Chinese finance is storing up trouble for the rest of the world
Given its macroeconomic imbalances, China could unleash global mayhem
by: Martin Wolf
Donald Trump, US president, is to meet Xi Jinping, his Chinese counterpart, at Mar-a-Lago in Florida this week. Discussions of economics seem likely to focus on China’s trade and exchange rate policies. This would be a mistake even if the US president’s views of trade were not mistakenly fixated on bilateral imbalances. Far more challenging and important is integrating China into the financial system. US policymakers should worry about China’s capital account, not its current account. That is where danger now lies.
Why does the capital account matter more? The answer is that this is where two interrelated aspects of an economy interact with the world economy: macroeconomic balances between savings and investment; and the financial system. In both respects, the Chinese economy is, to cite the celebrated words of former premier Wen Jiabao, “unstable, unbalanced, uncoordinated and unsustainable”. That was true in 2007, when he said it. It is truer today. As the Chinese authorities realise, but their western counterparts may not, the integration of China’s financial system into the global economy is fraught with peril.
Consider a few facts. Annual gross savings in the Chinese economy amount to 75 per cent of the sum of US and EU savings, at over $5tn last year. China’s gross investment, at 43 per cent of gross domestic product in 2015, was still above its share in 2008, even though the economy’s rate of growth had fallen by at least a third. To sustain such high investment, the ratio of credit to GDP soared from 141 per cent of GDP at the end of 2008 to 260 per cent at the end of last year. The “shadow banking system”, in the form of “wealth management products” and other instruments, has exploded. Interbank lending has also soared. Last, but not least, the banking system is now the world’s largest.
Financially, China is the wild east. Remember what the wild west did over the last century: the Great Depression and Great Recession originated in the interaction between US-led finance and the global economy. In view of its macroeconomic imbalances and financial excesses, China could deliver at least as much global financial mayhem.
I have argued elsewhere that it is essential to understand the interaction of macroeconomics with finance. China’s external accounts already played a significant role in the run-up to the financial crisis of 2007-08. Now the dangers it creates are still greater.
The macroeconomic issue is simple: China saves more than it can profitably invest at home. In 2015, gross national savings were 48 per cent of GDP. World Bank data show that households contributed only a half of this. The rest came from corporate profits and government savings.
International comparisons suggest that economic growth of 6 per cent warrants investment of little more than a third of GDP. This indicates that China’s surplus savings — surplus, that is, to domestic requirements — may be as much as 15 per cent of GDP.
Where might such surpluses go? The answer is abroad, in the form of current account surpluses. That is what happened before the financial crisis. It is likely that this is what would also happen now if the government relaxed exchange controls and brought credit and debt growth to a halt. Capital would pour out, the renminbi would tumble and, in time, a globally unmanageable current account surplus would emerge.
Today’s credit growth and consequent financial fragility are a direct consequence of the desire to prevent this from happening. It has been the way to keep investment up at uneconomic levels. The Chinese authorities are in a trap: either halt credit growth, let investment shrink and generate a recession at home, a huge trade surplus (or both); or keep credit and investment growing, but tighten controls on capital outflows.
Why is the latter essential? With such large and growing stocks of liquid, risky or low-yielding financial assets, plus a huge flow of savings, not to mention the anxieties caused by the anti- corruption campaign, Chinese corporations and individuals have been desperate to take money out.
This explains why, despite a persistent trade surplus, the country’s foreign exchange reserves fell from $4tn in June 2014 to $3tn in January 2017. The reserves can certainly fall further. But the Chinese authorities will not wish them to fall indefinitely. Since they also recognise the dangers of allowing the renminbi to fall too far, they have duly tightened controls on capital outflows.
Suppose the Chinese authorities adopted, instead, the alternative policy of rapid liberalisation of both inflows and outflows, while relying on credit expansion to sustain domestic demand. It is possible, but unlikely, that the flow of money into China from abroad would match the outflow, as foreigners and Chinese both diversified their portfolios. Yet that would also cause three headaches. First, the domestic macroeconomic imbalances would persist. Second, the financial sector would become still more fragile. Finally, this vast, complex and fragile financial system would become fully integrated with the rest of the world’s, itself still far from fully stable. Instead of the Chinese financial crisis that many now think imminent, this would enormously increase the likelihood of another global crisis with China, not the US, at its heart.
