20 Years on from Srebrenica – Why the UN Still Can’t Make Peace

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Yesterday world leaders marked the 20th anniversary of the Srebrenica massacre. The Serbian Prime Minister was forced out of the ceremony. Understandably there is much hand-wringing about the complicity of the West, and the UN, in the killing. The performance of the Dutch peacekeepers remains a cause of national shame in the Netherlands (perhaps unfairly, in my opinion – I am not sure what else they were to do cut off from other UNPROFOR forces and without the prospect of air support). Much is being said, and written, this weekend about the failings of UNPROFOR, the UN Protection Force deployed to Bosnia to protect civilian populations from the consequences of the bid by the Bosnian Serbs (and one point the Bosnian Croats too) to carve out their own ethnically cleansed state. Little will be new to me.

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I was posted away from the Foreign Office’s Eastern Adriatic Unit (the department responsible for the former Yugoslavia) shortly before the Srebrenica massacre, although I cannot claim that I would have contributed anything to preventing it. Policy making throughout the period I worked on this was beset by one of the worst cases of groupthink I have experienced. Groupthink is an insidious process, which creeps up on even bright thinkers without them being aware of it (and some of the people dealing with Bosnia were very bright). One feature of our groupthink was that air strikes would be ineffective. A second feature was the primacy of UNPROFOR. The two were related. One of the major arguments against air strikes was the risk of retaliation against exposed UNPROFOR units. Another argument was that air strikes alone are seldom effective. In general this may be true, but in the specific circumstances of Bosnia, had we but got our minds outside the groupthink bubble, we would have realized that the outnumbered Bosnian Serb forces depended on the heavy kit they had been gifted by the Yugoslav army, and that this kit had to be kept on the frontline. If this heavy kit had been hit hard by air strikes, the Bosnian Serbs would have been forced to sue for peace, as happened eventually in 1995. But by then tens of thousands more had died.

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The dogma of UNPROFOR primacy was equally toxic. UNPROFOR never fulfilled its function of protecting the civilian population, and the level of its performance depended on the quality of national contributions. UNPROFOR had overall rules of engagement (ROE – the rules that lay down when soldiers can open fire), but each national contingent had its own ROE, placing the UNPROFOR commander in an impossible situation. While governments, including mine, formally praised the performance of all contingents, in reality few did well. The former Soviet Republic, whose contingent promptly sold their German provided equipment to the Bosnian Serbs for much needed hard cash was an extreme example, but other contingents sought any excuse to avoid confrontation, favoured coreligionists or allowed local mafias to take over. The major problem was that UNPROFOR provided no real protection to civilian populations, whether Bosniac, Serbian or Croatian. Rather it served only to minimize the consequences of military defeat. So when either side won a military victory, UNPROFOR ensured that it was not critical. In doing so, UNPROFOR served to prolong the war, and prolong the suffering. By prolonging the war, UNPROFOR also increased its brutality as the combatants became inured to violence and indulged in ever crueler massacres. UNPROFOR not only failed to protect Srebrenica, it also created the circumstances in which such a massacre could take place.

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But there is a more serious, and broader, question about the ability of the UN to make peace, especially in situations of civil conflict. International institutions reflect the geopolitical balance of the moment of their creation – the geopolitical balance of power is frozen in aspic. As the geopolitical power balance changes over time, the international institution is left behind. It is a form on inbuilt obsolescence for international institutions. This can be seen even with recent organizations. The US, for example, has already abandoned its own creation to impose global trade rules, the WTO, in favour of geopolitically determined regional trade groups (TPP and TTIP). The power structure of the UN, and in particular the functioning of the Security Council, was quickly overtaken by the Cold War. The Security Council proved to have an inbuilt block on effective action to prevent war or secure peace. Effective Chapter VII action has been authorized only rarely, when the Soviet Union was boycotting the Council, when Yeltsin’s Russia lay subservient to US policy or when the West deceived Russia and China about the scope of humanitarian protection in Libya. Otherwise action under Chapter VII has been blocked by one or other of the permanent members, and is likely to continue so into the future. With limits on effective military action, the UN has instead focused on peacekeeping missions, naming special representatives of the UN Secretary General to act as mediators between the parties.

