Underwater atoms

Brazil might get nuclear-powered submarines even before Australia

The country has been working on the technology for decades

NUCLEAR SUBMARINES have caught the world’s eye in recent weeks. 

On September 15th the United States, Australia and Britain signed the “AUKUS” pact to help Australia build nuclear subs, a military capability so potent that the United States has never shared it with any ally other than Britain. 

That has whet appetites elsewhere. 

On September 26th two out of the four candidates to succeed Suga Yoshihide as leader of the LDP, and thus prime minister of Japan—including the frontrunner, Kono Taro—gave their backing for Japan to acquire its own nuclear-powered subs. 

Yet on the other side of the Earth from Perth, where the Australian boats may one day be based, another middle-ranking power has been quietly honing the same technology for far longer.

At the Itaguaí naval complex near Rio de Janeiro, and other sites scattered across Brazil, hundreds of engineers are slowly designing and piecing together parts of the Álvaro Alberto, a nuclear-powered submarine named after a former vice-admiral and pioneer of the country’s nuclear programme. 

If all goes to plan, it could land in the water at Madeira island in Itaguaí in the early 2030s, before Australia gets a sniff at its own subs. 

That would not only make Brazil the first non-nuclear-armed country to operate a nuclear-powered submarine; it would also bolster the country’s ambitions to become a major naval power.

Brazil’s armed forces began serious nuclear work in the 1970s, with an eye on eventually producing nuclear weapons. 

The navy was the spearhead of that effort, deploying hundreds of staff in a secret programme to spin uranium in centrifuges—a process that enriches it for use in reactors (or bombs)—and to build the miniature reactors that can fit inside the cramped hull of a submarine. 

This work survived the end of military rule in 1985. 

It then languished for a while, but received enthusiastic support from Luiz Inácio Lula da Silva, Brazil’s left-wing president from 2003 to 2010, who gave a big financial boost to the programme in 2007.

Progress has been slow, though Jair Bolsonaro, Brazil’s current president, attended a ceremony marking the initial assembly of a prototype reactor in Iperó, 120km north-west of São Paulo, in October 2020. 

A month later the navy finalised the boat’s basic design. 

That was in no small part thanks to Naval Group, the largely state-owned French arms company whose jilting last month by Australia, as part of AUKUS, provoked a diplomatic incident. 

Under a deal agreed in 2008 under Lula, Naval Group signed a contract with Odebrecht, a conglomerate now synonymous with corruption, to sell advanced diesel-electric submarines to Brazil (one of those boats, the Humaitá, is pictured above) and help it with the non-nuclear aspects of the Álvaro Alberto in Cherbourg and Itaguaí.

Many see Brazil’s quest for nuclear subs as a quixotic frippery. 

It is “a mad indulgence of Lula’s boom era”, says one foreign diplomat, “not unlike the new stadiums for the 2014 World Cup.” 

Brazilian officials justify the programme by pointing to a doctrine known as the “Blue Amazon”, a term coined by the navy. 

It refers to the country’s 8,000km-long coastline, the economic riches that lie off it and the importance of defending them against possible predators. 

In 2010 Brazil unilaterally expanded its exclusive economic zone beyond the standard 200 nautical miles set out by the UN Convention on the Law of the Sea (see map).

Yet one of the world’s stealthiest military platforms might be considered overkill for protecting fish, guarding oil rigs and warding off Argentine warships that are no longer hostile. 

Diesel-electric submarines, which are quieter in shallow water, and far cheaper to build, would be better suited to coastal defence. 

One reason for the programme’s survival may be that it has friends in high places. 

The minister of mines and energy, for instance, is a former admiral who commanded Brazil’s submarine force and ran the navy’s nuclear work. 

Mr Bolsonaro, a former army officer himself, has stacked his government with military personnel and hiked the armed forces’ budget this year (though the amount for subs was shrunk by 31%, amid a wider fiscal crisis).

