What’s Going On with the Lira?

When Turkey sneezes, then the Turkish Republic of Northern Cyprus (TRNC) catches a cold. Nowhere is this more true than in the TRNC’s currency, the Turkish lira.

The Turkish Army bled to liberate the Turkish Cypriots in 1974. Turkish soldiers’ graves lie on TRNC soil. Since that legal intervention to protect Turkish Cypriots over four decades ago, Ankara has maintained a garrison in the North to deter any foolish Greek adventures. From this benevolent occupation many other things have flowed: Turkish taxpayers pay for the TRNC; Turkish money provides jobs and infrastructure; and, above all, the TRNC uses the Turkish lira as currency.

But of late something has gone badly wrong. In the past few months the Turkish lira has plummeted in value on the international money markets. The impact on the TRNC is cataclysmic.

So what has gone wrong? The simple answer is that Turkey, having emerged from the global financial crisis of 2008-09, borrowed heavily in foreign currencies to fund its government’s programmes. With interest rates at an all-time low this made sense. Cheap foreign money could boost growth.

This plan worked well initially. The Turkish economy has grown by 300 per cent since the early 2000s, riding an unprecedented wave of construction and consumption. Foreign investment poured in. Huge projects – such as the USD $11bn (GBP £8.6bn) Istanbul–Izmir motorway, a high-speed Ankara-Istanbul rail link and plans to build the world’s largest airport – have soaked up foreign loans. The economy grew by a whopping 11 per cent in 2011.

However massive borrowing at low interest rates cannot last for ever; it has to be repaid. Now the chickens have come home to roost. To make matters worse, many of Turkey’s big construction companies have borrowed too much the past decade and are finding it difficult to repay them. This makes the economy very vulnerable.

Also, the geopolitical game has changed. US interest rates have got tighter and the dollar is strengthening. Any country that has borrowed heavily from abroad to fill its budget deficit is suddenly under pressure. Now Turkey has to repay its debts in foreign currency and there’s the rub: it can’t afford to.

Turkey has a deficit in its international trade: it imports more than it exports, which means that it spends more than it earns. This deficit has to be financed, either by foreign investment or by more borrowing from the world’s money markets. There’s nothing unusual about that: Britain’s Treasury does just that, year in year out.

Turkey’s position is not like the UK, however. With a growing deficit of national income, or GDP, in 2017, investors are becoming increasingly wary of lending more money to Turkey, for three reasons.

  • Ankara has a lot of debt due for repayment in the near future – loans that have to be repaid or more money borrowed from someone else to pay them off. To the financial markets, the debt has to be ‘refinanced’. However, borrowing from Peter to pay Paul has never been good economics, either personally or nationally. Credit rating agencies like Fitch estimate that Turkey’s total debt is a whopping USD $223 billion – about a quarter of Turkey’s GDP – USD $50 billion of which falls due in 2019, USD $20 billion by December 2018. Where will Turkey find that money?
  • Since many big Turkish companies have borrowed in foreign currency, nervous investors suspect that the companies may have over-reached themselves. These loans become more expensive to repay if the value of the national currency declines – which it has. The result is that a number of major Turkish corporations, among them Doğuş Holding and Yıldız Holding, are already in trouble and need to restructure their loans. Türk Telekom has actually been taken over by its creditors after Oger Telekom defaulted on a USD $4.75 billion debt.
  • Investors are increasingly reluctant to put their money into Turkey. They are actually selling off their holdings of Turkish lira, forcing the value down. The nervous markets are causing a self-perpetuating fire sale of lira. Like lemmings going over a cliff, bankers everywhere are trying to dump their lira holdings as fast as possible at knockdown rates.

In other words, Turkey’s reliance on the foreign investment to keep itself afloat is drying up. For many years, this did not matter as interest rates in developed economies were at record lows, so borrowing from abroad remained cheap. Now those days are gone.

Exchange rate (TL-GBP): 2008-present

This growing currency weakness also aggravates Turkey’s persistent inflation problem, because as the lira grows weaker imports become more expensive. Just like the TRNC, Turkey relies on imports for much of its goods.

At the same time, markets are alarmed by the refusal to raise interest rates, which is the normal economic weapon to tempt timid investors back into lending their dosh. The recent US sanctions on Turkey have compounded this whole problem. ‘With a backdrop of rising rates and a stronger dollar, the imposition of US sanctions were the final ingredient for a perfect storm for the economy and Turkish assets,’ explains Nafek Zouk at Oxford Economics.

The impact of all this high finance has hit ordinary Turks and Turkish Cypriots hard. Tourist Janet Cowley, a foster carer and former police officer, said: ‘I’ve been paying for things in pounds sterling, just so the people here have some money. It’s terrible for them. Good for the tourists, though.’

Business owners are similarly concerned. In the TRNC many of the goods in the shops and supermarkets are imports bought in foreign currencies. The businesses that have taken out loans in dollars or in euros are suffering the most. One shopkeeper explains: ‘We have to pay for our stock in dollars, euros or pounds and then sell them for lira. We now need more lira – a lot more lira – just to pay our bills.’