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This approach is drenched in Wilsonian optimism about human nature, and that reasonable men can always be brought to reasonable agreements. More seriously, it is built upon a principle of impartiality between the parties, granting the parties equal moral and political status. This can be highly problematic. In Bosnia it meant granting Bosnian Muslims and Bosnian Serbs equal moral status. When the Bosnian Muslim government objected to signing agreements with the Serbian leaders who were ordering the ethnic cleansing of their villages and the bombardment of Sarajevo, they were criticized for blocking the peace process. It was a curious example of blaming the victim for refusing to agree the scope of his torture with the torturer. Eventually Srebrenica forced the west to act. The US insisted on effective air strikes against Bosnian Serb positions and UNPROFOR commander Sir Rupert Smith ignored the ROE to attack them with artillery. Facing military defeat, the Serbs caved and the peace agreement was hammered out at Dayton.

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The true lesson of Bosnia for the UN (and the West) should have been that impartiality in civil conflicts does not work. Granting both sides moral equivalence is not only ethically obnoxious, it is also ineffective in ending the conflict and reducing the suffering. The conflict in Bosnia ended when the West chose sides and then gave that side sufficient military support to force the other side to the negotiating table. It was essential that Bosnian Muslim military success was sufficiently dependent on western support that their government was forced to agree reasonable terms with the defeated Serbs. In Croatia, where the US had equipped the Croatian army to the point where it could attack the Croatian Serbs with no direct western support, no such reasonable terms were on offer. The Croatians cleared the Krajina of Serbs in as bloody a piece of ethnic cleansing as seen in Bosnia. The general point is that to end civil conflict you must choose sides and then support that side sufficiently to bring the other side to the negotiating table, but no further. At that point the diplomats can hammer out the agreement as the threat of military defeat hangs over both sides (because you can renew or withdraw support from your chosen side). Attempts at maintaining neutrality or impartiality only allows you to be drawn into the conflict itself, as both sides attempt to use the international mediator against the other. The mediator becomes another weapon to be used in the propaganda war.

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That the UN has not learnt the lesson can be seen from the travails of UNSMIL in Libya. The Head of UNSMIL Bernadino Leon has determinedly sought to remain neutral between the parties as he shuttles between them to create a Government of National Union (GNU). Like Consultancy Companies like McKinsey with their programme for every situation, the UN has a playbook from which its representative can draw the road map towards a solution for any kind of conflict. The road maps are inevitably generic, and pay little attention to the realities of the situation. The GNU is a vital part of the road map. It does not matter if it is viable, or can agree forward looking strategies. Just securing agreement to form one allows the UN mediator to tick another box and announce a success. In Libya even this seems to elude poor Leon. His latest efforts in Morocco have secured an agreement between the Tobruk-based government and the municipal councils, but the Tripoli-based government and its militia remain absent. Although Leon offers optimism that they might join later, such are the differences between the Tobruk and Tripoli governments that it is difficult to see what a viable agreement that could form the basis of sustainable GNU would look like. The situation is of course a reversal from that a few weeks ago, when supporters of the Tobruk government sought to prevent Leon from traveling to Tripoli. Meanwhile, Islamic State has seized on the chaos to install itself in Libya and is now entrenched in Sirte and Benghazi. Even if Leon achieves his prize of the GNU, it is highly unlikely to enjoy sufficient internal coherence to expel Islamic State without considerable outside support. But to the extent that the new GNU is seen as a creation, or imposition, of foreigners, it could itself strengthen support for Islamic State.

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None of this is intended as criticism of Bernadino Leon himself. He has struggled manfully to fulfill his mandate under impossible conditions. Rather it is the general point that matters: the UN’s approach to peace-making in conflict situations, based on impartiality and generic road-maps, does not work, and only prolongs the conflict and increases the suffering. In Bosnia it prolonged the war for 4 years and created the conditions in which Srebrenica could happen. In Libya it has prolonged the crisis, allowed the infiltration of Islamic State and the illegal migrant crisis and destroyed the economy. Conflicts are resolved when one side prevails. The role of the international community, if it wants one, is to decide which side will win and then ensure that at the point of victory the loser gets his due. Until this lesson is learned, the UN will go on paving the road to hell with its good intentions.

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Investing in Turkey – 4D Strategic Vision Needed

 

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In November last year, Spanish bank BBVA increased its stake in the Turkish bank Garanti to 39.9%, making it Garanti’s largest share holder. At the time, BBVA President Francisco Gonzalez hailed the deal as “one of the bank’s best investments in the future” because “Turkey is an important, and a young country.” Both judgements are reasonable – 50% of Turkey’s population is under 30. BBVA’s CEO did admit that the region suffers geopolitical tensions, but argued that they were more than compensated by Turkey’s potential for economic growth. In fact, even as he spoke, there were very good reasons to doubt Turkey’s potential for economic growth.

