst year of the Asian financial crisis. Asian growth is decelerating, largely because of China’s slowdown. But it is still expected to run at an annual rate of above 6 per cent.

Emerging economies as a whole are forecast to grow at close to 5 per cent annually. Meanwhile high-income economies are expected to grow at a little over 2 per cent. The main reason emerging economies grow faster than the high-income ones is catch-up: the possibility of applying already existing knowledge. This potential is nowhere near exhausted. Barring some sort of catastrophe, this is likely to continue being the strongest force working on the world economy for many decades.

Among the high-income economies, it is also sensible to bet that the US will grow faster than Europe and Japan in any given year. This is partly because of its better demography and partly because of a faster technical progress.

How far, then, can we go beyond this to assess 2015 specifically?

Start with the possible positives.

Martin Wolf 1

Short-term forecasting always focuses on demand. But it is sensible to include supply.

Economies with exceptional amounts of slack can grow faster than normal. Among high-income economies, those with most slack are those in the “peripheral” eurozone. These economies could now grow relatively quickly.

The improvement might even start in 2015, since long-term interest rates are low, private sector balance sheets are stronger and fiscal deficits are under control. If the European Central Bank pulled out all the stops, the rise in confidence might surprise.

Another positive supply shock would be a recovery in productivity growth in crisis-hit high-income economies, including the UK and US. That would only be a small surprise. A positive supply surprise might also be seen in India, which ought to be the world’s fastest-growing major economy over the next two or three decades.

Another helpful factor is persistently low inflation. This allows the monetary authorities to remain accommodative. Tightening in the US and UK is likely to be slow. In the eurozone and Japan, policy is even going in the opposite direction, since deflation fears remain strong. China is being driven to loosen, too, as its economy weakens.

The most important positive factor of all is the decline in oil prices. An interesting blog for the IMF argues that global output could be between 0.3 per cent and 0.7 per cent higher in 2015 as a result. Lower oil prices help by reducing headline inflation and raising real incomes of consumers. If prices remain low, this benefit could last for a while.
Martin Wolf 2

Now consider possible negatives. Experience suggests that a large financial crisis is the economic event most likely to disrupt global growth. The obvious risks would seem to be a financial meltdown in China, a collapse of the eurozone, or a severe crisis in emerging economies as the dollar strengthens, US interest rates rise and capital flees. Any of these seems conceivable.

But none seems that likely, largely because policy makers in all of these cases are likely to be able to manage the risks. The greatest danger would seem to be disintegration of the eurozone. This is a political project whose political underpinnings are fragile. Survival is likely. But it is not certain.

Another possible source of severe disruption would be a geopolitical shock. But it would have to be a large one. The Yom Kippur war of 1973 and Iraq’s attack on Iran in 1980 were closely associated with disruptive oil shocks. Yet more recent terrorist attacks have done no significant damage to the global economy. Conflict between great powers, a nuclear war in the Gulf or nuclear terrorism would be game changers. But direct conflict between great powers has not occurred since the Korean war.

The economic results of proxy wars proved manageable during the cold war. One has to hope the same is true of the new cold war between Russia and the west.

Another year of quite decent global growth is, in brief, far and away the most likely outcome in 2015. It could even be a relatively good year, notably in the US. But — and this is a big but — deep structural challenges remain.

Martin Wolf 3

In particular, we continue to rely on central banks to manage what I have labelled “chronic demand deficiency syndrome”. The ultra-low interest rate environment is its most telling symptom. As China’s extraordinarily high investment rate falls, the demand deficiency is likely to worsen. Germany’s demand deficiency makes resolution of the eurozone crisis very difficult.
But central banks should be able to cope for another year. Happy New Year.

Heard on the Street

Liquidity Specter Haunts Corporate-Bond Markets

Corporate-Debt Issuance Is at Records, but Trading Problems Remain a Worry for Investors

By Richard Barley

Jan. 11, 2015 3:43 p.m. ET

lunes, enero 12, 2015



Don't Short Gold Here

by: Individual Trader            

  • Gold has made new fresh highs in the Euro and Swiss Franc. Bull markets in these currencies could start from here.
  • When The US dollar traded this strongly against the Euro before, the Euro always rebounded.
  • Gold could easily rally through many resistance averages this year. Many technical traders thought oil had many support prices but many of them failed.
Gold and Gold mining stocks have started the year very positively. Will we see $1000 Gold like so many Gold bears have been predicting? That is a difficult question to answer but the recent action in Gold has prompted many to believe the Gold correction is over, at least in many currencies. Lets discuss why shorting Gold or a Gold ETF like (NYSEARCA:GLD) would in my opinion be very dangerous at this juncture.

First of all, Gold has made many new highs in many currencies with the exception of the US dollar. There was firm resistance as shown in the chart below at 980 euros an ounce but Gold has smashed through that resistance recently (just this past week) and is now trading at 1029 euros per ounce (01-09-2015).

Also there was firm resistance at 1200 Swiss francs for an ounce of Gold and this landmark has been overcome with Gold presently trading at 1236 Swiss francs. In fact with all the negativity surrounding Gold, it may surprise you that Gold outperformed the vast majority of stock markets and currencies (more currency charts shown below) in 2014. So where is Gold headed next? It all depends on the US dollar.

We have had massive strength in the US dollar especially in the latter part of the year. Many analysts are saying now that parity with the euro is a certainty but I don't see it that way. What many forget is that the dollar has traded at these levels before against the euro and the euro has always bounced (see chart). What makes things different this time?