There are geopolitical factors at work, too. 

The subs have justified the need to master the complete fuel cycle—the process of mining, milling and enriching nuclear fuel—and thus placed Brazil “in the threshold between being a nuclear state and not being a nuclear state”, says Carlo Patti, a professor at the Federal University of Goiás and author of the book “Brazil in the Global Nuclear Order”. 

That means the country can produce its own nuclear energy, without seeking help from rich countries which, in Brazil’s view, have monopolised such technology on the pretext of non-proliferation. 

It also means that Brazil could produce weapons-grade uranium if it so chose. 

Both capabilities are sources of “political and technological prestige”, says Mr Patti.

For largely the same reason, they make non-proliferation advocates nervous. 

Brazil once had a secret weapons programme, after all, and in 2019 Mr Bolsonaro’s son, a member of congress, said that Brazil would be “taken more seriously” if it had nukes. 

Whereas most countries have signed a so-called Additional Protocol with the International Atomic Energy Agency, a nuclear watchdog, which allows for enhanced inspections, Brazil has long refused to do so, on the basis that nuclear-armed states have not done enough to disarm.

In practice, though, the subs are not a big cause for concern. 

Brazilian nuclear material is monitored under a special bilateral pact with Argentina in 1991. 

And unlike British and American subs, which use uranium enriched to the high levels suitable for a bomb, Brazil’s planned reactor will use low-enriched stuff that would need to be spun further to use for nefarious purposes. 

Brazilian naval officers are keen to show that their programme is above-board and would not like to be lumped in with nuclear pariahs like Iran. 

“I'm not concerned,” says Togzhan Kassenova, an expert on non-proliferation at the State University of New York at Albany. 

“They want to position themselves as an open, responsible and legitimate programme with nothing to hide.”

A nuclear submarine is one of the most sophisticated and complex pieces of military hardware that any country can build. 

The construction is hard enough; keeping a reactor safe in a pressurised underwater tube is just as challenging. 

Yet Brazil’s programme has now survived military and civilian governments, and presidents of both the left and right. 

Its survival owes much to Lula, who has said he will run in next year’s presidential elections and enjoys a commanding 18-percentage-point lead over Mr Bolsonaro. 

“The project appears to be irreversible,” noted Ms Kassenova and two other experts who visited the Itaguí shipyard in 2018. 

No country below the equator has ever owned or operated a nuclear-powered submarine. 

Brazil and Australia will now be vying to get there first. 

When the long run in markets goes wrong

UK equities are still below the level at the turn of the millennium

Philip Coggan

© Chris Young/PA

It is a truth universally acknowledged that equities will always go up in the long run. 

But anyone who backed a fund based on the UK’s FTSE 100 index must be starting to have their doubts.

On the last trading day of the second millennium, the index marked a then record high of 6,930.2, a story this journalist reported for the Financial Times.

But the index did not pass the 7,000 level until March 2015, and was below its end-1999 level during trading last Monday. 

While the index has gone nowhere, at least the total return has been positive.

Thanks to the reinvestment of dividend income, the annualised return for the FTSE 100 was 3.3 per cent between the end of 1999 and December 31, 2020.

But that is not the kind of return that many investors were expecting back in 1999. 

And the importance of dividends is slightly ironic, given that back then, counting on income was seen as a very old-fashioned way of approaching equity investment. 

Many technology companies did not pay dividends at all.

Why has the index performed so badly? 

In part, this was because the end of the millennium coincided with the peak of the dotcom boom when share prices were bid up to inflated levels.

But Wall Street was also involved in the dotcom bubble and its leading indices have performed much better; both the S&P 500 and the Dow Jones Industrial Average are around three times their end-1999 level.

A better explanation may lie in the composition of the index. 

There has been an enormous rate of turnover in FTSE 100’s constituents; less than half those in the benchmark at the end of the last millennium are still there.

