Red Line: Eurozone crisis, terrorism in India and Ahmed Wali Karzai

Participants: Ekaterina Kudashkina, Mira Salganik, Timofei Bordachev, Vinay Shukla, Alexei Malashenko

Ekaterina Kudashkina:  The past seven days have been marked by a whole range of exceptionally worrying news and events. The eurozone is facing mounting concerns over the euro-debt crisis. In the first part of our program we’ll be looking at the nature of the crisis, at its inner causes and the possible solutions to it. We will then move on to India, where the second blast in three years has hit Mumbai, the country’s largest city and financial hub. And finally, we will look into the assassination of Ahmed Wali Karzai – one of the most influential and controversial politicians in Afghanistan and brother of current President Hamid Karzai.

Let’s go into the first section of our program – Beyond the Headlines. To put it briefly, the credit ratings of Ireland, Portugal and Greece have been downgraded to junk, and we’re also watching Italy and Spain. Along with Greece, Italy has the highest debt in Europe at about 120 percent of GDP.

According to Reuters’ analysts, Ireland may also need a second bailout because it is unlikely to grow fast enough to make the envisaged full return to market funding in 2013.

Mira Salganik: So we’re in for a parade of defaults or, if Europe is not yet fed up with bailouts…

Ekaterina Kudashkina: There’s been a lot of talk of the bailout fatigue among EU nations. I suppose that the bailouts are counter-productive, because they also target the idea of the common European market, of European solidarity.

Mira Salganik: You might have a point here, but on the other hand, much depends on an individual country, on the specific situation in each country, because it is rather hard to compare Ireland to Italy.

Ekaterina Kudashkina: So, in fact, my question is whether there are some systemic faults with the whole idea of the EU economic integration and perhaps the integration should be arranged in a different way. Analysts say that if a need arises to bail out Italy, the eurozone's existing rescue mechanism would have insufficient funds to help.

Mira Salganik: So we are coming again to the same question that you asked previously: Is a bailout a way out? Look, it’s been more than a year now since Greece was bailed out for the first time. Now we’re at it again.

Ekaterina Kudashkina: And there are more weak states emerging in the eurozone, and the EU is absolutely unprepared for that.  Some EU officials are now trying to blame the credit rating agencies for the turmoil. After Moody's downgraded Portugal’s debt to “junk,” European Commission President Jose Manuel Barroso said the decision to cut Lisbon's rating by four notches so soon after it became the third country to receive an EU/IMF bailout was fueling speculation in financial markets. Let me quote him: "It seems strange that there is not a single rating agency coming from Europe. It shows there may be some bias in the markets when it comes to the evaluation of the specific issues of Europe." German Finance Minister Wolfgang Schaeuble, too, called for limits to be placed on the rating agencies' "oligopoly."

Mira Salganik: Well, bureaucracy and red tape are now the trademarks of the European Union. Either the European Union as a whole should talk about the global economy, world finances, or they should split it into pieces and try to find national niches. But right now there is no sense.

Ekaterina Kudashkina: Yes, and the second thing is that they are really moving in the wrong direction, they are not addressing the core issues – either they are bailing out or cutting social programs and nobody is concerned with finding a real solution. Anyway, now the European Commission is drafting proposals to regulate rating agencies. Meanwhile I’ve seen later reports that the size of the bailout fund might be increased.

Mira Salganik: But, expanding the bailout fund – will it help?

Ekaterina Kudashkina:  I have my doubts. First of all, those bailouts don’t seem to address a primary cause. Moreover, I’ve seen a recent STRATFOR analysis that says that the existing eurozone crisis management mechanism, let me quote: “can deal, has dealt, with the small peripheral economies, but it’s not capable of dealing with the problem that is now looming: potential financial instability and multi-trillion euro economies. There is no federal entity with the political and fiscal capacity of dealing with the crisis, this is just going to get worse and it’s only a matter of months before what we think of as real states such as Belgium, Austria and Spain, are to be starting to flirt with conservatorship themselves.”
I believe that it is a reasonable and a very pessimistic forecast.

