The Screaming Pen

Providing Global Insight, Context, and Perspective

This is Chess not Checkers That’s a Warning Shot

The Deadly Paradox of the Big Six’s Iranian Accord

It’s hard to suppress feelings of glee upon reading the headline “Six World Powers Agree on Iran.” This is the exact foundation that any diplomatic solution to the Iranian quandary must be based upon: a united international alliance providing Iran with a choice between carrots if it agrees to halt uranium enrichment and sticks if it doesn’t. A common diplomatic front brings the world one step closer to the chance for a peaceful solution; however, if the chance proves illusory it will also bring the world one step closer to war.

In the run up to Iraq in 2003, there were many arguments against the U.S. invasion, many of which could be reasonably discounted at the time. War is an extreme last resort, but the argument that it should never be used is flawed: when squared off against a murderous dictator conflict can become justifiable. Nor was U.S. belligerence a stand alone sound argument. Despite bellicose rhetoric from George Bush, Saddam Hussein had violated 18 U.N. resolutions and was sidestepping weapons inspectors. The most valid pre-war argument against going to war: that the Bush administration hadn’t exhausted all diplomatic options.


It’s your Turn, Khameini. Whatcha Gonna Tell ’em ya Big Bearded Fella?

The Diplomacy this Time

The Bush administration seems to have painfully learned how to go about building its case without alienating virtually every non-holder of an American passport. It first relied on negotiations led by the “European 3” – Britain, France, and Germany – during which Iran acquiesced to halting enrichment for a time. But Iran knew that the European trio’s silent partner held the key to the only concession vital to its survival: security. So Iran once again began work on its centrifuges.

Steadily advancing its nuclear know-how, Iran’s fiery president Mahmoud Ahmadinejad recently sent an 18-page letter to George Bush, which was touted as being the first direct communication between the two nations since the 1979 hostage crisis. Accustomed to years of frosty, static relations, Secretary Rice made a knee-jerk announcement that the letter suggested nothing new, and perhaps it didn’t. Then just this week Iran called for direct talks with America, which in the absence of a U.S. response gave Iran the impression of being patient and reasonable. So until the United States replied to these overtures – no matter the political or public relations intentions behind them – Iran would appear to be holding out the olive branch. America had to respond.

With the six-party agreement on Iran it did, and with perfect timing to boot. Iran will be presented with a package of incentives in return for a “verifiable” halt to its enrichment activities. If it continues to pursue nuclear weapons further Security Council action could follow. Clearly, Iran has to make the next move, and crucially, America will appear to have dutifully followed a diplomatic approach supported by the Security Council nations.

This appears to be good news for advocates of multilateralism and supporters of a peaceful, diplomatic solution. It’s good news for those who wanted Europe to face up to legitimate security threats, which due to pride and matters of the heart it could not with Iraq. And it’s good news for those who want to see more than obstructionism and the unbridled pursuit of resources from Russia and China.

The Ball’s in Their Court

Thus, the question now becomes, “What will Iran do?” The preferred choice is for it to accept the incentives offered and abandon its desire for nuclear weapons (merely nuclear energy, it says). This is possible but would likely only come in the form of a comprehensive strategic agreement leaving Iran assured of its own security. Observers should also note that the Iranian issue is not confined to uranium enrichment: Iran plays a powerful role in neighboring Iraq, has long supported insurgents in Lebanon, Palestine, and elsewhere; and exercises more power than many realize. It recently won backing for its nuclear program from Indonesia, and China and Russia usually provide solid political cover. These will have to be addressed.

The true test of the “Big Six’s” solidarity will come if Iran decides to balk: will the world support increasingly tough sanctions, or will views diverge? Governments around the world – now realizing that true threats must be confronted – may be more likely to follow, because they too have played an active diplomatic role this time round. Despite this, these countries’ citizens will have seen Iraq and the gruesomeness of war and are likely to feel much the same as they did before Iraq.

