Peter L. Berger's Blog, page 152

The China Housing Bubble Wants To Grow

Household incomes in China are soaring and consumers are still bullish about real estate, according to a survey by Financial Times:

The FTCR China Consumer Index was hovering near a multiyear high in July, amid signs that appetite for real estate has not been diminished by the government’s tightening efforts. […]

Although there has been a high-profile campaign to rein in soaring house prices, our measures of sentiment towards buying homes — either to live in or for investment purposes — were both above 50 for only the third time in the six-year history of our consumer survey. Forward-looking reads of consumer sentiment were also well above last year’s levels, signalling that households expect conditions to continue improving.

This upbeat consumer sentiment suggests a problem for Chinese authorities trying to curb the housing market: the bubble wants to grow. Chinese consumers have more money than ever, and they still want to buy more real estate.

This isn’t surprising, since government market manipulation has been making housing a one-way bet for decades. Consumers seem to believe that the political power of the Real Estate Lobby (construction and infrastructure companies who get rich off the boom, local governments who use real estate sales to fund their operations and feather their nests, the Chinese middle class for whom real estate holdings are their principal store of wealth) is too big to fail, and that the government has no real choice but to continue to promote the housing bubble. Certainly the repeated failures of authorities to rein in the market lend credence to this view.

But nothing, not even Chinese real estate, can keep inflating forever; sooner or later, the party will end. The question of what happens when the music stops is one of the most important variables in global politics.

The post The China Housing Bubble Wants To Grow appeared first on The American Interest.

Bottlenecks Are Holding Back a Second Shale Boom

American oil production has jumped more than 900,000 barrels per day since October of last year, as shale producers have gotten back on their feet and found new ways to stay profitable in today’s bargain-priced oil market. The U.S. is now less than 200,000 barrels per day off its June 2015 high of 9.6 million barrels per day, and analysts expect production to keep growing. But as good as all of that sounds, it could be even better. As the FT reports, shortages of drilling rigs and roughnecks to operate them are holding back even more impressive output increases:

…Kayrros, a Paris-based research firm backed by former Schlumberger chief executive Andrew Gould, [suggests that] there may be less oil coming than expected coming on to world markets over the next few months…Antoine Rostand, president of Kayrros, said: “The fracking industry is taking time to ramp up; there are not enough crews available to complete all the wells that have been drilled.” […]

As the recovery continues, capacity constraints have started to emerge. Brad Handler, an analyst at Jefferies, estimated that if all the wells being drilled in the US were to be brought into production promptly, they would need about 14m horsepower of pump capacity for the fracking to complete them, and the industry actually had only about 12m horsepower of active capacity.

This shouldn’t come as a huge surprise. After all, adding nearly one million barrels of oil per day in less than a year is going to put a strain on supply chains. And shale has seen bottlenecks hold back its growth before—the industry faced a serious shortage of pipeline capacity earlier this decade, and some of those transportation issues persist even today.

These bottlenecks emerge when the industry is unable to keep pace with explosive production growth, and here in the United States they embody the revolutionary power of fracking, which has completely remade this country’s energy landscape in just a handful of years. Producers will be taking these shortages seriously, and will be looking for ways around them. That includes training new workers, which has the added benefit of creating new American jobs.

These equipment and personnel shortages might be weakening shale’s second boom, but we’re still going to file this issue under “good problems to have.”

The post Bottlenecks Are Holding Back a Second Shale Boom appeared first on The American Interest.

A Metal Detector Intifada Avoided?

Israel yesterday stepped back from the crisis at the Temple Mount by removing metal detectors installed at the site after the murder of two Israeli police officers by Palestinian gunmen. The removal of the metal detectors will be combined with the installation of a sophisticated camera scanning system throughout the Old City of Jerusalem, as Haaretz reports:

Israel’s security cabinet decided during a meeting on Monday night to remove the metal detectors installed at the entrances to the Temple Mount in Jerusalem. The metal detectors have aroused a wave of protests among Palestinians in Jerusalem and the West Bank, which have echoed across the Arab world.

A senior Israeli official who attended the meeting noted that the metal detectors “will be replaced by advanced technological means” that will enable “smart inspection” throughout Jerusalem’s Old City to ensure the security of visitors to the Temple Mount compound.

The senior official also noted that the security cabinet has allocated 100 million shekels to the Israel Police and the Ministry of Public Security to prepare for and eventually implement the new security system. According to the official, Israel Police will beef up its forces to ensure the security of visitors to the compound. The official added that the cabinet emphasized that Israel intends to maintain the status quo at the holy site.

The proposal, suggested to the cabinet by the Jerusalem district police, seems to addresses Israeli security concerns while saving face for Palestinians who demand the removal of the apparently execrable metal detectors. It’s an important step towards de-escalating a crisis that appeared to be on the verge of spiraling out of control. Hours before removing the metal detectors, Israel evacuated its entire diplomatic staff from Jordan following a stabbing attack at the embassy that prompted a 24-hour standoff. It’s not clear whether the negotiation with Jordan to allow the departure of embassy staff was part of a larger agreement on removing the metal detectors, but Jordan will be critical in any resolution to the crisis. It is the Jordanians, not the Palestinian Authority, that administers the Temple Mount complex which includes al-Aqsa Mosque and the Dome of the Rock