These are huge challenges that need to be discussed in full between the US and China (and others). They have profound implications for trade, but they are not about trade policy at all.
They require joint consideration of macroeconomic and financial policy. They also demand attention to the management of China’s external account: above all, exchange controls, the exchange rate and foreign currency reserves.
Mr Xi has people in his government who at least understand these issues. Is the same also true for Mr Trump? The stability of the world economy depends on the answer. Alas, I suspect it is no.
The public’s interest
Is the Federal Reserve giving banks a $12bn subsidy?
Or is the interest the Fed pays them a vital monetary tool that benefits the taxpayer?
What's Next for the Dollar, Gold and Stocks?
By: Axel Merk
The chart above shows the S&P 500, the price of gold and the U.S. dollar index since the beginning of 2016. The year 2016 started with a rout in the equity markets which was soon forgotten, allowing the multi-year bull market to continue. After last November's election we have had the onset of what some refer to as the Trump rally. Volatility in the stock market has come down to what may be historic lows. Of late, many trading days appear to start on a down note, although late day rallies (possibly due to retail money flowing into index funds) are quite common.
Where do stocks go from here? Of late, we have heard outspoken money manager Jeff Gundlach suggests that bear markets only happen if the economy turns down; and that his indicators suggest that there's no recession in sight. We agree that bear markets are more commonly associated with recessions, but with due respect to Mr. Gundlach, the October 1987 crash is a notable exception. The 1987 crash was an environment that suffered mostly from valuations that had gotten too high; an environment where nothing could possibly go wrong: the concept of "portfolio insurance" was en vogue at the time. Without going into detail of how portfolio insurance worked, let it be said that it relied on market liquidity. The market took a serious nosedive when the linkage between the S&P futures markets and their underlying stocks broke down.
I mention these as I see many parallels to 1987, including what I would call an outsized reliance on market liquidity ensuring that this bull market continues its rise without being disrupted by a flash crash or some a type of crash awaiting to get a label. Mind you, it's extraordinarily difficult to get the timing right on a crash; that doesn't mean one shouldn't prepare for the risk.
If I don't like stocks, what about bonds. While short-term rates have been moving higher, longer-term rates have been trading in a narrow trading range for quite some time, frustrating both bulls and bears. Bonds are often said to perform well when stock prices plunge, but don't count on it: first, even the historic correlation is not stable. But more importantly, when we talk with investors, many of them have been reaching for yield. We see sophisticated investors, including institutional investors, provide direct lending services to a variety of groups. What they all have in common is that yields are higher than what you would get in a traditional bond investment. While the pitches for those investments are compelling, it doesn't change the fact that high yield investments, in our analysis, tend to be more correlated with risk assets, i.e. with equities, especially in an equity bear market. Differently said: don't call yourself diversified if your portfolio consists of stocks and high yielding junk bonds. I gather that readers investing in such bonds think it doesn't affect them; let me try to caution them that some master-limited partnership investments in the oil sector didn't work out so well, either.
I have argued for some time that the main competitor to the price of gold is cash that pays a high real rate of return. That is, if investors get compensated for holding cash, they may not have the need for a brick that has no income and costs a bit to hold.
After the election, we believe the price of gold came down as the market priced in higher real interest rates in anticipation of lower regulations. We indicated that this euphoria will cede to realism, meaning that regulations might not be cut quite as much. We also suggested that any fiscal stimulus on the backdrop of low employment may be inflationary. That is, expectations of higher real rates might be replaced with expectations of higher nominal rates; net, bonds might not change all that much, but the price of gold may well rise in that environment.
