Germany, the G20, and Inclusive Globalization

Wolfgang Schäuble
. German G20

BERLIN – Globalization is getting increasingly bad press in the West nowadays. Populist movements allege that it does not benefit the average citizen very much, if at all. Instead, they tout protectionism and unilateralism. National policies, whether with respect to trade or financial regulation, are seen as the surest way to restore national greatness.
But this populist agenda is based on the deeply flawed premise that international cooperation and international trade are zero-sum games, producing only winners and losers. In fact, cooperation and trade can deliver benefits to all countries. For many years now, they have increased global security and certainly global prosperity, with hundreds of millions of people lifted out of poverty, both in the developed and the developing world.
To be sure, globalization needs rules and a recognized framework to ensure that it benefits everybody, delivering sustained and inclusive economic growth. As with national legislation, it is a framework that requires constant adjustments. But to abandon it altogether and retreat from globalization is the wrong answer. On the contrary, we should be seeking ways to deepen and broaden international economic cooperation.
In my view, the G20 is the best forum for increased and inclusive cooperation. Of course, the G20 is not perfect, but it is the best institution we now have for achieving a form of globalization that works for everyone. Through it, the world’s main industrialized and emerging countries have worked together toward constructing a shared global order that can deliver increasing prosperity. Indeed, the G20 is the political backbone of the global financial architecture that secures open markets, orderly capital flows, and a safety net for countries in difficulty.
The G20 has achieved much in recent years, including better coordination on financial regulation and international taxation. And, as the country that holds the G20 presidency this year, Germany is committed to continuing the important work begun under our most recent predecessors in China and Turkey.
For example, more needs to be done to strengthen the global economy’s resilience against sudden shocks. So one of the G20’s top priorities this year will be our work to prevent a recurrence of a global financial and economic crisis like that of 2008-2009, which stemmed from a myopic, debt-based growth model.
But, in order to tackle the gulf between the richest and the poorest countries, we need to go beyond the G20. In particular, the G20 – indeed the entire world – must reach out to Africa at this critical moment in the continent’s development.
Beyond the moral question of raising Africans’ living standards, the continent’s development is crucial to reducing geopolitical risks. But investment in Africa is still low, depriving people in African countries of opportunities to improve their lives.
For these reasons, the G20 during the German presidency is working to intensify its partnership with Africa. A central pillar of this effort is the “Compact with Africa,” which provides a framework for supporting private investment, including in infrastructure. We propose that, with the G20’s political backing, African governments, international organizations, and bilateral partners prepare comprehensive, country-specific investment compacts to encourage private-sector investment. Each country is to implement a bespoke package of measures to decrease its investment risks.
Essentially, the Compact with Africa is a contribution to implementing the African Union’s Agenda 2063 blueprint for economic development. That AU agenda provides guidance for improving macroeconomic, business, and financial frameworks across the continent.
While the Compact with Africa is open to all African countries, five have already committed to pioneering this new approach: the finance ministers of Côte d’Ivoire, Morocco, Rwanda, Senegal, and Tunisia want to work on compacts and have expressed this in writing. I have invited them to attend the G20 Finance Ministers and Central Bank Governors meeting on March 17-18 in Baden-Baden.
At that meeting, my G20 peers and I will offer these countries an international platform to present their plans. We want to discuss with them, and the heads of the African Development Bank, the World Bank, and the International Monetary Fund, what the elements of country-specific investment compacts could be.
Afterwards, these five countries, together with international organizations and bilateral partners, will select the specific measures and instruments to be included in each individual investment compact. The G20 will provide high political visibility, helping to raise investors’ awareness of these changes. I am confident that significant progress can be achieved when all partners involved work together closely and on an equal footing.
International cooperation is the only way to achieve strong, sustainable, balanced, and inclusive global growth. Germany is committed to do its best as an honest broker within the G20 and beyond to ensure that globalization truly does benefit all.

Fallow Ground

A City of Workers Turns to Wilders

By Alexander Smoltczyk in Almere, The Netherlands

Photo Gallery: 'Votes for Wilders Are Cries for Help'

The city of Almere, once crafted as a Dutch utopia on land reclaimed from the sea, used to be a center-left stronghold. Now, though, as voters in the Netherlands go to the polls on Wednesday, the town's support is behind right-wing populist Geert Wilders. What changed?

Shortly after 1 p.m. on May 28, 1932, the last gap of the dike was closed and around 1,500 square kilometers of land was reclaimed from the North Sea. With the help of pumping stations, locks, drain channels and dams, a new province was created.