I expect US GDP to be substantially lower in the 4rth quarter as early estimates are lower than expected. If this turns out to be the case, how can the US increase interest rates? Also the majority of dollar strength has taken place as the FED has scaled back its QE. What do you think would happen to the dollar and Gold if the FED announced QE4? This scenario in my view is not only possible but probable especially if 4rth quarter GDP results are very weak.

Gerald Celente a widely acclaimed trend forecaster predicts the US will announce QE4 by the end of the second quarter. It will be interesting to see if it happens by then. On a final note, I would advise technical traders to look at the fundamentals in the Gold market instead of trying to pick the direction through charts and moving averages. Oil has collapsed from $108 a barrel to $47 in the space of 7 months and not many technical traders saw that coming. Surprises happen on the upside in bull markets and Gold could quite easily rally hard this year through resistance averages and leave many surprised. The last nut Gold has to crack is the US dollar and I for one believe it will be sooner than many think.

Contributing Op-Ed Writer

An Aging Europe in Decline

Arthur C. Brooks

JAN. 6, 2015                     

       Credit Dan Stafford                    

    These words, shouted by an elderly woman, were made famous in a medical alert device ad in the 1990s. In 2015, they might be Europe’s catchphrase.
    As the United States economy slowly recovers, analysts across the political spectrum see little to cheer them from Europe. The optimists see the region’s economy growing by just 1 percent in 2015; many others fear that a triple-dip recession is in the offing. Germany is widely viewed as a healthy country whose prosperity helps compensate for Europe’s weakness, yet over the past two quarters for which we have data, it has experienced no net growth at all. Predictions of decade-long deflation, low productivity and high unemployment are becoming conventional wisdom.
    What does the Continent need? Most economists and pundits focus on monetary and fiscal policy, as well as labor-market reform. Get the policy levers and economic incentives right, and the Continent might escape the vortex of decline, right?
    Probably not. As important as good economic policies are, they will not fix Europe’s core problems, which are demographic, not economic. This was the point made in a speech to the European Parliament in November by none other than Pope Francis. As the pontiff put it, “In many quarters we encounter a general impression of weariness and aging, of a Europe which is now a ‘grandmother,’ no longer fertile and vibrant.”
    But wait, it gets worse: Grandma Europe is not merely growing old. She is also getting dotty. She is, as the pope sadly explained in an earlier speech to a conference of bishops, “weary with disorientation.”
    Some readers might regret the pope’s use of language — we love our grandmothers, weary with disorientation or not. But as my American Enterprise Institute colleague Nicholas Eberstadt shows in his research, the pope’s analysis is fundamentally sound.
    Start with age. According to the United States Census Bureau’s International Database, nearly one in five Western Europeans was 65 years old or older in 2014. This is hard enough to endure, given the countries’ early retirement ages and pay-as-you-go pension systems. But by 2030, this will have risen to one in four. If history is any guide, aging electorates will direct larger and larger portions of gross domestic product to retirement benefits — and invest less in opportunity for future generations.

    Next, look at fertility. According to the Organization for Economic Cooperation and Development, the last time the countries of the European Union were reproducing at replacement levels (that is, slightly more than two children per woman) was the mid-1970s. In 2014, the average number of children per woman was about 1.6. That’s up a hair from the nadir in 2001, but has been falling again for more than half a decade. Imagine a world where many people have no sisters, brothers, cousins, aunts or uncles. That’s where Europe is heading in the coming decades. On the bright side, at least there will be fewer Christmas presents to buy.
    There are some exceptions. France has risen to exactly two children per woman in 2012, from 1.95 in 1980, an increase largely attributed to a system of government payments to parents, not a change in the culture of family life. Is there anything more dystopian than the notion that population decline can be slowed only when states bribe their citizens to reproduce?
    Finally, consider employment. Last September, the United States’ labor force participation rate — the percentage of adults who are either working or looking for work — reached a 36-year low of just 62.7 percent.

    Yet as bad as that is, the United States looks decent compared with most of Europe. Our friends across the Atlantic like to say that we live to work, while they work to live. That might be compelling if more of them were actually working. According to the most recent data available from the World Bank, the labor force participation rate in the European Union in 2013 was 57.5 percent. In France it was 55.9 percent. In Italy, just 49.1 percent.
    One bright spot might seem to be immigration. In 2012, the median age of the national population in the European Union was 41.9 years, while the median age of foreigners living in the union was 34.7. So, are Europeans pleased that there will be new arrivals to work and pay taxes when the locals retire?
    Not exactly. Anti-immigrant sentiment is surging across the Continent. Nativist movements performed alarmingly well in European Parliament elections last year. Europe is less like a grandmother knitting placidly in the window and more like an angry grandfather, shaking his rake and yelling at outsiders to get off his lawn.
    None of this should give Americans cause for schadenfreude. At a purely practical level, a European market in further decline will suppress American growth. But more important, European deterioration will dissipate the vast good the Continent can do in spreading the values of democracy and freedom around the world.
    So what is the prescription for Europe’s ills — and the lesson for America’s future?
    It is true that good monetary and fiscal policies are important. But the deeper problems in Europe will not be solved by the European Central Bank. No matter what the money supply and public spending levels, a country or continent will be in decline if it rejects the culture of family, turns its back on work, and closes itself to strivers from the outside.
    Europe needs visionary leaders and a social movement to rediscover that people are assets to develop, not liabilities to manage. If it cannot or will not meet this existential challenge, a “lost decade” will look like a walk in the park for Grandma Europe.