Tag Archives: Cyprus

Turkey at a Crossroads?

‘Peace at home; peace in the world.’ Atatürk’s homely ambition has never been more important for Turkey. However, a number of crises are coming together inexorably to force Ankara to think long and hard about its future intentions. Turkey is at a major crossroads.

There are three main reasons: first Ankara’s relationship with the USA; second, Turkey’s position in the Middle East; and lastly, its delicate economic position.

The biggest snowball rolling down the hill is defence, surprisingly. Ankara has insisted that it will take delivery of a Russian-made S-400 advanced anti-aircraft missile system this month, but the US Congress says it will impose penalties on Turkey if it does so. The sophisticated Russian SAM system poses a direct threat to the latest hi-tech US F-35 fighter, also being supplied to Turkey.

Turkey faces a position in which it must either back away from Moscow’s S-400 deal, or accept the possible economic damage of sanctions and its eventual ejection from the US F-35 programme. The result would have been that, whether by levying economic sanctions, or by cancelling Turkey’s participation in the highly advanced (and very expensive) F-35 stealth fighter programme, the US could retaliate and hurt Turkey’s economy badly.

However, risks to its economy and the threat of US sanctions have not stopped Turkey from acquiring Moscow’s air defence system. Ankara stood firm. A government spokesman was defiant: ‘We are a serious country. Our deal with Russia continues.’ Ankara clearly believes that it can withstand US pressure over the issue – because America needs Turkey.

Then, in late June 2019 (in the margins of the G20 Osaka meeting), the Turkish president claimed that a deal had been struck. President Trump had told him there would be no sanctions over the Russian deal and that Turkey had been had been ‘treated unfairly’ over the move.

President Recep Tayyip Erdoğan told reporters that the first delivery of the S-400s would take place within 10 days and that he believed the dispute would be overcome ‘without a problem’ and without sanctions over Ankara’s purchase of Moscow’s missiles. The results were immediate; the Turkish lira soared nearly 3 per cent on 1 July 2019 to its strongest level since April 2019.

However, Ankara’s optimism is a risky calculation. A USAF spokesman later said: ‘Nothing has changed …  Turkey will not be permitted to have both systems.’ Moreover, if the US Congress follows through on its threat to impose sanctions on Turkey by 31 July 2019 and ignores President Trump, that pressure will have a much wider impact on Turkey’s political and economic future than just defence.

Should the USA remove Turkey from the F-35 programme and impose sanctions on its NATO ally, it would be one of the most significant ruptures in recent history in the relationship between the two nations. It would be one more policy dispute that over the years have tested the complicated relationship between Turkey and the USA.

From Turkey’s military intervention to stop the Greek coup and civil war in Cyprus in 1974, to the US invasion of Iraq in 2003 and, more recently, US support for the Kurdish-dominated People’s Protection Units in Syria’s civil war, ties have frequently been strained between the supposed allies. The danger is that Turkey is, for many reasons, drifting away from the West.

This brings us to foreign policy. Turkey is being forced to recalibrate its foreign and regional policy at a time when the Middle East is undergoing a major transformation. Both Russia and Turkey are seeking more influence in an unstable region. Their relationship is a curious mix of cooperative and competitive. Whilst Ankara is well aware of the dangers of creating new risks to its already weakened economy, it also needs to demonstrate its power as a major regional player.

The problem is that Turkey and Russia have serious form going back to the days of the Tsars. For example, the Crimean War in the 1850s was really all about Russian and Turkish rivalry. Since the days of the Ottoman Empire, Turkey has always sought to deny Russia a significant presence to the south or in the eastern Mediterranean. But that is now where Russia is becoming increasingly active – especially in Syria. As Russian influence grows, Turkey’s room for regional influence shrinks. Turkey’s recent accommodation of Russia is therefore historically and geopolitically unusual.

However, given Russia’s military involvement in the Syrian civil war in 2015 – and its determination to support President Assad in power – some form of engagement between Russia and Turkey, Syria’s neighbour, was inevitable. The two sides seem, for the moment, to have settled on a wary cooperation. Russia controls northern Syria on Turkey’s border. When Turkey is frustrated with the West – as it is now over US support for Syrian Kurdish forces and the EU’s doublespeak on enlargement –- it finds in Russia a sympathetic ear.

