APOEL 2 - 1 Zenit Petersburg

Whistle went to start match.In Nicosia APOEL Nicosia Ivan Trickovski to take the left corner of the Zenit flag.FC Danny walked offside.Apoel Nicosia is the angle of Eduardo Iturralde Gonzalez granted. Ivan Trickovski steps to take it.Gustavo Manduca (APOEL Nicosia) are given the opportunity, but the shot was blocked by 21 defender.Minute Ivan Trickovski (APOEL Nicosia) gets a strike, but the shot is blocked by a defender.

Nicosia FC Zenit attack on Danny. Finish off the target, however.Aleksandr Kerzhakov (FC Zenit) applies for the purpose but warning shots blocked by Ailton Almeida defence.Apoel Nicosia is on track, but unsuccessful.Play has been temporarily suspended to focus on FC Zenit Vyacheslav Malafeev to pitch them writhing in pain. Eduardo Iturralde Gonzalez jumped to play to resume in Nicosia.

Vyacheslav Malafeev return to the field for FC Zenit after taking a few minutes at least injury.In GSP Stadium, Bruno Alves was yellow carded for team.Eduardo Iturralde Gonzalez hit the road against FC Zenit Aleksandr Kerzhakov to offside.In Nicosia, Aleksandr Kerzhakov at FC Zenit presented with chance to shoot. But the strike is blocked by the covering defense.

Eduardo Iturralde Gonzalez FC Zenit has given angle. Danny took the kick from the left. FC Zenit attack, but the header from Nicolas Lombaerts not find target.Minute 35 Danny (FC Zenit) has a yellow card by Eduardo Iturralde Gonzalez.Marcelo Oliveira (APOEL Nicosia) has the first yellow card.At Danny GSP Stadium (FC Zenit) takes the corner of FC Zenit left.Danny whistled offside.In minutes of injury time APOEL Nicosia Ivan Trickovski shot away, but do not have target.The first half ended.

The second half started with SAP Stadium.Minute 47 Christina Domenico Cito was writhing in pain and play was suspended for several moments.Domenico Cris Cito recovered and returned to the game in Nicosia Nicosia.Apoel pushed forward by Ivan Trickovski, which ended on Zenit goal saved.FC encourage advanced, but Alexander Kerzhakov judged offside.

APOEL Nicosia 50 minutes in Marcinho to get in the strike, but did not press Almeida target.Ailton (APOEL Nicosia) is first to the ball but his header was off-target.FC Zenit pushed forward with SAP and Domenico Cito Stadium Cris gets a strike. It's blocked, but some APOEL Nicosia 63 minutes defence.In "Konstantin Zyrianov score to make it a - 0 with the help of SAP Stadium.Danny there.

FC Zenit pushed forward, but the finish Aleksandr Kerzhakov goal.Minute is the width of 65 'APOEL Nicosia their first substitution replacing Sanel Jahic Marcinho.In Eduardo Iturralde Gonzalez 66 minutes to wait before continuing to play as Ailton Almeida for APOEL Nicosia is still down. played briefly interrupted in Nicosia to see how Konstantin Zyrianov, who grinned at pain.Play continued.

FC Zenit Konstantin Zyrianov looks okay and will return to Nicosia pitch.Apoel Nicosia.Minute Nuno Morais has been made in 71 'Paulo Jorge for APOEL Nicosia by Eduardo Iturralde Gonzalez had been made and received one first minute card.In yellow 73' Gustavo Manduca level score on one side - 1.The house is replaced by Savvas Poursaitidis with anthos Solomou.Goal! APOEL Nicosia have been given their head by Ailton Almeida strike.That 's very helpful by Gustavo Manduca.

In a few minutes Fayzulin 75'Victor to replace Roman Shirokov for road team.Minute 76 'Bruno Alves FC Zenit yellow-carded for a second time by Eduardo Iturralde Gonzalez and sent off.At GSP Stadium, Sanel Jahic yellow - carded for team team . The home away replaced by Konstantin Zyrianov with Danko Lazovic. Luciano Spalletti made both change.Minute 84 'FC Zenit, Danny got a shot on goal at the Stadium of SAP. But the attempt failed.

Nicolas Lombaerts header off target for FC Zenit.Minute 89 "Nektarios Alexandrou is the sub for Gustavo Manduca for APOEL Nicosia.Aleksandr Bukharov to replace Tomas Hubocan Zenit FC Zenit Aleksandr Kerzhakov SAP Stadium.FC shot away but do not have target.Eduardo Iturralde Gonzalez, an additional 4 minutes before the whistle blew to end the second half.Danko Lazovic for FC Zenit got a strike, but failed to reach the target.


It is reported that 21,269 spectators are present today.
The second part ends. The match ended 2-1.

The Political Comeuppance of Rupert Murdoch

I used to rule the world
Seas would rise when I gave the word
Now in the morning I sleep alone
Sweep the streets I used to own

[With apologies due to Coldplay.] For a long time now, I've grudgingly admired Rupert Murdoch's business acumen if not necessarily the fruits of his media empire [1, 2, 3, 4, 5, 6, 7]. Starting from Australia, he has literally made the world his oyster. Such is his influence that the rise of New Labour is said to not have been possible without him backing away from Tory support. Murdoch's UK titles are well-known: the Times of London, the Sunday Times, the Sun, and until a few hours ago, the News of the World. The latter two tabloids set the template for other lowbrow publications around the world owned by Murdoch alike the New York Post.

However, time moves on and the big money to be had in media has long since gone to more interactive forms such as cable services. Not that Murdoch has always struck gold; witness the ill-fated News Corporation purchase and subsequent fire sale of MySpace. Still, these occasional lapses have been more than offset by successes such as the Fox Channel and Fox News stateside. The success of the latter alongside other right-leaning publications and programmes has always made Murdoch an arch-conservative in the eyes of some, but a keener understanding is that he shifts with the political winds when it suits. Instead, more conservative governments have traditionally allowed him more leeway to operate his media empire when antitrust questions came up. Witness Fox News' much-parodied broadcasting style.

I used to roll the dice
Feel the fear in my enemy's eyes
Listen as the crowd would sing
"Now the old king is dead! Long live the king!"

It is certainly an open question if Murdoch is a kingmaker insofar as his media outlet's outsize influence is concerned. Forbes ranks him as the 13th most powerful person in the world ahead of several dozens of world leaders. Not only did Tony Blair fear offending Murdoch at all costs, but the current Tory-led coalition also values good relations with the media titan. Aping Blair's tactic of hiring Alastair Campbell--a former tabloid journalist from the Daily Mirror--as his director of communications, Cameron infamously appointed Andy Coulson from the News of the World to the same post when he became PM. Coulson subsequently being sacked over phone hacking allegations is well-known.

Yet having made strong inroads into Britain's political-economic elite over the decades, Murdoch is now in imminent danger of overplaying his hand. It's been a slow-burning story over the years of how the News of the World has been associated with phone hacking. (See a summary and timeline here.) Whereas previous controversies have surrounded the usual suspects of the rich and famous of typical tabloid fare--actors, celebrities, sports stars, politicians, and other public figures--in recent days things have become far more dramatic and constitute a tabloid story onto itself. In its hunger for the sensational story, it appears the News of the World phone hacking also targeted families of servicemen, crime victims, and those affected by the 7/7 attacks.

To be certain, not all right-leaning voices back Murdoch. Still, for a long time, it could count on those who mattered overall. Aside from Coulson, David Cameron is also chummy with Rebekah Brooks, CEO on News International--publisher of Murdoch's various UK publications. However, the recent news of phone hacking extending to regular folks who find themselves in difficult situations made News Corporation universally vilified in Westminster's halls even among Cameron's people as such odiousness is difficult to dispel.

One minute I held the key
Next the walls were closed on me
And I discovered that my castles stand
Upon pillars of salt and pillars of sand

Today, the seemingly unthinkable has happened: Rupert's son James Murdoch announced the closure of the News of the World, with its last edition to be published this Sunday--without advertising--after 168 years in operation. Prior to this announcement, it was the widest circulation newspaper (tabloid) in the UK.

In no small, part, this action is due to several previously loyal sponsors abandoning ship: Boots, O2, Halifax, Virgin Holidays, The Co-op, Butlins, Ford and Vauxhall all ditched it for fear of offending common decency. With many others potentially following suit, the writing on the wall became clear: NoW was no longer a commercially viable title for as long as these accusations were being contested in legal proceedings.

Revolutionaries wait
For my head on a silver plate
Just a puppet on a lonely string
Oh who would ever want to be king?

Aside from putting News Corporation stock under heavy pressure, the NoW endgame is also calling into question its other activities. As mentioned above, the rapid demise of print publications has shifted the battleground for this firm and many others. For many months, it was expected that News Corporation would acquire the remaining 61% stake in British Sky Broadcasting, the largest cable service in the UK with 10 million subscribers. It was once assumed that the Murdoch-friendly Tories would let this deal pass, but things have changed. Telecommunications regulator Ofcom has put out a statement on media concerns having to be "fit and proper" to broadcast with the target being rather obvious:

In the light of the current public debate about phone hacking and other allegations, Ofcom confirms that it has a duty to be satisfied on an ongoing basis that the holder of a broadcasting licence is ‘fit and proper’.

It is clearly not for Ofcom to investigate matters which properly lie in the hands of the police and the courts, however we are closely monitoring the situation and in particular the investigations by the relevant authorities into the alleged unlawful activities.

The general consensus is that NoW had become, due to the various phone hacking controversies, a sacrificial lamb. The possibility of creating a Sunday Sun or similar weekend tabloid removed of such blemishes exists. More importantly, while print media may be influential--especially in shaping politicians' perceptions of News Corporation--the real money at stake is with the pending bid for British Sky Broadcasting. Chris Hughes over at Reuters has more to say on what's really at stake:

But News Corp’s total UK newspaper operations contribute only about 4 percent of group sales and barely break even. London-based Enders Analysis puts the annual pre-tax profit contribution of the News of the World and its weekday sister paper The Sun at just 86 million pounds. News Corp could clearly cope with a loss of readers and ad revenue. The group will also have to swallow the expense of settling with victims of alleged phone hacking. The actress Sienna Miller was recently awarded 100,000 pounds ($160,000). Two hundred more settlements at the same rate would cost 20 million pounds.

But bigger potential costs come with News Corp’s ambitions to take full ownership of BSkyB. The price may now rise if the hacking row stiffens the resolve of the satellite broadcaster’s independent directors. A deal was previously expected at 900 pence to 950 pence a share. If Murdoch now has to pay 10 pounds a share, the extra cost would be 795 million pounds over the midpoint of the lower range.

Then there is a small risk that the UK regulator revokes BSkyB’s broadcasting license. It could if the outcome of the investigations now underway makes it believe that News Corp isn’t a “fit and proper” owner or part-owner. That in turn would lead to forced divestiture of BSkyB. But this looks unlikely given the regulator’s criteria are designed to exclude certain categories of owner — for example political groups — and focus on existing breaches of UK broadcasting law rather than criminality per se.

Slumping stock price aside, also consider the controversy discount on the value of News Corporation stock which may grow even larger if the NoW-killing gambit fails:

That leaves the costs of poor governance. News Corp stock already labours with a “Murdoch discount” of about 30 percent compared to peers on an enterprise value to EBITDA basis. This is a $10 billion burden which, in theory at least, reflects concern that Murdoch isn’t shareholder-friendly.

In cash terms the UK newspapers — which also include The Times and The Sunday Times — are little more than a rounding error for News Corp. Greater economic value may have come because they gave Murdoch power and influence in Britain, and that may have helped him establish his broadcasting operations. But if Murdoch overpays for BSkyB or loses the deal because he addresses the problems in UK print with weakness or sentimentality, the discount deserves to widen.

Lastly, I am particularly critical of the lousy tabloid NoW gating its content, as if its flotsam and jetsam were worth paying a premium price for. It isn't the WSJ or even the Times of London--two other Murdoch titles. Good riddance, you gated monstrosity. Now, if only something similar could bring down Fox News--perhaps the second most repugnant Murdoch property. It was not so long ago that Murdoch was regarded as invincible here in the UK, so things may change in Australia and the States as well . As matters unfold, it seems the mightiest of old school media barons is not as invincible as he thought to simple outrage.

UPDATE 1: As expected, Andy Coulson has just been arrested in connection with the latest phone hacking allegations.

UPDATE 2: The notion that print media was a political battering ram for News Corporation's more profitable interests is echoed by the FT:

For years, shareholders have indulged Mr Murdoch’s love of print “because the political clout was worth the marginal loss”, says someone close to the family. That could change “if these playthings cost us our reputation and our commercial relationships”.

UPDATE 3 (11/7): Instead of rubber-stamping the deal as expected prior to this debacle, News Corporation's bid for the remaining stake in BSkyB has now been sent by the government to the competition regulator.

Novak Djokovic Smoothes Serbia's EU Accession

Before beginning, I must tell you of perhaps the worst marketing gambit of modern times. In November 2009, Adidas decided to make Andy Murray its top tennis endorsee when it already had Novak Djokovic under contract. While it's understandable that getting the Great Hope of British tennis on board was a coup of sorts given that it's one of the largest markets for sporting goods and has been starved for a Wimbledon champion for ages, let's just say Murray has not delivered the goods since then. Djokovic soon left Adidas and endorsed Sergio Tacchini. Owning precisely zero spotswear from the latter and loads from the former, it behoves me how Djokovic has become next to unbeatable this year while picking up the Australian Open and Wimbledon titles. Meanwhile, Murray has won no grand slams.

Anyway, to the story. Serbia has produced world-class athletes over the years. Think of Red Star Belgrade winning the European Cup (Champions League) in 1991. Or, how Ana Ivanovic became the world's top-ranked tennis player a few years ago. To be sure, the events in the former Yugoslavia after the Cold War's demise are still prominent in the world's consciousness to this day since they happened not so long ago. Since then Serbian leadership has been keen on repairing its international image. Among its more important medium-term objectives has been joining the European Union alike its neighbours. As I've long documented [1, 2, 3], this process of integration was contingent on handing over the big three war criminals to the UN tribunal. With Slobodan Milosevic. Radovan Karazdic and Ratko Mladic being handed over to meet their fates, this chapter is rapidly closing and is helping Serbia's process of accession, one hopes.

However, while IR junkies may know who these not-so-fine folks are and what's become of them, the wider public may not. How does one improve Serbia's public image, then, to the wider European and world publics? The answer is the world's No. 1 tennis player, Novak Djokovic. After thoroughly dismantling Rafael Nadal in the Wimbledon final--what more Adidas boy Andy Murray?--Serbia has in part sought to capitalize on his sporting achievements. There was Serbian President Boris Tadic cheering "Nole" in London SW19. Celebrations pictured above in Belgrade are indicative of his popularity. But, in reality, how does Djokovic's achievements fit with convincing bureaucrats of Serbia's EU worthiness? The FT's beyondbrics serves up this take:

The former Yugoslav republic has struggled to overcome image problems since the wars of the 1990s – in which neighbours and much of the world saw Serbia as the aggressor. “Novak really did a great thing for our country”, said Boris Tadic, the country’s pro-western president, joking that he could hand over his duties to Djokovic without much worry. Blic, a Belgrade newspaper, proclaimed that politicians should follow Djokovic’s example of diligence and dedication, particularly as Serbia embarks on the long, hard road of EU accession.

The arrest in May of Ratko Mladic, a fugitive Bosnian Serb former army commander (and a big part of Serbia’s international image problem), has made EU candidacy probable by the end of this year, and accession talks with Brussels likely to open not long after.

But the EU monitoring apparatus – the thousands of bureaucrats overseeing Croatia’s reform progress for the last six years – will now focus most of its attention on Serbia. With that in mind, the state should work harder on promotion, rather than rely on a successful individual like Djokovic, said Milka Forcan, a marketing specialist and former executive at Delta Holding, the country’s largest private sector company.

“Novak with his results has already influenced a better image of Serbia, and his position as world Number One and winning the Wimbledon championship is going to underline that,” Forcan said. “The state [also] has to work in an organised and planned way on constant promotion of the country.”

Djokovic has done more to improve his country’s image than “all of our diplomacy”, a former ambassador to France said. The Serbian ambassador to the UN said the tennis win prompted friendly comments among diplomats, but this made no difference with regard to other countries’ political stances toward Serbia.

Take note, Adidas--domestic concerns are keen on the commercial opportunities offered by the charismatic, grass-eating tennis player:

The Serbian Chamber of Commerce last December recognised the tennis star’s PR potential, naming him, as an individual, the “Best Serbian Brand”. Djokovic has appeared in television advertising for Telekom Srbija, the state-run phone company, and Idea supermarkets, a Croatian-owned chain. A Croatian public relations executive commented after the Wimbledon final: “This is finally one positive global story about Serbia, instead of Ratko Mladic.

Moreover, Serbia has to deliver more in European fora than in tennis courts according to diplomats working on the front line of Serbia's accession process:

Fantastic success by Novak Djokovic might help Serbian foreign policy but only if it continues fulfilling all undertaken obligations and working diligently on change of laws at least as much as the famous tennis player has been working to make his dream come true. This is actually the message by politicians from the EU and world media editors who yesterday spoke for ‘Blic’.

‘We support and are happy about Djokovic’s success. For a country it is very good to have so successful people and we believe this shall improve the image of Serbia. However, it is not to be expected that the individual success of a tennis player is going to have any influence on the process of association because it depends on Serbia and obligations it has to fulfill’, ‘Blic’ was told at the cabinet of Stefan Fuehle, the EU Enlargement Commissioner...

Jelko Kacin, the rapporteur for Serbia at the European Parliament has the similar opinion. ‘The victory is huge and I congratulate Djokovic. The most important message of that victory is directed to Serbia: only diligent work can bring progress and success. Serbia and its politicians have to understand that only Serbia can take itself into the EU’, Kacin says.

It almost makes me want to buy Sergio Tacchini's gear instead of Adi Dassler's (even if the former not having a website in AD 2011 complicates matters). At any rate, Serbia has a new hero who not only provides the country with a highly positive image but also wipes the slate clean for a new generation of Serbs. And nearly no one would doubt that Serbia is indeed *in* Europe.

Fondly Recalling Thatcher's Handbag of IPE Doom

It is one of the most notable incidences in European integration history: Although the exact wording is still being debated to this day, former British Prime Minister Margaret Thatcher famously went before her European Community colleagues in 1984 demanding that the UK not pay so much into the infamous Common Agricultural Policy (CAP) of agricultural subsidies since Britain believed it paid far more than it received in this scheme.

Demanding a rebate, she slammed her handbag into the conference table and exclaimed something to the effect of "I want my money back!" While the CAP's share in the EU budget has gone down from being over three-quarters at its height to less than half today, it remains a big sticking point in WTO negotiations over agricultural market access of LDCs to developed countries, but that's another story for a different post. Here is a brief backgrounder on the UK rebate which exists to this day:

The UK won the rebate in 1984, after the then prime minister Margaret Thatcher threatened to halt payments to the EU budget. "We are not asking the Community or anyone else for money," she said at a summit in Fontainebleau. "We are simply asking to have our own money back".

The UK was then the third poorest member of the Community but was on course to become the biggest net contributor to the EU budget. This was mainly because the UK had relatively few farms, so it got a relatively small share of farm subsidies, which at the time made up 70% of Community expenditure.

The formula for determining how much a country paid into the Community budget was also unfavourable to the UK. It was in effect penalised for raising more revenue from VAT than most other member states and importing more goods from countries outside the Community.

So we now have this splendid story of a charity auction of some famous people's possessions. A finals match ball from England captain Lawrence Dellaglio's 2003 Rugby World Cup winning side went for £13,500. One of "Slowhand" Eric Clapton's Fender Telecasters commanded £16,000. And, apropos for today's story, Mrs Thatcher's now-famous handbag--swung around for emphatic effect in various national and international political arenas in her heyday--highlighted the auction and sold for £25,000:

A handbag belonging to Margaret Thatcher fetched £25,000 when it went under the hammer on Monday, auctioned by Lord Archer. The black glossy leather bag, owned by the former prime minister for more than 30 years, was pictured in a photograph taken as she walked alongside then US president Ronald Reagan during her visit to the United States in 1985.

The lot donated by Lady Thatcher was among a number of highly prized items sold by amateur auctioneer and author Lord Archer for charitable causes. It was bought by an unnamed Cypriot who is understood to have been a student in Britain during Lady Thatcher's tenure as prime minister. The Cypriot, a private buyer, is said to be a "great admirer" of the former Conservative leader.

It literally carries considerable British history, and surpassing prissy stuff like mace, pepper spray and stun guns, made "handbagging" a true weapon worthy of IPE Mortal Kombat:

As the auction at Christie's headquarters in central London concluded, Lord Archer said: "The handbag makes you automatically think of Margaret Thatcher. Someone has captured this and will have, frankly, a historic document for the rest of their lives."

Lady Thatcher's daughter Carol, who joined bidders in the packed sale room, said her mother was "longing to know" how much the bag had raised for her "carefully chosen" charities. "I hope that the highest bidder knows that if he's into handbagging, he's got a weapon with quite a track record. After all, my mother invented the verb 'to handbag'," she said.

Talk about girl power before that hackneyed term was developed:

Edwina Currie, a former minister in Baroness Thatcher's government, said: "It wasn't a shield, it was a weapon. "It said, 'I am Margaret Thatcher, I'm the boss, I'm in charge. I have all this power and I have control'. "That was why the handbag was always so neat and tidy and black and shiny and dominant. It would go on the Cabinet table.

Make no mistake: the Iron Lady had bigger balls than nearly everyone else while maintaining a distinctly feminine touch. WHOMP! Former US Secretary of State George Schultz is said to have enrolled her into the Grand Order of the Handbag:

In 1988 Mrs Thatcher received a handbag as a gift from George Shultz, Ronald Reagan’s secretary of state. He told her it was ‘to mark your ability to produce from within the right form of words to end a tedious discussion. You are the first and only recipient of the Grand Order of the Handbag’.

Those were some days.

If EMU is Muddled, What More EU Migration Policy?

If you think discord in economic coordination and monitoring are rife in the EU--Greece, Ireland and Portugal are really forcing these issues--what more migration? A side effect of the various uprisings in the Middle East is a steady stream of migrants heading northward to find better lives. This in addition to folks from newly integrated EU states and those from farther afield seeking opportunities in wealthier countries (like myself, for instance) and you have similar issues of discord among EU nations. Those on the Mediterranean are obviously sensitive as literally first ports of call. Wealthier countries relay their wariness about welcoming "different" folks. Newer members are perhaps not as vigilant about patrolling EU borders since migrants just transit through them. And so on and so forth.

The end result of many different countries having uncoordinated migration policies and a lot of punting on the issue at the European Union itself is as you'd imagine. IP Global, the German Council of Foreign Relations, offers a fairly downbeat assessment:

There are enormous challenges to be addressed before the EU has a coherent and legitimate migration policy. First, the approach to the legislation is still too piecemeal. Measures are needed on all aspects of labor migration, not just the highly skilled. The Commission proposed a general labor migration direction in 2001, but it was rejected by member states and withdrawn. Various other measures have been suggested and even passed, such as a measure on migrant workers’ rights and another on seasonal workers—but overreaching structures are lacking. Second, the legislation that has been adopted tends to have far too many coercive elements such as integration conditions as a mechanism to restrict family reunification or long periods of detention permissible for the purpose of expelling a person. Detention conditions vary among member states. In one case that went to court in Luxembourg, a man was held in a high security prison for more than 18 months while the authorities sought to expel him. Third, the measures adopted in the asylum field have not resulted in the convergence of protection for individuals in similar situations in different member states, and are already under sharp criticism by the European Court of Human Rights for their failure to protect people from destitution and provide them with legal remedies. In short, the system is neither coherent nor effective, and it is not fully in compliance with human rights standards.

One may well ask why this situation has occurred after more than 12 years of developing the system. One possible answer is that there has been too much influence on the process by a small group of member state officials from interior ministries with a specifically exclusionary vision of the movement of people across borders. Away from the tempering influence of other ministries at the national level, specifically foreign affairs and social affairs ministries, these officials at the EU level have succeeded in promoting coercive measures which perhaps would not have succeeded at the national level.

Given European demographic trends, even more strenuous debate over the "fourth freedom" of migration after those for the movement of goods, services and investment is inevitable.

Will Airbus Lose PRC Orders on Emissions Regs?

Environmentalists usually applaud countries or regions where regulations are most stringent for obvious reasons. Aside from encouraging better fuel economy or lower emissions, there can be substantial knock-on effects. Consider America. The United States remains the world's second largest car market after China. With the state of California leading the nation in regulatory standards for automobile emissions--some vehicles sold in the 49 other states don't meet California regulations--auto manufacturers often just adopt the standard mandated by California. End result? Even if other states' lawmakers are not as concerned with the environment, standards are ratcheted upwards by a major market mandating standards exceeding those of others. And it certainly is welcome: those of you who've experienced LA smog at its worst know what I'm talking about.

Now we come to a grander analogy of the California-USA emissions dynamic. The European Union will in 2012 include in its carbon emissions scheme all airlines that fly in and out of the EU--including non-European ones. Certainly this sort of Cali-esque ratcheting up is welcome from my point of view given how recalcitrant the world's two largest carbon emitters--China and the US in that order--have been at venues alike the Copenhagen summit.

That said, the EU may have shot itself in the foot as far is its commercial fortunes go. You see, aside from being the region which will soon lead the world in attempts to curb aerospace emissions, it too is home to the world's bestselling passenger aircraft manufacturer in Airbus. It's a problem familiar to millions when environmental and economic interests seem to collide. The basic contours of the current impasse go thusly: PRC leadership is making its displeasure over EU aerospace sovereignty-at-bay known by jeopardizing previous orders for Airbus jets. Privately owned airlines based in Hong Kong are reportedly not immune since the PRC leadership is busy trying to scuttle previous multibillion dollar deals.

In other words, the PRC seeks to water down carbon trading schemes being applied to its airlines serving EU-27 nations by putting Airbus' order book under pressure. From the WSJ:

China's anger with the European Union's emissions-trading scheme for airlines has delayed the revealing of a major Airbus deal and could undermine upcoming deals, according to people familiar with the situation. Airbus, a unit of European Aeronautic Defence & Space Co., had expected to announce at the Paris Air Show this week that Hong Kong Airlines Ltd. ordered 10 of its A380 superjumbo jetliners, with a catalog value of almost $4 billion. The deal's unveiling was put on ice by officials in Beijing, who must give final approval, these people said.

The Chinese government held off because it disapproves of the EU's intention to regulate greenhouse emissions of foreign airlines operating to and from the 27-country bloc, according to the people close to the talks.

An Airbus spokesman said the company wanted to name the A380 buyer, "but the political environment would not allow us to do that." A Hong Kong Airlines spokeswoman earlier this month said the carrier planned to announce an A380 order at the trade event outside Paris. The A380 deal was completed before Beijing interceded and appears not to be in jeopardy, said one person close to the situation. But other planned orders for big Airbus planes have been frozen, this person said.

"The Chinese have told us directly that their airlines are not allowed to get into deals with Europe," said a person close to the European side of the discussions. A spokesman for the Chinese mission to the EU recently said that the country is "opposed to the EU's inclusion of [Chinese] airlines" in its emissions-trading plan. The spokesman didn't immediately respond to questions about the situation with Airbus.

For now, China's anger is unlikely to hurt the European plane maker, which has an order book of more than 3,500 planes for customers globally. But China is the biggest growth market world-wide for aviation. Airbus in 2009 opened an assembly plant in Tianjin, China, to tap the local market and curry favor with the government.

To no one's particular surprise, the commercial (Airbus) and political interests in the EU are at loggerheads. There is also arm-twisting in the opposite direction as the PRC looks set to put a squeeze on permissions for European carriers wishing to fly to increasingly lucrative Chinese destinations. That is, Europeans may make some of the best commercial passenger aircraft, but the locations to which they will increasingly fly to are in the Asia-Pacific. In other words, this political-economic quarrel is possibly quite evenly matched:

The EU's pollution-control plan, which is set to include aviation starting in January, forces any carrier departing or arriving at an EU airport to buy credits for greenhouse-gas emissions above specified levels, with large fines for noncompliance. China's move appears to be the first retaliation against the EU program. China, the U.S., Russia and other countries have strongly objected to the plan. They see it as unilateral and potentially illegal because it may assert extraterritorial jurisdiction on carriers from other countries.

"A global issue needs a global solution," said the Airbus spokesman, who called the plan "a bureaucratic tiger." Airbus and the Association of European Airlines last month wrote to top EU officials to warn about potential retaliation from China. EU officials have repeatedly said they won't retreat on their program.

Some European airlines have recently held back on asking for permission to increase capacity on Chinese routes because they expected applications to be rejected, said one person with knowledge of the situation.

Aside from Boeing possibly taking away Airbus orders over emissions, those other whiny superpolluters, the Americans, are already complaining at the ECJ:

The U.S. government on Tuesday formally presented its opposition to the EU plan for the first time at a meeting with EU officials in Oslo. A group of U.S. airlines has separately filed suit against the EU plan. The first hearing on that case before the European Court of Justice is due on July 5.

So it seems the world's superpolluters--China and the US which are #1 and #2 respectively in carbon emissions--are keen on punishing those trying to do Mother Earth some favours. Still, I have to applaud the EU stance on this matter. Whether it can hold out on principle long enough to see similarly stringent regulation adopted worldwide--the ultimate goal--will be fascinating to watch. Airbus won't be crying uncle anytime soon, so what the heck...

Zhu Min or China's Faustian IMF-Lagarde Bargain

In Chinese, gweilo (鬼佬) is a traditional epithet against "foreign devils" that, due to its common use, has lost much of its condescending tone. Indeed, Westerners often describe themselves as such in the PRC to deflate suspicion about themselves. Today, however, we have a potential Faustian bargain with the many (sorry) gweilo who run international financial institutions that may see to it that China sticks the knife into its fellow LDCs when it comes to the matter of IMF succession. Merde!--as Lagarde might exclaim in her less guarded moments.

I've just attended a very interesting talk by Yves Tiberghien who should be familiar to those interested in Asian political economy. This particular presentation concerned China's G-20 role. As you all know, my lost cause of the moment (I have many) is someone from an LDC becoming the next IMF chief to succceed the now-infamous Dominique Strauss-Kahn. We are down to two candidates, France's Christine Lagarde who's favoured by the Europeans and Mexico's Agustin Carstens who's favoured by a handful of Latin American countries. Supposedly, China is still considering throwing support behind Carstens (someone must be chosen by month's end). From our favourite official publication, China Daily:

Agustin Carstens, governor of the Mexican central bank, said on Thursday that China promised to take his bid to be the first non-European managing director of the International Monetary Fund (IMF) seriously and that the Chinese government is in the process of making a final decision.

After making a quick visit to China, Carstens told a press briefing in Beijing on Thursday that he has held "very fruitful" discussions on his candidacy with his Chinese counterpart Zhou Xiaochuan and with Finance Minister Xie Xuren. He insisted that his position as a non-European will be an advantage in the race and that his experience in Latin America will be particularly useful because the IMF position should be filled by an expert in crisis management.

I have to put this down as a (fairly likely) rumour, but the word in policy circles according to Yves Tiberghien is that the die is already cast. The primary interest of China at this time is to get one of its own in a high-ranking position within striking distance of becoming IMF managing director (that is, deputy managing director #2 or #3). So, when this post becomes open once again, he will be well-placed to become the first IMF head from an LDC. Which, I must point out, is also Carstens' strategy--while he may not win this time around, he is hoping to garner enough name recognition to be the front-runner next time.

Instead, China is placing its bets on Zhu Min. He has been the deputy governor of the PBoC and was a special advisor to Strauss-Kahn before the latter's ignominious fall. In fact, the China Daily article continues to allude to this desire of the PRC:

"Carstens' trip to China may be of little use because the country will probably endorse Lagarde," said Guo Tianyong, economist at the Central University of Finance and Economics. He said Lagarde's proposal is in line with China's interests, and that her gathering of wide support will influence China's decision.

To win over China to her candidacy, Lagarde said she supported the decision to increase China's voting rights at the IMF from about 4 percent to nearly 6.4 percent. She also said Zhu Min, the former deputy governor of the Chinese central bank and the current economic adviser to the IMF managing director, should play a more significant role in the fund.

China now being the IMF's second largest contributor, the supposed deal goes like this: the PRC will throw its weight behind Lagarde for the top post, but it expects the Europeans to do the same with a deputy managing director post for Zhu Min:

While the competition for the top slot is becoming fiercer, there is also a jostle among candidates wanting to occupy a deputy-managing director post. That has drawn much attention from Chinese analysts, who believe a Chinese has a better chance at obtaining that position. "It's time for China to recommend a Chinese to be deputy managing director, or even acting managing director of the fund," Guo said. "Zhu Min's experience is well qualified for that position."

Sun Lijian, deputy dean of the School of Economics at Fudan University, said Zhu Min has a good chance at winning the position. "It is very natural that a Chinese person should be in that post, because China has performed well in the financial downturn and contributed a lot to the world economy, which is well recognized throughout the world," Sun said.

He added that the weak recovery of the US and European economies will make the IMF prefer to raise more capital from China and other emerging economies. "Zhu Min's position as deputy head looks logical, especially since China is already the second-largest economy in the world," Sun said. "European countries should give their full support."

Has China sold out its third world colleagues for the sake of its own interests? I certainly hope Tiberghien is mistaken, but I doubt that he is.

UPDATE: Also see Sebastian Mallaby in Foreign Affairs on the question of IMF succession.

Turkish EU Accession or Why I Miss Strauss-Kahn

Well sort of. I've just come from an event hosted by our research centre (LSE IDEAS) on "Turkey In the World" discussing that country's foreign policy. Straddling Orient and Occident, religiosity and secularism as well as several other divides, let's just say Turkey needs to contend with forces pulling it in different ways. Professor Sevket Pamuk of LSE and Fadi Hakura of Chatham House gave a most interesting talk about the subject matter. Being LSE IDEAS' resident migration issues guy, I just had to ask whether Turkey's diminished prospects for EU accession at the current time are temporary based on souring European sentiment. That is, when times turn bad, migrants are usually made the scapegoats.

My line of argument goes like this: France and Germany have been the most active blockers of Turkish EU accession by not opening several chapters of the acquis communautaire to the country. Generally speaking, conservative politicians alike the UMP's Nicolas Sarkozy and the CDU's Angela Merkel disdain migration. Hence, the fear of being overwhelmed by Muslims looms large in the popular imagination if not in reality as Turkey does accept that migration limits would be an unavoidable component of its accession conditions. At best, Sarkozy and Merkel may be the lesser of two evils in co-opting some of the more extreme anti-migrant sentiment emanating from far-right voices in France (Marine Le Pen) and Germany (Udo Voigt). At worst, they are capitalizing on barely concealed racism.

The question for me is if eventual change in leadership to more left-leaning parties in France and Germany would remove this roadblock which has emerged in recent years to Turkish accession. Well guess what: my hopes may have been another victim of Dominique Strauss-Kahn's rather appalling indiscretions. Prior to his New York imbroglio, he was the only member of France's Socialist Party to openly champion Turkish EU accession. With some polls indicating that he would have beaten Sarkozy in 2012, you can figure out what that means for Turkish EU accession prospects. From a 2004 FT article:

Mr Strauss-Kahn also weighed into the debate over Turkey saying the country had a "calling" to join the EU. "If the European Union hopes to play its part, it should take responsibility for the whole of the zone from which its culture and civilisation originated: the north of Europe as well as the Mediterranean. I cannot see it lasting in setting up a sort of barrier in the Strait of Gibraltar and in the Bosphorus," he said.

His comments came a day after Valery Giscard d'Estaing, the former French president, called for the EU to limit links with Turkey to a "privileged partnership".

Ouch! Fadi Hakura does point out though that fading interest in Turkey joining the EU at the current time is mutual (though others are more optimistic). Certainly the troubles of peripheral European states are not exactly an inviting prospect for observers on the Turkish side. Still, it begs the question: are the foibles of DSK alike those of Bill Clinton forgiveable in light of their leadership abilities and vision? The latter found (eventual) redemption; the former may not given that the hour is getting late for him.

Belarus is Forever IMF's (Unfaithfully)

[NOTE: It's been a long time since I've had a semi-trademark sing-along post, so without further ado, here's one.] With apologies to Journey:

Currency run, amid plunging sums
Debts go round and round
IMF's on my mind...

One of the most insightful books I've read concerning the remarkable durability of anti-developmental regimes is Nicolas van de Walle's African Economies and the Politics of Permanent Crisis, 1979-1999. Why is it that so many regimes are able to cling to power despite providing so little in terms of delivering a higher standard of living? Foreign Affairs provides a cogent summary of this book's main idea that international lenders inadvertently keep this situation going:

Then, in a devastating analysis of international aid programs, [Van de Walle] demonstrates how Western donors and lenders, including the World Bank and the International Monetary Fund, have systematically if unwittingly undermined the institutional capacity of African states to manage reform and growth. Nondevelopmental regimes, he argues, have thoroughly mastered the art of bait and switch, swallowing just enough reform medicine to keep aid flowing but not enough to end the "permanent crisis" of underdevelopment. Entrenched patterns persist even in states that have undergone promising democratic regime change. Genuine economic transformation, Van de Walle hypothesizes, ultimately depends on fundamental political changes that must come from within; meanwhile, the present aid regime remains counterproductive.

From here let us turn to a decidedly nondevelopmental regime in Belarus. Fresh from receiving emergency IMF funding at the end of 2008 when the global financial crisis was in full swing, it is once again lurching from one bad situation to another.

At present, Belarus has next to no foreign exchange reserves. It has a current account deficit that's 16% of GDP. Its currency has been devalued by 36% in an attempt to stave off the inevitable. In a little over two years, it has once again sought IMF support. You would think that such terrible economic stewardship would have ejected strongman Alexander Lukashenko by now. But no. As in many African nations, Belarus has its own version of the politics of permanent crisis that, contrary to what you would expect, may only serve to secure his position as it has in the past. Despite obvious financial mismanagement, Lukashenko manages to stay in power by keeping some semblance of reform.

Note that Belarus is also approaching Russia for emergency funding, though Russia is keen on promoting state asset sales before lending that one suspects would ultimately benefit Russian interests. Hence the IMF is oddly more attractive at present to a leadership keen on keeping its possessions intact. Conversely, you wouldn't expect the IMF to force privatizations given the criticisms it endured during the Asian financial crisis. End result? Don't expect Lukashenko to go despite everything. If push comes to shove, there's still Russia even with its "conditionalities":

Belarusian opposition members whose family members and colleagues have been sentenced to years in prison for protesting elections said a worsening economy may not herald the end of President Alexander Lukashenko’s regime. “If the economy crashed, Lukashenko wouldn’t have to turn to the West -- he could turn towards Russia instead,” Andrey Dmitriev, who was chief of staff for presidential candidate Vladimir Neklyaev in the run-up to the December 19 elections, said in an interview in Warsaw.

Despite a misfiring economy largely of his own making, Lukashenko is blaming foul play to eject him:

The IMF has warned the country must curtail spending, raise interest rates and liberalize its managed exchange-rate system as foreign reserves slide and the current-account deficit soared to 16 percent of gross domestic product.

Lukashenko, in an April 21 speech, said there were “efforts to spur panic buying in the foreign exchange and consumer markets, with the assistance of domestic and foreign analysts.” “It’s obvious that someone is eager to destabilize the country, and sow chaos and distrust of the government, and after the problems that ensue could later strangle our country and our independence,” Lukashenko said.

What has happened in the arena of international politics? The IMF team which descended on Minsk recently as Belarus cried for help noted that the problems which beleaguered the country a few years ago that necessitated IMF help remain unresolved:

What should be in the plan? The origins of the crisis lie in excessive credit growth and wage increases that the economy could not afford. The solutions lie in the same places [my emphasis]. The National Bank should restrain credit and money creation. This means limiting credit under government programs and increasing interest rates to at least the level of the expected rate of inflation, so that people can be confident that their savings are not being eroded. The government should reduce the fiscal deficit-—we would recommend bringing the budget into balance—-and should not increase government wages this year. It should also discourage large state enterprises from increasing wages. We know that prices are going up, and it is hard to manage without wage increases. But high wage increases will just drive prices even higher and the rubel lower in a vicious spiral.

The foreign exchange market is not working. Very few people are willing to sell foreign exchange at the official rate, and most people who want to buy foreign exchange have to pay for it at a much more depreciated exchange rate. We recommend floating the exchange rate—-allowing the official exchange rate to be set by market forces and allowing free trade in both the interbank market and the cash market.

Then there are the specific politics of permanent crisis wherein Belarus does just enough to keep the IMF sticking around and not abandoning it altogether:

The main purpose of this mission has been to assess the authorities’ economic policies. We have been pleased with some of the economic measures the government is taking [my emphasis]. The government is doing a good job in limiting the budget deficit and in setting limits to lending under government programs. We also welcome the government’s plans to help people who are unemployed and who are poor and are suffering from the effects of the crisis. We also welcome some of the steps the National Bank has taken, including increasing policy interest rates and the recent decision not to provide commercial banks with cheap loans to support their lending under government programs. But we think that both the government and the National Bank need to do more to promote economic and financial stability.

We have also initiated discussions on a possible IMF program. This has only been the beginning of our discussions and we still have a long way to go. We need to have further negotiations on macroeconomic policies. We will also need to agree on structural reforms to improve the efficiency of enterprises and the financial system so that in future growth will be strong and durable. Above all, the authorities have to be committed to macroeconomic stabilization and structural reforms. We will have to agree on strong stabilization and structural measures which would be implemented prior to the program and would demonstrate their commitment. The IMF staff will continue to work with the government and the National Bank to reach a strong agreement which would help the people of Belarus.”

And so the familiar cycle is set to begin anew: same problems, same actors, same prescriptions. Meanwhile, in the absence of real institutional reform--the sort of which should really come from Belarus' citizens instead of from IMF conditionalities--I remain pessimistic that the circle will be broken. Not that such action is likely forthcoming; when even Russian state media says so, you know Belarus is in deep trouble. If' I'm still blogging in a few years' time, I suspect that I'll be writing about very much the same things as Belarus heads for yet another crisis. These are not called the politics of permanent crisis for nothing.

It's a fine line: when does lending with conditionalities become intrusive a la the augmented Washington Consensus? Should encouraging regime change in cases such as Belarus be an objective of emergency lending? There's a path to negotiate between prodding a country in a desired direction and interfering with its internal affairs. Lest we forget, there's also Russia willing to help out; perhaps China as well that gives similarly short shrift to attaching strings concerning governance matters. Push too hard and the likes of Belarus may avoid IFIs altogether. Heaven knowns modern-day Russia and China have money to burn.

Somehow I'm sure the IMF doesn't look forward to the joy of rediscovering, er, Belarus.

Trichet@LSE: EMU as Viable a Currency Area as US

Flashing sirens, extra security guards, financial journalists baying for blood, and the incessant chatter of students and faculty debating the virtues of "EU bonds" and "haircuts": Where else could it have been but at the LSE in eager anticipation of the ECB President Jean-Claude Trichet delivering an address? And so it was last Monday afternoon that Europe's Bulwark Against Market Pandemonium came to speak before our central London institution. With various commentators predicting the imminent breakup of currency union--or at least the removal of some of its more recalcitrant members alike Greece, Ireland, and Portugal--this talk was highly anticipated for followers of European integration. Given that nearly all of the world's major geographic regions are engaged in integration projects, certainly the fate of its most advanced project deserves attention.

While we await the LSE Events folks posting the video clip of Trichet's talk online, let us content ourselves with the presentation slides and the transcript from it. While he unsurprisingly gives a fairly optimistic view of EMU's progress to date, something that struck me was his argument that the EU represented no less an optimum currency area than the US based on measures of economic variation. Trichet compares the dispersion of annual inflation, real growth, and unit labour costs in explaining that differences in economic performance among EMU states are not wildly different from those of US states.

This being the IPE Zone, let us set aside the "international" and "political" aspects for now and consider the "economy" of European vis-a-vis American integration according to Trichet. Since you can read the rest for yourselves, I have chosen to focus on differences in unit labour costs (ULC), defined by the OECD as a "measure the average cost of labour per unit of output and are calculated as the ratio of total labour costs to real output." What follows is the chart for the EU:

And here is the equivalent chart for the US:

Both charts set the context for his argument that, well, economic conditions for using a single currency are not all that different across the Atlantic:

Let us go one step further and investigate the sources of this growth dispersion in the US and euro area economies. This reveals parallels even in the root causes of dispersion in economic performance. Both currency areas comprise regions that experienced a significant boom and bust cycle over the past decade. Both also contain regions that are facing significant structural challenges of a more long-term nature.

Nevada, Arizona, Florida and California in the United States, for example, experienced increases in house prices that outpaced the national average by a wide margin. Steep house price increases and the related strong performance of real estate, construction and financial services probably contributed to above average growth in these states.

Some other US states, particularly the former manufacturing powerhouses in the ''Great Lakes'' region, saw a long episode of below average growth at the same time. Below average performance of the region – and particularly weaker growth rates in the states of Michigan and Ohio – are related to strong reliance on manufacturing. Structural shifts in the US economy towards services have gradually reduced the value added of manufacturing relative to GDP, with implications for areas with a high concentration of companies in manufacturing industries other than information and communications technology.

The sharp fall in house prices in Florida and the south-western US states turned boom into bust. These states experienced the harshest recession among the US states. But GDP growth in the ''Great Lakes'' region, which was below average before the crisis, also remained below average during the crisis.

Some euro area countries experienced asymmetric boom-and-bust cycles similar to those just described in the United States. Several euro area countries had higher than average growth in the pre-crisis years, while a few have experienced growth below the euro area average for the past decade due to structural issues that could have been tackled with more determination.

The effect of the crisis on the different euro area economies follows a similar pattern to those of comparable US states. The countries in the euro area that have been hit hardest are those in which either large asset-bubble driven imbalances unwound or structural problems were left unaddressed before the crisis. More specifically, Ireland and Greece, in particular, remained in recession in 2010.

Those countries that have yet to implement more far reaching structural reforms also have relatively low growth prospects after the crisis. Just a few years ago, Germany was – entirely wrongly – labelled the “sick man of Europe”. Yet Germany is now an example of how big the dividends of reform can be if structural adjustment is made a strategic priority and implemented with sufficient patience.

And then he zeroes in on differences in labour cost as a yardstick for competitiveness:

The relatively low growth rates in some countries are linked to a deterioration of competitiveness, driven, for example, by persistent above average unit labour costs. Ahead of EMU, unit labour costs converged in the euro area. What is more – disregarding the most recent countries to join the euro area – dispersion both ahead of the crisis and during the crisis was very similar in the euro area and the United States.

At the same time, it is worth noting that both currency areas include regions with persistently above or below average growth of unit labour costs. Again leaving aside the most recent countries to join the euro area, here, Greece, Portugal and Ireland, in particular, have lost competitiveness vis-à-vis their main trading partners in the euro area. Germany, in contrast, has been able to lower relative unit labour costs over the same period.

Similar persistent losses and gains in competitiveness are also observed in the United States. Some states have experienced large or persistent increases in unit labour costs, currently exceeding the national average by as much as 20%. Other states, on the other hand, have been gaining competitiveness vis-à-vis the national average over the past decade.

In summary, these results suggest that those who are questioning the viability of the euro area as a single currency area on the grounds of economic heterogeneity are misguided. Over the past 12 years, this has been broadly similar in the euro area and the United States.

So divergences in economic performance among member states in the EMU and US may not be all that different, but then there are matters of international and political configuration. While American federalism may not bind states to the central government as tightly as in some other countries, its working principles for sovereignty are more worked out than those in the EU where supranational authority is still in question. What is Trichet's solution? Being a Frenchman at an institution modelled after the Bundesbank (the ECB), more central surveillance is his reply:

The existing economic governance framework has been incorrectly implemented and, more importantly, has proved to be insufficiently binding while lacking appropriate comprehensiveness.

Today’s reform of the governance framework has to take the current constitutional framework. We have to accept this situation as a given, at least for the foreseeable future, even if I am convinced that we have already to reflect upon further steps for economic governance in the longer term. Today, we have to empower the institutional arrangements that are already in place to the point at which they can really and durably inspire confidence.

The requirements for a very significant reinforcement of the fiscal surveillance of the Stability and Growth Pact and for the creation of a new surveillance of competitive indicators and macroeconomic policy have been discussed widely and in much detail.

As you may know, the ECB takes the strong view that there is the need for more speed and automaticity in the sanctioning mechanism, particularly in the Stability and Growth Pact, but also in the broader macroeconomic policy surveillance framework. The experience of the past months has vividly demonstrated the importance of a timely correction of internal and external imbalances.

Argue if you will with his logic, but it is very much in the "ever-closer union" vein to prevent future crises. Left to their devices, errant members will misreport macroeconomic data to paint a brighter picture of their national situations. To mitigate this "moral hazard," they must be more accountable to the centre. Surely it's a familiar if controversial notion, but that's roughly where the thinking of ECB powers-that-be lies at the current time.

Would Greece have been let into the EU if the true rottenness of its finances were known beforehand? Or, would Greece's situation have been addressed earlier had the magnitude of its problems been known at an earlier date? The ECB is keen on not losing any more sleep in the future over such counterfacturals through far more vigilant scrutiny.

India Needs Jets: Sweden's Saab, US Overstretch

[NOTE: This still is the IPE Zone, not Jane's Defence Weekly. Still, you may want to pull the bomber jacket out of the closet and groove to Steve Stevens for old time's sake.] Here's an interesting IPE angle on the machinations of defence procurement that I came upon totally at random alike much of the most interesting blog fodder. It's funny how time flies when Top Gun is 25 years of age this year. Back then the Cold War was still very much in full swing with Maverick and Goose encountering the (fictional) MIG-28. As late as 1986, India was still more sympathetic to the Soviet Union than the United States in the belief in central planning and a mistrust of unfettered markets. This was before Manmohan Singh started loosening the reins of the infamous "Licence Raj" that kept India on the infamous Hindu rate of growth.

So it will be of no surprise to anyone that aside from the custom of writing five-year plans, the Indians also purchased a lot of their military hardware from the Russians. They Still do--but even that may change. Manmohan Singh, now prime minister, famously signed a nuclear technology sharing agreement with the Yankees in 2006, causing his then-Communist allies great consternation. In the commercial realm with India becoming perhaps the offshoring destination of choice for Western firms, the globalization game was well and truly on.

Now resurgent India is flush with cash as its aging fleet of MIG-21s reaches the end of the red brick road. To be sure, the nation has a fair need for military hardware. India's main security concern remains nuclear-armed Pakistan--the suspicion is mutual--while its border dispute with China remains a point of contention. In geopolitical terms, it is troubled by both US-Pakistan and China-Pakistan military cooperation. Internationally, there is now a massive race to see who can get India's signature for a multibillion dollar deal that is arguably the most eagerly anticipated one in the international arms bazaar. Aside from the Soviets and the Americans, the French and the Swedes are also vying for this lucrative contract.

For comprehensive information on India's Medium Multi-Role Combat Aircraft(MMRCA) competition, let us turn to Defense Industry Daily for the first time ever:

“It’s the biggest fighter aircraft deal since the early 1990s,” said Boeing’s Mark Kronenberg, who runs the company’s Asia/Pacific business. India’s planned multi-billion dollar, 126+ plane jet fighter buy became a contest between Dassault, Saab, MiG, American competitors and EADS’ Eurofighter...

The original intent of India’s fighter purchase was to replace hundreds of non-upgraded MiG-21s that India will be forced to retire, with a complementary force of 126 aircraft that would fit between India’s high end Su-30MKIs and its low-end Tejas LCA lightweight fighter. While plans to develop a “fifth generation fighter” in conjunction with Russia have received a lot of press, they are uncertain at best, address a different requirement, and offer no solution to the immediate problem of shrinking squadron numbers as existing aircraft are forced into retirement.

Let us now segue into Saab's story. Unlike ill-fated Saab Automobile AB which was bought by GM in 1990, Saab Aerospace--maker of sleek fighters and other defence gear--has remained in Swedish hands. The Swedes are a go-it-alone sort, preferring not to join the Eurozone while keeping the krona, for instance. So it has been in defence: its jets are not Eurofighters but homegrown designs. Through persistence and individuality, Saab is now in the frame with the world's top defence concerns in a race to replace India's MIG-21s even if its name recognition handicaps it somewhat:

The biggest contract that everyone is fighting for at the moment is an anticipated $11bn (£6.7bn) Indian order for 126 fighter jets, set to become one of the biggest export orders in the history of the defence industry. Saab was recently told it had not been shortlisted for the Indian contract, due to be awarded in March 2012, but remains hopeful nevertheless...

Saab is convinced its lightweight single-engine multirole fighter aircraft is both as capable as and much cheaper to buy and operate than larger, twin-engined jets such as the Eurofighter Typhoon, Dassault's Rafale and Boeing's Super Hornet - not to mention Lockheed Martin's F-35 Joint Strike Fighter, which has suffered from cost overruns running into billions of dollars. By contrast, [Saab's] Mr Sindahl observes: "We made the Gripen demonstrator at 40% of the original budget because we introduced new ways of working.

At any rate, there are other customers for the Swedes even if India doesn't sign on:

Saab's gain is a commercial product that is marketable across the world, according to Lennart Sindahl, head of Saab Aeronautics, the largest of the group's five divisions. The Saab JAS 39 Gripen has so far been bought not only by Sweden, but also by the Czech Republic, Hungary, South Africa and Thailand, and the UK is using it as its advanced fast jet platform for test pilots worldwide...

Saab is convinced it can extend its list of customer countries considerably over the next decade or so, as some 5,000 of the 13,000 fighter jets currently in operation are scheduled for retirement, and as emerging nations prepare to gear up their air forces. "For the Gripen, there are new markets and market possibilities coming along all the time," Mr Sindahl tells BBC News in an interview.

Those crafty Swedes have used the oldest trick in the book, industrial policy, of keeping its defence industries competitive:

The Gripen project has emerged from Sweden's desire not to rely on foreign companies for its defence capabilities. The programme has been further strengthened by the country's supportive industrial policy.

Sweden has realised that targeted investment in hi-tech sectors, such as the military aircraft industry, can be hugely beneficial for the nation as a whole, according to Gunnar Eliasson of Sweden's Royal Institute of Technology and the Ratio Institute, a free-market think tank. "Long-term competitive sustainability of an industry requires the local presence of one or more technology-leading firms for the rest of industry to learn from," he says in a book on advanced public procurement as industrial policy. Investment in the Gripen project "has generated an additional social return to society on the order of magnitude of at least 2.6 times the original development investment", according to Mr Eliasson.

Now let us turn to the Yanks. Lockheed's F-35 Joint Strike Fighter (JSF) programme has famously been beset by delays and cost overruns. Like America itself, US defence contractors are seldom on time or on budget. That figures. While it is certainly one of the more advanced and highly rated designs in the race to replace the ageing MIGs, it is beset by--you probably guessed it--industrial policy, this time on both sides. On one hand, while the Indian economy has certainly liberalized compared to the pre-Manmohan Singh days, it seems they are still keen on not just being paying customers by availing of technology transfer and accompanying "offsets" that benefit local industry:

The vendor who finally wins will be required to undertake 50% offset obligations in India. That’s a boost from the usual 30%, which is required for Indian defense purchases over $70 million. The additional 20% was added because India is looking for a large boost to its aerospace and defense electronics industries, and understands that the size of their purchase gives them additional leverage. The Indian MoD’s RFP release adds that “Foreign vendors would be provided great flexibility in effecting tie up with Indian partners for this purpose.”

On the other hand, you also have American defence firms alike Lockheed being obliged to keep proprietary knowledge in-house that are not keen on sharing this knowledge--even at a price:

India has been invited to F-35 events. With potential US [domestic] order numbers dropping, India might even be accepted into the program if they pushed for it. The F-35’s killer weakness was timing that coudn’t deliver the fighters in India’s timeframe, and India’s pursuit of its FGFA program with Russia offers it a semi-indigenous alternative. Even if India changed its mind, the F-35’s advanced systems, established industrial partnership structure and program procurement policies could also make it nearly impossible to meet India’s technology transfer and industrial offset rules.

Just as international trade policy largely fashioned on American preferences as exemplified by the WTO discourages subsidies, so does US foreign military sales (FMS) procurement policy discourage "offsets":

The general policy of the Department of Defense with regard to offsets is that they are market distorting and inefficient. In accordance with an April 16th, 1990, Presidential Policy statement, the decision whether to engage in offsets, and the responsibility for negotiating and implementing offset agreements, resides with the companies involved. The Presidential Policy mandates that "no agency of the U.S. Government shall encourage, enter directly into, or commit U.S. firms to any offset arrangement in connection with the sale of defense goods or services for foreign governments."

Let's be honest here: Americans have BS artists from here to eternity, and the defence industry certainly isn't free from them. Even when the US military cannot afford jets due to overstretch--broke America probably has more pressing priorities--it still turns up its nose to countries that can actually pay for these killing machines.

Security matters often receive less IPE attention, but we have an interesting triple comparative political economy here depicting countries on different trajectories. India is definitely shining with many keen on sharing design know-how with it. Sweden is maintaining its reputation for engineering through well-applied industrial policy. And the US is, industrially speaking, a beggar being a chooser that is flushing itself down the toilet of history through overstretch. That's about par for the course as far as the global pecking order is concerned.

Modern American defence policy isn't up there with the best of the best, to put it mildly. It's funny what a difference a quarter of a century makes.

All Hail Sports Corruption: Euro 2012 in Ukraine

There appears to be something which just brings the worst out in people while attempting to land marquee sporting events alike the Olympics, the World Cup, and Formula One grands prix. Once the events are finally landed, however, there are yet more layers for corruption to occur during contractual bidding processes. Ah well, just as jingoism and sport often go together, so it seems do governance issues and sport.

Hot on the heels of the FIFA fiasco involving Sepp Blatter being chosen once more over his erstwhile rivals--it appears corruption allegations did little but eliminate erstwhile challengers to his authority--we have yet another episode on the immediate horizon. With the World Cup done and dusted, the next major international football tournament here in Europe will be Euro 2012 which various national teams are busy trying to qualify for at the moment. But alas, while those teams should be in fighting condition for next year, the same may not necessarily hold for co-host country Ukraine (the other being Poland). You see, some of its facilities are behind schedule and construction has been hampered by faulty bidding processes.

It may be the case that Ukraine is going for the double--bidding irregularities to host the event as well as faulty contracting. From the Evening Standard:

An investigation by this newspaper has uncovered claims of murky construction deals and backhanders in Ukraine - which will co-host the tournament with Poland - that have sent costs spiralling. Among the projects that have raised suspicions are the 10 wooden benches bought for £44,000 and the £6 million heliport for players built 150 miles from the nearest stadium.

The Olimpiyski stadium in Kiev, intended to take centre-stage, is still only half built. Although scheduled to have already staged a game, its first match is now planned for November, little more than eight months before the final. The stadium, however, is likely to be the least of Uefa's worries if corruption allegations made by opposition politicians are substantiated. Claims that votes for the winning bid - fronted by sports stars including former Chelsea striker Andriy Shevchenko - were bought resulted in a defamation case that still continues.

Yulia Tymoshenko--she of the famously otherworldly hairdo--has been at the forefront of the allegations:

Yet Yulia Tymoshenko, the former prime minister, claims the worst has yet to be uncovered. "When our government was in office we had an estimate that the cost (of the stadium in Kiev) would be £160 million. Now it has moved to £380 million." The total bill for hosting the tournament, including infrastructure improvements, is expected to reach £8.5 billion.

At the heart of allegations by Ms Tymoshenko and the opposition is a claim that projects have not been put out to tender properly. The European Commission has criticised planned changes to a law that would narrow further the publication of tender documents.

Opposition sports minister Ostap Semerak says the overspend is a result of this. He gives examples such as the purchase of the wooden benches from a sewer manhole manufacturer and the heliport, apparently in a hunting spot favoured by the ruling class. The price of a new stadium in Lviv, meanwhile, has more than doubled from £84 million to £183 million.,,

Ukraine's president, Viktor Yanukovich, elected a year ago, has conceded corruption is a major issue in the country. Uefa president Michel Platini was quoted as saying it was "perhaps an error" to award the event to Ukraine. The quote was quickly dismissed as taken out of context. Yesterday Uefa stressed it was not involved in tenders launched by the Ukrainian government.

This story still has room to run.

Fiscal Studliness: IMF Lauds UK's Macho Austerity

A few months ago, I commented on the little girlie man wussonomics emanating from America. If anything else, the free lunch economics that brought the joys of subprime crisis to the rest of the world was, er, magnified by even looser (the spellcheck suggests "loser"; it's pretty smart) fiscal and monetary policies in its wake. As if free money has done Americans any good since then: stock market indices have dropped for five consecutive weeks, job growth is next to non-existent, housing prices are scraping post-recession lows. As Dear Leader Dubya would say, good job, Bennie and Timmy! It's done these deficit deniers no good while adding to their already orgiastic debt load. You call that progress? Only in America.

Let's face it: today's Americans are not used to adversity. The "ask not what your country can do for you, but what you can do for your country" idea is long gone as America is busy flushing itself down the toilet of history. In spite of their irresponsible behaviour, these louts are quite angry, blaming everyone and everything else--even giving God a 33% approval rating. It's never their fault, is it?

In contrast, a previous post of mine also compared how the UK is following a stricter path of austerity. While some British observers alike celebrity chef and "Tiger Dad" Jamie Oliver detect increasing American-style wussiness in British youth, my general impression is that the British retain some of the famous stiff upper lip. While there certainly are crybabies here, the general public still appears to know that free lunches don't exist except in the land of Cheneynomics and other benighted reality-free places (except for "reality TV," that is).

Now we have the IMF performing its annual Article IV consultation on the United Kingdom and giving it a clean bill of health or something which comes close. So inflation is running a tad high and growth a bit low compared to expectations. I personally would advocate raising interest rates in the UK. At any rate, you can read the IMF's statement which says the show must go on and the UK must stay the macroeconomic course which is a totally alien concept to certain deficit lubbers across the Atlantic:

Aided by the implementation of a wide-ranging policy program, the post-crisis repair of the UK economy is underway. However, the weakness in economic growth and rise in inflation over the last several months was unexpected. This raises the question whether it is time to adjust macroeconomic policies. The answer is no as the deviations are largely temporary. Strong fiscal consolidation is underway and remains essential to achieve a more sustainable budgetary position, thus reducing fiscal risks. The inflation overshoot is driven largely by transitory factors, and hence maintaining the current scale of monetary stimulus is appropriate given fiscal adjustment and subdued wage growth. This macroeconomic policy mix will also assist in rebalancing the economy toward investment and external demand. Bank balance sheet repair continues, but vulnerabilities remain and strong domestic measures and international coordination are needed to further bolster financial stability. Indeed, the stability and efficiency of the UK financial system is a global public good due to potential spillovers and thus requires the highest quality of supervision and regulation. Nonetheless, there are significant risks to inflation, growth, and unemployment. If they materialize, the policy response will depend on the nature of the shock.

Now that's a manly response to crisis. The WSJ and FT have more, but you get the general idea. Let's face it: some folks just have bigger huevos than others. This coalition's not for turning? I sure hope so. After all, there's no plan B.