Who Will Win China’s Power Struggle?

Alphen, Netherlands. 28 July. The People’s Bank of China has already pumped some $7.8bn in the Chinese stock market over the past three weeks in an effort to stop the free-fall in Chinese equities.  However, the market fell yesterday by a further 8% and today by 3%. The cause of such market turbulence is an equities and asset bubble driven up by investors betting that the Chinese Government would take whatever action necessary to maintain the value of shares.  This is because the political settlement put in place after the 1989 Tiananmen Square massacre is dependent on a ‘contract’ between the Chinese Communist Party and China’s burgeoning middle classes; the former will enrich the latter in return for the latter accepting Party control. Therefore, what is at stake is far more than a ‘market correction’ of China’s hybrid, partially open stock market.  A power struggle is underway between the Party and its command economy and casino capitalism.  It is also a struggle between economic nationalism, globalisation and ultra-rich money lords that has profound implications for China, Asia-Pacific, and the wider world.

The domestic implications for China are profound. When Hong Kong returned to Chinese rule I suggested that far from Communist Beijing taking over 1 July, 1997 marked the beginning of a struggle for China that would one day see uber-capitalist Hong Kong and Shanghai take over Beijing. That struggle is indeed implicit in the current market turbulence.  This is because when Deng Xiaoping set China on the road to what he called ‘reform’ back in the post Mao late-1970s the Party deliberately left ambiguous the relationship between the command economy and China’s emerging market economy.

By 1989 the steady growth of a middle class fuelled by the new market had begun to challenge the control of the Party.  The inherent tension was expressed by students during the 1989 pro-democracy demonstrations. However, the brutal suppression of those demonstrations was in parallel with the establishment of the ‘contract’ between the Party and the middle classes which enabled the Party to retain political control.  It is that contract that is now under duress as middle class savings and investments are threatened by the stock market crash and with it China’s political stability.

There are also profound implications for China’s neighbours and indeed the wider Asia-Pacific region. The Party has clearly moved to exploit Chinese nationalism in the wake of the 2008 global financial and economic crash as a buttress against renewed domestic dissent. Indeed, China’s extra-territorial claims in the East and South China Seas and the development of an increasingly expeditionary-capable military seem to match the relative decline in China’s economic performance in the wake of the 2008 global financial and economic crash. 

Many years ago when I lived in Hong Kong I saw the power of Chinese nationalism.  For many years the Party kept a lid on such passions by offering ideology as an alternative to nationalism. However, nationalism run deeps in the majority Han Chinese population, as does the sense of grievance many Chinese feel towards the West and its past treatment of China.  Critically, with year-on-year economic growth in double-digits for many years many Chinese had never had life so good. There was no need thus to challenge a national or a world order that was beneficial to China.  That may be about to change.

The implications for the wider world economy should China retrench both politically and economically are profound.  China has used its extensive sovereign wealth funds to make investment in assets the world over.  These asset purchases have been particularly important in Europe where such investments have helped stave off bankruptcy both of major corporations and indeed states. They have also helped to fuel the ability of Western consumers to buy Chinese goods which in turn has helped maintain China’s export-led growth.  Should those ‘investments’ now be turned inwards to maintain Chinese shares at an artificially high price then the implications for a fragile world economy are profound to say the least.

At its extremes the struggle for China could go one of two ways.  The Party could re-impose a command economy and effectively close China’s economy to foreign investment in the name of Communist dogma.  However, such a move would hasten China’s decline and impact negatively on powerful vested interests, not least the People’s Liberation Army which is a major player in the Chinese markets.  Alternatively, the Party could lose political control in which case it is far more likely that extreme nationalism would raise its ugly head. China has no experience of the kind of social-democratic, free market balance that has evolved (and I stress evolved) in North America and Western Europe.

Therefore, the non-Chinese world should have no illusions as to the strategic stakes implicit in the current travails of the Chinese stock markets.  Huge forces are being unleashed and huge forces are under stress which without very careful management could see China’s stability and that of the wider world threatened.  Therefore, not only is it vital China engineers a soft landing to this crisis, it is also vital China develops institutions that ensure more balance in the relationship between the Chinese state and its stock markets.