The third factor is economics. Turkey is a major energy-importing country. It needs low energy prices, particularly given its alarming level of borrowing and an unsustainable current account deficit, much of it caused by its increasing energy needs. Ankara is however in serious economic trouble. This spills over on to the streets of Turkey itself, as recent elections have shown.

The ruling Justice and Development Party (AKP) has won support on the streets by using nationalism to highlight frequent challenges from alleged EU and Western hostility, fear of Islam and foreign pressure against the country. The fragile state of Turkey’s economy now however threatens social and political stability. The country’s economy dipped into a recession since the last quarter of 2018. The lira has lost 30 per cent on the global money market.

Over the next year, the Turkish private sector must pay back at least $150 billion in debts, and in foreign currency too. Unfortunately, it doesn’t have the money. Financially, Ankara is drifting towards national bankruptcy without serious economic reforms – or getting a lot of new money.

However, there are four more years until the next scheduled elections in 2023. The AKP leadership is banking on having time to stabilise the economy, as Ankara believes it can find alternative sources of money.

Two obvious pots of gold are the hydrocarbons beneath the sea off Cyprus and the lure of a sell-out to the East. To deal with the latter first, China’s ‘Belt and Road’ initiative (to buy up ports and infrastructure across the Middle East and eastern Europe) could be a tempting offer for Ankara. Turning to the East offers easy cash – but at a heavy price.

The second cash cow could be hydrocarbons off Cyprus, and Ankara has shown itself determined to get as much as it can and, in the process, warn off any competition. South Nicosia’s optimistic alliance of Italian, French, Israeli, US and Egyptian backers to support their national oil companies’ ambitions is being met with hard words and the threat of maritime force. The balance of power in the eastern Mediterranean is being challenged.

Inside Turkey the first tremors of a domestic political earthquake are being felt, too. With the country in economic turmoil, AKP’s legitimacy is suddenly facing serious challenges. It suffered stinging defeats in municipal elections in March and was humiliated in the recent mayoral election in İstanbul, the key to national political power. Already there is talk of a rival party based on AKP’s original blend of Islamism with democracy and liberal market policies. Both former deputy prime minister Ali Babacan and former president Abdullah Gül are now looking to create a rival party and bid for power themselves.

The result is that politically, economically and abroad, Turkey is at a crossroads; ‘peace at home and with the neighbours’ is a fine slogan, but is looking to be an increasingly distant dream …

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A Most Secret World

Reproduced by kind permission of Eye Spy intelligence magazine, where this article first appeared in 2004 (Volume IV, Issue 28)

On the launch of his 2004 book, The Puppet Masters (Amazon: UK; USA) Colonel John Hughes-Wilson wrote articles published in the RUSI Journal and in Eye Spy that described his service as an intelligence corp officer. His Eye Spy feature is reproduced below as a series of images.

 

 

 

EOKA’s Latest Outrage

On 23 January 2019 the UK government reached an out-of-court settlement for £1 million for 33 elderly EOKA-era plaintiffs, who claimed they were tortured by British security services whilst being held in custody during the Cyprus Emergency (1955-9). All were arrested as terrorists by the British for their involvement with Ethniki Organosis Kyprion Agoniston (National Organisation of Cypriot Fighters) or EOKA.

The Greek-Cypriots filed their legal claim in 2015 after Foreign Office documents revealed claims of abuse during the Eoka terror campaign. Justice Kerr of the Queen’s Bench Division ruled for the claimants: ‘A state stands to be held to account for acts of violence against its citizens, it should be held to account, in its own courts, by its own law.’

The sense of outrage at this settlement has united both British veterans of the 1955-9 ‘Emergency’ and Turkish-Cypriots alike. Whilst the claimants beamed for their group photograph outside the Royal Courts of Justice in London, they knew – as do the Turkish-Cypriots and the British – that this one-sided legal decision overlooked the far more numerous murders and atrocities committed by EOKA back in the 1950s. The smiles masked the blood on Greek-Cypriot hands: EOKA didn’t just torture and intimidate, the organisation was nothing more than a reincarnation of ‘Murder Inc.’