We wrote last week that anyone with even a basic understanding of the facts will find the Palestinian response to the metal detectors contemptible. That remains all the more true after both the stabbing attack in Amman and the horrific murder of an Israeli family who were slaughtered at their Shabbat table. Even as defenders of the Palestinian cause insist that the issue is about more than metal detectors, Palestinian rioters have demonstrated the absurdity of their own position by burning cardboard metal detector effigies:

Palestinian burning cardboard metal detectors in Bethlehem as riots continue in multiple areas. pic.twitter.com/kNKIPNNi7j

— United With Israel (@UniteWithIsrael) July 24, 2017

But the Israeli government appears to have also concluded that the crisis was more trouble than it was worth. Just because the Palestinians are being driven by paranoia about the status quo on the Temple Mount does not mean that the fact of their paranoia and the violent rage it produces can be discounted. What remains to be seen is whether the Palestinians can accept this compromise. Palestinian advocates are already making the case that the cameras would be worse than the metal detectors:

But the cameras might actually affect Palestinian lives more than the metal detectors. Their program will compare faces to social media 3/4

— Asaf Ronel (@AsafRonel) July 24, 2017

The Israeli government has identified a reasonable solution to this crisis. Unfortunately, it was prompted by an unreasonable terrorist attack, and unreasonable riots in response to the entirely reasonable installation of metal detectors. The question now is whether the Palestinians can embrace a reasonable de-escalation.

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UN Corruption Trial Underway

Amid all the attention being paid to kleptocracies around the world preying on national governments, it’s important to remember that international and global governance organizations are also quite susceptible to corruption and graft. Reuters reports on a bribery trial, now underway in New York, that implicates high-level UN officials:

A billionaire real estate developer from Macau spent years corrupting United Nations officials so they would support his effort to build a huge conference center in the gambling destination, a U.S. prosecutor said on Thursday at the start of Ng Lap Seng’s bribery trial.

Ng, 69, who has pleaded not guilty, has been accused of funneling roughly $2 million of suspect payments to John Ashe, a former General Assembly president and ambassador from Antigua and Barbuda, and Francis Lorenzo, a former deputy U.N. ambassador from the Dominican Republic.

It’s arguably very difficult to enforce legal standards at institutions like the UN, FIFA, and IOC, which direct vast quantities of money and interact with governments and business interests and nonprofits from all over the world with wildly different norms and practices when it comes to corruption and graft. Furthermore, the international space isn’t subject to the same kind of media scrutiny as domestic governments or mega-corporations.

But that doesn’t mean that it’s the problem doesn’t exist, and isn’t critical. It’s very good to see the Department of Justice taking this case seriously. Unfortunately, this case is just the tip of the iceberg…

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Euromacht: Brussels über Alles?

While the elites of the Western world are still publicly reeling from Brexit and Trumpet (the trauma that followed the 2016 U.S. presidential election deserves its own somewhat silly appellation), some have already seized the opportunities offered by those shifts in the international order. This is particularly true for European integrationists.

Brexit removed from the heart of Europe a Euroskeptic heavyweight biased toward the United States. Brussels was a commercial convenience for London, whose partner of choice in global politics was always Washington. Deriding Europe’s cultural and political aspirations, the Kingdom saw the Union as a glorified free-trade area. British reluctance was inhibiting even beyond its isles. London was a spoiler, objecting to the development of new areas of association, and snubbing those it could not stop, like the Eurozone and the Schengen area. The UK’s notorious request to be reimbursed for its net contributions to the common budget encouraged a self-serving attitude across the Union. For the poorest members, Europe became an ATM, a supplier of subsidies funded by German contributions and of cheap loans collateralized against the German economy. Portugal, Spain, and especially Greece splurged for years on the back of “Europe” until the 2007-08 economic swoon and the Euro crisis exposed the shallow foundations of integration. The specter of Grexit in particular tested the German willingness to bankroll such a sad lot. But in the end, Berlin threw good money after bad to keep the Union together. Now, with Britain gone, the prodigals must take German expectations more seriously, and actually live up to their commitments, if they can.

Meanwhile, Trump’s election, and the brief prospect of a Russo-American axis, achieved the impossible of (almost) closing the ranks of 28 European leaders. Historically, the Marshall plan midwifed European unity, but the shadow of NATO prevented the union from maturing to full growth. By courting individual countries, Washington could still act as a solvent of European cooperation if it chose. The last Republican administration, which did not shy away from offending Transatlantic sensitivities, could thus hedge the risks. At the nadir of U.S.-“Old Europe” relations, the Bush Administration could still enlist Spain and Italy in a Mesopotamian adventure in which Tony Blair’s UK played a featured role. But this kind of savoir faire seems alien to the new leader in Washington. The withdrawal from the Paris Accord on climate change was unanimously perceived as a frivolous provocation; European leaders now conspire with American civil society and local administrations in states like California and Hawaii to reduce greenhouse gas emissions in spite of the Federal government. Trump’s bluster about the security umbrella America has provided to Europe since NATO’s establishment in 1949 elicited similar scorn. The dissolution of NATO and the evacuation of American troops and weapon systems from Europe would take much longer than the duration of any single American administration, but though the threat was mostly empty, its noxious gasses filled the salons of European counsel rooms.