Of those, five are banks (Barclays, HSBC, Lloyds, Standard Chartered and Royal Bank of Scotland now renamed as NatWest) which have had a chequered 20 years to say the least. 

They are the survivors of a much larger group that included Abbey National, Alliance and Leicester, Halifax, and Woolwich.

Many of the other long-lasting constituents are from traditional industries like food and drink (ABF, Diageo, Whitbread), supermarkets (Sainsbury and Tesco), tobacco (Imperial and BAT), mining (Anglo American and Rio Tinto) or insurance (Legal & General and Prudential).

What the FTSE 100 lacks are the kind of exciting technology companies that have performed so strongly on Wall Street; the Amazons, Facebooks and Googles. 

Sage is the sole tech company to remain in the index from the December 1999 list; the likes of Arm, CMG, Logica, Misys and Sema have been swallowed up in acquisitions while Energis went into administration.

There are not many stocks in the current FTSE 100 to set investors’ pulses racing and that is reflected in the way that the market is rated, relative to Wall Street. 

Stocks in the FTSE 100 index trade on an average price equivalent to 18.4 times their previous 12-month earnings, compared with the S&P 500 index’s ratio of 31.4.

Of course, that difference could conceivably imply that UK equities are much better value than American shares right now.

It could also imply that long-run investing may not pay off on Wall Street from current levels. 

After all, the UK is not the only market to disappoint over the long run. 

In Japan, the Nikkei 225 is still well below its end-1989 level.

Back at the end of the 1980s, many investors believed that conventional valuation approaches did not apply in the Tokyo market, because the big Japanese companies like Toyota and Sony had discovered the secret of long-term growth.

Such was the enthusiasm that the Japanese stock market comprised 44 per cent of the FT World Index, far above its share of global GDP.

So there is more than one reason for equities to struggle over the long run; the UK had too great a reliance on stodgy sectors whereas Japan simply reached a valuation level from which further gains were unlikely.

Step forward to 2021, and investors so love the big American tech companies that the US market is more than 58 per cent of the FT World Index.

Investors have long stopped worrying about conventional valuation measures like a low dividend yield or a high cyclically adjusted price/earnings ratio since they have not been a barrier to market rises in the past. 

American equities will always go up, they think.

Of course, in 2007, they thought the same thing about US house prices. And we all know what happened then.

The writer is a financial journalist and author of ‘More: The 10,000-Year Rise of the World Economy’ 

The rule of law is disintegrating in Central America

Time may be running out for Washington and its allies to hold the region’s miscreant governments to account

José Miguel Vivanco 

Nicaraguan president Daniel Ortega has intensified a crackdown on political opponents and human rights defenders ahead of general elections on November 7 © Maynor Valenzuela/Reuters

Central American countries are falling like dominoes into authoritarianism. 

Nicaraguan president Daniel Ortega has intensified his crackdown on political opponents, journalists and human rights defenders in advance of general elections on November 7. 

He has detained seven opposition presidential candidates on trumped up charges in an attempt to secure a fourth consecutive presidential term. 

No less concerning is the fact that most of Nicaragua’s neighbours are following a similar path.

Ortega has been able to suppress dissent and restrict political participation in Nicaragua partly because, since he was elected in 2007, he has taken control of all branches of government. 

Now leaders in El Salvador, Guatemala and Honduras have begun co-opting their countries’ justice systems and eliminating the few fragile checks on their power. 

Urgent action is required to protect the rule of law before it disintegrates throughout Central America.

President Nayib Bukele of El Salvador has used his supermajority in the legislature to bend the justice system to his will. 

In May, legislators from Bukele’s party summarily replaced all the judges on the country’s constitutional court. 

The newly named judges voted in September to let Bukele seek a second term in office, despite a constitutional prohibition on re-election.

Bukele’s supporters in the legislature also installed a new attorney-general, who quickly ended co-operation with an international commission investigating senior government officials for corruption. 