The story really starts in 1950, when Bishop Makarios, who later became the Ethnarch or leader of the Greek Cypriot Orthodox church, swore a holy oath with a Greek colonel called Georgios Grivas, who had been born on Cyprus, to bring Cyprus back to the Motherland (i.e. Greece). The majority Greek-Cypriot population of Cyprus supported the idea; they wanted union with Greece, or Enosis. The soldier and the priest planned to make Cyprus ‘Greek’ by getting rid of its other inhabitants via terrorism: the battle cry was ‘first the British and then the Turks.’

Grivas formed his underground group – EOKA – with a right-wing ideology, which made it the exception to the rule of post-World War II insurgencies, as it was not a communist-led rebellion. Eoka has more in common with the Jewish Irgun and Stern murder gangs of late-1940s Palestine.

In 1955 Grivas launched his insurgency with anti-British riots. Then, when EOKA escalated to a series of terrorist attacks, the Governor of Cyprus, Sir John Harding, declared a state of emergency.

Harding realised that intelligence was the key to snuffing out the rebellion. However this presented a major problem: Grivas enjoyed the support of the majority of the Greek-Cypriot population and so information was sparse. Most Greek-Cypriots either supported EOKA or were too frightened to speak out for fear of reprisals. EOKA made sure of this by terrorising its own population through a campaign of intimidation against the Greek-Cypriot members of the police force and their families.

This forced the British to rely increasingly on Turkish-Cypriot policemen who could provide little intelligence about Greek-Cypriot intentions. Hiding in plain sight amongst the Greek population, EOKA’s 1250 members prospered despite the efforts of the security forces. At least 371 British servicemen died during the EOKA period, of which about 200 were murdered. However, Grivas’s ‘Freedom Fighters’ cast their murderous net much wider than the colonial power only. The Greek-Cypriot and Turkish-Cypriot populations suffered far more than the British from their blood-thirsty countrymen. During the ‘Emergency’, EOKA killed 679 Cypriot men aged 18-59; 72 women aged 18-59; 130 men and women over 60; and 132 under-18 boys and girls. Suddenly EOKA’s veterans don’t look quite so heroic. Gunning down your own defenceless women and children in cold blood usually doesn’t rate an award for heroism.

Inevitably the British reacted to this dirty underhand war. Interrogation centres manned by Special Branch and Intelligence officers swiftly became bywords for rough handling of detainees – and sometimes worse.

Allegations of ill treatment surfaced early. Seventy years ago interrogation methods were harsh. The need to obtain tactical information quickly soon led to allegations of abuse in what became a very dirty war. On 26 May 1957, London’s Sunday Dispatch newspaper ran a major exposure of British methods in Cyprus, claiming that detainees had been ill-treated or tortured by British interrogators.

It pointed to the case of Nikos Sampson, the leader of EOKA’s Ledra Street murder gang, whose track record of cold-blooded murders of soldiers and civilians alike earned Nicosia’s main shopping street the nickname of ‘Murder Mile.’ However, Sampson’s well-justified conviction for murder was overturned on appeal by Judge Bernard Shaw, who ruled that Sampson’s confession was inadmissible as it had been made under duress. The smirking EOKA killer walked free from prison.

Another case was the assault and beating in custody of EOKA member Joannis Christoforou, who was stripped naked, beaten with planks, suffered broken ribs and extensive bruising. The case against him was dismissed.

One woman, known only as ‘Mrs XY’ and now in her 70s, on being suspected of being an EOKA member was taken from her home by Turkish-Cypriot police in 1956 and raped. She was then taken to a police station, beaten during interrogation and ‘pushed between her tormentors like a ball’, before passing out. At one point a noose was tied around her neck and tightened. The inescapable conclusion is that some British interrogators broke the law in their attempts to glean intelligence.

However, at least the British have admitted their excesses.

Not so the Greek-Cypriots. Sadly, the myth of EOKA’s ‘heroic warriors’ in the Liberation Struggle has grown over the years. Today’s young generation of Greek-Cypriots know little about the crimes committed by EOKA against both Greek- and Turkish-Cypriots. The truth is that Greek-Cypriots refuse to admit their own grandfathers’ murderous crimes, even long after the British had departed.