The draining of the Zuiderzee was one of the greatest engineering achievements of the past century. For Dutch national pride, it was the equivalent of the Eiffel Tower or the Apollo space program. But better: It resulted in arable land. The Dutch continued shoveling and, in 1971, completed the construction of an entire city: Almere, a Dutch utopia that is today home to just under 200,000 residents. The city's motto is "anything goes," and that's pretty much what has happened.

If a model railroad enthusiast were hired to design a city, Almere is what the result might look like.

There are car-free areas of the city that are named after flowers, fish species or cinematic legends.

There are networks of bicycle and bus routes along with small community centers on seemingly every corner, dedicated to gezelligheid, the Dutch take on communal well-being, with billiards, bingo, folk dance and even half-marathons, depending on one's proclivities. It's a place where every neighborhood has its own library, church and shopping mall, and where senior citizens buzz around silently on electric scooters. The buses are on-time and cost nothing. Everything seems to work well.

Why, then, is there so much anger? Why are so many people in this ideal city so upset about everything? So upset that they already voted to make Geert Wilders' Party for Freedom (PVV) the biggest party on the city council? They are likely to do the same on Wednesday, when the the Netherlands holds parliamentary elections - a vote that many in Europe are watching with deep concern.

What is it that the people of Almere want?

Viewed from the north, Almere initially resembles a playground of experimental architecture - gaudily colored, angular and anarchic, some buildings curvy while others are boxy, some surrounded by greenery while others are on stilts. There is reflecting glass and rusty iron everywhere, along with plentiful timber. There are also security cameras and alarm systems everywhere.

Marieke van Horick is taking her dog out just before her physical therapy appointment. The 54-year-old is a manager at a nursing service.

"The retirement age is constantly getting pushed higher and I'm afraid I'll have to work until I'm 70. My daughter has been waiting for 10 years for social housing in Almere but the foreigners get an apartment immediately. It's not fair. I entered my concerns and views into a voting guide app and it suggested I should vote for Geert Wilders or the General Elderly Alliance. Wilders has some good positions, but he's too extreme for me."
The Pioneers

The older part of the city is located a little further to the south, behind warehouse and administrative buildings as flat as the tax rates that attract so many businesses here. One of those is Germany's largest adult entertainment retailer Beate Uhse, which has a logistics center in Almere it uses to ship products all across Europe.

In the Almere Haven neighborhood, city planners included Flemish gables and canals to make the very first transplants feel at home. The first settlers also got rent discounts to compensate for the sand that blew into every crevice and ground between their teeth in the first years after the sea was banished. Martin Timmers, a young man at the time, was one of the pioneers.

Today he's 72-years-old, his fingers yellowed by the nicotine stains of a man who rolls his own cigarettes. He used to install tank systems, but now, in retirement, Timmers breeds sheep. On his mobile phone, he shows his black-and-white splotched herd. "Schoonebeeker heath sheep," he says.
"My father helped to found the Labor Party (PVDA), social democracy. That was in Brabant and, because everyone there is Catholic, it wasn't particularly welcome. But who still bothers to do anything for the workers today? Only Geert Wilders' PVV. All the things they make elderly people here pay for! I still manage to make ends meet, but my neighbors, an old married couple, are no longer able to live together. She got placed in a home and he was put in a hospital because, after reforms, they could no longer afford nursing care. They went bankrupt at 85. They had worked their entire lives - and then this? This is the product of Europe and all these rules. We're not living in our own country anymore."
German historian and Sinologist Karl August Wittfogel once coined the term "hydraulic society," a term meant to refer to despotic autocracies like China or Egypt where those who control the flood defenses and irrigation systems have a tight grip on power. The province surrounding Almere is the successful version of a hydraulic civilization - a place where hydraulic engineering and welfare have been perfected. The pump stations are as sophisticated as the public buses and austerity measures are implemented with care. Social workers are as ubiquitous and quick to respond as the dike technicians are in other places.

"Yes, everything is well organized," says the city's senior planning officer. "But you can't buy people."

A Metaphor for Loss

Tjeerd Herrema is a Social Democrat with the PVDA party, gaunt and bald, is wearing a shimmering navy-blue suit that perfectly matches his glasses. There's nothing about his appearance to suggest that he is a former labor union official. But that's just how things are in Holland.

Herrema explains how Amsterdam changed during the 1970s, when Turks and Moroccans moved into the poorer neighborhoods and the heroin problem exploded. "The white workers didn't necessarily feel enriched by the new cultures," he says. "So, they moved away, to Almere. Today, many feel as though they are experiencing the same thing all over again."