Washington’s serial offenses against a European Union from which the UK is departing have given Europeanists a pretext for making the case for deeper integration. At a time when most European nations are aging, exposed to waves of refugees, afflicted by slow growth, structural unemployment, and fiscal difficulties, talking up the prospect of collective European prosperity would be tone-deaf. Instead, the new angle is common defense—an old, underdeveloped proposal that scores rhetorical points despite the likelihood of massive underachievement. The current abundance of enemies heightens its appeal: The Islamic State, always happy to claim each and every act of wanton bloodshed on European soil, cuts a conveniently frightening figure. Threats from Russia and Turkey lack immediacy, but people can be reminded that autocrats are offensive to the values of the Union, and sit dangerously close to its borders. But the main selling point is that the old friend across the Atlantic, the benevolent protector, seems to Europeans to be in the hands of a cantankerous buffoon they cannot begin to comprehend. The same stylistic chasm appeared during the Bush Administration, but it is deeper this time—for all his elocutionary shortcomings, Bush was a far more polished statesman than Trump—and if the first occurrence was an accident, the second makes a pattern. Most Europeans like to love America, and get resentful when they cannot anchor their affection.

The first attempt to build a collective European defense was a 1950 French initiative, in reaction to American plans to rearm West Germany. That premature effort died in the French Parliament, and decades passed before the first embryonic structure saw the light: the Franco-German Brigade, a mechanized formation of a few thousand troops that became operational in 1989. The Brigade later formed the nucleus of a Eurocorps, operational since 1995, in which Spain, Belgium and Luxembourg also participate. While militarily negligible, symbolically those bodies have habituated Europeans to the possibility of a European army. The biggest taboo was shattered in July 1994, when the German 294th Panzergrenadierbataillon, part of the Franco-German Brigade, marched down the Champs-Élysées on Bastille Day. The scene was reminiscent of France’s 1940 defeat at the hands of the Nazis, but the public took it in stride. So while a European army may be practically impossible to create, it is no longer politically shocking in the collective imagination.

Truth be told, the latest calls for a European army are a cover for the expansion of the German military. The argument these days most often comes from German or Germanophile sources like Jean-Claude Juncker, the President of the EU Commission. In 2015, German Defense Minister Ursula von der Leyen echoed Juncker’s call for a European army; two years later, she disclosed plans to expand the German military. A bit of obfuscation helps here, because a Euromacht tied to Brussels will not raise the same kind of alarms that an amped-up Bundeswehr would. This had been the vision all along of Angela Merkel, who has peddled the idea of a European army with a strengthened German core since her early years in office. Merkel has Polish ancestry and grew up in East Germany under Russian tutelage, so her concerns are understandable. But with NATO generously subsidized by the United States, and Europe’s southern countries fiscally stretched, her entreaties received little attention before Brexit and Trump. The new President’s lackluster European tour in May 2017 made Merkel’s rhetoric of continental self-help seem suddenly visionary.

This “historical” moment came just as France elected a 39-year-old paradox as President—iconoclastic yet impeccably technocratic, Gaullist yet steadfastly European, a supply-side free marketer with a socialist heritage, and with a sense of humor to boot. No one could have anticipated this even three months ago; perhaps there is a God who works through history after all.

Macron matters to Merkel’s plans because 90 percent of a common European defense will be provided by France and Germany. The assets France brings to the table include an independent nuclear deterrent—Britain’s nuclear capability is derived from American technology, but France has developed its own systems—and a permanent seat at the UN Security Council. France also has special-operations troops experienced in overseas deployments who operate globally on a scale unmatched by any other European state. Politically, the French army is free of the stigma that any German force would carry.

Confident of their own value, the French are generally sympathetic to a Franco-German defense, which would give them access to Germany’s fiscal resources and first-rate technology and organizational capabilities. The French have always sought to enlist fellow Europeans in the pursuit of grand military-industrial schemes—Airbus Industries, an industrial giant, is emblematic of French ambitions and of the best that Franco-German cooperation can achieve. The French will find in a common army a captive market for their arms contractors, and a tool to project power globally—and independently from the United States.

But Germany had long been fearful of any initiative that placed its link to NATO and the United States at risk. France is but a second-tier military power, and a prickly ally. Gaullism, the governing principle of French foreign policy even when it is in non-Gaullist hands, has France answer to no one and do as it pleases in international affairs. This sentiment drove de Gaulle to leave NATO’s Central Command in 1966 (France only returned in 2009, when Sarkozy was infatuated with Obama). The paradoxical challenge for Merkel was, until now, to build a European army without going the Europe-only route. London, with its special relationship to Washington, was useful for putting a damper on France’s most radical schemes.

It seems Germany has discarded its reservations, but the road forward will not be an easy one. The cornerstone of first-order military power in the 21st century is nuclear deterrence, and Germany has few options here. If it ventures out from under the American nuclear umbrella, it will have to tie itself to France’s deterrence or develop its own nuclear force. French nuclear doctrine, last reformulated in 2008, is strictly defensive (no pre-emptive attacks) but vague enough to give the President a degree of freedom. Nuclear weapons can be launched to protect France’s “vital interests,” which remain usefully undefined, although Jacques Chirac hinted that those interests include the whole territory of the European Union.

Since the 1960s, the French nuclear arsenal has been kept at levels sufficient to kill about 40 percent of the Russian population. Since Russia remains the only threat to the Union, the French force seems adequate to the challenge. But the devil is in the details. Is it plausible that the French would launch against Moscow, and risk annihilation, if Russian troops were to march through Poland or Lithuania to create a land bridge to Kaliningrad? And what would be the input of Berlin in such decision? Would the German people risk annihilation for a launch decided in Paris? This is putting a lot of trust in French presidents, when the runner-up in the last presidential election, Marine Le Pen, was a Putin apologist.