The effect on inflation is obvious to anyone living in the TRNC. All energy has to be imported and oil is priced in dollars. Retail prices have shot up by at least 20 per cent on imported goods. Profiteering has become rampant and blatant, with some stores relabelling prices overnight on goods that have been on their shelves for weeks and were paid for months ago. Sadly we should never underestimate the Levantine temptation to grab a quick buck and let the customer rot.

The other great worry for the TRNC is that many high-value goods, such as houses or cars, are priced in pounds sterling. This means the buyer or a shopkeeper renting a shop and taking in lira as income has to find a lot more lira suddenly – as much as 40 per cent more in some cases. In turn, that means that a lot of shopkeepers will be unable to find enough lira to pay their increased bills. This leads to bankruptcies or worse: evictions. Pakistani Gastarbeiter (migrant workers) paying GBP £250 for a one room shared flat, suddenly find that TL Turkish lira symbol 8x10px.png1,800 a month won’t keep a roof over their heads, let alone a chicken on the plate. The social consequences, and dangers, of the collapse of the lira on ordinary working people throughout the TRNC will be profound – and worrying.

So what is the answer this financial crisis? The first step would normally be to put up interest rates or capital controls. Ankara has insisted it will not do that. Instead Turkey is buying time with a US $15bn loan from embattled Qatar, desperate for an ally in the Arab world. This is a fleabite, however, and the money won’t last long. In the background are Ankara’s new best friends, Moscow and Beijing. If China’s rack record is anything to go by, look out for the PRC bankrolling Turkey by buying up everything in sight, from Istanbul Harbour to factories and even an airport or two. Ankara is now looking to the East for salvation.

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The Guns of August

The trouble with August is that the historical record shows that whilst everyone is on holiday it’s a great month to start a war.

From the guns of August in 1914, via the start of the Wehrmacht’s ‘Grand Tour of Europe’ in 1939, the Gulf of Tonkin Vietnam war inciting incident of 1964, Saddam Hussein’s invasion of Kuwait in 1990, down to the Russo-Georgian War of 2008, August has meant ‘war’.

This August doesn’t look much better. There is global trouble brewing, big time. It may be the heat: perhaps the madness of ‘le Cafard,’ (the Foreign Legion’s description of the delirium caused by a Saharan summer), but the war drums are beating once again.

The problem is Iran. The US and Iran have been at odds increasingly over Tehran’s growing political and military influence in the Middle East. Things are not looking good for the ‘Mad Mullahs’ of Tehran this August. Trump has deliberately put the clerical regime in Tehran and the Iranian people between a rock and a hard place. The Ayatollah and President Trump are on a collision course.

Many thought that Trump would go back on his threat to quit Obama’s 2015 wishy-washy nuclear ‘deal.’ They were wrong. The economic war started on Tuesday, 7 August 2018, with new US sanctions on cars, aircraft, currency and gold. Any company with an office in the US caught ‘trading with the enemy’ will be prosecuted. Sanctions will cut off the money tap. Europeans are stunned by their loss of potential profits, but the Yanks mean business.

The current American President has simply followed through on his campaign promise. If anyone was in doubt about his willingness to use US power, Trump has shown that when he sets his mind to something it’s going to happen, despite the anguished wails of dismay from EU corporations who thought that their juicy new Iranian contracts would bring them an early Christmas.

Trump is deliberately placing the Iranian economy under intolerable pressure. Global companies are now fleeing the country and the Iranian rial has collapsed, losing half its value since April. Behnam Ben Taleblu, Research Fellow at the Foundation for Defense of Democracies in Washington DC, says: ‘Re-imposing these sanctions is the first step towards tightening the noose on Tehran, putting the regime to a choice between continuing its malign activities or improving its economy.’ Washington’s new penalties are just the first warning shot for even more savage sanctions planned for early November that will target Iran’s valuable oil exports.

The threat is mortal. Tehran needs to sell its oil to survive. The lack of oil revenue could bankrupt Iran. The reaction to American threats from the regime was therefore predictable: Iranian President Hassan Rouhani promptly threatened to disrupt international oil shipments through the Persian Gulf if renewed US sanctions strangle Iran’s oil sales. ‘No one who really understands politics would say they will block Iran’s oil exports, and we have many straits, the Strait of Hormuz is just one of those …. We are the honest men who have throughout history guaranteed the safety of this region’s waterways. Do not play with the lion’s tail, it will bring regret.’

Trump promptly Tweeted in kind, mostly in capital letters: ‘To Iranian President Rouhani: Never, ever threaten the United States again or you will suffer consequences the likes of which few throughout history have suffered before. We are no longer a country that will stand for your demented words of violence and death. Be cautious!’

Whether that will change the change the minds of Iran’s Shi’ite clerical leadership is another matter. Already Tehran is preparing for a fight. The US military’s Central Command reported on Wednesday, 8 August 2018, an increase in naval activity in the Strait of Hormuz, the critical waterway at the mouth of the Persian Gulf for the international shipment of oil from the Middle East. Iran is threatening to block it off with ships and mines if the USA’s renewed sanctions begin to bite.

The spokesman for Iran’s Revolutionary Guards confirmed the deployment of more than 100 vessels to the Gulf: ‘This exercise was conducted with the aim of controlling and safeguarding the safety of the international waterway in the Persian Gulf and within the framework of the programme of the Guards’ annual military exercises.’ He added: ‘They are to enhance defence readiness and to confront threats and potential adventurous acts of enemies.’