Add the Fed to the picture, having raised rates twice now since the election. We have argued that the Fed is and continues to be 'behind the curve,' i.e. is raising rates more slowly than inflationary pressures are building. We believe the Fed is petrified that they might have to go down back to QE when the next recession comes and, as a result, has been very slow in raising rates. Indeed, we believe the Fed will only raise rates if the market delivers a rate hike on a silver platter, i.e. the markets are "behaving" (no taper tantrum). As such, let me make this prediction: if the S&P 500 is up 20% from current levels this October, odds are we will get more rate hikes than are currently priced in; conversely, if the S&P 500 is down 20% from current levels this October, odds are we will get fewer rate hikes than are currently priced in. If you are rolling your eyes that this isn't too ingenious, I would like to remind readers that this isn't supposed to be the yard stick the Fed should be using. We believe the Fed is a hostage of the market. Paraphrasing a former Fed official who shall remain unnamed, he indicated to me that the Fed wouldn't care how the S&P reacts to an FOMC decision, unless, they created a bubble.
What about the greenback? The dollar index (DXY) was up four years in a row. Year-to-date, however, the index is down despite the recent rate hikes. It shows that everything is relative to what is priced in already. A key reason we believe the dollar may have seen its peak is because of the Fed's unwillingness to get 'ahead of the curve'. Not with Janet Yellen, at least. Her term as Chair is running out next January; we wouldn't be surprised if she is replaced with Kevin Warsh. He was a Fed governor during the financial crisis; he has since published a variety of OpEds, criticizing the Fed. He has also been on one of President Trump's economic round tables. If he indeed succeeds Yellen (there are other names being mentioned; we just happen to think that at this stage, he best fits the profile of what Trump may be looking for), he has indicated that the reason why Fed officials are appointed for many years is so they don't have to worry how markets react to policy decisions. That's a stoic attitude, but reality (called "deteriorating financial conditions") may well change his mind should he become Fed Chair and try to raise rates more aggressively.
Aside from real interest rates, when it comes to the dollar, it is worth paying attention to trade policy. So-called experts had predicted a 20% surge in the dollar based on the "border adjustment tax" in the GOP House tax plan. Except that surge hasn't happened. Maybe the plan is dead. Maybe the plan's market impact will be different. Our take is: if you introduce barriers to trade, we believe currencies of countries with current account deficits tend to suffer.
The greenback qualifies, and the recent decline coincides with more protectionist talk coming from the Trump administration.
Talking about the greenback, there's always another currency at the other side of the trade.
The sterling is one of those currencies that has suffered as trade barriers have been raised (a "Brexit" is akin to increasing trade barriers); the Brits also have a current account deficit.
And we think those trade barriers will become ever more apparent as the odds of the UK and the EU coming to a prudent trade agreement appear rather dim. We come to that assessment because of the EU's institutional setup requiring unanimity for new trade deals on the one hand, but a hard deadline on the other hand to leave the EU once Article 50 (the 'exit' article) is triggered.
What gets us really negative about the sterling, though, is their fiscal situation. Sure, there may well be a short squeeze at some point because others don't like the currency but medium to long-term, we believe the Brits may well go down what we call the "Italian road." That is, we believe they'll finance substantial deficits with monetary policy that's too loose, leading to a currency that will cascade lower over time. That's because we don't see how the Brits can finance their budgets. When the Brits had their austerity budgets, their finances had moved from what we would call horrible to bad. Now they may well drift back to horrible as government spending increases to cushion the blow from Brexit.
What about the currency investors love to hate? Let me remind readers that everything is relative to what is being priced in. The euro has done well year to date because, we believe investors are increasingly realizing that the lows in rates may have been reached. The dollar started to surge at the first talk of tapering, even as the first actual rate hike was far, far, off. Similarly, the euro may well start appreciating well before rates will actually go up again in the Eurozone.
Recently, European Central Bank (ECB) head Draghi gave an upbeat presentation at a press conference, suggesting (and I'm putting words into his mouth here) we shouldn't be overly worried about the various upcoming risk events (Dutch election at the time; the French election, etc.), as there isn't much as we can do about them anyway; and if something bad were to happen, well, he'll do whatever it takes. Then the Dutch rejected populism. Then the rumor came up that the ECB may hike rates before ending the purchases of securities; this rumor was given credence as the Austrian ECB member of the governing counsel suggested that there are many different rates and, yes, some could be raised before the bond purchases are done.
