Nuclear war called off in Korea – time to relax?

Something quite significant happened this week– though you may have missed it.

It seems the US military doesn’t think there will be nuclear war with North Korea.

A few weeks ago, you could have been forgiven for thinking we were on the brink of something similar to the Cuban Missile crisis of 1962. Pyongyang was threatening a nuclear strike on America and the US – in an unusual move – publicly announced nuclear-capable stealth bombers were taking part in joint military exercises with South Korea.

But then this Monday, unreported by most media, the US Army commander in the Pacific, Lt. Gen. Francis Wiercinski, said he thought ‘the current cycle of provocation (by the North) has come to its end point’.

Things have probably quietened down because the joint exercises are over and the leadership in the North feel they’ve achieved whatever it is they set out to do.

For instance, also this week, the North Korean Defence Minister was replaced . Although we don’t know for sure why he was given the push, there‘s speculation it’s part of efforts by the isolated communist state’s young leader, Kim Jong-Un, to consolidate his hold on power.  Kim is the grandson of the North Korea’s founder, Kim Il-sung; but at only 30 he’d had very little time to build a power base of his own when he inherited the leadership on the sudden death of his father, Kim Jong Il, 18 months ago. Indeed, many North Korea watchers attribute the recent nuclear sabre-rattling to Kim’s attempt to build support inside the corridors of power in Pyongyang by appearing strong and martial.

Whatever the reason, the North has also removed missiles it had deployed on its east coast near the border with the South.

So we can breathe a sigh of relief then? Continue reading

Europe’s zombie countries


It was a momentous weekend in Brussels, as the European Union struggled to get to grips with the latest episode in the long financial crisis.

Fascinating to see how close it all came to the wire. At midnight, journalists milling around outside the negotiating room were wondering whether “good-quality farmland in neutral, wealthy countries” would be the best place to stash their money if the Euro collapsed.

When the package was finally announced, they were astounded by its size. “We have numbers, and they are much larger than promised,” wrote the Economist’s Charlemagne at 3 am this morning. “We are in shock and awe territory here.” Markets have been duly impressed (it will be interesting to see if this holds as analysts dig into the fine print).

At best however, the deal is a stopgap . There’s been a consensus for months now that Greece will be unable to avoid an eventual restructuring of its debt (hopefully, a planned default). Many believe the same holds for some, or all, of the other PIGS (Ricardo Cabral for one, or Morgan Stanley’s Paolo Batori for another).

My question for Europe’s finance ministers – will you now get ahead of the curve on the Eurozone’s chronic problems, or are you going to drift towards another crisis?

In the wake of Japan’s lost decade, it became fashionable for the British media to excoriate the Japanese government for failing to deal with its zombie banks (and the zombie companies on their balance sheets that had consigned the financial system to the realms of the living dead).

In 2002, the Economist bemoaned ‘the sadness of Japan‘:

From the Japanese government, there will be strenuous efforts to claim that reform is under way, that problems are being solved, that new measures are being considered. The claims will even be true, in a sense: there are plans aplenty, with stages and pillars and fine aspirations. But in a rather stronger sense they will be false: reforms are not being implemented, problems are not being solved, new measures are likely to make as little progress as the old ones. Japan is in a slow, so far genteel decline.

Perhaps the saddest thing is that there is nothing new about this. The turn in Japan’s fortunes began in 1990 with the crash in its stock and property markets, and then took firm hold in the mid-1990s when banks started to crumble and public borrowing lost its ability to keep the economy growing. As long ago as September 26th 1998, The Economist lamented on its cover about “Japan’s amazing ability to disappoint”.

But doesn’t Europe now have at least one zombie country in its midst- and possibly more (and zombie banks too, exposed to these countries’ debt)? And won’t the Eurozone continue to suffer almost indefinitely if it fails to take decisive action to take these countries through an orderly bankruptcy and get them back on a sustainable track?

(As an addendum, what about the UK? Could it become a zombie too? No. If markets stop funding British government debt, then the end will be swift. The IMF may ease the restructuring, but there’s no Eurozone for the UK to hide in. Relatedly, pre-election thoughts on how a Cameron-led government should deal with Europe, the economic crisis, and a volatile world.)

On the web: Merkel’s re-election, Japan’s foreign policy, inefficient markets, and what not to say at the UN…

– With Angela Merkel re-elected as German Chancellor, and the CDU-CSU now forming a coalition with the free-market FDP, Mary Dejevsky assesses the implications for the country’s domestic politics. Alan Posener suggests that Frau Merkel has the potential to be the new Thatcher, while Der Spiegel takes a look at the implications for forming a coherent German foreign policy.

– Staying with shifting politics, WPR assesses the potential for changes in Japan’s international outlook, particularly towards the US. The Asia Times examines the domestic machinations and their likely impact on the new government’s foreign policy priorities.

– Elsewhere, the New Yorker talks to Columbia economist, Joseph Stiglitz, about his concerns over the current economic crisis and the need to address not just market failure, but government failure too. Catch the video here. The FT’s analysis section, meanwhile, assesses the flaws in “efficient markets” theory and explores what might take its place.

– Finally, following last week’s round of summitry at the UN, complete with rhetorical flourish from Muammar al-Qaddafi, Foreign Policy has a list of “The Top 10 Craziest Things Ever Said During a UN Speech” – Qaddafi joins Castro, Khrushchev and Ortega among others.

Japan begins to take climate change seriously

In the last few weeks, Japan has spent just under $1bn buying carbon emission rights from Ukraine and the Czech Republic, as it scrambles to meet its Kyoto obligations.

Japan agreed at Kyoto to cut its CO2 emissions by 6% from 1990 levels by 2013. Instead, its emissions are rising annually – they rose 2.3% in the year to March 2008.

It has now convened a board of scientists to suggest ways forward to prime minister Taro Aso. It has put forward five proposals, ranging from a 25% cut in 1990 levels by 2020, to a 4% increase.

Last week,  the government also launched its own tentative efforts at an EU style cap and trade domestic market:

The market’s compliance participants include 202 major emitters such as utility and steel companies, a step forward from its smaller predecessor, called J-VETS market.

 

But a government survey of applicants showed only 20 percent of the respondents said they would take part in trading, with 40 percent saying they didn’t know. The remaining 40 percent said they had no immediate plan to trade any.