Julian Lindley-French

Brexitwatch: Obama Must Support Cameron

Alphen, Netherlands, 24 July. “Having the UK in the EU gives us much greater confidence about the strength of the transatlantic union”.  The British media, particularly the slavishly pro-EU BBC, is full of President Obama’s call yesterday for Britain to remain within the EU.  The slant the story has been given suggests Obama is telling Britain to remain within the EU if it wants to retain influence in Europe, the wider world, and more critically Washington.  In fact, in the interview Obama is far more circumspect and far from interfering in British internal affairs he merely expresses the US national interest.  Equally, Obama again highlights three questions central to the Brexit debate.  Can Britain retain its wider influence via its EU membership if Britain has little or no influence in the EU?  Could Britain’s influence survive a Brexit? Is a fair deal for Britain in the coming post-Eurozone crisis EU possible?

Can Britain retain its wider influence via its EU membership if Britain has little or no influence in the EU?  The answer is a clear no.  Not surprisingly the EU warts and all lobby are going ballistic this morning. The central argument of this lobby, which is routinely trotted out at gatherings of the ‘great and good’, is that ‘given’ Britain’s future is in ‘Europe’ the EU must be accepted for what it is warts and all and at whatever cost to the British taxpayer. The failure of the EU warts and all lobby is their supine refusal to accept that the status quo is indefensible.  It is change within the Eurozone that is shifting the relationship towards costs and and away from benefits and that consequently Britain occupies a political position in and on the EU that is fast disappearing. Consequently, there is a very real danger that the 2017 Brexit referendum (or whenever it takes place) will settle nothing with none of the fundamental issues now at stake properly addressed.

Could Britain’s influence survive a Brexit? Yes, although no member of the EU warts and all lobby have ever answered or wanted to answer this question.  With political will Britain the world’s fifth biggest economy and a top five military power, with the world’s most extensive and possibly most experienced diplomatic representation, free to make its own agreements and alliances. could and would prosper as an independent country.  Period.

Is a fair deal for Britain in the coming post-Eurozone crisis EU possible? Possibly, but much would need to change in Britain’s relationship with the EU. Indeed, this is the key ‘fairness’ question and goes to the heart of Cameron’s attempts to renegotiate Britain’s membership of a changing EU.  For all the obfuscation of the Foreign Office’s every which way but loose Balance of Competences review the simple fact is that the EU is not fair to Britain.  Membership costs Britain roughly £20bn per annum whilst Britain suffers a trade deficit with the rest of the EU worth some £52bn, partly due to blocks placed by Germany and others on the Services Directive and by extension the fulfilment of a really single, Single Market. 

Worse, Britain finds itself in a permanent minority with its interests routinely and increasingly trodden into the ground by an unholy alliance of Eurozone members and the European Commission.  Last week the Commission arbitrarily, simply and unilaterally rewrote a binding 2010 agreement preventing the use of British taxpayer’s money to fund the latest Greek bailout.  Late last year Britain was slapped with a huge additional bill by the Commission following a ‘reassessment’ of the size of the British economy to include the proceeds of crime. Naturally, France and Germany received reduced bills from the Commission.

Therefore, if President Obama believes it an imperative American interest for Britain to remain in the EU then he needs to swing the full weight of US diplomacy behind Cameron’s efforts to get a fair deal for Britain in the EU.  First and foremost that means supporting Cameron openly to end the dangerous political fantasy of ‘ever closer union’ and support the idea of the EU as a super-alliance of free and independent nation-states (which I support) rather than super-state.  As the eternal Eurozone crisis demonstrates political adventurism that is not grounded in political and economic reality is fast leading Europe and indeed the wider “transatlantic union” towards ruin. 

Thereafter, the Americans must support Cameron in his pursuit of the objectives laid out in his January 2013 Bloomsberg speech; the creation of a competitive EU via a Single Market that is really ‘single’, a flexible EU that scraps the ‘one size fits all’ philosophy that traps Europeans between a federal ‘Europe’ and a Europe of nation-states; an EU that respects national parliamentary sovereignty and which only acts when collective action is agreed and necessary; an EU that respects democracy and is open and accountable to the people, which today is not the case; and a new political relationship between Eurozone and non-Eurozone members that if not agreed would effectively condemn the latter to taxation without representation.  Remember that Yanks?

Above all, President Obama must also face the contradictions inherent in his own position.  First, that a Britain forced to accept membership at any cost of an EU that is fast moving away from London’s long-held idea of ‘Europe’ as a trading bloc far from reinforcing British clout will simply destroy it.  Second, that the EU will a) evolve into a United States of Europe not unlike the United States of America; and b) that a ‘US of E’ would be pro-American.  As the Greek debt crisis has shown the former is extremely unlikely and the latter by no means assured.

President Obama might also wish to avoid the charge of hypocrisy by insisting in his support for the British people the same principles that underpin American liberty – government by the people, of the people and for the people.  Finally, President Obama may also wish to ask himself one other question this morning; is he happy to impose a political settlement on the British people that he would never dream of imposing on the American people.  If he is then he is no democrat.

Failure by the US to support Britain’s search for fairness WITHIN the EU could well accelerate Britain’s departure from it.

Julian Lindley-French

Ukraine: Is Russia Planning a New Military Offensive?

Alphen, Netherlands. 22 July. For obvious reasons I tend to steer clear of speculation and focus this blog instead on policy and strategy implications.  Moreover, predicting Russia’s actions can be a nightmare, not least because of the Kremlin’s mastery of disinformation (see my paper of this year for the Canadian Defence and Foreign Affairs Institute – Countering Strategic Maskirovka).  However, something is clearly going on even if a new Russian-backed assault would mark an egregious breach of February’s Minsk 2 cease-fire agreement.  Sadly, Minsk 2 is already observed in the breach with so many loopholes. An OSCE report of this week cites 617 breaches in the Donetsk Airport alone and over 400 killed. 

Headline: Some commentators have suggested a major Russian offensive against Kharkiv, but there is little solid evidence for that. Equally, several solid sources to whom I have access have suggested preparations are underway for a renewed assault on the Ukrainian Black Sea port of Mariupol, even if in recent days pro-Russian forces associated with the Donetsk People’s Republic withdrew from the strategically-important village of Shyrokyne close to the port. There is certainly some evidence of new Russian forces present to the north of Mariupol, something Moscow of course denies.

Why attack Mariupol again?  First, Mariupol is a port and therefore of significant economic and strategic value if the wider ambition to create a Greater ‘Novorossiya’ that stretches west to Odessa and beyond is to be rendered politically and strategically viable. Second, more realistically the creation of an enclave along the Kharkiv, Donetsk, Lugansk, Sloviansk, Mariupol axis would depend on the future export of gas, although much of that would be ‘exported’ directly via pipeline to Russia which is only some 55 kms/35 miles distant.  Indeed, the capture of Mariupol would render a fully autonomous eastern ‘Ukraine’ more economically-viable as it would link existing coalfields to the two enormous iron and steel plants situated in Mariupol.  Third, the capture of Mariupol would straighten the defensive line pro-Russian forces hold and make it harder for Kiev to recapture the city.  Fourth, the capture of Mariupol would confirm eastern Ukraine as a buffer zone of Russian influence, which is clearly central to Moscow’s thinking.

Critically, with a population of 500,000 Mariupol remains the last significant city under Kiev’s control in Ukrainian hands in the region if one excludes Ukraine’s shaky grip on Kharkiv.  Finally, the capture of Mariupol would send a strong signal to Kiev and the rest of Europe that Russia has achieved its strategic objectives and that the removal of Crimea and much of eastern Ukraine from Ukraine’s control marks for the moment at least the limit of Moscow’s ambitions. 

Why attack Mariupol now? The reasons for such an assault now would make some strategic sense from a Russian standpoint, First, Russia has often acted between mid-July and mid-August as the rest of Europe slumbers on beaches (or wherever), including most of its leaders.  Russian troops entered disputed South Ossetia on August 8, 2008, following a major incursion by Georgian forces the previous day.  The Russian assault was right in the midst of the Beijing Olympics when the world was similarly distracted.

Analysis: The idea of a broad  or rather Greater Novorrossiya that stretches across much of what is today southern Ukraine was always a political fiction designed to keep Kiev and the West politically off-balance.  Indeed, in much the same way Moscow has used the conflict in eastern Ukraine or the Donbass to divert attention from the fait accompli in Crimea Greater Novorossiya is designed to divert attention from more modest strategic objectives.

Some commentators suggest the capture of Mariupol could act as the springboard for a further Russian-generated offensive south and west along the Sea of Azov coast to create a land bridge to isolated Crimea.  To be frank I am also sceptical as to the feasibility of such a land offensive. First, the distance between Mariupol and the Crimean capital Simferopol is 437 kms or 272 miles.  Second, such an offensive would require significant support from regular Russian land, sea and air forces.  Such support would give the offensive the appearance of a full-blown invasion with extended lines of supply and logistic and destroy Russian claims to ‘plausible deniability’.  This would run counter to Russia’s Maskirovka strategy and open Russian up to yet more sanctions, which Moscow still seems keen to avoid.  Third, the distance between eastern Crimea and Russia across the Russian-controlled Kerch Strait is only 3.1 kms or 1.9 miles at its shortest.  For the moment supply and re-supply can come across the strait or simply via the Russian-held naval base at Sevastopol. It is more likely that Crimea (which has been lost to Ukraine and the West has tacitly accepted that) will in future enjoy a similar status to the Russian enclave of Kaliningrad, which sits between Poland and Lithuania with access to the Baltic Sea.

There is some evidence of new Russian forces brought into the Western Military District (Oblast).  Normal rotation of Russian forces in the region would take place in October or November.  There is also evidence that fuel and armament depots have been fully stocked with new tanks and artillery deployed to the District.  Furthermore, the Russian Black Seas Fleet is currently being reinforced with six Admiral Grigorovich class missile frigates, although this deployment has been planned for some time.

Conclusion: There is some evidence to suggest a significant operation against Mariupol could well be planned for the coming six week period prior to September.  The operation will involve significant but limited Russian air, sea and land forces in support of separatist forces with the aim of taking Mariupol and holding it and straightening the defensive line to north and west of the city.  The offensive will first be denied and then justified as consolidating the cease-fire line agreed under Minsk 2, which is notoriously vague on the issue of Mariupol (and the future of the entire ‘Donbass’ region).  If separatist forces come up against significant Ukrainian opposition then Russian forces may be deployed to break such resistance.  However, a major offensive against the Kharkiv region or south and west of Mariupol is unlikely.

Julian Lindley-French

MH17: One Year On

Alphen, Netherlands. 17 July. This time last year I was at Amsterdam Schiphol Airport.  There is every reason to believe that I walked passed people making their way to check-in to Malaysian Airlines Flight MH17.  Many of them would have been excited by the prospect of a much-needed summer holiday in tropical climes.  Some four hours later they were shot out of the sky over eastern Ukraine by a Russian BuK SA11 missile.  Two hundred and ninety-eight people were murdered, the unwitting and latest victims of a war made in Moscow.

There is little chance that those responsible for this appalling act of mass murder will be brought to justice. Worse, Russia indicated this week it will do all it can to frustrate justice.  Moscow continues its cynical effort to suggest that Ukrainian forces were somehow responsible.

For the record, the missile was fired from a Russian BuK SA11 system that had crossed the border from Russia into Ukraine the days before the disaster.  It was under the control of Russian military intelligence (GRU) and manned by separatists who had been inadequately trained in Russia under GRU supervision.  Indeed, there is evidence GRU personnel were either on board the launcher or close by.  Lacking its main radar system the launcher was unable to identify whether the airliner was friend or foe. The crew assumed it to be a Ukrainian transport aircraft. 

Moscow did not order the launch and was as horrified as the rest of us by what happened.  However, Russia bears as much responsibility for this act of mass slaughter as the separatists who launched the missile.  It is for that reason Moscow will do all in its power to prevent the full facts from ever being agreed, even if they are well known.

My thoughts are with all the victims of the appalling war that is still disfiguring Europe.  However, this morning you will forgive me if my particular thoughts are with the 90 people from the region in which I live including a colleague of my wife at Tilburg University and his family who lost their lives a year ago on MH17.  My thoughts are also with the bereaved all around me who must be going through hell this morning.

Rest in Peace!

Julian Lindley-French

The Iran Nuclear Accord: Briefing & Assessment

Alphen, Netherlands. 16 July. The “Joint Comprehensive Plan of Action” agreed on 14 July in Vienna between the Islamic Republic of Iran and the E3/EU+3 states: “The E3/EU3+3 (China, France, Germany, the Russian Federation, the United Kingdom and the United States, with the High Representative of the European Union for Foreign Affairs and Security Policy) with the Islamic Republic of Iran welcomes the historic Joint Comprehensive Plan of Action (JCPOA), which will ensure that Iran’s nuclear programme will be exclusively peaceful, and mark a fundamental shift in their approach to this issue”.  Whilst the JCPOA concerns the nature and scope of Iran’s ambitions to build nuclear weapons the Accord is also about contemporary geopolitics and the regional-strategic security and stability of the Middle East. 

The Accord: The JCPOA is 159 pages long which attests to its complexity and builds on the November 2013 Geneva Accord or Joint Plan of Action.  The main aim of the Accord is to reaffirm the Nuclear Non-Proliferation Treaty (NPT) as the essential benchmark for preventing the spread of nuclear weapons to so-called non-nuclear weapons states (NNWS). Under the agreement Iran is to be transformed from a so-called ‘threshold state’ into a NNWS. Central to the Accord are strengthened safeguards and a verification and inspection regime that is intrusive even if it stops short of ‘no warning inspections’.