In turn, the Americans have warned Iran off. According to Washington, ‘Iran has threatened to close the Strait of Hormuz. They’ve done that in the past. They saw the international community put dozens of nations of the international community naval forces in for exercises to clear the straits. Clearly, this would be an attack on international shipping, and it would have, obviously, an international response to reopen the shipping lanes with whatever that took, because of the world’s economy depends on those energy supplies flowing out of there.’

This is fighting talk by both sides, but America has serious muscle on the water to back its rhetoric. The US 5th Fleet, based in Bahrain, is the ‘combined 5th Fleet’, which means it does not just comprise the US Navy. As well as a powerful US Carrier Strike Force, it has got Kuwaiti, Bahraini, Saudi, and Emirati vessels under command, as well as the occasional Royal Navy warship (when Britain’s MoD can afford to spare one as a token gesture).

From the Iranian side this war of words is not just sabre rattling. This is a battle Iran dare not lose, for domestic reasons. The Government of President Hassan Rouhani is already facing serious trouble at home, where the opposition has demanded action on corruption and for renewed efforts to rescue the economy. A combination of scarcity and inflation has caused prices to soar. Everything from real estate, groceries, and electronic goods have almost doubled in price. Iran is facing the worst economic crisis the country has ever seen.

Worse is to come. Iran has major internal socio-political problems, with serious water shortages and street protests breaking out in the country since the beginning of 2018 over high prices, disconnected water supplies, power cuts and widespread corruption. Since the start of August 2018, thousands of people have rioted in Iranian cities – including Isfahan, Karaj, Shiraz and Ahvaz – in protest against high inflation caused in part by the collapsing rial.

Already there are signs of a widespread clampdown by the clergy and the Revolutionary Guards. What started off as protests, spurred on by the deteriorating economic conditions in Iran and the inflation in prices of basic necessities, could now escalate into a rebellion against the Islamic Republic itself. As domestic economic conditions get worse there is growing anger at Iran’s foreign policy – which includes spending billions of dollars to supply weapons and fighters to take over Syria, funding the Houthi rebellion in Yemen, as well as lending financial support to Lebanese Shi’ite group, Hezbollah – whilst Iranian citizens back home go short. The Mullahs can no longer rely on a docile population.

The questions to pose are, ‘To what extent are these protests threatening the theocratic regime?’ and ‘Could such an upheaval foreshadow a second Iranian revolution?’ This is a real possibility and it explains Washington’s adamantine stance. Despite US denials, Trump and his team really want nothing less than to bring the Mullahs down.

This would explain the sudden receptiveness of the regime to the pleas of the protesters. In January 2018, Iran’s Parliament rejected a then-recent budget plan that increased the price of petrol by 50% and proposed increases in the price of water, electricity, and gas (‘Protests, 2018 budget and public discourse in Iran’, Al Jazeera News, 30 January 2018).

This apparent responsiveness from the current Islamic Consultative Assembly government is a desperate attempt to defuse the sense of grievance felt by many Iranians in the hope of reducing the risk of more violence on the streets or, in the worst-case scenario, protests escalating into a fully fledged revolution. On every front, trouble looms.

Will it end in tears and war? If so, when? Who can predict the outcome?

Once again, the guns of August are loaded and ready to fire – on both sides of the crisis.

Who Needs Money Anyway?

Here’s a riddle for you:

Question ‘What loves money, but hates cash?’
Answer ‘Governments and banks.’

Governments love money – your money – because it helps them to bribe electors. Not for nothing has modern democratic politics been dismissed as the art of redistributing taxpayers’ money. There is no such thing as ‘government money’ – just your hard-earned dosh, taken from your pocket by law. As Louis XIV’s Minister of Finance, Jean-Baptiste Colbert, put it so elegantly, ‘The art of taxation is in plucking the goose so as to obtain the largest amount of feathers with the least amount of hissing.’

But modern governments, like banks, hate real money. This deep-seated dislike of cash in people’s pockets is because governments cannot control it. Money is mobile; money is anonymous. Money is running loose out there in the wild. For the control freaks of every government and their snivel serpents, money is an untidy, reckless, irresponsible commodity, out of government control and, horror of horrors, in the hands of ordinary people. Cash makes all those illegal economic activities easier – from terrorist activities to criminals using cash to pay for drugs, because it cannot be traced; in any cashless economy, counterfeit notes would be useless. So it’s no surprise that governments around the world want to eliminate cash because all transactions have to be linked to bank accounts that can be taxed.

Banks in their turn dislike hard cash, albeit for different reasons; all those dirty banknotes and coins need to be counted and added to ledgers. Money needs branches where you can visit to check on your dosh or negotiate a loan with a human being. However branches require staff – expensive staff. Replacing them with self-service apps allows the senior managers of financial institutions to control customers directly and, of course, such a system cuts costs and boosts profits. For the big banks, what’s not to like?

So ‘Big Finance’, enthusiastically backed by the man in Whitehall, is pushing hard for what they see as the bright new future of a cashless society; a world where IT and digital communications can get the customers to do their work for them without recourse to all that messy money. The most powerful advocate of change is the payments industry, with its credit card companies and banks. Every transaction that is done using cash is really a missed opportunity for Visa and MasterCard to earn another 2.5%. Unsurprisingly it is in their interest to trumpet that cash is redundant, inconvenient and inefficient.