Separately, we believe the euro has increasingly become a so-called funding currency. Amongst others because rates are so low, speculators are borrowing in euros to buy higher yielding assets. If we have a risk off event, e.g. a sharper decline in stocks, those speculators might have to reduce their bets and, as part of that, buy back the euro. Short covering may not lead to sustainable rallies in the euro, but it's a piece of the puzzle worth watching.
Emerging market (EM) currencies tend to be proxies for risk assets, i.e. they tend to do just fine when times are good, but in the case of severe selloffs, our analysis shows they also tend to suffer. We don't think they are as vulnerable as they have been at other times when investors have been chasing yield (remember, in EM markets, higher yielding bonds tend to be available), but any investors exposed to them should keep those risks in mind in the context of an overall portfolio allocation.
Make your portfolio great again...
Before you contemplate how to rebalance your portfolio, think about how institutional investors might be rebalancing their portfolio. U.S. markets have been outperforming, the dollar has been rising. As such, we would think institutional investors might shift assets overseas to rebalance their portfolios, thereby favoring international equities and putting downward pressure on the dollar.
As you might have gathered, I believe most investors are over-exposed to US equities. Equities have performed so well that it's difficult to get anyone to listen to this concern. And that's exactly the type of environment that is a fertile ground for bubbles.
The Emerging Post-Caliphate Syrian Battlespace
By Eric Czuleger
Conflicting regional and international forces are vying for control.
The Islamic State is weakening, which indicates that we should examine the future of the declining caliphate’s sphere of influence. A weak IS will create an opportunity for other factions backed by their respective regional powers to fill the emerging power vacuum. The United States and Russia are trying to limit their exposure and secure their influence in the Middle East, but the definitive actors in Syria will be exerting influence within its borders. Geopolitical Futures has identified four major powers in the Middle East: Turkey, Israel, Iran and Saudi Arabia. The first three have a deep interest in how the different factions will reposition themselves in the post-caliphate battlespace. Turkey, Iran and Israel are already preparing for this, and we need to examine how these dynamics will affect the Levantine region.
Since last Friday, a series of events has unfolded that provides a clear window into the imperatives of major regional powers in Syria. Israel utilized air power to launch an assault on a Hezbollah arms shipment outside Palmyra, and conflicting reports have surfaced about Russian involvement with Kurdish forces in Afrin district. These reports necessitate a closer look at the goals of regional players within the Islamic State’s declining sphere of influence.
A Syrian rebel walks past graves in the rebel-held southern city of Daraa, on March 20, 2017. MOHAMAD ABAZEED/AFP/Getty Images
We will begin with Turkey’s regional imperatives. Sharing a long border with Syria leaves Turkey exposed to the spillover of the various wars taking place in the Syrian battle box. The Turks are concerned that the Syrian Kurds will be major beneficiaries of IS’ territorial losses.
Ankara is already at odds with Washington over U.S. reliance on the Kurdish-led Syrian Democratic Forces. Recently, a spokesman for the People’s Protection Units (YPG) fed a story to Western media that Russia has been lending support to the Syrian Kurds through a base in northwestern Syria. Russia has denied these claims, and the United States has kept quiet. This tells us less about Russia and the U.S. than it does about the narrative the Kurds are trying to construct. They are trying to show they are an internationally supported fighting force and a legitimate state actor. The YPG is trying to appear more relevant in the face of its waning usefulness.
The Kurds have outlived their utility to the U.S., and they were never useful to Russia. In the eyes of both Russia and the United States, Turkey will have to take on more responsibility in Syria to secure its borders. The Kurds were a viable instrument to make territorial gains on Islamic State, but they are not a viable long-term partner for the U.S. or Russia. They are, however, a powerful lever in motivating Turkey.