Specific Measures: The focus of the Accord is on preventing the weapons-grade enrichment of both uranium 235 and plutonium.  Uranium enrichment will be curtailed by reducing the number of operational centrifuges from 19,000 to 5000 and limiting Iran to the use of short lifespan first generation centrifuges.  Medium-enriched uranium will be rendered unfit for use in weapons.  Some 9700 kg of Iran’s 10,000 kg low-enriched uranium will also be shipped abroad.  Fordow, one of two main research and development sites, will cease all enrichment and become a physics research centre with no access to fissile material for at least 15 years.  The Arak heavy water reactor vital to the development of weapons grade plutonium will have its core destroyed and Iran will seek no heavy water production again for at least 15 years.

Verification and Inspection: Vienna-based International Atomic Energy Authority (IAEA) inspectors will have the right to inspect so-called ‘suspicious facilities’.  The so-called Safeguards Regime is based on but more extensive than those agreed under the NPT.  However, the inspectors will be unable to carry out snap exercises.  Iran will also be required to address so-called “possible military dimensions” of its nuclear programme. 

Sanctions Relief: In return for compliance with the terms of the Accord the EU, US and United Nations Security Council will lift a range of trade sanctions and unfreeze some $150bn of Iranian oil assets currently held in foreign banks.  However, sanctions relief is linked to Iran’s compliance over time and thus will take place in stages.  Critically, there will be no complete relief from sanctions until the agreement has been implemented in full and the Arak reactor destroyed.  There is a strong ‘snap back’ regime in place that allows for sanctions to be re-imposed quickly if the Accord is breached and without a further UNSC Resolution.

Analysis: A key phrase in the Accord reads, “They [the Parties to the Accord] anticipate that full implementation of this JCPOA will contribute to regional and international peace and security”.  Indeed, the Accord reflects a rapidly changing region and wider world and a battle over the conduct of international relations that goes far beyond the issue of Iran’s nuclear ambitions. Specifically, a global struggle is underway over between a legalised order and Machtpolitik and between globalisation and Islamisation. 

In Iran there is clearly some tension between relative moderates around President Rouhani who believe that Iran’s changing society must accommodate itself with globalisation and hard-liners in and around the powerful Revolutionary Guard who see themselves as the guardians of the 1979 Revolution.  However, it would be far too simplistic to suggest there is a split between Supreme Leader Ayatollah Khamenei and President Rouhani.  Iran remains first and foremost an Islamic Republic with clerical power still the deciding force in Iranian policy-making.  The Accord would seem to reflect an accommodation between the two factions both of which believe they can gain.

Tehran has signed up to the Accord because it it believes it has the upper hand in the struggle for regional dominance in the Middle East.  Indeed, Persian Iran is at one and the same time confident in its ability to influence the by and large Arab region in which it sits.  Equally, Shia Tehran is deeply concerned by the rise of Sunni Islamic State and pragmatists clearly believe some form of accommodation will be needed with all anti-IS forces across the region.  However, a temporary suspension of competition with peer competitors such as Egypt, Saudi Arabia and the Gulf States does not mean that competition over regional-strategic supremacy has been postponed indefinitely.  Indeed, suspension of Iran’s nuclear ambitions over the short-term would help forge an implicit anti-IS ‘coalition’ which perversely could help weaken regimes such as the Saudi monarchy because of the split within the Arab-Sunni world that would ensue between leaders and led. Iran is also fully aware that Saudi money paid for much of Pakistan’s nuclear programme and Riyadh is quite capable of rapidly becoming a nuclear power should the Accord falter. 

Israel is of course key. There is as yet no sign that the Accord will lead to a shift in Tehran on its long-standing and extreme hostility to Israel.  Indeed, with significant funds about to be released to Iran one of the key tests of of the Accord concerns the impact it will have on wider Iranian policy.  If Hezbollah is restocked and re-supplied and President Assad in Syria bolstered it will be clear that Iran is just as committed as ever to an eventual showdown with Israel and that hard-liners still drive much of Iranian foreign policy.  However, if that money instead goes into supporting the hard-pressed Iranian population then some moderating of Iran’s position may be underway.

The geopolitics of the Accord are equally fascinating. After a bruising couple of years which saw Russia use force in Ukraine and China seize territory (and build it) in the South China Sea the Accord demonstrates that a legalised systems of international relations is still workable and that some semblance of ‘international community’ still exists.  Arms control (for that is what the Accord is) is unlike disarmament in that whilst the latter is part of an ideal the former is a pragmatic function of security and defence policy, i.e. the more arms are limited by accord the less likely they will be built and the more likely legal solutions to disputes will be sought.  The world is in the balance between a treaty-based system of world order and a new balance of power. The Accord is a modest but important step back from the brink of Real and Machtpolitik and new regional and global arms races and a strengthening of the regimes and international institutions that underpin a legalised world order.

Assessment: As ever with such accords the devil will be in the demonstrable upholding of the detail with political and strategic implications that go far beyond the many technical pages of the Accord.  It Iran adheres to the Accord in full some semblance of trust will be established which in time may allow for the establishment of shared interests and actions.  If Iran seeks to use the very detail of the Accord to split the fractious coalition that negotiated it then the there is a very real danger of treaty breakout and a defection that will make the current fragile situation even worse. 

President Obama is surely right to make the effort implicit in the Accord for all the reasons laid out above.  However, neither the White House nor the EU powers can dismiss the stated concerns of Israeli Prime Minister Netanyahu.  This Accord might not be the “historic mistake” he claims it to be but unless a clear determination to uphold it to the letter is apparent from Day One then the very real danger exists that Iran will out-manoeuvre a naïve Administration and a Europe that really does not want to be bothered right now.  As former US President Teddy Roosevelt once said, now is the time to speak softly but carry a big stick.

Julian Lindley-French  

‘aGreekment’: Facts and Implications

Alphen, Netherlands. 14 July. Bastille Day. This day back in 1789 the French people rose up and toppled the ancien regime.  Two hundred and twenty-six years on and it is the day after an attempt by another populist movement to challenge elite orthodoxy was firmly put in its place by Europe’s ancien regime.  In a ‘masterstroke’ of elite linguistic clunkiness European Council President Donald Tusk called the accord an “aGreekment’. It was certainly an abasement – of both debtor and creditors – and reflected the many contradictions of both the Greeks and the Euro itself.  What are the facts and the implications of this latest Euro-mess? 

The facts. Greece will receive a third massive bailout of my Dutch tax money worth some €85bn over three years to prevent state bankruptcy in return for first agreeing (this week) and then implementing (under imposed supervision) massive (and I mean massive) reforms. Indeed, wholesale change is demanded to the Greek tax base, legal system, levels and system of pensions, labour markets, public sector, public administration, financial sector and economy.

There will be an ‘independent asset fund’ established via the sell-off of Greek public assets such as ports and airports which it is hoped will raise €50bn and which will be overseen by the creditor institutions – the European Commission, European Central Bank (ECB), and International Monetary Fund (IMF).  Thereafter, €25bn will be used to recapitalise the Greek banks, €12.5bn will be invested in reducing the Greek debt-to-GDP ratio, and a further €12.5bn committed to investments in Greece itself.

There is as yet no agreement to offer Greece relief on its enormous €320bn debt. However, given that Greece can never escape from the debt trap without debt relief the latest bailout only makes sense if relief is eventually offered. In practical terms that will mean all of my money the Dutch Government pretended it was loaning to the Greeks in bailouts 1 and 2 (and now this new ‘loan’) will at some point be turned into gifts.  Money that was also used to indemnify German, French and other banks and which I am also paying for through the low interest on my savings, high taxes and the debasing of the Euro through so-called quantitative easing – printing money.

Greek debt management will be undertaken by extending the democratic deficit.  Critically, under the ‘aGreekment’ the Greek government must agree proposals with the ECB, Commission and the IMF BEFORE they are submitted to Parliament.  This structure effectively renders the democratic process irrelevant as the deal will be done before it ever reaches Parliament. This is probably just as well as it merely brings the ‘aGreekment’ into line with most other European legislation.

The implications?  First, the short-term.  If one strips away all the ridiculous talk of coups and German takeovers the bottom-line is that the Greeks by voting ‘no’ to austerity but ‘yes’ to Eurozone membership were effectively (almost childishly) inviting me the Dutch taxpayer to go on indefinitely paying for a clientelistic political and economic system that was not fit for the twenty-first century world.  Such a system would have collapsed sooner or later under the weight of its own corrupt inertia and had to be reformed.

In the longer-term the implications are profound and not just for Greece.  The Eurozone is at a crossroads because the current crisis reveals yet again the sheer lunacy of creating a political project that is not grounded in sound fiscal and monetary policy.  This crisis was forged back in 1991 and the establishment of the Maastricht Convergence Criteria and the rules governing the single currency.  In the absence of true political and fiscal union and enforcing institutions it was hoped that the member-states would adhere to the rules.  They did not – including France and Germany. 

However, with EU-scepticism growing there is little or no appetite for a European super-state or anything like it, not least because such an entity would kill off democracy once and for all in Europe.  Nor is there agreement between Eurozone members about future direction. It is clear from the wording of the ‘aGreekment’ that German conservatives drove the process far more than French socialists. This means the entire debate over ‘governance’ will stumble on for another decade or so, as will the euro itself.  Growth will be stymied, jobs will go uncreated, and savings will be raided.  Worse, the Eurozone will go on obsessing with itself as Europe’s relative decline accelerates precisely because of the Euro’s dangerous structural flaws and contradictions. This will render not just Europe but the wider world a very much more dangerous place.

EU founding father Jean Monnet said, “Europe will be forged in crises, and will be the sum of the solutions adopted for each crisis”.  In fact with each crisis the European project has become more elitist, ever more rigid and progressively weaker as the high priests and priestesses of Euroland crash hard against the battered redoubts of national politics.   And, for all of Greece’s child-like behaviour the Greeks have at least swept away the hubris covering an important and dangerous principle of ‘ever closer union’. When the technical requirements of European economic cohesion clash with politics and democracy it is and always will be the latter that loses.  That is why ‘Europe’ is an elite project and more Europe will mean ever more elite fiat and less democracy.

Julian Lindley-French

Britain Restores (some) Strategic Balance

Alphen, Netherlands. 9 July. Britain is to spend more on defence. However, upon what Britain spends more on. for what reason and to what effect must now be at the core of the coming Strategic Defence and Security Review 2015 (SDSR 2015) due to be unveiled in October.

Chief of the British Defence Staff General Sir Nick Houghton called yesterday “a great day for defence”. He also said that the defence chiefs would no longer need to focus on “managed decline”.  And, on the face of it I must swallow some humble pie this morning. Or, rather, I can feel vaguely vindicated that my long campaign with many others has succeeded (including the writing of a 2015 book – Little Britain: Twenty-First Century Strategy for a Middling European Power) to get the British Government to restore some strategic balance and respond to the real world as it is not as they would like it to be.  

In yesterday’s budget statement Chancellor of the Exchequer George Osborne committed to maintaining Britain’s defence budget at the NATO guideline of 2% GDP until 2020 and to the creation of a Joint Security Fund of £1.5bn per annum.  Now, one has to be careful about just what will be included in this beefed-up ‘defence’ budget. However, if real then not only has a thin red line been drawn under the massive defence cuts of the last five years but an investment base is being established that will confirm Britain as Europe’s strongest military power, and a modest but influential world power.  Critically, SDSR 2015 now has sufficient investment behind its thinking and planning to establish a new, radical, joint British force able to reach out to allies and across to civilian partners both within government and beyond.

Let me give you an idea of scale. Whilst the British defence budget pales into significance alongside this year's US defence budget of some $534.3bn (£353bn or €492bn) London still spends a lot of money on defence and is about to spend more.  Indeed, with an economy worth some $3015 trillion (£1958 trillion or €2717 trillion) in 2015 spending 2% GDP amounts to some $60.3bn (£39.16bn or €54.3bn). Poland, for example, will spend this year spend some 38.4bn Zloty or $10bn on defence. 

However, there is still some devil in the detail of the Chancellor’s announcement.  This year Britain will spend (rather than budget for) some $61.8bn on defence (£40.13bn or €55.69bn). In other words, going from 2.15% of GDP on defence to 2% still represents a further real terms cut of $1.5bn or £0.98bn.  There is clearly some budgetary sleight of hand at work in these figures. However, the simple truth is that if the 2% target is to be met over the 2016-2020 period Britain will indeed need to spend an additional $6-8bn of defence.   

The critical point is this; with a committed defence equipment budget of £163bn ($250.75bn or €226.46bn) over the 2011-2021 period and with the commitment to a real terms increase of 0.5% per annum until 2020 in the defence budget the new British Government has clearly moved to stabilise a force that was beginning to show signs of serious decline and service chiefs can far better balance new equipment and the demands on personnel they will make.  Indeed, whilst these investments do not match the current levels of investment being pumped into their respective armed forces by, say. China and Russia (frankly nor should they) if one removes France from the equation the UK defence equipment budget is bigger than the rest of Europe combined.  Given the centrality of alliances and coalitions to British defence strategy that growing disparity will itself mean growing interoperability problems with under-equipped European allies in the years to come.  So, yesterday’s announcement demonstrates a British Prime Minister who has made a very public decision to remain close to the United States at whatever cost.  Are you listening Washington?

So, what else does yesterday’s announcement reveal about the state and future of the British armed forces?