It's a widespread sentiment despite the fact that the Netherlands has an extremely strict admission policy and, in contrast to Germany, very few Syrian refugees arrived in the country.

But Almere's population of pioneers is 40 years older today, with all the fears that come with advanced age. They spent decades paying into the pension system and now have to share the pie with new arrivals? "It's a kind of Heimweh", Herrema says, using the German word for homesickness. "Heimweh was one of many reasons why they don't feel at home. This new town didn't have identity as Amsterdam. So they couldn't relate to it too much."

Viewed in that context, Almere is also a metaphor for loss, one that is just as present as the noise from the nearby A6 motorway and also just as difficult to get rid of. It's the ambient noise of globalization.

Herrema says there's no longer such a thing as predictable voters and loyalties are coming undone.

Members of the labor unions are flocking to the Socialist Party, while workers, unfortunately, are turning to Wilders, he says. Even many young Moroccans are no longer voting for the Social Democrats the way their parents did. An astoundingly large number of Surinamese and second-generation immigrants are likewise expressing sympathy for the statements made by Wilders. The homesickness is political as well.

Riny van Boxtel, 69 years old, used to work as a de-boner in an Amsterdam slaughterhouse. He moved to Almere, just a half-hour's drive away, 37 years ago after starting a family. As he does every morning, Van Boxtel is standing on the Almere market square with his friend Jan Hoefakker, 72, a former firefighter. Both were once classic constituents for the social democratic PVDA.
"When I go back to visit East Amsterdam, people say to me: 'Oh, a Dutchman - we haven't seen one of those in a long time.' There are so many Turks and Moroccans there. But I speak to everyone here. There's such unease. Normal people don't even dare to say some things. But Wilders says it. I estimate that 80 percent of the people think the same way he does. Something has to change. I'm willing to give him a chance for four years."
Almere's City Hall, home to the municipal administration, feels more like a casual gathering place than an office. With its sofas, pile rugs and espresso bar, it feels more like an IKEA living room display. There are sparkly clean computer terminals where locals can take care of their affairs.

Wilders' party has no office in the city, just a room for PVV city council members in the City Hall, where they tend to stick to themselves. "PVV is everywhere and nowhere at the same time," says the woman at the City Hall reception desk, adding, "If they wanted to be available, they would have given us a telephone number, wouldn't they? But we don't have it."

PVV is the kind of party one might expect more from North Korea than Holland. Founder Wilders is the party's one-man chair, treasurer, judge and policy committee. He's the face and mind of the party and also, more than anything, its voice. Wilders is also the PVV's only member; other members would likely just get in the way.

The PVV campaign platform fits neatly on a single sheet of paper. It calls for the closure of all mosques in the Netherlands, the country's exit from the European Union, a ban on the Koran, a restoration of the retirement to 65, the closure of all asylum centers as well as an end to government subsidies for wind farms, art and development aid.

Tjeerd Herrema, the senior city planner, has amassed considerable experience with the group in the past years. Their behavior, for example, when it came to refugees. "During our informational meetings for local residents, the Wilders people come in and say that we're trying to bring terrorists into the neighborhood, that asylum-seekers rape their wives. It's terrible. But they don't discuss it in the city council. They don't want answers - they just want to ask questions. Preferably on Twitter."

Once a month, committee meetings at City Hall are open to the public, though attendance is sparse.

When PVV representatives are addressed, the recoil as though they had been sprayed in the face with nerve gas. "No, no! Check with The Hague about that," they say, referring to the seat of the Dutch government.

'Many Here Vote for Wilders'

Brick row houses line the street where Kjell van der Lee lives with his family, each of them narrow and with a tiny back yard just wide enough for a discarded refrigerator and a few cases of beer. Van der Lee is a 32-year-old construction worker and his dog is named "Shadow."
"I can afford the rent here. Many vote for Wilders, as do I. I'd be happy even if he only does 10 percent of what he says he will. If he gets the chance. Our taxes keep rising and the retirement age keeps going up. They're letting me work myself to death so they can give the money to them. These dual-national criminals. One of their nationalities should be taken away. Shadow! Don't worry, he only bites if something is unfamiliar."
Rem Koolhaas, the Netherlands' most influential architect, designed Almere's city center. He separated areas of life like living, walking around, driving and shopping into different levels.

Above the stores, a level of social housing is connected by footbridges and passages.