However, the cashless society is a con – with Big Finance behind it. Already, all over the Western world, banks are trying to shut down branches and ATMs. They are trying to push you into using their own digital banking infrastructure to make digital payments. Financial institutions want to force everyone to put all their money through the banks’ digital systems to be recorded and harvested. Cost cutting and control is the order of the day, and our brave new digital world is making it possible. IT has made a cashless society a reality – and this demands some hard thought, because the cashless society will change all our lives.

For a start, in many cases, money as a traditional exchange of value is losing ground. Money is becoming much more a concept of ‘credit reassignment’ rather than a transfer of physical material. Everywhere today people are using credit and debit cards on a regular basis in everyday situations, such as shopping. These are cashless transactions. The question is, ‘What exactly is this cashless society?’ This leads to real impacts of living in a cashless world?

Perhaps the best finance model to consider is Sweden, which is fast becoming the world’s first completely cashless society. For example, none of the banks around Stockholm’s main Odenplan Square handle cash any more. If you want a cup of coffee and Kanelbulle in the country’s largest café chain you can only pay by card or by using your smartphone. No money please! Also, there is no chance of using coins or notes if you want to hop on one of the shiny blue busses purring past – contactless payment swipe only. Tak!

The Swedes see nothing unusual about this cashless phenomenon. Most Swedish banks have long stopped allowing customers to withdraw or pay in cash over-the-counter. A quarter of people living in Sweden use cash only once a week. Sweden’s cashless trend has been praised as the way of the future, mainly by banks and the credulous commentariat, and is increasingly being copied in places as far apart as Idaho and India.

However, not everyone is convinced that the Nordic nation’s embrace of living by technology is quite the happy Valhalla claimed. There are growing concerns about the pace of change. For example, many older Swedes are becoming alarmed amid concerns that this cashless society is causing problems for the elderly and other vulnerable groups.

‘As long as it is legal to use cash in Sweden, we think people should have the option to use it and be able to put money in the bank,’ says Ola Nilsson, of the Swedish National Pensioners’ Organisation and its 350,000 members. ‘We’re not against the cashless society, we just want to stop it from going too fast.’

They are right to be wary; because the cashless society hides some very dangerous trends. The debacle of TSB and Visa’s disastrous IT switchover is a cautionary tale for our potential cashless future. The more we rely on technological solutions, the more we will have a problem when they fail.

Moreover, there are some clear downsides to a cashless world. First, it will alienate a lot of people and put them on the fringe of society, if not make them outlaws. Not everyone has a smartphone, a bank account or even a permanent address.

Nor do all developed countries wish to go down the Scandinavian route. Switzerland, for example, rejects non-cash transactions as an invasion of privacy. The Swiss were not even keen on cashless train travel cards, worrying that the government could snoop on their travel habits.  Many people wouldn’t want their day-to-day spending habits recorded and monitored.

Then, there is the serious matter of censorship. There is already an ugly precedent. In February 2016, Uganda blocked the popular Money Mobile app during its elections. The allegation was that the opposition would use it to buy voters. The real reason was to block donations to the opposition party. In another instance, Bank of America, Visa, MasterCard, PayPal and Western Union blocked donations to Wikileaks, which has seen its revenue dip by over 95%.

Finally, cash is an important safeguard against economic disaster. When things go wrong, when confidence in the banking system crashes, citizens like to withdraw their cash in wadges and stuff it under the mattress. A run on the banks is governments’ worst nightmare: remember the Northern Rock debacle? A cashless society makes that impossible – and, paradoxically, it also makes it impossible for governments to control money flow and unable to inject money (i.e. ‘print banknotes’) to stimulate the economy.

The conclusion is that because of its reliance on electricity, electronics, software and IT, modern society is becoming more and more fragile, and vulnerable. Cyber-attacks are increasingly common, as is theft by hacking. So real money will remain a bulwark against technological vulnerability. In 2017 the average amount of cash carried by people was £33; that has now fallen to £21 in 2018. However, when technology goes wrong, hard cash still remains the safest way to make basic transactions.

So ignore those ‘nudging’ you towards purely digital services – it’s really all for the banks’ benefit, not yours. Obviously, plastic and helpful IT have their part to play, but we should not get carried away by the vision of a cashless society.

The signals say, ‘proceed with caution.’

Democracy?

Sir Winston Churchill famously growled, ‘Democracy is the worst form of government – except for all the others.’

The great man had a point. He understood the dangers of ‘the tyranny of the majority’ very clearly, even adding on one occasion, ‘the best argument against democracy is a five-minute conversation with the average voter.’ Despite this, Churchill was a genuine democrat. He believed in the people and accepted their judgments.

‘Let’s do this the Democratic way …. Hands up all those who agree with me?’

This is highly relevant today, because democracy is under attack. The most obvious is Britain’s undeclared civil war over Brexit, where a narrow majority of voters – albeit on the biggest recorded electoral turn out – voted to quit the European Union. The subsequent uproar and the blatant attempts to pervert and obstruct the people’s decision to leave have shown that the democratic will is only recognised by some when it suits them. That is profoundly undemocratic. But, as in some many things, it all depends on what you mean by ‘democracy.’