One can see how the early months of 2017 were dreadful for Germany, with the British acrimoniously negotiating their exit from the Union, the inauguration of a seemingly Russia-friendly American administration, and the (however implausible) chance that Marine Le Pen could become the next French President. Le Pen’s plans for France to leave the Eurozone and develop closer ties with Russia would have squeezed Germany into Mitteleuropa—an alliance with Poles and Balts and Slavs against Russia.

But Mitteleuropa is, as it has long been, a dreadful place. Democracy has taken hold on the eastern marches of Europe, but Poland and Hungary recently elected rulers of questionable democratic merit, while Russia has shown a keen interest at manipulating elections. Mitteleuropa is a restricted economic space, too, dependent on the EU for trade, on Russia for energy, and on NATO for security. Efforts to build up local nuclear deterrence and conventional forces to match Russia would attract the hostility of neighbors quick to call names and raise the specter of the Third Reich. More than a threat to the world, Pax Germanica in Central Europe would also be a threat to Germany, at least Germany as we and the Germans have known it since the late 1940s. Thus, if Britain really is out, and NATO truly no longer reliable, the only way out (or forward) for Berlin is Paris, and access to Paris now goes through Macron.

François Mauriac, a renowned French writer, once quipped that no one should accuse him of not loving Germany, because he was never as happy as when there were two of them. Germany is more useful to Gaullist France when the former is insecure and dependent, and the biggest postwar test for this alliance so far was the unilateral decision by then-Chancellor Helmut Kohl to move ahead with reunification immediately after the fall of the Berlin Wall. After the initial shock, French President Mitterrand responded by further tying the fate of both countries together in a strengthened commonwealth—the Maastricht Treaty. That is what really created the Union, and both it and the eventual adoption of a common currency have their roots in German reunification. The acquisition by Germany of an independent nuclear capacity would pose a similar test for France, and the survival of the special relationship would require considerable accommodation.

But accommodations are possible, especially given that the tactical and strategic benefits for all would be substantial. For one thing, a German nuclear program could strengthen the relationship if it built on existing French technology to co-develop future weapon systems. The commission of German nuclear submarines could bring much-needed jobs to French naval yards. The R&D industrial windfalls would also benefit both countries—the successful European space program, for example, developed its technology in parallel with the French missile program.

Berlin could further pacify Paris with accommodations on non-military issues such as looser fiscal rules to finance pro-growth policies, and more particularly the issuance of eurobonds. Eurobonds, or at least Franco-German bonds, would allow Paris to borrow at the same low rate as Berlin, essentially using German economic prowess as collateral. Germans might finally agree to such a scheme if it were the key to financing the big, new, shiny common army. Strategically, a common or integrated nuclear deterrence would have not one but two triggers, one in Paris and one in Berlin. The payoff would most likely be the same—a continental nuclear apocalypse—but the dual-trigger would complicate Russian calculations because, all else equal, it is easier to intimidate one leader than two.

However, though nuclear weapons are symbolically and politically enormous in the international arena of nation-states, practically speaking they only serve to dissuade. Whether the Germans have two or two thousand warheads would not affect the odds that Russia would evacuate Crimea. The Kaliningrad dilemma will present itself in the same way to the Germans as to the French. The only game-changer in nuclear strategy would be a foolproof missile-defense system, but Europe is still decades and billions of euros away from that, about as far away as it is from increasing its conventional forces by an order of magnitude sufficient to actually stop (without American support) a future Russian ground assault. Turning the Union into a military superpower is chasing a dream—a dream only a few share at this point.

Even if leaders like Juncker, Merkel, and Macron grasp the strategic and economic benefits of a European military, the populations of both countries still have to buy into the project. To say, as we have, that such a proposal is no longer political poison is not the same as saying it would be easy to bring about. In 2017, a remilitarization of Germany does not seem frightening so much as futile. A century has passed since the First World War, and three-quarters of one since the Second; after all this time, French angst may be minimal. Cultural programs, such as Arte and Erasmus, have made the two peoples familiar to each other, rendering any Franco-German conflict unthinkable. But the pacification of the Rhine occurred as pacifism spread more generally, and the French and German trust each other because war, any war, is far from everyone’s mind.

It is true that successive French Presidents have gotten involved in foreign conflicts, most recently in Afghanistan, Libya, and Mali. Those ventures elicited more criticism than support at home. German foreign deployments, from tentative peacekeeping operations in Bosnia and Kosovo to a more kinetic mission in Afghanistan, were domestically awkward, eliciting memories of the Nazi past. By contrast, Chirac and Schröder were widely lauded for opposing the 2003 American invasion of Iraq—an opposition that was itself largely opportunistic, driven by the prospect of an instant popularity boost. Of course, the real case for European defense rests on no such peripheral campaigns, but on Russian behavior. Yet West Europeans have been mostly indifferent to the war in Ukraine; even the downing of a civilian airliner carrying Dutch passengers was written off as an air tragedy, somehow less frightening than when an unstable Lufthansa pilot crashed a plane full of passengers into the Alps.

For most Europeans today, security and defense have been decoupled, and the former seems more important. Security means 100 percent renewable energy (which would cut the cord tying them to “bad” countries like Russia and the Gulf States), phasing out civilian nuclear plants (to avoid a Fukushima-style disaster), banning GMOs and glyphosates (perceived as American crimes against humanity), and cutting emissions of car pollutants (from the diesel engines that French and Germans excel at manufacturing). Still unable to conceive of war, they find it difficult to see the value of military defense. The only human threats that speak to them are refugees and terrorism, against which military forces seem impotent.