The cry of seagulls fills the air and lounge music emanates from the rooftop of the shopping center. A giant Utopolis sign is lit up on the multiplex cinema. From above, viewed from inside the new library, the people down below resemble elements in an architectural model. A couple of young coworkers chat as they walk out of the food court. Stevie Verduijn, 20 years old, and Gideon Halberland, two years her senior, are both hairstylists. She's originally from Amsterdam and he hails from from Hilversum.
"Everything here looks clean, but you constantly get harassed if you look even a little bit different." -- "We're supposed to show tolerance to the Africans. Fine. But they don't try to understand us." -- "There are bad vibes here. Recently they threw stones at buses." -- "We were mugged once at the bus stop. They took Gideon's iPhone and a girlfriend was groped all over the place. We weren't alone, but nobody said anything." -- "That was the worst thing. Who am I voting for? PVV." -- "Me too. Wilders is saying what everyone is thinking but no one dares to say. I like that." -- "He says extreme things to provoke others, so that you can recognize the extremists and send them away. His hair cut? It's dead hair if you ask me. It's been bleached too often."
Holland Didn't Become Less Liberal Overnight

"The Netherlands didn't suddenly become less liberal," says Ton Nijhuis, director of the Duitsland Instituut in Amsterdam, an organization that facilitates Dutch-German networks and exchanges. "Pim Fortuyn, a predecessor of Wilders, always said he was defending our freedom against the intolerance and premodern thinking of many immigrants. Today, it can be dangerous in some neighborhoods to show yourself as obviously gay or Jewish, and this is not seldom due to Moroccan youth."

Nijhuis thinks there's been a blind spot in the political landscape in past years. Most voters, he says, have more conservative values than the established parties. "They are also more supportive of redistributing wealth than of globalization. They long to return to the imaginary good old days when people behaved themselves and could trust their neighbors. It's this fallow political soil in which Wilders thrives."

In Germany, Nijhuis says, people often think that the only problem is Geert Wilders. "They overlook the fact that enthusiasm for Europe also isn't particularly pronounced among the established political parties either. For us Dutch, Europe is mostly a free market, not something we are passionate about."

'Nothing Changes'

The city of Almere is located up to nine meters below the sea level, which is about the level of John de Vaal's political mood. Together with his son Nick, the 52-year-old cleans the shop windows in the pedestrian zone directly across from City Hall. At least when he's working, he can be his own master.
"I'm not going to vote. It doesn't have any effect anyway. Wilders is also just a big mouth. None of them know what is ailing the workers. There are good things and bad things about each party, and they have to work together. It's always a compromise. And nothing changes. That's the problem in Holland. They sit in The Hague and when there are elections, they come out with their flyers, but after that they disappear. Crime is a major problem in Almere.  
It looks clean here, but it isn't clean. Last week, there were five break-in attempts at homes on our street. I have lived in Almere for 24 years. Back then, I fled from the crime in Amsterdam. Back then it was good here. It's not just the Moroccans who are creating the problems. It's also the Dutch, who allow their kids to hang around the streets at night because they are too busy with their jobs."
The city of Almere was tailored with social mindedness and fairness in mind, for active citizens.

It is also a monument to Dutch social democracy. Which makes it all the more bitter that the PVDA only managed a minority coalition in the municipality, together with the Socialist Party and the center-right.

'Votes for Wilders Are Cries for Help'

But since the 1990s, the PVDA has been focused on the same kind of cuts to the social-welfare system that made Germany's Social Democrats highly unpopular among voters. Slick politicians like Jeroen Dijsselbloem, the snazzy finance minister and president of the Euro Group, are the face of the party. "They are management types with perfect speeches and perfect suits. They would never allow themselves to be seen with a coffee stain on their shirt.

Why should the people trust them?" That's what a leading member of the party says off the record.

There have been instances, he says, of Labor Party-led city councils advising people to just move away if they had problems with overly pious Muslim neighbors. Nor did it help that the social workers said it was the peoples' duty to be patient with the new arrivals. They laid the blame on those who had actually been behaving correctly, the leading party member says.

That made people angry. If you make just 15,000 euros a year, you can't simply pick up and move. Such people have the right to be protected. "So they are disappointed. They feel abandoned and they have realized that no one is listening to them. Voting for Wilders is a cry for help."

The social democrat's party is currently polling at under 10 percent.