Democracy as a political idea dates back to ancient Greece. Literally, it means, ‘rule by the people.’ The word comes from the Greek word dēmokratiā, which is a combination of ‘the people’ (demos) and ‘to rule’ (kratos). The first major exponent of the system was the city state of Athens, around 400 BCE. Not every Greek agreed with the concept. When a Spartan aristocrat argued for more democracy, he was put down firmly by the retort, ‘I’ll believe it when you run your own family as a democracy!’

Since then, both the theory and the practice of democracy have undergone profound changes.  What worked for certain types of male citizens of Athens centuries ago (women, slaves, foreign residents and children under 18 years of age had no vote) clearly does not work for hugely diverse countries like the USA or complex modern societies like the UK.

However, the idea of the people as ‘sovereign in their own affairs’ persists at the heart of democracy. Lincoln spelled it out simply in his Gettysburg Address: ‘… government of the people, by the people, for the people shall not perish from the earth’. From this, three principal systems of democracy have emerged; ‘direct’; ‘delegated’; and ‘representative’.

  • Direct democracy means every voter has a direct say via referendums. The Swiss and Californians like these.
  • Delegated democracy means that the people elect an individual to carry their views to a governing body such as a Senate, as in Ancient Rome. British Trades Unions are a modern example. Shop stewards are given instructions from their members and send delegates to the TUC with ‘a mandate from their members’.
  • Representative democracy means that elected officials represent a group of people. This is the theme of the rest of this article.

Colonial America favoured a system of representation because of the new country’s enormous size and widespread population. The Constitutional Convention (1787) realised that ‘the People of the United States’, could only govern themselves at the national, Federal level by electing Congressmen to go to distant Washington DC to represent their wishes.

The key word is ‘represent.’  Whereas a delegate is merely a mouthpiece, a representative is sent to use his (or her) best judgment on behalf of his constituents. The English political thinker Edmund Burke described his role as an MP to the voters of Bristol in 1774: ‘Your representative owes you … his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion.’ This explains why, for example, hanging is not put to the popular vote. Polls show that any referendum of the people would reimpose capital punishment, but Britain’s elected representatives in Parliament disagree. MPs think they know best, so they use their judgments to represent their constituents; they do not take their instructions from the people between general elections, which gives rise to the saying: ‘If you don’t like me or my views, then you can vote me out.’

Democracy therefore can mean different things to different people. What is clear, however, is that representative democracy requires mutual trusttrust of the representative by the people; and trust in the people by their elected representatives. Somewhere in the past 20 years that trust has begun to break down. We live in a world where politicians spout democracy – but do everything in their power to overturn it when the people give the ‘wrong answer’ at elections.

Nowhere was this more in evidence than the 2008 farce of Irish voters rejecting the Lisbon Treaty, only to be sent back to vote again after EU officials’ behind-doors deal to force a second referendum. Similar European Commission’s contempt for democratic majorities – and for democracy itself – has been seen in Denmark and France. For Brussels, ‘the people’ cannot be trusted and must be forced to vote again until they come up with the ‘right answer.’ This is dangerous stuff and reflects Bertholt Brecht’s sardonic comment on Communist elections: ‘Would it not be simpler, if the government simply dissolved the people and elected another?’

Closer to home, the UK’s Brexit referendum and Trump’s election in the USA sent shock waves through liberal elites, by coming up with the ‘wrong answer’. The chattering classes were horrified. What these events revealed across the Western world is a widening chasm in far too many countries between voters and the cosy governing class represented by the likes of Davos, the Bilderburg Group, Brussels, Westminster, Washington, politicians, intellectuals and civil servants. This gap is made worse by the refusal of these elites to accept the will of the people; vested interests do everything in their power to block resolutions using non-elected institutions, such as supreme courts and the European Commission, to clamp down on dissent and liberty. For the EU it’s the (deliberate) ‘democratic deficit’; for the chatterati it means finding some way to ignore or neutralise voters’ wishes.

So, when added to the alternative-fact extremes of frightened metropolitan-elite politicians who wish to bash the masses using phrases like ‘post-truth politics’ to control the ‘unqualified simpletons of the great voting public,’ something sinister and profoundly undemocratic is emerging.

Democracy itself is under attack across Europe and the USA, a fact becoming plainer with every daily headline. The idea that the ‘common people are too ignorant and too driven by base emotions to really understand what they voted for’ has gained ground in political circles ever since Trump was elected and Britain voted for Brexit. This is sold as defence of human rights, and especially minority rights against the ‘tyranny of the ignorant majority’. These days it’s not the aristos who fear the mob – it’s the ivory-tower academics and intellectuals who think only they know what is best.

Their solution? ‘Ordinary people are too ill-informed to know what’s best for them – leave it to the experts.’ Well, the experts of the IMF, CBI, the EU, most of the media, the Chancellor and the Bank of England forecast instant ruin, famine, unemployment and plagues of frogs if Britons dared to leave the EU. They’re still waiting.

Another chestnut touted by the new anti-democrats is that ‘Democracy leaves semi-illiterate voters at the mercy of fake news and media lies.’ The high-minded BBC naturally does not agree; but heartily agrees that Fox News and the Daily Mail’s ‘propaganda’ only confuses ordinary, simple folk – quite unlike the BBC and The Guardian, of course ….

The truth is that democracy itself is under attack. Nowhere can this be seen more clearly than in today’s struggle over Brexit, but showing contempt for the masses can only end one way.

As Chairman of the Public Administration and Constitutional Affairs Select Committee, Sir Bernard Jenkin MP has said he ‘dreads to think’ what will happen to British politics if the Establishment fails to implement the people’s verdict in the Referendum. He warned: ‘That’s not what democracy looks like in my book. Of course, the EU has always tried to reverse every adverse referendum … but if they defeat the British people in this endeavour, that would be a disaster for our country.’

And for democracy? Watch out for forthcoming variations on the ‘I’m a democrat, but …’ theme before politicians and bureaucrats then ignore the will of the voters. Be very careful; the ‘post-Democratic’ age is being touted as the way ahead.

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The Wolf at our Door

The Assyrian came down like the wolf on the fold,’ wrote Lord Byron in his famous poem about the ancient Persians on the rampage. Well, the modern Persians are on the rampage now; and they are right on our doorstep.

Fortunately President Trump is well aware of the danger; he has slammed the diplomatic door in Tehran’s face, to the fury of France, Germany and EU companies, all suddenly forced to ditch their lucrative contracts with Tehran.

One of the mistakes Westerners make is thinking that the Middle East is run by Arabs: wrong. The Middle East is mainly split between Persians and Arabs; and they don’t get on – and never have. The ancient Persians were the bane of Greece and Rome; it wasn’t until the fanatical Arabian warriors of Islam conquered Persia in 651 that the Persians even became Muslim. To this day Persia – now calling itself Iran (after its Persian name) – is a separate culture, language and even a separate branch of Islam.

Persians are Shi’ite Muslims and believe that Islam should be ruled by direct descendants of the Prophet.  Most Arabs are Sunni Muslims, believing that Muhammad’s successor was an elected Imam called Abu Bakr. The ‘religion of peace and love’ fell out in 661 when Muhammad’s cousin and son-in-law, Ali, was murdered. Since then the religious split has widened and acquired political significance – Persians are mainly Shi’a; the rest of the Arab world (85%) are Sunni.

This matters because the modern Assyrians are once again muscling in across the Middle East – and even further. Thanks to Iran, and the meddling Mullahs of Tehran, the great geo-strategic tectonic plates are shifting, and not necessarily for the better. Iran is on the march – and Iran wants a nuclear bomb.

Iran’s efforts to expand its influence are there for all to see. Following the rout of ISIS by Kurdish infantry and American and Russian air power, Iran now controls large swathes of the Middle East, as well as dominating the governments in Baghdad and Damascus, whilst simultaneously intimidating the Gulf States. Through its use of proxy fighters like the Houthis in Yemen, Hezbollah in Lebanon and Hamas in Gaza, Tehran’s tentacles have now reached the Mediterranean. Iran is busy setting itself up as a regional superpower.

However, Tehran’s real interests are much wider; as Trump warned, we ignore them at our peril. Azerbaijan’s traditional alliance has been with Turkey: Azeris are ethnically Turkic, and the two countries’ languages have shared roots. However, with Turkey now mired down in Syria as a result of Ankara’s paranoia over the Kurds, Tehran is suddenly wooing Baku, because Azerbaijan was once part of the Persian Empire and over 20 million ethnic Azeris live in Iran. Tehran is concerned that the Azeris might try to break away – like the Kurds.

However, Iran’s interests are much wider than domestic unrest on its northern border. Assad’s rump Syria is, once again, effectively a Persian satrapy. This worries Jeddah, because far to the south west, Tehran is fighting a proxy war with Saudi Arabia, the other big player in the region. (‘War’ is no exaggeration. When guided missiles start falling near your capital, that’s war!) The luckless hosts for this struggle for regional dominance are the wretched Shi’a Houthis of Yemen, whose rebellion against their government is being brutally crushed by the Saudis and Gulf States, determined to stop the Shi’a gaining even more power on their doorstep.

Washington is not fooled by Tehran’s manoeuvrings, either. With respect to Iranian aims, US General Jack Keane warns: ‘Syria for Iran is a strategic anchor in the region … they really want to gain more influence and domination of the countries in the area … the Iranians have been conducting a military build-up in southern and south-western Syria .… What they really want to do is replicate what they’ve done in Lebanon, where Hezbollah have in their hands 130,000-plus rockets and missiles capable of reaching Tel-Aviv and Jerusalem. This is serious stuff, what Iran is up to. They certainly want to undermine the government of Israel, create instability and eventually, in time, destroy it.’

Iran’s leaders make no secret of their ambition to emerge as the dominant power in the Middle East and, eventually, the entire Islamic world. Tehran is quite open about its aims: to roll back the influence of the United States in the region and to work towards Israel’s destruction. For example, in 2015, Ali Younesi (a senior intelligence adviser to Iranian President Rouhani) outlined a clear blueprint for Iranian plans, describing Iran’s role as ‘protecting the interests of all the people in the region – because they are all Iran’s people .… We must try to once again spread the banner of Islamic-Iranian unity and peace in the region. Iran must bear this responsibility, as it did in the past.’ Interestingly he spoke of Iran’s past as an empire, and called for a ‘greater Iran’, stretching from the borders of China to the Persian Gulf.