The massacres of Turkish-Cypriots committed by Greek-Cypriots continued from 1963 to 1964, after the ‘Emergency’ ended, and even after the Greek coup in 1974. This truth is whitewashed from Greek histories.

The slaughter of 126 Turkish-Cypriots – the majority women and elderly people – from three Turkish-Cypriot villages (Maratha, Santalari and Aloa), as well as the execution of 84 civilian Turkish-Cypriots from the village of Tochni in August 1974 by EOKA, ranks with the Nazi atrocities at Lidice and Oradur.

However, Greek apologists refuse to admit the bloody truth; but the concealed statistics for the Greek-Cypriot deaths tell their own story. UN statistics for the period 1963-74 record at least 133. This is clearly an underestimate, based only on reported murders. Overall, the Cyprus High Commission information booklet gives a total figure of 3000 dead and 1400 missing for 1974 alone, bringing the Greek-Cypriot total for the period 1955-74 to 4833, the majority at the hands of fellow Greeks.

The truth is that the settlement with the EOKA-linked claimants is a one-sided affair. It represents a bargain for the UK, because it suppresses discussion in open court of any unpleasant facts. However it sets a precedent. The question now is, when will EOKA compensate the relatives of those Greek, Turk and British victims they murdered in cold blood? EOKA veterans openly boast of their murderous exploits; so who will be bringing a court case to sue those who gunned down a doctor like Surgeon-Captain Gordon Wilson, or defenceless women like Mrs Catherine Cutliffe, for their bloody deeds? The one-sided settlement with EOKA is an outrage, as it ignores far worse crimes admitted by the Greek-Cypriots’ EOKA killers.

So, as they celebrate their legal victory in the EOKA Veterans’ clubs, the stench of hypocrisy rivals the celebratory Ouzo. And what did they achieve? Nothing. The ultimate irony is that EOKA failed. Not only was there no Enosis, but Greek-Cypriots failed to achieve proper independence either. Having been ruled by foreigners for 3000 years, Makarios and EOKA only managed to rule a united Cyprus for three, from 1960 to 1963.

Was it all worth EOKA’s many murders?

Cyprus in World War I

In 1914 Cyprus was a protectorate of the British Empire, leased by the Ottomans in 1878 to provide London with a base in the Eastern Mediterranean. This all changed in 1914 when, following a secret treaty between the Ottomans and Germany, the Ottoman Empire declared war against the Triple Entente powers of Great Britain, France and Russia. The British garrison promptly annexed the island on 5 November 1914.

Despite its proximity to Turkey, Cyprus was never a battlefield during World War I. Constantinople had too many other problems: first, it was flat broke. Second, many of its citizens – such as the Armenians – did not support the war, and the Sultan found himself fighting off enemies on no less than five fronts, as well as at home: the British in Egypt and Mesopotamia; the Russians invading the Caucasus; the Anglo-French landings in Gallipoli; and the desert Arabs rising up in what is today Saudi Arabia.

The British authorities were always concerned that the Turkish Cypriots might turn against the British, since the Ottoman Empire was officially one of Britain’s enemies. Listening stations were set up to spy on Turkish radio messages and spies and saboteurs were smuggled into Turkey. Cyprus was also used as a convalescent home for thousands of sick and wounded British soldiers from the Middle East campaigns. It also became a secure place to hold the thousands of Turkish prisoners of war. The island was on a martial footing throughout the war and various Governors had to fight off repeated attempts by the Army to take over the administration.

Nevertheless many Cypriots played an active part in the war. Thousands volunteered for the British army and they played an important part in the Salonika campaign. By 1916, the Military Commander of the British divisions on the Salonika front requested a Corps of Muleteers to help carry stores and supplies in the mountainous region of Macedonia.

This contribution of thousands of Cypriots supporting British troops on the Macedonian Front is a largely untold story, but Cypriots provided crucial logistical support to the Allied war effort on the Salonika Front. The Macedonian Muleteer Corps had enlisted 9200 men by early 1918.  Another 401 remained at the training centre in Famagusta. They were well paid at 3 drachmas per day and, by March 1919, the Muleteers Corps was 15,910 strong.  It was estimated that 89% of those recruited were Greek Cypriots and 11% Turkish Cypriots. They served in the Macedonian front, in Serbia and in Bulgaria, while at the end of the war some even entered Constantinople with the victors.

Inevitably they suffered losses. In five military cemeteries in Macedonia there are the graves of 30 Cypriot muleteers killed in action between the years 1916-19.

Perhaps the most curious twist of Cyprus’ involvement in the Great War was the attempt to hand the island over to Greece, lock, stock and barrel. By 1916 London was desperate to woo Greece into joining the war. Athen’s nationalist Prime Minister, Venizelos was actually offered complete ownership of the island as a bribe towards Greek dreams of ‘MegaHellas’, a greater Greece, at Turkey’s expense. To the amazement of the Greek Cypriots, King Constantine turned it down, to the fury of his Prime Minister Venizelos, who was sacked. Tempting though the offer was, at the time the King didn’t want to be dragged into someone else’s war.

This call for ‘Enosis’ – union with Greece – would have to wait another half century and for EOKA’s gunmen. But that is another story …

This article first appeared in Cyprus Today in November 2018 to commemorate the centenary of the signing of the armistice to end World War I. The piece is reproduced here with the kind permission of Cyprus Today.

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.

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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Watch Out! There’s a War About

For once I find myself in total agreement with Vladimir Putin, who observed recently in a Blinding Glimpse of the Obvious that ‘the world is becoming a more chaotic place.’ Whilst Pres-for-life Vlad’s BGO doesn’t exactly qualify him as a great thinker, this time he is absolutely right. There’s a definite feeling abroad of an unravelling in world affairs; an uneasy sense that something nasty is lurking round the corner of history ….

As Nigel Molesworth put it so succinctly in Down with Skool: ‘History started badly and hav been getting steadily worse.’ Looking at our increasingly troubled world, maybe ‘the gorilla of 3B’ got it right.

But first, the good news. A few months ago we were all nervously observing a ‘mad, bad and dangerous to know’ US President threatening fire and fury at North Korea’s ‘Little Rocket Man’ over nuclear missiles. It was definitely steel helmet (and don’t forget your respirator) time. Now, thanks to Trump’s interesting blend of diplomacy, brutal economic sanctions and the threat of violence, Kim Wrong ’Un seems to have a sudden change of heart and is smiling for the cameras and shaking hands across the border. Sigh of relief all round?

However, let’s not get too excited. North Koreans have a consistent track record in talks with the South and the US: consistently lying and trousering the ‘Danegeld’ paid to them to behave themselves, whilst they ignore any agreements. We need to watch this ‘deal’ very carefully.

And let us not forget that Dictator Kim was threatening nuclear war whilst still presiding over appalling human-rights abuses as he ruthlessly executed friends and family alike to eliminate his rivals. Nonetheless, if President Trump really succeeds in negotiating an end to Kim’s nuclear provocations and the Korean War (‘Neutral ground or dramatic backdrop?‘, Telegraph, 23 April 2018), he will have defused a potentially apocalyptic global crisis.

Good luck with that.

Now for the bad news; and there is far too much, as Putin warns.  Intelligence analysts are warning that trouble is looming from at least three other directions: Syria and Iran; Israel; and a global economy deep in debt.

First, Syria, where the endless civil war to keep Assad and his Shi’a allies in power has morphed into something new – and much more worrying. UN Secretary General Guterres warns: ‘The Cold War is back with a vengeance – and a difference.’ The difference is that it is no longer cold. Something very dangerous is unfolding in the war-torn Middle East. A little-known Iranian-backed Shi’a group calling itself the ‘Baqir Brigade’ has declared jihad on US forces in Syria,  where Russian and American troops are only a rifle range apart.  The US, UK and France have already attacked Syrian military targets as a reprisal for the latest gas attack. The dangers are obvious. Any Russia and US fighting in Syria could detonate a hot war and set the entire Middle East on fire.

Further north, Turkey has invaded Syria to crush the Kurds – the warriors who really defeated ISIS on the ground. Meanwhile the Iranians and their Lebanese Shi’a proxy, Hezbollah, have set up a new battle front on Israel’s border. Iran effectively runs Syria now and is turning its malevolent eye against Israel.