Ria Faaij is the 58-year-old owner of a lotto and tobacco shop in the center of Almere Haven.
"Everyone comes to my shop and they all talk. I hear everything - complaints about debtor aid, welfare, unemployment. There are all kinds of problems in the Netherlands. My mother is 90 years old now. She paid into the pension system for 42 years. Now she gets a cleaner for three hours once every two weeks, after so many years of hard work. The parties talk a lot, but nothing happens. Who am I going to vote for? The Party for the Animals. Animals are the most honest of creatures."
There's no five-percent hurdle in the Netherlands for gaining seats in parliament. The country's party system is increasingly starting to look like a bazaar of special interests.

Currently, 11 parties are represented in the Dutch House of Representatives. Some 80 parties registered for the election, of which 28 were approved, including two parties representing senior citizens, the Party for the Animals (which is running at about 4 percent in the polls) and two for the Christians.

There is a "Party of Non-Voters" that is seeking to attract voters by promising to do what it promises to do. There's Europe's first party of immigrants, the DENK movement. It is demanding quotas for immigrants on boards, an anti-racism police and equal treatment for Koran schools. No other party is seeking to advance the multicultural approach to such an extent.

Elfriede Brown says she won't be voting for that party, insisting that she is too much of an "old-fashioned Dutch woman" for that. She has just finished her shopping - a package of cinnamon tea is peaking out of her basket - and her hair is a maze of braids all tied back with a white scarf.

During the 1970s, Suriname, Holland's colony on the border to Brazil, established its independence. Many of them retained their Dutch passports and moved to the Netherlands, with quite a few landing in social housing in southeastern Amsterdam. In 1992, an Israeli 747 jet crashed into a high-rise apartment building in the area and Brown, who is 61 today, lost her apartment in the disaster. That's what brought her to Almere.
"I was born as a Dutch girl in Suriname. Dutch is my mother tongue. I don't think about skin or hair color. My neighbors are Muslim, but they say that the Koran is a message of love. That may be. I'm a Christian and I vote for the Christian Union party. The way that Wilders preaches hate against the Muslims isn't good. It's possible that many of my acquaintances are voting for him. But they don't admit it. Me, me, me and I don't care about anybody else: That's the attitude. Foreigners are not given any preferential treatment when it comes to the allocation of apartments. I know this because I worked for a residential building firm for 35 years. It really angers me when people here believe these untruths."
In polls last week, Geert Wilders was in a virtual tie with incumbent Prime Minister Mark Rutte's VVD, but his lead appears to be shrinking as the vote approaches. Given that every other party has ruled out the possibility of a coalition government with Wilders' PVV, the next government will likely be another centrist coalition - just as in Almere. Precisely the kind of government many in the Netherlands no longer want.

The city of Almere was a dream the Netherlands once had for itself. The sea had been reclaimed, things had been carefully planned and the community at large had been governed pragmatically. Now the area has once again become fallow ground, only this time politically.

The ties between the parties and to the church have been loosened. Everything has become more fluid and things are beginning to shift.

What remains is the old hope that the dikes will hold.

Fed’s Challenge, After Raising Rates, May Be Existential

Eduardo Porter

The Senate confirmed Janet L. Yellen as chairwoman of the Federal Reserve three years ago by the tightest margin in at least 35 years. Credit Doug Mills/The New York Times        

Is the Fed at risk for real this time?
Throughout American history, few institutions have inspired such persistent mistrust among voters and their elected officials as the mysterious authority that determines the value of their money.
The Federal Reserve wasn’t even around yet when the fiery Nebraska populist William Jennings Bryan rose to the Democratic presidential nomination in 1896 by charging that the gold standard that ruled monetary policy at the time was crucifying the workingman “upon a cross of gold” to serve bankers’ interests — depressing farm prices and crushing indebted farmers by limiting money in circulation.
Since its inception in 1913, the Federal Reserve has been alternately accused of either making money too scarce and expensive or making it too plentiful and cheap.
In 1981, a Democratic congressman, Henry B. Gonzalez of Texas, threatened to introduce a bill to impeach the Fed chairman, Paul A. Volcker, and most of its other governors, accusing them of squelching the economy with tight monetary policy.