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Like other emerging economies, the fate of the Turkish economy in recent years has to a large extent been decided in the US Federal Reserve Bank. The implementation of Quantitative Easing (QE) released trillions of dollars onto markets in search of good returns. With interest rates in the U.S. at historic lows, much of this money flowed into emerging markets, including Turkey, in the form of foreign portfolio investment (FPI). This sudden massive injection of capital drove housing and stock market bubbles and potentially unsustainable deficits on the current account. Deficits on the current account driven by FPI pose a particular problem: normally a deficit on the current account would cause the local currency to weaken, as demand for imports exceeded that for exports, but in this case the demand for the local currency generated by the portfolio investment itself doesn’t allow that to happen. One of the self-correcting mechanisms for the current account deficit is removed. A second problem with FPI is that easy come, easy go. Foreign investors like it because it is reasonably easy to withdraw quickly, unlike Foreign Direct Investment (FDI) – governments dislike it for the same reason.

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The sustainability of much of the Turkish economy is thus dependent on the maintenance of FPI, largely by US investors. This in turn depends on decisions taken Fed Chair Janet Yelloen. Already previous signs of monetary tightening have caused sharp corrections in Turkey’s stock market. The IMF has reported significant capital outflows from emerging markets this year as investors anticipate further US monetary tightening. So far this has not happened as continued weaknesses in US economic data have persuaded Yellen to hold back on raising interest rates. But sooner or later the Fed will begin to normalize, and will do so for internal economic reasons without considering the impact on emerging markets like Turkey. At that point the capital outflow will accelerate, leaving Turkey with collapsing house and stock markets and an unsustainable deficit on its current account. The Turkish Lira will also depreciate rapidly. Although that, in the longer term, should help with the current account deficit, in the shorter term it increase Turkey’s problems in servicing its dollar-denominated foreign debt. Indeed, given Turkey’s dependence on imported fuel and raw materials for its manufacturing sector, it is not clear that a depreciating currency will help much with the current account deficit. In short, within the next year or so, Turkey is likely to face a perfect storm of collapsing house and stock markets and currency and unsustainable current account deficit and foreign debt, all provoked by decisions taken in Washington over which Turkey has no control.

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Turkey’s economic problems are not the only challenges it faces: it also faces severe political and geopolitical challenges. The geopolitical challenge is essentially four-fold: Turkey’s rejection by the EU; the collapse of neighbouring states of Syria and Iraq; the consequent rise of both Islamic State and the Kurds; and the resurgence of Russia and Iran. Although no-one is keen to proclaim it out loud, it is clear that Turkey will never enter the EU. If there remained a slight opening still prior to the economic crisis, that has disappeared with the Eurozone crisis and the rise of anti-immigration parties across the EU. This has forced Turkey to re-think its geopolitical alignment, a task made harder by the disintegration of its two neighbours to the south. The fragmentation of Iraq and Syria threatens Turkey with an immigration crisis as well as the risk of instability crossing the border. The rise of an ever more confident Kurdish pseudo state in northern Iraq threatens Turkey’s internal political stability as Turkey’s own Kurds become more assertive. The rise of Islamic State poses even greater threats. Turkey has withstood US pressure to engage with Islamic State forces directly, which has soured relations with Washington, but the danger of cross-border infiltration remains, with the risk of attacks on western tourists the most direct threat to Turkey’s economy. If Turkey looks to shift its geopolitical re-alignment to the East, reviving the Pan-Turkic ideas of previous governments, it is confronted by Russia and Iran, both geopolitically assertive despite western sanctions, and ultimately China carving out its new Silk Road. Although Turkey might once have hoped to play between Moscow and Beijing, the extent to which western policy has driven Russia and China together has limited the scope for this. And then, of course, there is Greece …

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Turkey’s domestic political problems are partly driven by geopolitical factors, in particular the growing confidence of the Kurds, and partly by the character of its President Erdogan. Erdogan’s increasingly authoritarian attitudes and intolerance of criticism have alienated even some of his supporters. At the same time the country remains divided between the secularists, mainly from the professional and military classes, and the Islamists, more small businessmen and farmers. The recent elections complicated the political scene, with the irruption of the Kurdish HDP into the parliament. Far from winning the 330 seats it needed to change the constitution to give more powers to President Erdogan, the ruling AKP lost its parliamentary majority, although it is still the largest party. Negotiations continue to form a government, with the increase in the powers of the president one of the key issues. Any coalition government formed, however, will have major policy divisions which will limit its ability to respond agilely to Turkey’s economic and geopolitical crises. At the same time there is evidence of increasing political violence and social unrest.