There is however a built-in limit to imperial Iranian dreams: Sunni Arabs are deeply suspicious of Persians. As a Shi’a power, Tehran finds it difficult to win support outside Shi’ite Arab populations. The principal tool of Iranian expansion has been the Islamic Revolutionary Guard Corps (IRGC), led by the experienced Mohammad Ali Jafari, an advocate of asymmetric warfare using its elite al-Quds Force, whose prime mission is to create Shi’a political/military proxies in other countries and further the ‘Iranian Islamic Revolution’. The chaos in Syria and Lebanon opened the door to Iran’s take-over, using the IGRC as its vanguard.

Iran’s control of Iraq’s Shi’a Arabs rams the point home.   According to a recent report in the Asharq al-Awsat, the IRGC openly maintains a permanent staff of senior officers and political appointees in Baghdad to manage the Shi’a militias and control the Iraqi countryside.  Similar IRGC units are being set up in Syria and Lebanon.

Now Iran has been caught stirring up trouble in another area of expansion, this time on the Atlantic, a very long way from home: Morocco. When colonial Spain left Morocco in the 1970s, Polisario guerrillas fought for independence for the Sahrawi people until a UN-brokered ceasefire. However, Iran and its Lebanese Shi’ite ally, Hezbollah, have just been exposed running arms secretly to the Polisario and training its fighters. ‘Hezbollah sent military officials to Polisario and provided the front with … weapons and trained them in urban warfare’, according to Rabat. Intelligence reports confirm this meddling. Sunni Morocco has reacted by expelling the Iranian ambassador and severing all diplomatic ties.

However, the greatest danger of all is Iran’s nuclear ambitions, as Trump warned when he scrapped Obama’s 2015 naive Iranian deal. Under pressure from Obama and the EU, Iran had agreed to limit its attempt to develop a nuclear capability in return for the lifting of crippling economic sanctions. But, as Israeli intelligence has proved conclusively, the Persians lied and cheated. Now, despite EU corporations’ wails of lost profits, Trump has re-enforced savage sanctions to bring Tehran to its knees once again and scupper Iran’s nuclear programme once and for all. Iran’s aims may be ambitious but its armed forces lack any genuine capability to attack its neighbours; so, without a nuclear capability, Tehran’s options to become the bully on the block are limited.

Iran’s long-term strategy is clear: a naked grab for regional hegemony, mainly by controlling proxies. The irony is that Tehran has badly overplayed its hand; Iranian interference and subversion abroad has been too blatant and encouraged international resistance to Tehran’s over-ambitious dictators. Absolutely no-one wants to see the mad Mullahs with a nuclear bomb. Perhaps the Ayatollah should heed the old Persian proverb? ‘Experience teaches us that wishful thinking only leads to disappointment.’

But be in no doubt: the Iranian wolf is hungry.

History’s Tipping Points: Kaiser Bill

According to documents in the RAF Museum archive in France, 100 years ago tomorrow Britain tried to kill Kaiser Wilhelm II in 1918 in a secret RAF bombing raid (David Keys, The Independent). History is full of ‘What ifs?’, some of which happen and others that don’t.

If Archduke Franz Ferdinand had survived assassination, the Great War may not have happened; if Kaiser Bill had been murdered, this revelation suggests the conditions for World War II may not have arisen.

Sliding doors? Alternative histories? Maybe … but it’s also fascinating to play out mentally the ‘war game’ scenarios of crucial tipping points of history. What will be revealed in 100 years’ time from now that will keep future historians guessing about what may have happened differently?

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Money Makes the World Go Round

For the second time in a month, to my surprise, I find myself agreeing with President Putin.  Speaking at the International Economic Forum recently he warned: ‘We don’t need trade wars today … we need a comprehensive trade peace.’

Cuddly old Vlad was really warning us that there’s a financial firestorm brewing. Looking at what is going on with the euro and the Turkish lira, it’s hard to disagree.

The euro is really our old friend the Deutsche mark, cunningly devalued and disguised to pay for German re-unification, and now Europe’s chokehold currency of no choice. For example, any independent Scotland joining the EU would nowadays be ‘forced’ to accept the euro. Difficult for the Scots: not for nothing did Thomas Carlyle call economics the dismal science.’

Dismal science or not, money makes the world go round – and always has done. Even St Paul admitted: ‘The love of money is the root of all evil.’ This titanic battle for economic power rages around us every day, as China and America tussle behind the scenes over who owes how many dollars to whom and what they are worth, whilst a worried Commission in Brussels watches nervously as its great dream of a superstate called ‘Europe’ begins to disintegrate.

Because the UK’s ‘Brexit’ is the least of the EU’s problems. With Poland refusing to toe the Merkel party line, the Balkan states disobeying Juncker’s ‘diktats’ on immigration, and now a major trade war looming with the USA, Brussels has its hands full. Money is at the heart of it all. The unfolding Italian political train crash that is the new populist, anti-establishment Eurosceptic government is Brussels’ worst nightmare. It threatens their euro. Austrian chancellor Kurz gives the game away, bleating: ‘We saw in Greece how dangerous it is if a country has a bigger and bigger debt and I hope that we will not have a second Greece in our neighbouring country, Italy.’