Thirty years later, on the Republican presidential campaign trail, another Texan, Gov. Rick Perry, famously suggested roughing up the Fed chairman, Ben S. Bernanke, for “printing money” to stimulate growth: “I don’t know what y’all would do to him in Iowa, but we would treat him pretty ugly down in Texas.”
On Wednesday, a Federal Reserve led by Janet L. Yellen — confirmed three years ago in the Senate by the tightest margin in at least 35 years — is likely to get a taste of this vitriol.
As my colleague Binyamin Appelbaum noted on Monday, the Fed is all but certain to raise its benchmark interest rate, setting itself on a path to prevent an acceleration of the economy and ward off an uptick in inflation — a course that is in clear tension with President Trump’s stated goal to stoke growth at all cost.
The pressing question for this era of populist policy making and popular anger is whether the Federal Reserve as we know it — arcane and academic, with the autonomy to set monetary policy as it sees fit — will survive the tension this time.
Given the ferocious discontent with the “establishment” stoked by Mr. Trump among his angry electoral base, the threat against the Fed this time seems of a higher order. As Adam S. Posen, an American economist who has served on the Bank of England’s rate-setting Monetary Policy Committee, told me, “The sense that the Fed’s independence could be taken away by a simple act of Congress is very real.”
The pressure is already on. Mr. Posen, who now heads the Peterson Institute for International Economics, points out that the Fed already lost powers it deployed to counter the recession spawned by the financial crisis a decade ago: The Dodd-Frank financial reform legislation stripped it of its authority to lend freely to nonbanks, which it used to keep money market funds, insurance companies and others that had bet on the wrong side of the housing bubble from imploding and taking the economy with them.
Disgruntlement in Congress will only grow worse as the Fed gradually winds down the enormous stash of bonds it built over the last eight years to support the mortgage market and encourage lending.
This will inevitably push up long-term interest rates and produce paper losses for the Fed as it marks the price of securities to market.

William Jennings Bryan won the Democratic presidential nomination in 1896 by charging that the gold standard was serving bankers’ interests, depressing farm prices and crushing indebted farmers. Credit Associated Press        

As Donald L. Kohn, former vice chairman of the Fed, noted in an analysis of the Fed’s independence three years ago, “it will be a complex exit involving many steps — with lots of opportunity for kibitzing and objecting over a long period.”
“I’m worried about the people Donald Trump will send over there,” he told me. “If he sends over toadies beholden to Donald Trump, it would be a very serious threat to the Fed’s independence.”
So what is Ms. Yellen’s Fed to do?
To a point, this is not just about the Federal Reserve. The European Central Bank, too, is navigating political waters charged with populist mistrust. In Britain, the Labour Party’s shadow chancellor of the Exchequer has called for “democratic control” over interest rates.
Still, not all the criticism is mendacious. The popular mistrust of central bankers should not be ignored. After all, central bankers failed to prevent the most devastating financial crisis in generations — looking on idly, at best, while financial institutions peddled shady bonds to fuel a housing bubble of gargantuan proportions.

And central banks have emerged, at least implicitly, with a bigger job than before, adding the preservation of financial stability to their duty to ensure low inflation and, in the Fed’s case, full employment. Some central banks — though not the Fed — have been given new tools for this new job.
Given this power, it is inevitable that the enormous discretion central bankers have in executing their mandate will inspire popular mistrust.
Maybe there is a better way for Fed officials to communicate with Congress and explain the thinking behind their decisions. Maybe the Fed needs extra tools — to impose limits on indebtedness, for instance, or to adjust monetary policy to serve measures of financial stability.
Maybe it could benefit from a tweak in its mandate, to ensure a better balance between its goals of fostering employment and curbing inflation.

Taking Raqqa from the Islamic State

By George Friedman and Eric Czuleger


The United States, Turkey, and Russia have deployed forces to fight against the Islamic State in a run-up to the final battle for Raqqa. No one has made a definitive move. This is because the oncoming battle for control of the IS heartland is complicated by geography and the conflicting imperatives of regional and international actors expected to participate in the offensive.
Time is running out…

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Now, let’s look at Raqqa. Until a decision is reached among all parties on the approach to Raqqa and how to proceed afterward, no meaningful moves can be made on IS. These four graphics show the complexity of the battle for Raqqa and why it will be a marathon rather than a sprint.

Spheres of Influence

Several spheres of influence exist within Syria. While the Islamic State has maintained control of Raqqa and surrounding areas along the Euphrates River since 2013, it recently suffered territorial losses to the east, west, and north as part of Operation Euphrates Wrath, led by the Syrian Democratic Forces (SDF).

The Syrian Arab Army, along with Hezbollah fighters and Russian air power, have retaken Palmyra to the west of IS’s core territory. The Kurdish-led SDF occupies territory directly to the northeast of Raqqa, and Turkish-backed rebels have taken control of the area northwest of the Euphrates River to block the Kurds from establishing a foothold on the Turkish border.