Nothing makes that point more powerfully than the events of Bastille Day 2016. Only a few hours after President Hollande saluted a parade of armored vehicles and long-range missiles rolling down the Champs-Élysées, a lunatic drove a truck through a crowd assembled to watch the fireworks, killing 86 people. When Macron retorted during the Presidential campaign that effective counterterrorism was not bullying Muslims at home, but military intervention against the Islamic State, he was going against the grain, taking a first step to bring traditional defense back into the public debate. But even if Europeans recognized that projecting power in failed states can advance security at home and stop the tide of asylum-seekers, they would still remain skeptical of nuclear deterrence. The French are generally proud of being a nuclear power as opposed to the alternative, but at the same time they believe all nuclear weapons should be dismantled and worry little about nuclear war. Macron and Merkel—Mackerel, they would inevitably be dubbed, one fears—will have their work cut out if they want to convince their skeptical citizens of the need for a revamped, bi-national nuclear deterrence.

A European army would of course face the question of procurement. Europe is home to some of the world’s biggest arms manufacturers, from weapon-systems giants that produce aircrafts, missiles, and cutting-edge guidance and communications systems to smaller firms, like Beretta and Heckler & Koch, which manufacture first-rate small arms. But Europe’s arms industry is scattered across countries and deeply imbedded in NATO procurement. It is thus somewhat dependent on the American agenda. And though French and Germans control Airbus Group, Thales, and Safran, two of Europe’s giants are actually British (BAE Systems) and Italian (Leonardo). Indeed, British firms currently play a key role in European weapons programs: The Eurofighter Typhoon, the “world’s most advanced swing role combat aircraft” that equips the German (but not the French) air force, is a joint venture between BAE, Airbus, and Leonardo.

Brexit will take England out of the EU, but nothing has been said thus far of the future British role in European security, and it would be wrong to assume its absence. Since World War II, Britain has been, with France, the only power on the continent capable of military projection. The French may feel brotherly toward the Germans, but they have more often been companions in arms with the Brits, from the 1956 deployment along the Suez Canal to the 2011 war in Libya. Still, Anglo-French cooperation is not a sine qua non for the projection of military force. Britain fought the Falklands war alone. France similarly wages its African wars more or less on its own. In the system as it currently exists, only the U.S. military plays a pivotal role (providing intelligence and logistics to NATO members), whereas European military ventures are ad hoc, flexible arrangements.

Europe is also beholden to Britain and the United States in other sectors. In recent years Britain’s main contribution to European security has been signal intelligence, acquired by its notorious GCHQ, an NSA-style eavesdropping agency located in Cheltenham. The close cooperation and codependency between NSA and GCHQ, exposed by the Snowden leaks, irritates European leaders, especially since it was revealed that their own communications had been tapped. Until a substitute is found, it is in the power of the United States to turn off the lights on signal intelligence for Europe.

A similar situation prevails in space, where Washington can instantaneously shut down or downgrade GPS. Galileo, the multi-billion-euro program of satellite geolocation, was funded to provide an alternative. Europeans are also playing catch-up in the drone sector. Although Europeans are doing cutting-edge research, the suppliers capable of assembling operational drones are either American or Israeli, and it is those firms that are getting the contracts.

Collectively, the countries that remain in the Union could muster the technological resources to develop independent programs going forward. To facilitate consolidation, the Commission proposed in June the establishment of a common fund: €200 million would be devoted to financing startups and joint projects from 2020 onward. A much larger envelope, of several billions, would be devoted to cooperative procurement and capacity building. The objective is to eliminate redundancy in R&D and achieve economies of scale in production, improving the efficiency of investments in defense. This is a notable upgrade of the marginal role of the European Defense Agency, a body set up in 2004 to “foster European defense cooperation,” whose small budget London kept frozen for years. The proposal of the Commission, which raises the possibility of more integrated forces, stays shy of plans to build a common army. But even those partial reforms take time, probably more time than the window of opportunity for European militarization opened by Trump.

Armies are still the expression of their nations; they are financed by national economies, and they embody national identity and aspirations in the world. Germany spends 1 percent of its GDP on military expenditures, a ratio that grows to around 2 percent for France and the UK, and exceeds 3 percent in the United States. Since 2015, European NATO members have committed to reaching the 2 percent level across the Union. However, the GDP of militarized Europe (the EU minus the UK and neutrals) is $12 trillion per annum, while the United States has passed the $18 trillion mark. 2 percent of 12 is markedly less than 3 percent of 18, even assuming equal efficiency.

And money is only part of the story. European identity is central to the question of a European military, but it is in flux. One dimension of identity is demography. European countries, along with Russia, have fertility rates hovering around 1.7. Germany has a fertility rate of 1.4 percent, the world’s lowest. Many European nations would have experienced net population loss had the gap not been filled by immigration. Indeed, the most fertile European country after Ireland (where religion may play a role) is France, which is home to a large and well-established community of immigrants, who seem to have larger families.