Mira Salganik: It sounds realistic to me. Do you imply that Greece, or Ireland, or Portugal are not isolated cases? That there must be a systemic fault?

Ekaterina Kudashkina: We saw situations that looked rather similar, at least, on the face of it, in France and in Germany, several years ago – they had huge public debt, they had rising unemployment, but then they seem to have managed.

Mira Salganik: Without the help of the European Union.

Ekaterina Kudashkina: Only with pressure from the European Union. Is there a really efficient solution that would address the ultimate cause? This is the question we addressed to our next guest speaker Timofei Bordachev.

Timofei Bordachev: We have a single currency in Europe; we have a single monetary policy; but we have 27 economic polices, and since these economic polices are very closely correlated with the main state’s responsibilities, with providing the welfare systems for the citizens, the member states of the European Union are absolutely not keen to give up even a little bit of their sovereignty in structuring their national economic policies. And so far they have not been able to do it, and I don’t believe they will be able to do it in the near future. So this particular Greek crisis shows that one of the biggest structural problems of contemporary Europe is freedom.

Ekaterina Kudashkina: We have observed similar problems with public debt in France, in Germany, but somehow they managed to get out of it.

Timofei Bordachev: Well, I think that the general huge volume of the German, particularly, but also the French, economy quite successfully prevents these countries from coming to the same economic problems like some of their less efficient partners in the European Union. This is the first factor. The second factor – we should never forget that Germany and France are countries that have their own particular economic models: the German Rein Economic Model and the French Dirigiste Economic Model. So they are not coping, they have never been doing such modernization attempts, they are following their own path, and they build an economic policy on the basis of the national prescriptions, not on advice of international consultancies, or international economic institutions. That is why they are much more correlated with the national culture, and with the national internal political structure, that is why they are much less vulnerable to the crisis.

Ekaterina Kudashkina: Getting to consultancies – many national governments tend to blame the credit rating agencies for their assessments. They believe that as soon as a credit rating agency issues a negative assessment, investors are scared, and that actually produces a negative result on the national economy. Do you think they have a point?

Timofei Bordachev: Well, I do believe that any kind of international credit rating agency is doing its job according to common standards, but somehow these agencies manage to evaluate certain countries in a different way, not only because of their general current economic score, but also because of their long-term economic sustainability, so that’s why certain countries are much more vulnerable. Well, of course the leaders of the European Union are not happy with certain recent credit ratings. But I do not believe that any idea of creating their own European rating agency will be very efficient.

Ekaterina Kudashkina: Now let us move to the macroeconomic side of the issue. Do you think that there is any correlation between the present situation in the eurozone and the present situation in the United States?

Timofei Bordachev: Well, I don’t think there is any kind of direct correlation. I actually do believe that the correlation consists of the general condition of the western economy, and the general position of the western economies in the world market. They are not considered any more as leaders whose authority is never under discussion. So this is the correlation. This correlation has a much broader strategic nature.

Ekaterina Kudashkina: What actually has removed western economies from their leadership positions?

Timofei Bordachev: I believe that the main factor was and remains, unfortunately, the absence of new, fresh ideas on how the national economic models should be developed in the 21st century.

Ekaterina Kudashkina: But on the opposite side of the globe, we have the Asian experience, very dynamic economies, fresh ideas. What makes western economies imperceptible to new ideas?

Timofei Bordachev: If we take the example of the Chinese economy, they are much more relying on their national experience, and they don’t have a Chinese model, they have a Chinese method of doing things, which makes them much more sustainable.

Ekaterina Kudashkina: So you believe that perhaps universal solutions don’t work in the modern world of ours?

Timofey Bordachev: I think there are never universal solutions. Don’t believe the International Monetary Fund or the World Bank. I think that any solution, in order to be effective, must be very national.

Ekaterina Kudashkina: And now we move on to our next section – Between the Lines – in which we usually talk about a notable and provocative publication of the week. However, this time we wanted to find a publication that could possibly give us some insight into Mumbai blasts. The Hindu, a leading Indian daily, came up with an editorial entitled “Little Learned From 26/11.” At the same time, the general secretary of the Congress Party, Rahul Gandhi, said that 99 percent of the terror attacks in the country had been stopped thanks to various measures, including improved intelligence. At a news conference in Mumbai, India’s Home Minister Palaniappan Chidambaram refused to speculate about which terrorist group might have carried out the attacks. “We are not pointing a finger at this stage,” he said. “We have to look at every possible hostile group.”