They passed two laws giving the attorney-general and Supreme Court, which Bukele has packed, broad power to oust any judge or prosecutor 60 or older. 

Over 100 judges have been ousted.

In Honduras, where elections are scheduled for November 28, President Juan Orlando Hernández — accused by US prosecutors of working with drug trafficking organisations — and his party have likewise been working to take over the justice system. 

In 2012, legislators packed the Supreme Court with new judges, who changed the constitution in 2015 to allow Hernández to serve a second term. 

The new Supreme Court dissolved the Judiciary Council in 2016, giving the court’s head power to appoint and dismiss all the country’s judges.

Guatemalan president Alejandro Giammattei and his coalition, which controls Congress, are working to remove the last few independent judges and replace them with allies in an apparent effort to halt an anti-corruption drive that has implicated senior politicians. 

They have blocked the appointment of nearly all judges with links to this drive. 

In July, the attorney-general removed the head of the special prosecutor’s office that was investigating Giammattei and other high-level officials for corruption. 

Now that office could soon be eliminated altogether.

Mexico could have stepped up as a regional leader in response to these crises. 

Instead, President Andrés Manuel López Obrador’s government criticised other countries in the Americas for intervening in Nicaragua’s affairs and for failing to respect “the normal development of democratic institutions”, even as Ortega destroys them.

The Mexican president has not only kept silent about the power grabs in El Salvador, Honduras and Guatemala, but shown little regard for the rule of law and judicial independence at home. 

While he has not gone to the same lengths as Central American leaders, López Obrador has railed against independent checks on his power and called for punishing judges who rule against him. 

His supporters in Congress have fiddled with the make-up of the Supreme Court and the Federal Judiciary Council to keep judges they view as allies in control of the justice system.

The US, EU and UK have taken some important steps to defend the rule of law in Central America, including freezing assets and suspending visas for individuals linked to abuses. 

But they can and should do more. 

They should put additional pressure on the Ortega regime and call on the UN Security Council to discuss the crackdown in Nicaragua.

They should send a clear message that they will not be allies to governments that do not respect judicial independence, and that continuing attacks on the courts will carry consequences, including if necessary the suspension of military aid. 

They also need to rally multilateral pressure, starting with like-minded governments in Latin America.

The growing list of political opponents sitting in Nicaraguan jails should serve as a warning for what happens when the rule of law is allowed to disintegrate. 

The full dismantling of democratic institutions often takes time. 

Supporters of democracy and human rights must do their utmost to stop it now before it’s too late.

The author is Americas director at Human Rights Watch

miércoles, octubre 20, 2021



A Post-Merkel Post-Mortem

However one regards the outgoing German chancellor's 16 years in office, her departure marks the end of a political era. But, ultimately, rather than trying to steer events and public opinion, she too often allowed herself to be carried by them.

Hans-Werner Sinn

MUNICH – After 16 years in office, Angela Merkel is stepping aside as Germany’s chancellor. 

While other countries’ presidents and prime ministers have come and gone, Merkel has remained in power for four electoral terms, generally enjoying high public-approval ratings. 

But with her Christian Democratic Union (CDU) potentially heading into opposition following Germany’s September 26 federal election, how should we evaluate her long reign?

As the daughter of a Protestant clergyman who had relocated from West Germany to communist East Germany out of personal conviction, Merkel enjoyed privileges there.

She was allowed to attend university in East Germany, participated in exchange visits to Moscow, and belonged to her country’s communist youth elite (FDJ) until the age of 35, when the Berlin Wall came down. 

When the West German CDU established itself in Germany’s new eastern states ahead of the 1990 federal election, then-Chancellor Helmut Kohl recruited the canny young politician to the party. 

Merkel almost immediately rose to high office, and eventually became party leader. 

Following the 2005 election, she replaced Gerhard Schröder as chancellor.

Although Merkel did not grow up in a market economy, she ran against Schröder as an economic liberal and pledged to expand the labor-market reforms he had pushed through. 