1.  SDSR 2010 made defence cuts that went too fast and too far as the government panicked in the aftermath of the banking crisis and tried to re-balance the national books unrealistically quickly.  Indeed, yesterday’s entire budget statement was an implicit admission of that;

2. SDSR 2015 now has enough guaranteed investment for planners to think strategically rather than strictly financially and thus will be far better able to match defence ends, ways and means in the coming years. To that end, the National Security Strategy and SDSR 2015 must clearly be part of a strategic planning continuum centred upon the National Security Council which must act in turn as the security and defence planning driver across government; and

3. The Joint Security Fund reinforces an idea central to my book Little Britain that the British establish a ‘joint’ vision across the two axes of national security and defence and the tri-service.  Recent initiatives such as the Joint Force Command (JFC), Joint Expeditionary Force (JEF) and the Combined Joint Expeditionary Force (CJEF) with the French, must be built upon to generate sufficient mass to deter, sufficient 'manoeuvre' to move quickly, and sufficient agility to work with all possible partners across the conflict spectrum. In short, defence must be properly plugged into security.

There are also some real challenges that must be addressed by the Armed Forces themselves:

 1.   Why do the French (for example) with a comparative but marginally smaller defence and defence-equipment budget always seem to get more force for each euro of investment? For too long Britain has been ‘rubbish’ at defence procurement and for too long prime defence contractors have run rings around the British defence Establishment. This has helped to significantly boost defence cost inflation and resulted too often in inferior kit being procured at inflated prices very slowly and in insufficient numbers.  Yesterday the share value of BAE Systems jumped significantly on the announcement of a defence budget hike.  If that means investors think BAE (and Thales) can again gorge their extended guts on the defence teet then they must be sorely disappointed;

2.  SDSR 2015 must be the enablers review, i.e. the focus must be on those things that bind the forces into one force by providing eyes, ears and brains.  One of the tragedies of SDSR 2010 was that it forced the three service chiefs to defend their respective core forces.  The Army tried (and failed) to defend its regiments, the Royal Air Force defended fast jets (well most of them), and the Royal Navy focused on getting the new carriers completed, together with the other new platforms desperately needed after over a decade of land-centric operations.  Vital enablers such as vital maritime patrol aircraft were cut because there was no service chief to defend them during a Treasury rather than strategy-led assault on the Armed Forces.

In Little Britain I call for a new understanding by London of its role and that of its armed forces in the new nexus of twenty-first century nastiness. A role that must confront dangerous change in the world and reflect the power and responsibilities of one of the world’s top five economic and military powers, that places the forces at the heart of Britain’s security and defence, and strikes a new balance between the size, scope, missions and tasks of Britain’s world renowned armed forces.  Yesterday, Prime Minister Cameron together with his colleagues George Osborne and Defence Secretary Michael Fallon stepped up to the plate and for that I offer my sincere congratulations.  Britain is beginning to restore strategic balance and that will in turn strengthen the tattered transatlantic relationship, NATO and European defence.  I could niggle about this or that but I will not because yesterday, I saw something I have been begging for – British strategic leadership. Thank you, Prime Minister, for your “big push”!

However, I will finish with two challenges.  My first challenge is to the service chiefs. I have the honour of knowing General Houghton and First Sea Lord Admiral Sir George Zambellas, and I respect Chief of the Air Staff Sir Andrew Pulford, and Chief of the General Staff Sir Nick Carter.  These are serious people doing a very serious job at a very serious time.  However, let me be blunt gentlemen. The Chancellor has afforded you a chance to present your joint vision of the future British force and to deliver it.  You must therefore speak with one voice to the Prime Minister, the Chancellor, Secretary Fallon and the ‘Chief’. That means no more implicit warfare between the Navy, the Army and the Air Force over budgets. As a taxpayer I find such inter-Service rivalry/tribalism not only ridiculous but boring and dangerous. Sadly, I am still hearing echoes of tribalism in the corridors of power and in the various service strategies being worked up.  It must stop. For the country’s sake don’t blow it!

My second challenge is to the Secretary of State for Defence, Michael Fallon.  The Whitehall culture is first to protect the minister and only then to protect the country.  As SDSR 2015 is being worked up over the next (and famous) “100 days” it will succeed only if it is a truly strategic document that balances strategy, capability, capacity and affordability.  If that balance is to be struck assumptions will need to be challenged.  That in turn means the planting of a real Red Team at the core of the process, a real awkward squad, people who will and can challenge both process and assumptions and who are far more than legitimisers of perceived ministerial and department wisdom.  That in turn will require political courage, Mr Fallon, which I believe you possess in spades.

Julian Lindley-French