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The election results could not have been known in November last year, but all the other factors were already in place to some degree. This raises the question of what kind of geopolitical and geoeconomic analysis did BBVA carry out before deciding on its investment in Garanti, especially since the same set of conditions have led HSBC to pull out of Turkey. This is not to criticize BBVA’s decision. Successful investments in high risk environments often enjoy high returns (although public statements at the time of the investment did not suggest that the BBVA leadership saw it as a risky investment). Rather it seeks to point out the difficulties that companies, even large companies, have in analyzing the complex inter-relationships between economic, political and geopolitical factors when making investment decisions. Turkey is interesting in that not only does its economic future depend on national political and regional geopolitical factors, but also on monetary policy decisions made in another continent. It is not alone in this. Most emerging markets were recipients of FPI after the Fed introduced QE, in most cases it drove current account deficits and asset market bubbles, and most are now highly vulnerable to capital flight if the Fed raises interest rates. This includes much of Latin America, which is already suffering from the collapse in commodity prices as the Chinese economy slows. This is highly relevant to a bank like BBVA, which also has a significant presence in Latin America, on which it depends for much of its profitability. If Yellen decides to raise interest rates, BBVA could find several of its key markets entering into economic crisis at the same time.

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Again I stress, this is not intended as a criticism of BBVA, which may in any case be proved right in the end. BBVA is the case study simply because Turkey is an interesting example. What it makes clear is that companies must make a thorough political and geopolitical analysis of a country before taking significant investment decisions. But this is not enough. The analysis must run broader to include all the markets in which the company is operating and factors at a global level that could affect the economic stability and growth of the country being considered. In the case of an investment in Turkey this must include the regional geopolitical factors, but also the impact of US monetary policy on investor decisions about Turkey, as well as the impact of those same decisions in other countries where the company has exposure, for example in Latin America, which then brings in the impact of China’s economic performance on commodity prices. The latter makes the point that the analysis must be tailor-made to the company and the specific investment decision. What might be a reasonable risk for one company, because hedged by investments in other countries with a contrary risk profile, might be highly dangerous for another company already exposed to similar risks, with the same causal triggers, in other countries. Expensive off the shelf country reports from Anglo-American geopolitical consultants do not cut it.

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In short, companies need company-specific, four dimensional analysis leading to a 4-D strategic vision of the investment opportunity. The four dimensions are:

  • 2 dimensions of space – the analysis/vision must be holistic across all the markets the company is operating and all countries and governments that can affect the political and economic performance of the investment country.
  • 1 dimension of time – the analysis/vision must be dynamic through time, both in the sense of looking both backwards and forwards, and understanding that the analysis itself must constantly evolve.
  • 1 dimension of depth – the analysis must dig down through the different levels of political, geopolitical, economic, social, security and cultural factors and pull them together into a holistic vision.

Such a 4-D strategic vision can then serve as the basis for business diplomatic strategies that can mitigate the risks and even uncover opportunities in challenging investment environments. In an ever more volatile and unpredictable international business environment, the costs of getting this wrong can be severe.

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Have Tsipras and Varoufakis Outgamed Merkel?

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It is well known that now former Greek Finance Minister Varoufakis portrays himself as something of an expert in Game Theory. This has led various commentators to disparage his brinkmanship in negotiations as the kind of game playing alien to EU procedures. Moreover, they argue that it has undermined the prospects for an agreement and brought Greece to the brink of ruin. However, it is worth considering what the game has been and whether Greece has really done that badly. When Syriza was elected, a combination of previous Troika mismanagement and the ineptitude of Greek governments dealt the new government what looked a pretty awful hand. Greece was dependent on its international creditors to pay pensions and salaries, and even to keep the banks open. It appeared to have very little leverage to bring to the table. Yet it has now secured a position where there is actually increasing pressure on a divided Eurogroup to deal on terms set by the Greek government. Is it possible that the Greek Government has played for this outcome from the beginning?

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The key to the Greek crisis is, as it has always been, whether Greece is illiquid or insolvent – is the problem that Greece won’t pay or can’t pay. The Eurogroup insists that Greece is essentially illiquid and so refuses to discuss debt relief, at least until a new package of reforms is already in place. The IMF takes a different view, accepting that Greece is indeed insolvent and that debt relief is inevitable, but insisting on an even tougher package of reforms up front. The Greek Government is clear that it cannot pay all the debt run up by its predecessors and that debt relief is the sine qua non of any new deal. This has been a central plank of Syriza policy since the elections, and one of which Prime Minister Tsipras must deliver if he is to retain electoral credibility. The Eurogroup’s position is also driven largely by domestic considerations. Talk of debt relief is anathema to many in Northern Europe, and the Finnish and German Governments are doubtful of their ability to get it through their parliaments. Angela Merkel fears the oxygen it would give to the Eurosceptic Alternative for Germany (AfD) party. Spanish PM Rajoy’s fears are on the other side of the political spectrum. He fears that any success for Syriza would bolster the anti-establishment Podemos, increasing the prospects that he will be ousted by a left-wing alliance in November’s elections. Similar fears haunt Italy, Portugal and even Ireland, where Sinn Fein seems to be on the rise. The solution has been to insist that Greece is illiquid and impose a series of temporary fixes that keep Greece in the Euro, but do nothing to solve the underlying problems.