As is often the case in geopolitics, opportunity exists alongside crisis. Turkey’s goal is to suppress Kurdish ambition, and pursuant to that, Ankara has entered ground troops into northern Syria. Turkish troop numbers are too low to act definitively, and they are attempting to achieve their goals with minimal exposure. While Turkey understands that it will not be rid of the Syrian Kurds, its ground troops are working to prevent Kurdish influence from growing.
Turkey’s imperative necessitates achieving and maintaining a level of regional control in Syria.
Given that Turkish troops are already on the ground in Syria, it is likely that Turkey will fill a portion of the post-caliphate power vacuum. However, Turkey is not the only rising Middle Eastern power that has ambitions in the Levant. Iran is also weighing how to proceed as IS loses its territorial holdings.
The Iranian-backed Shiite Islamist movement Hezbollah viewed the armed uprising in Syria as an existential threat. The regime of Syrian President Bashar al-Assad is a crucial actor in enabling Iranian support for Hezbollah. The regime allows Tehran to provide material and economic support to its proxy in Lebanon. Had the Syrian regime been overthrown, the pro-Iranian Shiite state in Iraq would have become vulnerable as well to a cross-border Sunni movement. This is why Iran has continued to support the Assad regime and the Syrian Arab Army throughout the crisis in order to maintain its sphere of influence on its western flank.
Between the regime’s recent victory over rebels in Aleppo and the impending collapse of the IS capital in Raqqa, Iran is hoping to see a major return on its military, economic and political investments in Syria since 2011. More than that, Hezbollah is looking forward to emerging victoriously from the bloody civil war in which they are currently mired. Hezbollah and Iran will benefit from the decline of the Islamic State, but those gains serve to unnerve Israel.
From Israel’s point of view, Iranian influence in Syria through Hezbollah must be stopped. While steering clear of direct involvement, Israel has kept a close eye on the evolving Syrian civil war, especially in terms of how the conflict could potentially allow Hezbollah to become a bigger threat to Israel. Various Sunni jihadists (IS, al-Qaida and most of the rebel groups) are rhetorical enemies of Israel, but in practice, they have more pressing objectives. Hezbollah is an institutionalized force that has shown an ability to disrupt Israel, as in the 2006 war. This is why the Israeli Defense Forces have from time to time carried out airstrikes in Syria to ensure that Hezbollah does not get its hands on more sophisticated weaponry, especially missiles that can threaten Israeli air superiority.
To this end, Israel recently carried out airstrikes on a weapons shipment convoy outside Palmyra. This is the deepest Israeli strike to date in Syria. However, the attack’s target was an arms shipment headed to Hezbollah’s stronghold in Lebanon. While Israel does not want to fill the oncoming power vacuum, it has to manage threats from the Iran-allied Hezbollah. Hezbollah already occupies considerable space in Lebanon to the north of Israel and has recently proved it is able to use Syrian space to arm itself. Israel will continue to manage threats from afar while keeping tabs on Hezbollah’s presence in Syria.
Islamic State is in danger of losing its territorial holdings in Syria and Iraq. This does not, however, mean an end to conflict in the region, nor does it mean an end to Sunni Islamist extremism. GPF recently reported on bombings in Damascus carried out by Hayat Tahrir al-Sham, the third incarnation of Jabhat al-Nusra, the Syrian branch of al-Qaida. Different militias are engaging in an intra-Sunni struggle to emerge as the jihadist vanguard in the wake of a weakened Islamic State. However, the non-Sunni forces will play a greater role in shaping the future outlook of the Syrian battlespace. These include the Kurds, the Syrian regime and Hezbollah. All of these powers will in turn shape the behavior of the main regional stakeholders, Turkey, Iran and Israel.
If and when IS is decimated, it will only end the current episode of the war radiating out of Syria and Iraq. We have discussed some of the dynamics emerging from a weakened Islamic State, but the oncoming power vacuum will inevitably be filled by conflicting regional and international forces vying for control of the post-caliphate Middle East.