Mira Salganik: If the home minister says that there is no hurry to blame it on Pakistan, it doesn’t mean that he denies the tensions between the countries. The morning after the blasts, nationalist BJP party veteran leader L.K. Advani said that it was a failure of policy and not so much of intelligence.

Ekaterina Kudashkina: There have been terrorist attacks in Delhi, Puna and other Indian cities, but it still looks like it is Mumbai that is mostly targeted. Mumbai is the financial and entertainment capital, so by attacking it, terrorists deal a body blow to India and get global media attention. But is it the only reason?

Mira Salganik: I think there are some more reasons. In fact, just the other day I read a story by Indian journalist Soutic Biswas. He says that Mumbai has been always regarded as the most cosmopolitan of all Indian cities.  Bombay was conceived and developed as an international city, as a cosmopolitan city – until 1992 when a group of Hindu fanatics demolished the Babri Mosque. That led to an indescribable bloodshed in Bombay when one community was set against another community. The result is that Bombay, which is still cosmopolitan in the composition of its population, is not united as it was before.

Ekaterina Kudashkina: Indian security analysts say the pattern of the attack points to a local militant group, but if the hand of the Pakistani group Lashkar-e-Tayiba was detected in the Mumbai attack, it would compel India to break off talks with Pakistan - again.

I suggest we could ask our experts about their vision of what is going on there. So now we are joined by Vinay Shukla, Indian journalist with the Press Trust of India.

Vinay Shukla: Mumbai is the symbol of Indian economic might, and maybe some do not like that India is becoming a big economic power. So, I think that it is a very attractive target and it has huge infrastructure, it is a huge city, so it is easier to conceal your activities, move around, you know, in a clandestine manner.

Ekaterina Kudashkina: Do you think that those blasts are somehow related to the recent talks between India and Pakistan?

Vinay Shukla: I think yes, because this time and 26/11 - these terrorist acts were just before very substantive talks were to begin between the two countries. I think that the whole idea is to target, to torpedo the positive process that has begun between the two countries.

Ekaterina Kudashkina: What could be the point of preventing the peace process between India and Pakistan?

Vinay Shukla: The moment India and Pakistan normalize their relations, including trade relations, a lot of opportunities will open not only for India, but for Pakistan, as well as Afghanistan and Central Asia.

Ekaterina Kudashkina: But the good news is that I have seen some remarks by Rahul Gandhi. He said that 99 percent of terror attacks are stopped in India.

Vinay Shukla: I will tell you one thing: a friend of mine told me that the Egyptian revolution is a major blow to the terrorists, because the people saw that even without terror they can bring a regime change. So, this is a very positive development, and I think that the social transformation in the whole region could become a positive factor in resolving these problems.

Ekaterina Kudashkina: And now, I suppose, we could move on to our next section – Face in the News. Today we are going to talk about Ahmad Wali Karzai, half-brother of the president of Afghanistan – Hamid Karzai – and one of the most influential people in that country’s political establishment, who was assassinated in his own heavily guarded home by his own security guard and a long-time friend of the family.

Mira Salganik:  I suppose, we could do well by simply looking at what kind of a person Ahmed Wali Karzai actually was. As far as I understand this was a rather controversial figure?

Ekaterina Kudashkina: Well, yes. Ahmad Wali Karzai was half-brother of Hamid Karzai. He was 49, and he was considered to be the most powerful politician in Kandahar, which is Afghanistan's second-biggest city and the stronghold of the Taliban. Ahmad Wali Karzai had been targeted before, with at least two attacks against the provincial-council office in Kandahar that Karzai claimed were directed at him. One was in November 2008, the other in April 2009. The attack in 2009, by four suicide bombers, killed 13 people.