IS is now effectively surrounded on three sides by regional powers with international support. Jordan sits along IS’s southern outskirts. Though vast desert leaves IS with few gains to be made, it has not stopped the group from trying to expand its sphere of influence over its southern border.

While IS has been losing territory for over a year, most of that territory was not strategically important. Now, IS faces existential threats to its power, but a final blow can’t be struck without a cohesive plan of attack and a strategy for maintaining the territory post-IS.
Urban Combat

The fight for the IS stronghold will require large numbers of ground troops in concert with air power and artillery. Fighting through a city—particularly a city with a large civilian population—means a very high casualty rate for the assaulting force.

It is slow, dangerous work that must be done block by block rather than in large-scale air attacks. For example, Iraqi’s Counter Terrorism Service (CTS) led the “Golden Division” in the battle for Mosul, a large city center similar to Raqqa. Some CTS divisions suffered casualty rates up to 50% while fighting in the city.

Before we can discuss the battle for Raqqa, it is vital that we look at the city itself and the current thoroughfares running to and from the de facto IS capital.

The map above shows the main roads surrounding IS core turf with the capital city in the middle. Raqqa is located on the Euphrates River surrounded on all sides by desert. In 2012, the civilian population totaled about 200,000 (although that number has fluctuated). Raqqa has been the capital of the IS heartland since 2013.

Because IS essentially is fighting on its home turf, it has established defenses around the city and is aware of likely attack routes. This is why an invading force must match its relative gains to expected losses.
Conflicting Goals

Many regional and international actors have conflicting goals in Syria. The Turkish imperative is to halt the threat from the Islamic State while suppressing the Kurds. The Turks also are trying to limit their direct exposure to the conflict by supporting the Sunni Arab-dominated Free Syrian Army (FSA) to take the lead in advancing on the city.

The United States has backed the SDF throughout most of the conflict, but the group is beginning to outlive its utility in the face of the Turks, who are currently fighting to push the Kurds back to the eastern side of the Euphrates. This takes the Kurds out of the lead for the assault on Raqqa.

Russia has brought both air power and ground troops into Syria to support the Bashar al-Assad regime, but those troops lack the military capability to lead the charge. Russia’s forces in Syria were meant to prop up the Assad regime and were successful in doing so. But those forces are not significant enough to be decisive against IS.

Ultimately, the battle for Raqqa is a series of simple questions: Who will go in? Where will they come from? How will they get out? And who will remain?

This map represents the four main routes Geopolitical Futures previously identified as viable for an attacking force. The SDF can advance from its territory in the northeast (from Hasakah across the Euphrates to Deir el-Zour) though the Turks do not want any Kurdish forces to enter the city.
The Approaching Army’s Strength

The Russian-backed Syrian Arab Army can move on the southern part of the IS heartland (from Homs by way of Palmyra), which the army currently controls. Assad’s forces can attack from the northwest through the checkerboard of forces occupying the area around Aleppo. Finally, the Turkish-backed FSA can approach from directly north of Raqqa, across the Turkish border from the town of Tal Abyad.

Each of these options provides challenges and opportunities for the force that moves on the city, but each actor has the ability to change the calculus for the other forces. For example, the SDF proved in January that it was possible to blend these routes of attack by taking and holding Tabqa Dam west of Raqqa. This effectively shuts off that route to the west for anyone who is not working with the SDF. At the end of the day, the deciding factor in the battle for Raqqa is the relative strength of the approaching army rather than the route they use.

The above graph shows the estimated power of forces in the area. The largest force is the Syrian Arab Army to the west and northwest, with about 70,000 troops. The SDF to the northeast is estimated at 55,000–80,000 soldiers, though they are constrained by Turkish ambitions. Russia has deployed an additional 10,000–15,000 troops. Turkey commands an estimated 8,000 troops that include the FSA, who were deployed for Operation Euphrates Shield. The US has about 1,400 special operators in the battlespace to act in an advisory and assistance capacity.

Though actual numbers for IS are unknown, GPF estimates that 10,000–15,000 IS fighters are in Raqqa. Though IS troop numbers are lower, its entrenched position in the city’s center and fighting experience give it an advantage over any force trying to dislodge its fighters.

The Islamic State has a formidable force of experienced soldiers who have shown themselves to be adaptable to a changing battlefield. They will not be dislodged from Raqqa easily or quickly. Regardless of relative troop size, defenses, and civilian population, the cost of clearing IS militants from their core turf will be extremely high for whichever force attacks the city.

Why the Real Estate Market Is Imploding Again…

By Justin Spittler

A new real estate crisis has begun.