Will Iran stall, varying negotiations with concealment? Probably. This much is true, however: until now, with a dire situation in Iraq and virulent anti-Americanism everywhere, talk of military action against Iran seemed distant. Yet now, if diplomacy is given a fair chance and fails nonetheless, Iranian rejectionism will leave us on the precipice of Iraq redux. And this time – no matter the political logic beforehand– military action would be no more likely to create a stable or friendly or democratic country out of Iran than Iraq.

– DML

 2006. All rights reserved.

Note: The Iranian situation is highly fluid at present, with half a dozen diplomatic developments and announcements (see links below) being made in the past few days alone. Contrast this with the lack of bilateral contact that existed for the past 27 years between the two countries. As stated above, this will either lead to a breakthrough or a serious deepening of the standoff. Keep watching.

U.S. Offers to Join European Three in Talks with Iran
Iran Welcomes Talks, Rejects U.S. Conditions
Iran Considers Offer from Big Six
Washington Post Analysis

June 2, 2006 Posted by | Asia, Author: DML, China, Europe, France, Germany, International Relations, Iran, Iraq, Middle East, Nuclear Weapons, Oil, Palestine, Politics, Russia, United States, WMD | Leave a comment

Dude, Where’s My W-2?

Let me tell you how it will be;
There’s one for you, nineteen for me.
‘Cause I’m the taxman,
Yeah, I’m the taxman.

-The Beatles

 

A Possible Impetus For Change

Last fall, the international media focused much of its attention on European elections that promised to shake up the old European order. For those seeking real economic change in the form of market liberalization, those elections were partial letdowns. For instance, many analysts believe that a clear-cut Merkel victory in Germany could have provided the impetus necessary for much needed economic reform and market liberalization in other Western European countries. Following the formation of a grand coalition in Germany, it appears that constant compromise may prevent Angela Merkel, the new Chancellor of Germany, from carrying out her intended reforms. It is also uncertain what direction Poland’s newly elected center right coalition government will take the country. Before coming to the conclusion that all hope is lost regarding Western European change, one must consider an economic force that has been slowly moving westward, originating in the tiny nation of Estonia. The flat tax, which applies a constant rate of taxation, is exerting economic pressure in the form of tax competition on the high tax economies of Western Europe, slowly forcing economic change in those countries.

Reactionary Yet Opportunistic

From a historical perspective, it is interesting that many of the countries who have enacted constant rates are ex-communist nations who have voluntarily moved in the opposite direction of Soviet central planning, the failed communist system that attempted to control every aspect of economic activity. Much like the iron curtain before it, the flat tax movement and free market values are slowly moving westward, with Greece facing a crucial decision this year regarding the adoption of a 25% flat tax. In the recent Polish election, the pro flat tax Civic Platform Party came in a close second, and will now share power with the victorious Law and Justice party. In Germany, the early election campaign of Angela Merkel featured a proposed finance minister who was an outspoken supporter of a flat tax. Unlike the spread of communism, however, the flat tax movement is being voluntarily implemented.

Mail Order Brides are no Longer Estonia’s Chief Export

 

The flat tax system, which uses a single tax rate that is applied to wage earners and corporations that begins taxing after a certain income threshold is reached, has been successful in several nations beginning in 1994, when Estonia introduced a 24% tax rate. By attracting business from abroad, Estonia’s economy grew at double digits in 1997, and has averaged about 6% GDP growth per year since. Russia, a nation whose complicated tax code caused widespread evasion, instituted a flat tax in 2001. It is estimated that in the years leading up to the 2001 flat tax, Russia’s biggest corporations ignored 29% of their tax obligations, while 63% substituted goods or services instead of hard currency. This made Russia susceptible to debt defaults as their coffers reached record lows. In 1998 Russian government revenues were 12.4% of GDP. By implementing a simplified tax code, Russia eliminated loopholes and increased its revenues in real terms by 28% in 2001, 21% in 2002, and 31% in 2004.

Opponents of a flat tax, who believe that a flat tax is meant to line the pockets of the rich and will result in lower government revenues, fail to realize that flat tax systems do not tax earners below a certain threshold, allowing the poorest workers to be exempt from taxes. The revenue question is answered by looking at Russia, a nation who learned that the best way to get higher revenues is to give people more incentive to report their taxes by keeping tax rates low. Ideally, a low tax rate would result in more wealth creation, which could generate even greater revenue. Remember, the examples cited in this article are from countries that had an insanely restrictive, command style tax code. The flat tax is also making Western Europe increasingly uncompetitive, as businesses and investment dollars flow into Eastern Europe.

Implications

In response to widespread eastern European acceptance of a flat tax, Western Europe is beginning to consider tax reform. According to the Economist, Germany has already made plans to cut its corporate tax rate from 25% to 19%, and the in Britain, the Opposition Conservatives announced on September 7, that they would set up a panel to study a flat tax proposal. As investment dollars and businesses continue to flock to Eastern Europe from Western Europe, it will be increasingly apparent to Western Europe that in order to maintain its standard of living, it will need to make radical changes in its tax policy.

Conclusions

It will be interesting to see how the Western European nations deal with tax competition from the east. It is apparent that the increasingly uncompetitive Western European nations will need to modernize their economies in order to compete. It will also be interesting to see how the continued success of an Eastern European flat tax effects the current tax situation in America, where our own tax code has broken the nine million word mark.

-JPL

Links of Interest

http://www.washingtonpost.com/wp-dyn/content/article/2006/05/31/AR2006053102043.html

 

May 31, 2006 Posted by | Author: JPL, Emerging Markets, Europe, Flat Tax, Germany, Globalisation, Politics, Russia, Unemployment, World Markets | 16 Comments

Germany’s New Popularity

A Dangerous Precedent: The Price of Paying Ransom for Hostages in Iraq

German nationals in Iraq have reason to be both comforted and disturbed by reports (in Der Speigel magazine and on ARD public TV) that Berlin broke precedent and paid ransom money directly to insurgent groups to secure the release of two engineers this week. German ex-pats can take solace in knowing that, if captured, there may be a monetary incentive in not beheading them on camera. At the same time, Germans are likely to become increasingly prized targets, potentially leading to a spike in abductions.

 
But next time?

At that point, will Germany continue the payments, furthering the crisis, or will the policy’s lack of efficacy lead to a reversal and the bloody sacrifice of future hostages? Will the government consider paying ransom only in Iraq, or in other global hotspots as well? Whatever the answers to these questions – and although this would be difficult to explain to the released captives – the strategic outcome looks gloomy for both German citizens and companies with interests in Iraq and beyond: in Nigeria, Afghanistan, Pakistan, and every other place where restive groups may look to cash in.

Cruel but Vindicated

Against this backdrop, the U.S. government’s long-standing declaratory policy of refusing to negotiate or barter with terrorists over hostages – however cold-hearted and unfeeling – appears justified. While the sentimental and PR value of capturing an American will remain an impetus to their abduction, at least they can know there is no additional financial motivation in doing so. No matter, some will say: simply being American is enough in some parts of the world.

– DML

Of note: In 2003, German companies spent 190 million Euros of FDI and imported 675 million Euros of products, much of it petroleum, from Nigeria. While imports “dropped sharply” in 2004 (the latest year for which figures were available) according to the German Foreign Ministry, firms doing business in the Nigerian delta – where much of the country’s oil is found and where MEND (Movement for the Emancipation of the Nigerian Delta), among others, has recently ramped up kidnapping and extortion efforts – should be acutely aware of the risks engendered by claims of ransom payments in Iraq.

 2006. All rights reserved.

May 6, 2006 Posted by | Author: DML, Europe, Germany, Iraq, Middle East, The War on Terror, United States | Leave a comment