This time the Mullahs are really playing with fire. Israel is not a normal country. Tel Aviv will fight like a cornered cat against an enemy that has sworn to ‘sweep the Jews into the sea.’ And Israel possesses nuclear weapons precisely to deter anyone stupid enough to threaten Israel’s very existence. Israel has warned that ‘it will retaliate with every means possible,’ if attacked by Iran and its friends.

Ironically, Iran’s nuclear ambitions may be unravelling at the very moment it tries to intimidate Israel. Tehran thought that it had pulled a stroke with nice Mr Obama with his 2016 no-nukes deal to get sanctions lifted, whilst continuing to build its Shi’a empire in Iraq, Lebanon, Syria, and now Yemen. Trump is having none of that. Despite Macron’s pleading for a cosy continuation of flogging French and EU goodies to oil-rich Iran, Trump pulled the plug on 12 May 2018 and re-imposed economic sanctions, blocking Iranian oil sales and wrecking Tehran’s not-so-secret nuclear plans.

This is bad news for the world economy, which is now just as vulnerable to a financial crisis as it was in 2008. Oil is the motor of commerce. Oil prices, which dropped to $30 a barrel in 2009 and 2016, are now rising as production cuts by OPEC and Russia have finally sold the world glut of oil; so supply dries up. Iranian sanctions alone will remove 500,000 barrels a day from the market.

Even America’s new oil-shale output cannot fill this gap between supply and demand. Now Brent crude has risen to $72 a barrel and will probably go higher now that Trump has re-imposed sanctions. This could be a global economic bombshell as various geostrategic crises explode. Saudi Arabia is already talking about $100 crude, setting off a speculators’ scramble;  ‘We are pretty confident that oil will be in triple digits by next year,’ opines Jean-Louis Le Mee from Westbeck Capital.

IMF reports warn of a chain-reaction for world finance. One is well-understood: debt. Global debt has been alarmingly high since the 2008 financial crisis. Since then, nations have continued to borrow hand over fist, pushing worldwide debt to $200 trillion (a trillion is a million, million million.)  That is nearly three times the size of the entire global economy.

The second economic problem is that the Chinese and German economies are going into reverse. Germany’s economy in particular is stalling surprisingly quickly. The economic miracle by the EU’s motor of industry is over and now even Berlin faces economic problems, warns Düsseldorf’s Macroeconomic Policy Institute: ‘The danger of recession has increased markedly. It is a more critical picture than just a month ago.’

All this is happening as Korea teeters on a knife edge, Washington and Moscow go head to head, Syria faces multiple wars, Israel and Iran are shaping up for a catastrophic showdown, and the proxy war between Saudi Arabia and Iran over Yemen gets out of control with missile attacks on Saudi targets by Iranian-backed Houthis. A full blown religious war between Sunni and Shi’a has started. One intelligence analyst warns: ‘All it will take is one Houthi missile sinking a 200,000-ton oil tanker in the Gulf and the consequences would be global.’

Even here, on our island in the sun, alarming events are going on all around us. Suddenly bankrupt Greece is preparing to lease two French multi-purpose frigates to bolster its defences in the Aegean Sea, amid rising tensions with Turkey. Fighters are again on the alert over contested islands. Turkey sails warships to Cyprus to protect hydrocarbon finds. Hostages are being held on both sides. President Erdogan suddenly announces a snap election to choose the country’s next president and parliament on 24  June 2018, to give himself greater executive powers.

All this at a time when the Turkish economy is overheating, raising the possibility of another financial crisis like 2001, when the AKP first came to power promising a strong economy. With Turkish national borrowing skyrocketing and Ankara having to lure foreign money with promises of 13% interest on government bonds, this doesn’t look much like economic competence. The truth is that we are ‘living through interesting times,’ as the old Chinese curse puts it.

Whilst most normal people are just trying to get on with their lives, get to work, earn enough to raise a family and enjoy themselves, all around us alarming events look like coming to the boil. Politically we are living through world-changing history.

It’s an increasingly unstable and dangerous world.  We need to watch out for what is really going on out there.

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