Mira Salganik: Ahmad Wali Karzai, who was married and had five children, was born in Kandahar city in 1961 and moved to the United States in 1982, where he lived in Maryland and Virginia before moving to Chicago, where he kept an Afghan restaurant. He returned to Afghanistan in 1992. His title was the uncrowned "King of Kandahar.”

Ekaterina Kudashkina: He was considered to be among Afghanistan's 10 richest men.

Mira Salganik: His official position was not very high. He was chairman of Kandahar's elected provincial council.

Ekaterina Kudashkina: But that did not prevent him from being the most powerful man in southern Afghanistan, which is an extremely volatile region. In fact, he acted as an agent of his brother, a regent, so to say, which is very important for holding the country together.
 

Mira Salganik: Yes, and this is a very tribal move, typical for tribal societies. The region is really volatile, but he was said to have brought ruthless control to a violent area through a network of his family, tribal links and also his personal fortune.

Ekaterina Kudashkina: It is interesting that some 20 days ago, agencies reported that a delegation of more than 100 people representing all tribes visited the president in Kabul and asked him to appoint Ahmad Wali Karzai as Kandahar's governor, because the people think that would decrease and solve their problems. He seems to have been a rather popular guy, and people were seemingly vesting their hopes with him.

Mira Salganik: But Ahmed Wali Karzai was a controversial figure. He was accused of corruption and links to the drug trade. The New York Times reported last year that he was allegedly paying off Taliban insurgents, though it was never proven. Then, he was constantly accused of levying taxes for letting drugs pass through his territory. There were persistent rumors he had received regular payments from the Central Intelligence Agency for most of his eight years in power there.

Ekaterina Kudashkina: As far as I remember, the White House refused to comment on any relationship between Karzai and the CIA, as did the CIA. He himself dismissed all accusations as politicized. And last year he told Britain's Financial Times: "It's very difficult to be the president's brother." But there were close ties with the U.S., and in September 2009, The New York Times reported that the U.S. intelligence agency paid him for helping to recruit an Afghan paramilitary force - the Kandahar Strike Force - that conducts raids against suspected insurgents at the CIA's direction in and around Kandahar. And he was also supporting a U.S.-backed village defense program and the reintegration of Taliban fighters believing that would help to reinforce security across Kandahar.
Mira Salganik: Anyway, over the past six months, the U.S. officials now say that Wali Karzai had started to evolve from a self-interested strongman to a regional leader.

Ekaterina Kudashkina: I’ve seen a nice quote - last year British Major General Nick Carter, then the commanding officer for southern Afghanistan, said at a news conference: "It's also my sense that, in relation to Ahmad Wali Karzai, he's either a candidate for an Oscar or he's the most maligned man in Afghanistan - that he is trying to help his country, that he's trying to help us and he's trying to help his people." And to me, that is a very significant quote.

Mira Salganik: Anyway, I suppose you have no doubts that the impact of his assassination would be tremendous – starting from the imminent struggle for power in Kandahar and all the way to deteriorating security situation across the country.

Ekaterina Kudashkina: We’re certainly going to see a struggle for power in Kandahar. There’s also a psychological effect - in Kabul, it could be as significant as the actual impact, because the death of someone as powerful and well protected as Ahmad Wali Karzai implies no one can really feel safe.

Mira Salganik: That means we’re talking about the general deterioration of the security situation in the country.  Ekaterina Kudashkina: And that might, in its turn, affect the U.S. plans for military withdrawal scheduled to start next year. Now we are joined by Alexei Malashenko, senior research fellow at the Moscow Carnegie Center.

Alexei Malashenko: If we attempt to understand the situation in the context of the withdrawal of the American troops, it proves that maybe it is too early, because President Karzai is a very respected man, in Washington and Europe, he cannot control not only the situation in his country, but even the situation around himself, because his brother was a very powerful governor, and by the way a very respected man, and he is killed. It proves that the situation is very, very complicated, and it proves also that Karzai is unable to control the situation. So if you are, for instance, American President Barack Obama, what can you do? How to respond to this situation? I think it is very painful for both sides. If we add to this situation the position of the members of the coalition, if you add to this problem the speculations about with which kind of Talibs it is possible to talk, it creates, I would say, a senseless situation.

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