America’s Confidence Economy
Mohamed A. El-Erian
LAGUNA BEACH – Financial markets seem convinced that the recent surge in business and consumer confidence in the US economy will soon be reflected in “hard” data, such as GDP growth, business investment, consumption, and wages. But economists and policymakers are not so sure. Whether their doubts are vindicated will matter for both the United States and the world economy.
As the Nobel laureate Robert J. Shiller has shown, optimism can evolve into “irrational exuberance,” whereby investors take asset valuations to levels that are divorced from economic fundamentals. They may be able to keep those valuations inflated for quite a while, but there is only so far that sentiment can take companies and economies.
Are We Flirting With Irrational Exuberance?
High valuations, heavy inside selling, and Tesla’s surging stock are among the troubling signs.
By John Kimelman
What Past Empires Tell Us About the Future
By George Friedman and Jacob L. Shapiro
Spanish essayist George Santayana once wrote, “Those who cannot remember the past are condemned to repeat it,” but there is a problem with this famous and witty line. Studying history has little practical utility in averting past outcomes. We are doomed to repeat history whether we know it or not.
The value in knowing history is not that one might prevent its recurrence. Its value is that it allows you to identify those things that don’t change and that shape events… no matter the year on the calendar. It is not quite as clever a turn of phrase, but it would be more accurate to say:
To predict the future, one must understand the past.
Geopolitical Futures, unsurprisingly, focuses on the future. But part of what gives GPF analysis such insight into the future is its grounding in history. This is not always obvious, as most of our writing stays focused on the future. But today, in This Week in Geopolitics, we thought we might pull back the curtain slightly and showcase four maps that highlight what parts of the world looked like in the past… and that point the way toward what may come in the future.
The map above simplifies a great deal of China’s ancient and imperial history. It identifies seven states that fought for control of the historic Chinese heartland during the Warring States period (475–221 BC).
Two observations can be made from this map. First and most important, China has always been a land power. Its control has never extended beyond the mainland in a serious way.
Taiwan is the only notable exception—and Sinic civilization only came to Taiwan after the Ming Dynasty (not shown on the map) collapsed in 1644. Some Ming loyalists fled to Taiwan to use it as a base of operations.
When GPF talks about China not having a tradition as a maritime power and being confined to the mainland, these facts often are not mentioned in the analysis, but that makes them no less important.
The second observation is that China’s core territory is well defined and has not shifted much over millennia. Today, China controls much of the land in the interior, including the Tibetan Plateau and the Tarim Basin. Mongolia no longer poses a threat, and the northeast is under Beijing’s control. (The Manchu Dynasty, which overthrew the Ming Dynasty in 1644, came from that northeast territory.)
This map also shows that at various points China has even exerted direct control over present-day North Korea. Control over the Yalu River, either directly or through political influence, is not a new geopolitical imperative for China. It has always shaped the behavior of whoever rules China.
This map shows three different iterations of empires that originated in Persia (present-day Iran). Many fear that Iran wants to establish another Persian empire to echo those of the past, but Iran will not accomplish this goal anytime soon. That’s because the prerequisite for such an empire is a weak entity in Turkey—and as Turkey is increasingly unafraid of showing, it is not a weak entity.
Still, in thinking about what a potential Iranian empire could look like, this map is instructive.
The areas that were under Persian rule during all three empires are particularly telling.
Persia's mountainous core was the heart of each empire. From there, these empires expanded north and west into Central Asia and parts of Afghanistan and Pakistan, terminating abruptly at the Hindu Kush (an area over which it is extremely difficult to project power). Persia’s presence in the Caucasus was pronounced, but here too, it ran into geographic boundaries it could not overcome. Most relevant for thinking about current Iranian strategy, the map reveals that all Persian empires controlled most of present-day Iraq.
The extent of Persia’s cultural influence in a wide swath of the world often goes unappreciated.
Remnants of its imperial glory years are still evident throughout not just the Middle East, but also in the Caucasus, South Asia, and Central Asia. These are diverse areas that are difficult to rule. Even present-day Iran is an extremely diverse country by virtue of an internal geography that lends itself to the development of different languages and cultures.