The reason? Money and debt. Frightened hard currency has been haemorrhaging out of cash-strapped Italy for months, driving it even further into the red, amid fears of a Greek-style euro debt crisis which would bring the country to its knees. The new Italian government is even threatening to quit the euro and set up a parallel currency.

This is serious, because Italy is the eurozone’s third largest economy, nearly ten times the size of Greece’s.

The former chief economist of the IMF – Olivier Blanchard – believes the eurozone is heading for an ‘horrific crisis,’ denouncing Italy’s popular new government’s plans as ‘likely to violate all EU and domestic fiscal rules and put debt on an unsustainable trajectory’. What he means is that Rome is inviting an economic and political war, because the big French and German banks risk losing billions if Italy says, ‘no more pay offs.’

Brussels now has the beginnings of a serious rebellion on its hands. However, once again Italian voters have been over–ruled by EU technocrats, pressuring President Mattarella to ignore the voters, just as the Berlusconi government was toppled in 2011 by Brussels and the European Central Bank, in what was effectively a ‘soft coup.’

This is dangerous territory.

The Italian president’s refusal to accept the Lega-Gillini finance minister because he ‘could provoke Italy’s exit from the euro’ is dynamite. The political message to Italian voters is clear: whoever you vote for, the eurozone rules. A Lega spokesman explained: ‘You have to swear allegiance to the god of the euro in order to be allowed to have a political life in Italy. It’s worse than a religion.’

In Brussels,  Juncker openly threatens: ‘There can be no democratic choice against the European treaties. One cannot exit the euro without leaving the EU,’ and Günther Oettinger, European Budget Commissioner for Budget, actually said: ‘This will teach the Italians to vote for the right thing.’

Because the ECB and Brussels will fight to the last drop of Italian money to stop anyone escaping from their eurozone straitjacket.  The French Finance Minister warns: ‘If the new government takes the risk of not respecting its commitments [in other words, “If Italy doesn’t pay its huge debts to our big French and German banks”], the financial stability of the eurozone will be threatened. Everyone must understand that Italy’s future is in Europe and nowhere else. … there are rules that must be respected.’

This push to smother Italy’s eurosceptic rebellion, as they muzzled Syriza in Greece, comes from a worried Berlin, Brussels, and the EU power structure. But this time they may have blundered into a trap, because the EU’s economic problems grow worse every day. Now debt-ridden Spain admits it is in serious trouble. And Spain owes euro banks ‘zillions’, too. The bottom line for the EU is that if the Italians and Spanish welch on their euro debts, then the euro is finished – with huge international bankruptcies on the cards.

‘So what?’ says the man in the Kyrenia café, ‘How do big economic problems affect me, my family and my bank account? Who cares?’

The answer to the puzzled denizens of Turkish North Cyprus is ‘look at your money.’ Something very odd has happened to their Turkish lira. One year ago, 1 GBP pound sterling bought you 4.30 TRY; ten years ago, on 31 May 2008, a quid bought just 2.12 lira. And today? Going to press, a pound buys you around 6 lira. That’s what international currency fluctuations do to the expat, watching his pension. That’s how small Turkish Cypriot businesses, being paid in lira whilst paying for their rents in sterling, go bust. The reason? Money: because the Turkish lira is now in deep international doo-doo.

For years, Ankara’s AKP government has funded its massive vote-buying economic programme with money borrowed from overseas investors, attracted by Turkey’s generous interest rates. No less than 70% of Turkey’s deficit is covered by short-term foreign loans.

The problem is paying off those loans. Interest payments were biting deeper and deeper into Ankara’s Central Bank’s precious reserves of hard currency US dollars or euros. Loans began to dry up, so the Central Bank increased interest rates to tempt the punters and keep the all-important foreign dosh flowing. The problem is that at 13.5% the interest payments were expensive – but, at 16.5%, they could become ruinous.

At which point Turkey’s would-be President stepped in, boasting that he personally intends to run the economy when he wins the election on 24 June to become all-powerful leader. On his orders, interest rates will be slashed to 10% to save Turkey’s money. Result? Instant panic and predictable flight by spooked, nervous lira investors. Consequence? A market panic with foreigners desperate to unload their lira while they can. ‘Cheap? Your real, genuine Turkish lira. A real bargain, guv … Gotta sell.’

Because that’s what markets do. That’s how economics works: supply and demand. No demand for lira, they go dirt cheap. The result is that Turkey will either have to devalue, introduce capital controls or accept that, whatever their ‘Dear Leader’ thinks, foreigners will decide just what the Turkish lira is truly worth: and foreign investors are not impressed.

As an anonymous fund manager at a major asset management firm, complained: ‘Erdogan is fighting the extremists, he is fighting after the failed coup – now he is fighting the financial markets, and that is dangerous …. You can fight your domestic foes all you want; but when you are trying to take on the global financial market, that is a battle you can’t really win.’

And the EU? Watch this space. Of one thing we can be sure: the Commission, Berlin, Paris and Frankfurt will gang up in a darkened alley, ready to bludgeon, beat, bribe, browbeat and bully Italy to keep their precious euro together at all costs. Once again, the financial gloves are off. It’s going to get ugly. Just ask the Greeks.

Money really does make the world go round.

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