Of course, immigration affects national identity in unpredictable ways. Ethnic differences in levels of education or religious background divide immigrants from the native population—though linguistic differences do not survive in subsequent generations, whose native tongue is the host nation’s. For almost three decades now, European countries have struggled to accommodate Arab, African, and Asian populations with Islamic cultural heritage. Policies have varied from multicultural communalism (in the UK) to more voluntary assimilation (in France), but neither approach has proven wholly effective. For proof are the violent attacks European countries have endured at the hands of nationals of immigrant origins with no other motivation than to hurt the society into which they were born. The ruptures of the social fabric in these countries are severe, amplified by the effects of crime and violence.

Simultaneously, the construction of Europe and the formulation of a European identity opened a legal and mental space in which old regionalism flourished. In reaction to the crimes of World War II, the Council of Europe and the European Court of Human Rights has protected minorities since 1950. EU membership forced states to move beyond old enmities, and, in the spirit of promoting tolerance, revisit history through a relativist prism. Textbooks were rewritten, imperialism was condemned, chauvinism was demonized, all of which dulled the edges of nationalism. However, the new mood unintentionally opened spaces for populations to explore and invest in their subnational roots. It helped create, in other words, a European version of identity politics.

Regionalism has been a slow-burning, drawn-out affair, generally unnoticed except during spasms of violence between government forces and armed separatist groups. And yet the pattern is pervasive and enduring, from Northern Ireland to Scotland to Wales, from Flanders and Brittany to Euskadi (the Basque country) and Catalonia, from Corsica to northern Italy—not to mention Czechoslovakia and Yugoslavia, suddenly and terminally ruptured when their autocracies unraveled. Although the asymmetry of force was such that the United Kingdom, France, Spain, and Italy have never lost control of the military situation, politically and culturally they still struggle against the popular appeal of regionalism.

The nightmare scenario for democratic governments is being compelled to hold a referendum on independence. Fortunately, at the same time as Europe facilitates regionalism, it has been a mitigating factor against separatism. To varying degrees, European identity dilutes the bipolar antagonism between regional ethnicity and national identity. The 2014 referendum on Scotland’s independence failed in part because voters feared to lose access to the EU. As an Irish Catholic, it is easier to fit into a European mosaic of ethnicities than a united kingdom with a majority of English Protestants.

Finally, a substantial minority ardently resists the dilution of national identities in multiculturalism and regionalism. Their sentiments are captured by the platforms of parties rearticulating fascist conceptions of social solidarity and national exclusivity—“us first” parties, opposed to immigration and free trade, opposed to globalization and to Europe itself.

A remilitarization of Europe would have to comport with this contradictory and fluid landscape of identities. A common army could, potentially, bring Europeans together, with the usual calls for a broader military patriotism in the face of adversity. Although few would admit it, European nationalism was always a militarized nationalism. The French nation was born of the victories of Napoleon’s Grande Armée. The German nation was cemented by Bismarck’s military successes in 1866 and 1870. England took shape as it conquered Great Britain and then an Empire.

But no army can always be successful, and a people must hold fast even in the face of defeat. Combat deaths can be difficult to navigate for the state, especially when soldiers fall on foreign soil. Americans experienced that during the wars in Vietnam, Iraq, and Afghanistan, when a marginal resurgence of patriotism could not stop the country from becoming polarized. In the midst of a Cold War, Americans could feel proud when one of their fellow citizens walked on the moon, but Vietnam and its body bags tore a national fabric already stretched uncomfortably thin by the civil rights crisis. During the post-911 wars, the uncritical and shallow “support for the troops” did nothing to stop Americans from turning against each other and against their institutions. The so-called Global War on Terror soured the national mood and poisoned its politics. Intolerance seeped into all domains as what passed for public debate became the plaything of hackers and leakers, trolls and jesters, satirists and apologists who reduced it to buzzwords thrown in an obstructionist and acrimonious zero-sum game.

Europe faces similar risks. Even if it had the cash and technology to build a cutting-edge military, it does not have, at this time, the guts to use it—not for lack of courage but for lack of appetite. We could imagine French, German, Dutch, Belgian, Italian, and Spanish troops fighting side by side in a new Crimean war. But how would the civilians react when corpses returned home? And who would those troops be? European armies have become mostly professional just as populations have grown terribly old. The soldiers of tomorrow will be picked from a small cohort of young men, maybe some women too, many of whom will be of immigrant origins, and many of those Muslim. Russia is following the trend of military professionalization, and for Central Asians running away from dystopia, a contract with the Russian army is a fast-track to citizenship. Will the next continental war set Germanophone Turkic Muslims against Russophone Turkic Muslims for the sake of the racist and geriatric baby boomers back home? Mohammed Merah, a lone-wolf jihadist who went on a shooting rampage in the south of France in 2012, had previously attempted to enlist in the French army. For many young Europeans who have the mindset to fight, the choice can be between enlisting for a country they struggle to identify with, and joining jihadi groups that claim to represent their identity. Clearly, that dilemma has not been settled: Thousands of European-born youth have made the trek to the Syrian battlefield against the law of their countries.

Brexit and Trump’s presidency are not pivotal events that could change the fate of the species. The world today is not the world of World War II, not even of the Cold War. Even climate change does not present the systemic risks that the Cold War presented. Some coastal land may be submerged and some fields turned into deserts (even as some now marginal agricultural lands become prime), tens of thousands may die, but humanity, biologically and culturally, is not at risk. The same cannot be said, even today, about a nuclear war with a Russian federation equipped with 7,300 warheads.