Looking out from this mountain fortress of varying ethnic groups, Iraq is the most important strategic imperative Iran must address. But Iran’s influence extends outward in multiple directions, and these are all areas where Iran’s power must be continually benchmarked.
It makes some sense to move from a discussion of Iran to a discussion of Turkey. This map shows two iterations of the Ottoman Empire: one in 1683 (when the Ottomans were at the height of power) and one in 1914 (when the Ottoman Empire was on the verge of disintegration). Turkey’s current borders are also outlined.
The Persian empires discussed above were large, and at times expanded their power to the coasts of present-day Greece, Bulgaria, Romania, and even Ukraine, Crimea, and Russia. But they did not extend into the rest of Europe. Their power base was in the Middle East, Central Asia, and the Caucasus. This is not true of the Ottoman Empire.
At its height, the Ottoman Empire did not just project power onto the European coast. It ruled lands in the European heartland, and in 1683, it laid siege to Vienna. The Ottomans were eventually beaten back, and over the centuries, their power would decline. But the Ottoman Empire was both a European and a Middle Eastern power. This is crucial to understanding present-day Turkey.
The Persians were a land-based, regional power. The Ottomans were both a land- and sea-based power, and their writ extended across continents. At their core, the Ottomans were a Mediterranean empire. They controlled many of the major ports and, most importantly, Mediterranean trade routes, which were some of the most vital trade routes in the world in the 15th and 16th centuries. Today, these routes are still important, but not nearly as critical as they were then, and this limits just how strong even a very powerful Turkey could become.
Even so, studying the Ottomans’ history is important because it shows where Turkey is going.
The Arab world is in chaos to its south. Russia is weakening. Iran is constrained. The Caucasus is in its usual state of disunity. The Balkans have enjoyed a brief respite of stability that will not hold. North Africa (from Cairo to Algiers) is a basket case from both an economic and security perspective.
Turkey is a very strong country, and it is becoming stronger. Much has been made in the last few weeks about Turkey’s diplomatic clashes with Germany, the Netherlands, and other countries. It is important to think about those developments with the above map in mind.
The last map is different than the others. It shows two types of French empires: the Napoleonic Empire (when France dominated the European continent) and France’s various colonial empires.
There are no ancient maps here to show because present-day France did not rule over land outside the European continent before the Europeans discovered the Americas. A unique blend of political and technological circumstances allowed France to expand its power far beyond its traditional borders.
Today, those circumstances are no longer present, so this map should not be used as an indicator that France will vie for dominance in India, Africa, or North America anytime soon.
Still, this map reveals some basic facts. First, France is a major European power that not long ago dominated the entire continent. But France has fallen a long way from those days. At best, it is now the third most powerful country in Europe, lagging behind Germany and Britain.
France, however, is not destined for insignificance. Its economic stagnation and the drama around its elections have the world’s attention, but as the power structure in Europe is reorganized, France will have a significant role to play. It remains a major regional power on the European continent even if its economy is mired in low growth and its domestic politics are inwardly focused.
Second, because France was such a major imperial power, vestiges of that power remain in unlikely places. More people speak French outside of France than in France (about 36% of French speakers live in France, according to a 2014 report by the International Organisation of La Francophonie).
French military forces are combating radical Islamists in various parts of North Africa, and France has committed forces to fighting the Islamic State in the Middle East. Countries like Lebanon and Tunisia retain French political, educational, and socio-economic structures, even though the ties of imperialism have long been severed. France does not exert power over these places anymore—but the echoes of its past power remain.
We began with a pithy quote, so it is appropriate to end with one. Winston Churchill once said, “Study history. In history lie all the secrets of statecraft.”
The secret of statecraft is that it is relatively powerless against the broad forces that cause history to repeat itself in successive centuries and even millennia.
The first step toward understanding what is possible in the future is to understand what was impossible in the past.
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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- THE EMERGING POST-CALIPHATE SYRIAN BATTLESPACE / G...
- AMERICA´S CONFIDENCE ECONOMY / PROJECT SYNDICATE
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