You might find that hard to believe. After all, the government put out all sorts of laws and regulations after the last housing crisis. These measures were supposed to protect us from a repeat of the 2008–2009 financial crisis.

Plus, U.S. housing prices are rising, not falling.

But I’m not talking about the housing market. I’m talking about retail real estate.

On Friday, I told you about a major crisis that’s ripping traditional retailers to pieces.

To recap, Americans aren’t spending money like they did in the old days. They’re going to malls and department stores less often. They’re doing more shopping online.

This is obviously bad news for retail and apparel companies. It’s also killing companies that own and operate retail real estate.

I’ll explain why in today’s Dispatch. I’ll also tell you what real estate stocks to avoid at all costs.

But first, you need to understand why this key pillar of the real estate market is toppling over…

• The United States has too much retail space…

Look at the chart below.

It shows the amount of retail space per person in the United States and six other major countries.

You can see that the U.S. has twice as much retail space per person as Australia. It has more than four times as much retail space as the United Kingdom.

This wouldn’t be a problem if demand for retail space was high. But it’s not. In fact, it’s plummeting.

• America’s biggest retailers are closing stores by the thousands…

As we told you on Friday, U.S. retailers have already announced plans to close 1,500 stores this year.

Major department stores are a big reason for this…

Macy’s, the largest U.S. department store, has plans to close 68 stores.

J.C. Penney, another major department store, plans to shut down 130 to 140 stores in the coming months. Meanwhile, iconic American retailer Sears wants to close 150 stores.

This is a major problema.

• Department stores are what real estate professionals like to call “anchors”…

They occupy more space than any other tenant. They account for a huge chunk of a mall’s rental income. And they drive foot traffic.

In short, department stores are by far a mall’s most important tenants. And they’re very hard to replace if they walk.

This shouldn’t come as a surprise. After all, how many companies need 100,000 square feet of space or multiple floors?

The answer is: not many.

If a mall loses department store tenants, foot traffic could fall off a cliff. Vacancy levels could skyrocket. Rental rates could plunge across the mall.

In other words, losing an anchor tenant is about the worst thing that can happen to a mall.

Just look at what this mall in Richmond, Virginia did when its Macy’s shut down.

The owner built a wall where the store entrance used to be…

And put in a damn vending machine.

• If this trend doesn’t reverse soon, hundreds of U.S. malls will close their doors…

But don’t just take my word for it.

Just look at this chart from Green Street Advisors, a leading real estate research firm.

It shows the number of malls in the United States, ranked by financial strength. The strongest malls are rated A++. The weakest ones are rated D.

Below, you can see that 334 malls are “at high risk of closing.” That’s about a third of the nation’s malls.

• Investors haven’t been taking this threat seriously…

Just look at the chart below.

It shows the performance of the Bloomberg REIT Regional Mall Index since 2007. This index tracks REITs that own and operate malls.

(REIT stands for real estate investment trust. These assets allow everyday investors to invest in large real estate projects. They trade on major exchanges like stocks.)

You can see that Bloomberg’s mall index surged 936% between March 2009 and August 2016.

That’s more than four times the S&P 500’s gain over the same period.

Investors dove headfirst into this risky sector for a simple reason.

They’re hungry for income… and REITs pay fat dividends.

According to, the average REIT yields 4%. Meanwhile, the S&P 500 yields just 1.9%.

For years, investors ignored the problems in the retail real estate market. But they can no longer ignore those problems.

Since August, the Bloomberg Mall Index has plummeted 27%.

That’s a huge decline for such a short period. But mall REITs are likely headed much lower in the coming months. Some will never bounce back.

• If you own REITs for income, look under their hoods…

Find out if they own malls.

If they do, make sure those properties are high-quality. Steer clear of REITs that own C- and D-rated malls.

Some companies might not disclose this information. But most REITs will say where their properties are located.

Avoid REITs that own retail property in second- or third-tier markets. Malls in these weaker markets are especially vulnerable.

It should only take you a few minutes to perform this research. But this simple step could save you from catastrophic losses in the years to come.

Chart of the Day: The World’s Biggest REIT Is in Free Fall

The world’s biggest REIT is in trouble.

Today’s chart shows the performance of Simon Property Group (SPG). Simon owns or has an ownership interest in 190 million square feet of mall floor space.

You can see its stock has plunged 26% since August. It’s now trading at its lowest level since October 2014.

This is a major warning sign. It tells us the retail crisis is hitting even the most dominant real estate companies on the planet. Keep this in mind if you own any REITs for income.