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It may have been this Eurogroup tactic of continual short term fixes that the Greek Government’s game strategy sought to end. By being flexible on the contents of further economic reform measures the Greek Government sought to put the focus of the disagreement between them and the Eurogroup on debt relief, which served also to accentuate the differences between the Eurogroup and the IMF. IMF Managing Director expressed her frustration when she raged about the lack of grown-ups in the room, but she missed the point. She was trying to reach an agreement that brought the three sides in the negotiations together. The Greek Government was trying to drive them apart in the circumstances most favourable for its own strategy. That point seems to have been reached when Tsipras suspended negotiations with the Eurogroup to call for a referendum. Eurogroup, IMF and the European media seemed unanimous that this was the desperate act of an immature politician. But like Lagarde, they may have missed the point. Tsipras had got all he could out of the negotiations and had, in his view, secured the best configuration of forces he was likely to achieve. It was time for the coup de grace. It was an enormous risk to take, but then the whole Syriza strategy since the elections has been based around risk, and the assessment that the Eurogroup is more risk averse than the Greek Government. Just as the poker player dealt a weak hand, given the configuration of forces at the time of the elections, only boldness offered Tsipras a chance of victory. He may also have counted on the clumsiness and arrogance of the Eurozone’s elite in helping him win the referendum – they certainly did their best (see Wolfgang Munchau’s article in the FT: http://www.ft.com/cms/s/0/b7ea4b6c-21a2-11e5-aa5a-398b2169cf79.html#axzz3f88WlQLK). The revelation by the IMF that Greece does need further debt restructuring (and the implication that the Eurogroup may have tried to repress this report) further helped the cause.

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So far Tispras’ game strategy seems to be working. He not only won the referendum by an overwhelming majority, but in doing so he has consolidated his position as Greece’s leading political figure (in the process humiliating the series of ex-prime ministers who campaigned for the yes vote). The last master play may have been the resignation of Varoufakis, who could have been an obstacle to a renewal of talks. His resignation both removes that obstacle and, because it was at the behest of Tsipras, demonstrates a willingness to make sacrifices by the Greek Government. The Eurogroup will find it difficult now to justify refusing new talks, but the balance of forces is very different. The Greek government enjoys the support of the Greek people and the IMF for its demand that debt re-structuring be put on the table. Even the Greek opposition parties have agreed to support Tsipras’ negotiating position. The pressure is now on the Eurogroup to reach a deal, or explain why debt re-structuring cannot be discussed. The pressure is not just regional: the US too, fearful of the geopolitical consequences of Grexit, will be piling on the pressure for a deal. There are also signs of splits within the Eurozone, with France taking a significantly softer line than Germany. If the deal broker remains debt-restructuring, despite its support by the IMF, the Eurogroup, and Merkel in particular, could end up with some difficult explaining to do in Washington.

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This is not to say that a deal is inevitable. The domestic political considerations militating against a deal remain powerful, both in the northern and periphery Eurozone members, and within the EU domestic politics usually wins out over broader geopolitical and geoeconomic considerations. It is significant, and says much for the weakness of European governance, that Mogherini and the EEAS are not involved advising the Eurogroup on the foreign policy implications of their decisions. But, whether deliberately gamed or by fortunate happenstance, the Greek negotiating position is significantly stronger now than it was at the time of Syriza’s election. If negotiations do fail, and Greece is forced from the Euro, considerably more blame will attach to the Eurogroup, and above all German Chancellor Merkel, than would have seemed likely a few months ago. This may all be chance, and the Greek government had no strategy, stumbling from one negotiating crisis to another. But if they did game it out, then they have played a weak hand well, and have outplayed the supposedly more experienced politicians. Perhaps Varoufakis deserves his reputation as a game theorist after all. Perhaps he was the “Greek Minister of Awesome” (for those who have not seen it yet, V for Varoufakis: https://m.youtube.com/watch?v=Afl9WFGJE0M).