Anyone who understands risk knows one has to multiply the probability of an event by its consequences. So for the Europeans to prioritize global warming over nuclear war in their concerns reflects their estimates of the chances of a war with Russia. And if that is the case, if those odds are so very low, why bother building any military at all?

The project of European defense predates the European Union, and if so little has been achieved in so many decades, it is because of NATO’s protective shadow. NATO remains the key to the future common European army, and for the United States it is important to understand that the privilege of being an exclusive superpower comes at a fiscal cost. If American-subsidized security were withdrawn, the obstacles to common European defense could and would be surmounted eventually. The prospect of an integrated European army is not more farfetched today than, in 1950, was the prospect of a European Union as it has become. But progress in that direction will be neither quick nor linear. As to what the required effort would do to the democratic political institutions of all concerned, this too is an elusive quarry.

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Trump Bends to Congress on Russia Sanctions

After a dragged out fight behind the scenes, it appears that the Trump Administration is acceding to Congress’ demands on slapping tougher sanctions on Russia. CNN:

[W]hen asked about the bill on ABC’s “This Week,” Sanders said, “The administration is supportive of being tough on Russia, particularly in putting these sanctions in place.”

She said the original legislation was poorly written, but that negotiations had produced a bill with changes the administration considered necessary.

“We support where the legislation is now,” Sanders said.

A senior administration official told CNN later Sunday that the Congress had made changes the administration supported, pointing to the North Korea sanctions that were added to the bill and provisions addressing business-sector concerns.

“The administration supports sanctions on Russia and Iran and supports the direction the bill is headed, but won’t weigh in conclusively until there is a final piece of legislation and no more changes are being made,” the official said.

Team Trump had been stalling the bill in the House for weeks after the Senate version passed with an overwhelming bipartisan majority. The White House took particular exception at a provision in the bill that curtailed the Executive’s ability to lift sanctions at his discretion. As we noted at the time, this is a similar dynamic to the one that played out between President Obama and Congress at the time the Magnitsky Act was being passed: Obama didn’t want his hands tied in his dealings with Putin. And then as now, Congress had its way. Trump will have to petition Congress to have any sanctions lifted in the future.

The bill will get voted on in the House tomorrow, and will then likely be signed into law shortly thereafter by President Trump. Besides the Kremlin, the people most opposed are… the Europeans, who are furious on the bill’s implications for the continent’s energy sector. The Financial Times:

Jean-Claude Juncker, the European Commission president, has called for an urgent review of how Brussels should respond if Europe’s energy companies or other businesses are targeted by sanctions under discussion in the US Congress.

According to a note prepared for a commission meeting on Wednesday, and seen by the Financial Times, Brussels “should stand ready to act within days” if the US measures were “adopted without EU concerns being taken into account”. […]

The note says that Brussels’ “primary focus” should be on seeking “a public or written reassurance” from the Trump administration that it will not apply the new sanctions in a way that targets EU interests.

Other options set out in the EU commission note include using European law to prevent the US measures from being “recognised or enforceable” in Europe, and preparing “WTO-compliant retaliatory measures”.

The objections aren’t new: Europeans have been stewing since the Senate version passed more than a month ago. The tenor of the threats, however, is at a much higher pitch. Maybe this can all be resolved with public verbal assurances as Juncker’s note suggests, but the background for the brewing fight is broader still. WTO-compliant retaliatory measures were first invoked when the Trump Administration started talking about potential steel tariffs against the EU. It could be that it’s precisely tougher Russia sanctions that end up kicking off the kind of trade dispute the protectionists in the Trump Administration are itching for.

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Russia is Unhappy With OPEC’s Weak Oil Cuts

The oil cartel OPEC and eleven other petrostates agreed last November to cut oil production for the first six months of 2017 in an attempt to boost crude prices. That group recently agreed to extend those limits through March of next year, as the first round of cuts proved unable to kick off a rebound.

But at this point, oil is still trading under $49 per barrel—near where it was before this market intervention—and there’s no indication that this petrostate strategy will be effective. That fact is weighing heavily on every one of these major oil supplying countries, which have all had to painfully adjust to a dramatic drop in government revenues, but Moscow is particularly hard-hit. Russia’s energy minister isn’t mincing words these days, either, as he expressed his disapproval of Libya and Nigeria, two OPEC members that have been given a green light to increase their production while others are busy cutting. The FT reports:

“I think that these countries should join other responsible oil producers and contribute to the market stabilisation initiative as they reach a stable level of output,” Russian energy minister Alexander Novak told the Financial Times, ahead of a meeting in St Petersburg with other Opec energy ministers on Monday to discuss the agreement. “We believe that once oil output in Libya and Nigeria stabilises, there will be less uncertainty on the market as to their future moves,” Mr Novak said.

The comments are a potential sign that frustration is growing in Moscow over the increased production by the two Opec members, and suggests that Russia may be looking to Saudi Arabia to put pressure on them to pare back output.

These two African OPEC members weren’t included in OPEC’s cuts because civil unrest has already put a far larger dent in their daily output than these cuts ever would. It makes sense, then, that the cartel would choose not to kick these producers when they’re down.

But Libya and Nigeria are also making progress in restoring their production to more normal levels, and those gains are offsetting much of the cuts being made elsewhere. That’s part of the reason why this petrostate plan has been so ineffective to this point—and it’s why Russia is pushing for OPEC to start enforcing limits an all of its members.

It’s not clear, though, that the cartel is capable of keeping any of its members in line. As we noted last week, Ecuador’s energy minister is now openly admitting that his country will be unable to meet the reduction targets set out by OPEC. This isn’t just an Ecuadorian problem, either—according to the IEA, OPEC cut just 78 percent of crude it said it would in June, a far cry from the 95 percent compliance rate it pulled off the month before.

The longer this period of cheap oil goes on, the more desperate these petrostates are going to become. And the longer this production cut strategy shows itself to be fruitless, the less these petrostates are going to want to voluntarily cede valuable market share.

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Macron’s Summer of Discontent is Here

It was guaranteed to happen: Emmanuel Macron’s post-election honeymoon is officially over. :

French President Emmanuel Macron’s popularity rating has slumped by 10 percentage points this month, according to an Ifop poll on Sunday – the biggest decline for a new president since 1995.

The poll, published in the Journal du Dimanche newspaper, said 54 percent of people in France were satisfied with Macron in July, compared with 64 percent in June.

It added the last time a newly elected president had lost ground in that way was Jacques Chirac in 1995. The Ifop poll echoed a similar finding in a recent BVA poll.

By all accounts, Macron was expecting as much, and is still prepared to ram through all the reforms he promised to pass—especially the ones affecting the labor market—by Presidential decree, a procedure which almost completely circumvents lengthy parliamentary debates. Parliament will still need to first grant Macron a green light to pass the decrees, and then ratify them within a certain set timeframe after their announcement.

Macron’s parliamentary majority is made up in large part of first-time parliamentarians with no loyalty but to him and his “movement”, and he is expected to pull it off. But in these febrile times, it’s foolish to bank on anything as a sure thing: maybe the neophytes get cold feet if discontent with Macron spills out onto the streets?

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Polish President Vetoes Judicial Reforms

Polish President Andrzej Duda today vetoed two of three controversial laws on judicial reform, passed over the weekend by the country’s legislature.

One of the rejected reforms would have required all Supreme Court justices to immediately step down, and would have given the Justice Minister to appoint new ones. Another would allow politicians to directly appoint members to the National Judiciary Council, which in turn nominates new Supreme Court judges. Duda accepted the third reform, which allows the Justice Minister to appoint and dismiss lower court judges.

Duda, formerly a member of the ruling Law and Justice party (PiS) that is promulgating these laws, had already expressed reservations over the legislation as written. Impressive turnout at protests over the weekend may have increased his unease:

WARSAW! pic.twitter.com/5gQdGnEsXQ

— Exen

Cypriot Unification Slides Toward Stagnation

Supporters of the beleaguered Cyprus reunification process might have been encouraged when, earlier this week, a government spokesperson from the Greek Cypriot south indicated that his government might be willing to restart negotiations with the Turkish Cypriot north. The remarks were a rare moment of hope in the grim few weeks that have passed since the Crans-Montana Conference. Hailed as the best chance for progress in more than a decade, it ended without resolution.

Even this aftershock in the form of a conciliatory statement from the south, which might have inspired measured optimism, has already been smothered by Turkey. The Washington Post reports:

“It is clear that there is no point to continue negotiations from where they stopped, [Turkish Prime Minister Binali Yildirim] said during celebrations in Cyprus’ breakaway Turkish Cypriot north for Turkey’s 1974 invasion that followed a coup aiming at union with Greece.

Yildirim said Greek Cypriots were to blame for the collapse of the talks because they weren’t ready for a deal.

Earlier, Turkish Foreign Minister Mevlut Cavusoglu said Ankara would consider other alternatives to the current U.N. format of reunifying Cyprus as a federation made up of Greek and Turkish speaking zones.”

These developments suggest the situation is backsliding in Cyprus. For proof of this, one need only compare the failure at Crans-Montana to the last Cypriot flirtation with reunification. The Annan Plan of 2004 made it as far as its referendum stage, when both Greek and Turkish Cyprus voted on the plan. The Turkish north strongly favored it; the Greek south resoundingly rejected it. But at Crans-Montana, no plan was even produced since the negotiations broke down at the drafting phase.

The Annan Plan and the Crans-Montana Conference ultimately faltered on the same issue: security. The Annan Plan would have allowed Turkish troops to remain on the island in perpetuity, but with an agreed-upon phased-reduction (by 2017, only 3,000 would have remained instead of 35,000). This measure was a compromise by the Turkish side, but it still made the plan unacceptable to Greek Cypriots. They could not abide even a small foreign army quartered on their land indefinitely. In Crans-Montana, the Turks refused any compromise on troop presence.

This evolution in Cyprus negotiations tracks with the ups and downs in Turkey’s relations with the EU. In 2004, prospects for Turkish accession were renewed. Its military presence in Cyprus, another applicant for EU membership, needed to be addressed. Two years into his first term as Prime Minister, Recep Tayyip Erdogan insisted that the perpetual troop guarantee be added late in the 2004 negotiations. U.S. and EU negotiators rushed it through despite the obvious danger to the success of the process.

It is a sign of the steady decline of the EU’s competence and credibility that the Crans-Montana talks failed as badly as they did. All sides in the negotiations have grown less compromising. The Turks are unwilling to offer a realistic compromise on security, and the EU unwilling and unable to fight for one. Furthermore, as President Erdogan heads down the path of domestic authoritarianism and tacks ever closer to Putin’s Russia, Cyprus may be one of many hotspots around at the periphery of Europe that will suffer as relations between the EU and Turkey continue to cool.

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