Due to the high wage-replacement incomes provided by its social security system, Germany in the early 2000s had the highest unemployment rate among low-skilled workers of all industrialized countries and, intermittently, the lowest growth rates in the European Union. 

Many considered it to be the “sick man of Europe.” Schröder’s reforms were a huge success because they enabled the country to regain its economic health – ironically, under Merkel – and reduced unemployment in all segments of the labor market.

But Merkel herself did not contribute to these economic achievements, because she decided not to follow through on her election promises after noticing that they were not playing well in the media. 

So, whereas Schröder had reduced the quasi-minimum wage implied by wage-replacement incomes, Merkel introduced a legal minimum wage.

Over the years, Merkel increasingly turned away from free-market policies, instead adopting the traditional positions of the Social Democratic Party (SPD) and sympathizing with the Green party’s neo-dirigisme – positions that were closer to her mindset. 

This enabled her to win over left-wing voters, but damaged the core brand of the CDU, which had stood for the federal republic’s free-market orientation since World War II. 

So, while Merkel pushed the SPD to the left and kept the Greens in check, she vacated so much space on the right that a new political party – the far-right Alternative for Germany (AfD) – emerged to take important votes away from the CDU.

To be sure, Merkel was a master at balancing various political positions in both domestic and foreign affairs. 

She cooperated deftly with opinion leaders and consulted weekly with pollsters. 

More than any of her postwar predecessors, she dispensed with any policy of her own and instead aligned herself with the views of the mainstream media. 

But while she managed to translate the favor she thus curried into success at the ballot box, economic rationality and what the German sociologist Max Weber called the “ethic of responsibility” often fell by the wayside.

For example, Merkel responded to the media hysteria triggered by the 2011 Fukushima disaster in Japan by deciding to phase out nuclear power, even though it should have been obvious to her that without nuclear energy, Germany wouldn’t have a credible strategy for fighting climate change. 

And because she has since been forced by the EU and the Greens to agree to Germany phasing out all fossil-fuel sources as well, she leaves behind a country that is heading for a major energy-policy reckoning.

Likewise, when Europe in 2015 faced the prospect of a large influx of refugees from the Middle East, she allowed herself to be moved by media images and opted for an open-border policy that greatly roiled the Eastern Europeans and the British. 

When then-UK Prime Minister David Cameron asked Merkel to support his suggestions for limiting social migration in Europe in order to help keep the United Kingdom in the EU, she refused. 

The flood of refugees subsequently helped to tip the scales in favor of the UK’s 2016 Brexit vote.

Like all postwar German chancellors, Merkel deserves praise for seeking reconciliation with France. 

She forged amicable relationships with all four French presidents with whom she dealt.

But the carte blanche that she gave the European Central Bank for its policy of bailing out international investors – at France’s insistence – was problematic. 

It allowed the ECB to circumvent the Maastricht Treaty, which prohibits monetization of national debt. 

The ECB’s measures overrode the market discipline – higher interest rates – needed to prevent highly indebted countries from borrowing excessively. 

If rising national-debt burdens bring about higher inflation in the coming years, Merkel will be partly to blame.

Lastly, because of its low birth rate, Germany – like many European countries – faces substantial demographic problems that pose a serious risk to the stability of its public pension system. 

Merkel was always aware of this problem, but was unwilling to pursue substantial reforms that the mainstream found uncomfortable. 

The one potential exception was her refugee policy.

However one regards Merkel’s record in office, her departure marks the end of a political era. 

But the ultimate assessment of her remarkable political endurance will be mixed, because, rather than trying to steer events and public opinion, she too often allowed herself to be carried by them.1

Hans-Werner Sinn, Professor Emeritus of Economics at the University of Munich, is a former president of the Ifo Institute for Economic Research and serves on the German economy ministry’s Advisory Council. He is the author, most recently, of The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs.