Peter L. Berger's Blog, page 641

Saudis Speed Up in Game of Chicken With US Shale

Last month Saudi Arabia pumped more crude than at any point since we started keeping track, setting a record at a time when an oversupplied market has pushed the global price of crude well below the level Riyadh needs to balance its budget. Bloomberg reports:

The world’s biggest oil exporter pumped 10.564 million barrels a day in June, exceeding a previous record set in 1980, according to data the kingdom submitted to the Organization of Petroleum Exporting Countries. The group sees “a more balanced market” in 2016 as demand for its crude strengths and supply elsewhere falters […]

OPEC’s 12 members raised production by 283,200 barrels a day to a three-year high of 31.378 million a day last month, according to external estimates of output cited by the report. This data included a lower figure for Saudi production of 10.235 million barrels a day.

The price of crude is roughly half of what it was a year ago. That’s in large part due to booming production from within OPEC, but also from without, as American shale firms have threatened to knock the world’s petrostates off of their perch. The Saudis have pushed an OPEC strategy of inaction, hoping to squeeze those fracking companies out of the game by keeping production high (shale plays are much more expensive to plumb than conventional fields). Indeed, the FT suggests that may explain why the Saudis are keeping output so high, reporting that “Riyadh has said it wants market share to shift back to countries with the cheapest production.”

Meanwhile, we just learned that the country borrowed $4 billion over the past year to help cover its growing budget deficit. Saudi Arabia has set OPEC on a collision course with American shale, but it isn’t clear who’s going to blink first in this game of chicken. The fracking industry is finding new ways to cut costs and stay profitable even at today’s bargain prices. Meanwhile, OPEC member states are running deep into the red as they struggle to adjust to the bear market. For the U.S., the oil price decline challenged the industry to trim the fat and innovate anew; for the world’s petrostates, that plunge is threatening the finances of ruling regimes.

U.S. Seeks North African Drone Base

As ISIS franchise in Libya continues to grow, and violence spills out from the country to the wider region, pressure is mounting for the U.S. to find a fix for what one official describes as a “blind spot” in North Africa. The solution? According to the WSJ, drones:

The U.S. is in talks with North African countries about positioning drones at a base on their soil to ramp up surveillance of Islamic State in Libya in what would be the most significant expansion of the campaign against the extremist group in the region.

The establishment of such a base would help eliminate what counterterrorism officials described as one of the last and most pressing intelligence “blind spots” facing U.S. and Western spy agencies. Washington and its allies are seeking to contain the expansion of Islamic State beyond Iraq and Syria, where a U.S.-led military campaign against the group is already under way.“Right now, what we are trying to do is address some real intelligence challenges,” a senior administration official said. A base in North Africa close to Islamic State strongholds in Libya would help the U.S. “fill gaps in our understanding of what’s going on” there, the official added.

The report points out that the U.S. isn’t looking to build its own base, but rather to make use of a country’s pre-existing one to position its drone fleet and necessary personnel. Furthermore, the drones would likely be only unarmed at first, and used for intelligence gathering. However, U.S military officials have said that the base could also at some point be used for drone strikes and as a “launchpad” for military special operations.

The U.S. war in Libya was supposed to bring democracy and stability to North Africa, but it’s done the opposite. The country’s turmoil has served as a breeding ground for regional terrorism. In addition to reports that the gunmen from both the Sousse and Bardo Museum attacks were trained in Libya, reports also indicate that large numbers of ISIS fighters in the country have been flowing through Egypt in transit from Iraq and Syria. Moreover, terrorism and instability have kept tourists away from the artifacts and beaches of North Africa in record numbers.Regrettably, the media has thus far been off its game on questioning presidential hopeful Hillary Clinton about her role in the war. As the Libyan afterparty continues, and the U.S. is drawn back to the country (in however modest a capacity), how much longer will she escape criticism for her support of the intervention?

Hillary Clinton Talks Uber

In her first major economic policy address of the 2016 campaign, Democratic presidential frontrunner Hillary Clinton raised questions about the effect that companies like Uber and Airbnb are having on American workers:

Many Americans are making extra money renting out a spare room, designing websites, selling products they design themselves at home, or even driving their own car. This “on demand” or so-called “gig economy” is creating exciting opportunities and unleashing innovation but it’s also raising hard questions about workplace protections and what a good job will look like in the future.

Later in the speech, Clinton vowed to “crack down on bosses who exploit employees by misclassifying them as contractors” — a possible reference to something like the recent California Labor Commission decision that threatens to undermine Uber’s business model.

To be sure, Clinton does not want to destroy the sharing economy. She acknowledged that “these trends are real” and “none is going away.” But she may believe that, with the right application of political muscle, the new economy can be forced to conform with the antiquated blue social model — that is, the midcentury vision of steady, regulated, unionized employment with generous benefits.

As we have argued again and again, this notion is unrealistic. Like it or not, this 1950s model of economic organization is breaking down, and has been for several decades, thanks to globalization, demographic changes, technological innovation, and other trends that simply cannot be reversed. Measures like the California decision are futile and counterproductive. We should treat the emergence of a more entrepreneurial, dynamic landscape as an opportunity to be engaged with productively, not a danger to be henpecked by regulations better suited to the last century.

Can Saakashvili Do It?

Odessans living in the city’s center were shocked awake by the sounds of a bomb exploding at the Angelovyh Café in the early morning hours on a Wednesday morning in early July. The bombing campaign which had reached a near weekly peak this spring had commenced mysteriously at around the time of the second Minsk accords. Terrorists, widely assumed to be agents provocateurs run by Russian special services, carried out such attacks across most of the major cities in southern Ukraine all spring.

What made this incident particularly noteworthy was that it was the first to occur on the watch of Mikheil Saakashvili, Georgia’s former President, whom Ukraine’s President Petro Poroshenko appointed as governor of Odessa oblast (or province) last month. While the bombings had tapered off over the spring, many assumed they would begin again in earnest, especially when Saakashvili began to do what he does best: root out corruption in his own frenetic, hyper-focused fashion. His appointment in Odessa reflected hopes that he might be able to emulate his relative success in reforming corruption in the judicial and political arenas of decrepit post -Soviet Georgia.The cafe that the bombers targeted is operated by the eponymous Angelovyh family, who are fixtures of Odessa social life and well known for their nationalist politics and fundraising for the Ukrainian army. (The cafe serves a pastry in the form of the red and black flag that the ultra-nationalist militia Right Sector has appropriated from the World War II-era Ukrainian Provisional Army.) A bomb left on the café’s doorstep had been defused earlier in the year. This second attack bore the hallmarks of a direct challenge to Saakashvili’s capacity to deliver on his lofty promises of restoring security, fighting corruption, and bringing investment to the region.If the purpose was to rattle the Governor and his supporters, then they soon let it be known they would not be so easily intimidated. The next night, the windows swiftly replaced but the doors still blown wide open, the café’s operators defiantly re-opened to serve customers in time for the evening shift. At around 10:30 p.m. Saakashvili and his loyal police chief Giya Lortkipanidze arrived for a chat over tea and cake with shaken family matriarch Irina, as well as Odessa’s Mayor Gennadiy Trukhanov. Trukhanov, a trim and muscular fifty-year old former Soviet artillery officer and Thai boxer, hails from Odessa’s sleepy suburbs. His constituency encompasses shady business clans connected to organized crime. Long used to dominating the city council and city politics, Trukhanov didn’t look especially comfortable playing second fiddle to the voluble Saakashvili. Saakashvili finished every bite of his opera cake; Trukhanov did not touch his own.Saakashvili used the opportunity to browbeat the Mayor and the city authorities for not having illuminated the city properly, and called for a host of improvements to the city center. In a pointed exchange, he demanded that the city, which is mostly dark at night, should be better lit. “The city feels like Tbilisi in 1995, with shady types hanging around in dark alleys,” Saakashvilli observed several times that “it should be safe to walk at night in this gem of a resort town.” Trukhanov mumbled some self-exculpatory excuses about the bureaucracy and the burdensome expense of procuring new light bulbs. With mayoral elections slated for this autumn, he didn’t look pleased addressing such thinly veiled allegations of incompetence, if not outright embezzlement, in a public setting.The Mayor is just one name on a long list of local figures Saakashvili will need to bring to heel. Former President Viktor Yanukovych’s Party of Regions (now reconstituted as the opposition bloc) has a firm electoral base in Odessa oblast. It has reconstituted and reenergized itself as a formidable opposition bloc in the regional legislature. Not having a natural power base or any elected allies, Saakashvili won’t be able to rely on an overwhelming parliamentary majority of the sort that undergirded his reforms in Georgia. His friends and powerful allies in Kiev (and the world over) may be too far away to be of any use in the day-to-day legislative infighting that is clearly ahead.And the task at hand is undeniably daunting: to cut the gangrene out of a single limb while the rest of the nation’s body politic writhes from the malignant infection of rampant corruption. Nurturing a healthy region in a deeply sick country may be a Sisyphean task. Despite calls to fight corruption emanating from seemingly every sector of society, Ukraine slipped to 142nd place last year on Transparency International’s Corruption Perceptions Index. And the problems of Odessa are a microcosm of the nation in miniature. The widespread assumption is that Saakashvili’s work in Odessa is a preliminary run for tackling the country’s issues from the post of Prime Minister, currently held by President Poroshenko’s uneasy rival Arseniy Yatsenyuk.The morning after the nighttime meeting with the Mayor, I joined the Governor and several journalists aboard a minibus on an impromptu tour of a decaying resort town in the outskirts of Odessa oblast. The locals, initially shocked by the governor’s presence on the bus (accompanied by a token security detail), were soon complaining of the lack of gas and plumbing in their villages. Alternating between Ukrainian, Russian and English Saakashvili briskly insisted to both the journalists and the passengers that improving infrastructure is among his highest priorities. He also addressed the oft-levied charge that this sort of trip was pure PR demagoguery. Insisting that he also took helicopters as needed, but that this sort of travel gleaned excellent information and insights. An assembled crowd met us at the depopulated seaside town and fought for the governor’s attention. They cursed their oligarchic mayor and complained bitterly of disputes over resources with the more than 300 refugees relocated from fighting in the East. Saakashvilli promised to follow up by sending aides to deal with their problems and election monitors in the Autumn.The roads around Odessa truly are in ghastly shape. What should be a critical transport corridor linking Moldovan, Romanian, and Turkish markets to Ukraine’s core and industrial eastern regions is all but impassable. No dedicated artery to Romania even exists, which beggars belief considering that it represents a direct link for the region to Europe. European visitors to Odessa have no option but to drive down from the north, using the (also quite dilapidated) Kiev highway.Odessa is a critically important region for Ukraine’s economy, and it should by all rights be a hub of global foreign investment rather than an underdeveloped regional backwoods that it is, given its magnificent location as a deep-water port on the Black Sea. Yet the region’s roads are in such an abominable state that they serve as an active deterrent to regional trade. Cavernous potholes all too frequently rip tires off of axles. The funds earmarked for the roads are without fail embezzled by local and regional authorities.As our bus rocked as it swerved to avoid a barely filled pothole, Saakashvili seethed. “What the hell? Don’t they know that I can see that they filled in the potholes just a few days ago? After they found out that I would be coming here?” Many of the roads leading to the region’s small towns and villages have not seen a road crew since the time of Perestroika. Until now, that is. Some roads are being patched up, albeit in a slapdash manner, and in efforts that appear to be financed directly out of the pockets of local administrators, terrified of the new governor’s reputation for mercurial wrath.When I proposed that he solve the road problem by scheduling such impromptu jaunts to every single town in the region, the Governor’s response was amused resignation. That method would have diminishing returns he pointed out, smiling wryly. One had the sense that the thought had crossed his mind, however. His estimate for the total cost of repairing the region’s roads is $100 million, which unfortunately seems like a wildly optimistic figure.It is the criminally underpaid and thus thoroughly corrupt mid-level bureaucracy populated by intransigent Soviet era apparatchiks that will constitute the greatest threat to Saakashvili’s reform program. Upon arriving back to Odessa from the resort, our group of journalists followed the Governor back to his office for a meeting with his department heads. In what would have seemed like a well-choreographed stunt had Saakashvili not told us on the bus that he was uncertain if he would bash heads together at the meeting, he went around the table demanding progress reports on the status of the various officials’ efforts at fighting corruption, while television cameras filmed away. It was a tense and uncomfortable interrogation, with terrified officials proffering up unconvincing reasons for why there had been so little progress. When the head of the Odessa’s anti-corruption agency admitted under questioning that no one had yet been put in prison for corruption in the region this year, the assembled journalists began laughing out loud. It was likely the moment had made his decision. Starting in a low mournful voice that built up into a crescendo pitch, Saakashvili informed his cabinet that outside of the building people were not laughing. He then promptly fired all twenty of the officials and called for the region’s young people to file applications for the newly opened positions with his administration.Such effusive and effective displays of political theater—as well as the crowd-pleasing gestures like his unilateral move to open up unlawfully privatized beaches to the public—seem to be resonating with much of Odessa’s population. Political theater will only go so far, however. Simplifying the cumbersome multi-step process to attract foreign investment will be critical. Paring down the thicket of rules governing foreign investment is paramount, and to this end Saakashvili has announced the opening of a dedicated foreign investment service center to help guide potential investors. He is a proponent of a libertarian ideal of helping to “get government out of people’s way” so that they can nurture their business.Saakashvili has called for many of the top administrative spots to be opened up to young people, free of tainted practices often Western-educated, entrepreneurial and honest—and Odessans are answering his call in droves. The administration has announced that it has already been inundated with thousands of applications. Whether the obstacles in the path of Saakashvili’s gargantuan ambitions and undeniable skills are surmountable remains to be answered. Beyond fixing regional infrastructure, simplifying the land registry, modernizing privatization laws, reforming the police, and bringing transparency and accountability to government, Saakashvilli is working on opening up Odessa’s airport to low cost and foreign carriers. His own time as a conscript in the Soviet army was spent serving with the border control guards in Kiev’s Borispyl Airport. On this he faces opposition from both inside Ukrainian International Airlines and among regulators (many of them former employees of UIA), and has enlisted Poroshenko’s help in cleaning up the aviation board in Kiev. He is also looking to clamp down on customs fraud by implementing some of the reforms he championed in Georgia: Odessa’s port is notorious for its smuggling and evaporating custom’s fees. Stanching the bleeding of those fees from the region’s coffers would provide the needed capital for his program of capital investment and infrastructure repairs.Asked how long he intends to stay in the job, the Governor habitually proffers the reply one would expect from any competent politician: he will serve as long as is necessary. He followed this declaration up, however, with a rather more realistic estimate of a year and a half to get the reforms going. With some luck, that could be enough, though the administrative gears in Odessa move slowly.Poroshenko has taken a huge gamble in entrusting Saakashvilli with both the region and his political credibility. On the one hand, the move ensured that Saakashvili has more political firepower backing up his reform program than anyone else here has ever had—and most likely ever will. This is undeniably helpful. Conversely, it also ensures that the entrenched political interests and oligarchic forces fighting threats to their livelihood and title to expropriated public assets will be equally energized. If they manage to thwart Saakashvili, they will have struck a significant blow for the debilitated status quo: his failure will constitute an unmistakable signal to the entire world that large-scale reform of the Odessa oblast, and by extension of Ukraine, is functionally impossible.The outright threat of armed separatism in the region has been greatly diminished, as the Kremlin has sent out peace feelers (genuine or not) over the course of the summer, placing lesser emphasis on, and even intimating the unwinding of, the “Novorossiya project.” The death of almost fifty of Odessa’s citizens in street fighting last March has inoculated the city of and deprived the separatist campaign of its potential leadership. The city’s middle and professional classes have also taken careful stock of the banditry and lawlessness endemic in the cities administered by the so-called Lughansk and Donetsk People’s Republics.Yet, Saakashvilli’s proximity to Moldova’s breakaway statelet of Transdnistria is a recurrence of the grandest sort of historical irony: as he once did in South Ossetia, he is yet again administering a boundary with a pro-Russian separatist region occupied by Russian peacekeepers. Somewhere between a quarter and half of the population of the city itself harbors latent pro-Russian sentiments, and those figures are probably much higher in the depressed region itself. Having failed spectacularly to subsume Odessa under the aegis of the embryonic Novorossiya project, the Kremlin’s consolation offer to the city is a glamorous one: Hong Kong-like autonomous status. Pro-Russian separatists and pro-Russian media have adroitly taken to referencing the city’s 19th-century economic glory under its status as “Porto Franco”—a free port where, symbolically enough, one did not need to pay taxes. Proud, anarchic, and perpetually independent, the city that haughtily refers to itself as “the southern capital” will need to be corralled into the ongoing project of the construction of Ukrainian national identity.As the sweltering first summer of Saakashvili’s quixotic, theatrical reign begins, the reaction of the populace to his appointment has mostly shifted from an initial befuddled distrust to approval of his frenetic style. He and the entourage of technocratic Georgian friends that he has brought along are competent and dashing. They can be found drinking at the bar of the Bristol, Odessa’s chicest hotel several nights each week. The city is raucous port town where criminal maneuvering, cosmopolitan self-reinvention, and theatrically have always gone hand in hand. Odessans have always been practical and entrepreneurial, and their values mesh with his ambitions to remake the port town in the image of a modern start-up. Most everyone I spoke with is optimistic in a way that they have not been in a very, very long time.As Saakashvili is fond of pointing out, the city already has 50,000 Georgians calling the city their home. Why not one more? And in any case, if all he accomplishes is to rehabilitate the roads and do something about the decrepit airport, that will be more progress than anyone else has delivered in a generation.Arriving at a beach club owned by a friend late one night, I observed a drunk woman attempting to get past the security guards at the door.“Let me in!” she bellowed at the men who blocked her entrance. Finally acknowledging her case as hopeless she deployed a last, desperate gambit to gain entry.“I am going to tell Saakashvili if you don’t let me in you bastards!” she bellowed.Alas, she would not be drinking on the beach that night. One can only hope her other expectations for reform will not be similarly dashed.

Western Europe to Migrants: Keep Out

As Europe struggles to deal with its immigration crisis, a majority of citizens in France, Germany, Italy, and Britain favor the cessation of the Schengen Agreement, which allows for free movement across borders of the 22 member-states of the European Union plus Switzerland, Norway, Iceland, and Liechtenstein. From The Telegraph:

The IFOP poll, conducted in several European countries and published in the newspaper Le Figaro, shows 67 per cent of the French would like to reinstate border controls. […]

“Schengen must be suspended immediately and replaced by a Schengen II which member-countries could only join if they first agree to the same immigration policy,” [Former French Prime Minster] Mr [Nicolas] Sarkozy said recently. “Europe is not meant to organise social and migratory dumping.”

The inflow of refugees from war-torn and politically unstable countries across the Middle East and Africa threatens to imperil what is a pillar of the European Union’s social and economic structure. The dissolution of the Schengen would be highly disruptive for local economies in border towns, such as those along the Rhine, which often have large percentages of their working populations living in neighboring countries a short drive away. About 45 percent of the working population of Luxembourg, for example, travels across national borders on their daily commutes.

Insofar as it makes it easier for refugees, once in Europe, to choose and enter countries with (relatively) little hindrance, it is unsurprising to see this frustration with the Schengen in Western Europe. Yet, while there’s no easy answer as to how the EU should address the unprecedented surge of asylum-seeking migrants, ending its open border policy is a bad one.

The One That’s Getting Away?

Since Thailand’s May 2014 coup installed a military government led by Prayuth Chan-ocha, we’ve been watching the strategically significant Southeast Asian nation for signs that it will move closer to countries with illiberal political systems, most importantly China. Here’s one such sign: Defense News reports that Bangkok has purchased three submarines from China. The story puts the purchase in the context of the U.S.-Thai relationship:

The sub decision will worsen the drift in Thai-US relations and frustrate the US’ rebalance strategy, said Thitinan Pongsudhirak, director of the Institute of Security and International Studies at Bangkok’s Chulalongkorn University.

“It is building into a kind of brinkmanship from Bangkok which will require the US to weigh its values and interests carefully,” he saidUS criticism might be the prime driver for the turn toward China, Pongsudhirak said.“Evidently, Thailand’s military government has found superpower support in Beijing, as China has embraced Thai generals in both coups in 2006 and 2014,” he said. “Having China on its side is hugely important to the Thai military because it confers ‘face’ and international legitimacy while Western countries generally shunned and downgraded dealings with Thailand.”

As any Via Meadia reader will know, we’re no fans of authoritarian political systems. Even when we have legitimate grounds for disapproving of a government, however, making a policy of giving it the cold shoulder doesn’t actually serve our interests or those of the dictators’ subjects. The American tendency to moralize and to hamper our diplomatic relationships with countries whose governments we repudiate (even if doing so doesn’t improve the situation) can, in fact, become a strategic liability.

Since the coup in Thailand, it looks to us like Washington’s policy—imposing sanctions, backing away from this year’s Cobra Gold joint exercises held in Thai territory— has helped no one. On the contrary, Washington, well-intentioned though it is, has actually diminished the prospects for an open Thai society. The U.S. stance is pushing the junta towards China, and the closer Thailand gets with China, the less likely the junta is to loosen its iron fist. Chan-ocha, for his part, doesn’t seem to be one stern lecture from Washington away from instituting the Bill of Rights for his citizens.Top U.S. officials, from presidents to SecDefs and on down have vaunted the pivot to Asia as the most important U.S. foreign policy interest of our era. Here’s hoping that they listen to themselves and stop scoring own goals by alienating the government of an ally. Engaging with Thailand, not isolating and hectoring it, is actually more likely to make the world a safer and freer place.

Europeans Talk Tough As Next Iran Deadline Looms

Another deadline looms in the Iran nuclear negotiations tonight. Several previous cycles of tough talk followed by can-kicking have made most observers skeptical of U.S. promises to either sign or walk, but this time the tough talk is coming from an unexpected quarter. The Wall Street Journal reports:

Nuclear negotiations between Iran and six world powers have reached the make-or-break point, European officials said, warning the diplomacy could fail if there is no final agreement by Monday night.

The comments by senior European diplomats in Austria’s capital on Sunday suggested a divergence from Washington on the way forward with Tehran. […]

If a deal isn’t reached by Monday night, a European official said there was “no way” the negotiations can continue.

It’s at least little shocking to see America’s European partners suddenly telling Washington to grow a spine. Admittedly, the “Europeans” are far from a monolithic bloc: the negotiations involve representatives from the UK, France, and Germany, plus the EU itself and various European-staffed international bodies. Each has different, sometimes divergent, reasons for wanting the talks to be over. Some are more wary of Iran than the Obama Administration. Others want to profit from the end of sanctions. And at least some of this talk—likely a great deal of it—is just posturing.

But it’s interesting that the French are mentioned and quoted so prominently:

French Foreign Minister Laurent Fabius indicated in Vienna over the weekend that Paris believed Iran had been given enough time to make the political decisions needed to conclude an agreement.

“Now that everything is on the table, the moment has come to decide,” he told reporters on Saturday.

In the past, French officials have said that if Iran wasn’t willing to strike a deal now, negotiations could go on hold until Tehran, which is eager to win major sanctions relief, proves more amenable to a deal.

For the last year, France has grown steadily closer to Saudi Arabia and the Sunni Gulf states in general. Part of this came from self-interest—suddenly there were large Saudi arms purchases from France—but much of it reflects the historic distance the Obama Administration has put between the U.S. and its traditional regional allies. France seems closer to them—and tougher in the negotiations—by comparison to the U.S.

The French, the Saudis, and other parties who want the Obama Administration to take a tougher line have a weak hand of cards to play. But through the French and broader European delegations, they at least have a seat at the table. It looks like they might have chosen their moment to tell Washington to either call Iran’s bluff, or fold.

This Is Not a Market

You can’t fight the Fed and you can’t fight City Hall, and you especially can’t fight them when you live in a one-party state and the party wants stocks to go up, up, up! After a hairy week that saw Beijing freezing trading of most publicly traded companies amid a precipitous decline in Chinese stocks, state control over the markets seems to have turned things around. The FT has more:

Officials have sprung into action to prevent the stock market plunge from turning into a collapse. Before the rebound late last week, the two main share indices had dropped by a third since multiyear highs on June 12, wiping trillions of dollars off the value of listed companies.

Beijing’s efforts include a ban on stock sales by large shareholders and executives, and the extension of credit to brokers to help them buy shares and equity funds.In the latest government intervention, the China Securities Regulatory Commission said on Sunday it was clamping down further on “grey market” margin finance, seen by many analysts as a big cause of the extreme volatility. […]

The China Daily reported on Monday that the CSRC was planning to alter securities laws to build a “financial stabilisation fund”, which the state-run newspaper said would “legitimise and enable government intervention during turmoil”.

In other words, positions in China stocks are now only secondarily bets on the quality of a particular company’s management or its market position. Above all, they are bets on what you think the Chinese Communist Party thinks the price of this stock should be.

Party insiders now have another excellent way to make money: Just patriotically invest (with generous financial support from state banks and credit facilities) in stocks when you know that the party leadership has determined that they need to go up.

The Mother of All Capitulations

After talks that lasted more than 17 hours, European leaders unanimously agreed on the terms for a third a bailout plan for Greece worth €86 billion. Greek Prime Minister Alexis Tsipras finally capitulated to the full demands of the his eurozone creditors announced this weekend, which went well beyond the pension cuts and tax increases discussed as recently as two weeks ago. The most striking provision was that Greece be forced to sell some €50 billion in state assets to set up a trust fund outside of Athens’ reach to be used for bank recapitalization and debt repayment. Tsipras also accepted intrusive economic oversight from bailout monitors and a far-reaching public administration reform program to be overseen by the European Commission. Though markets breathed a sigh of relief and the euro rallied, there is still ample room for crisis to return. The deal must be officially approved by the Greek parliament this week in order for negotiations on bailout implementation to continue.

Greece has had to accept, or at least swear an oath of mickle might that it accepts, the euro status quo, but it isn’t clear if that can or will work. The deal is a terrible humiliation for Tsipras and a strong lesson for all small country leaders who want to buck the European consensus: you will be nibbled to death by sheep. The likeliest next steps: the Greeks won’t fully comply with the new conditions, either because they refuse to or simply lack the capacity to enforce them; the pain won’t end. The real future of the euro now depends on what happens in Italy and Spain. If those economies continue to mend, the outlook brightens.

Cuba Reopens for U.S. Tourists

Nearly seven months after the Obama administration initially eased restrictions on travel, Cuba is finally becoming a viable destination for tourists seeking an exotic sojourn. The BBC reports:

The world’s largest cruise shipping company, Carnival Corp, says it has received approval from the United States government to offer trips to Cuba from Miami.

The company said it was still seeking clearance from the Cuban government but the trips could start early next year.

Cruise lines aren’t the only ones capitalizing on the recent and ongoing thaw in relations between the U.S. and Cuba. The first commercial flights to Havana are scheduled to depart from Orlando, Florida as early as this Wednesday.

Unsurprisingly, the sudden abundance of travel opportunities are accompanied by the expansion of various U.S. businesses to the island, namely the room-sharing service, Airbnb. Valued at $20 billion, Airbnb has capitalized on recent legislation allowing entrepreneurship by Cuban citizens.As Walter Russell Mead wrote when President Obama announced the diplomatic breakthrough with Cuba in December, what the Castros really want is the money but not the liberalization that goes with it. Tourist dollars from New York, si, new business owners from Miami, no—or the expat community could buy the island back from under them in a heartbeat. Whether they will be able to maintain that balance long-term is still open to question, but “more yanqui tourist dollars and a carefully hedged and limited uptick in trade will help stave off the worst and buy time for a government that, one suspects, isn’t sure what to do next.”Also important to U.S. interests in the region are the effects that Cuba’s new market for tourism will have on the economies of its Caribbean neighbors. To quote WRM again:

If Cuba really does open up to U.S. tourism, expect other Caribbean destinations to suffer. The Caribbean tourist industry has been built on the assumption that Cuba is closed to American tourism. Jamaica and other countries could face real problems if a re-opened Cuba changes the dynamics—as it almost certainly will.

Now, many countries in the Caribbean will be facing competition in an industry that is their single greatest source of revenue. Americans may be excited to finally be able to smoke a local cigar in Havana, but the other implications of our recent decision bear watching.