Georgia warned of new military action

Georgia warned of new military action
Tue, 07 Oct 2008 00:43:15 GMT

Russia says Georgia is provoking a new military action

Moscow has warned Tbilisi of a ‘new military action’ following a bomb blast which killed seven Russian peacekeepers in South Ossetia.

“Some forces in (the Georgian capital) Tbilisi…are trying to provoke new military action,” the Russia foreign ministry wrote in a statement raising concerns of a fresh war in the region after the two sides’ August hostilities in South Ossetia.

The August war erupted after Georgia attacked the independence-leaning republic triggering a Russian armed response which according to the Kremlin was aimed at protecting its peacekeepers and nationals there.

Certain Georgian agents “are consciously moving to aggravate the situation in the region and through a series of terrorist acts,” the ministry added referring to the last week’s ‘terrorist attack’ on the Russian peacekeepers in the neutral zones where they have moved since the clash.

The incident killed seven peacekeepers and injured another seven on October 3. The Russian authorities and the South Ossetian leadership say Georgia orchestrated the blast to complicate a trouble-free withdrawal for the peacekeepers.

Russian peacekeepers making room for EU monitors

The blast in the buffer zone took place two days after the Russian peacekeepers started their withdrawal from the area based on the French-brokered agreement.

RIA Novosti reported that French Foreign Minister Bernard Kouchner, whose country has mediated a ceasefire agreement meant to resolve the conflict, has been notified by his Russian counterpart Sergei Lavrov of “Russia’s concerns regarding the provocation and deteriorating situation in the security zone.”

“All the same we firmly intend to fulfill the agreement… on withdrawing our peacekeeping forces from Georgian territory on October 10,” added the statement.

Pakistan: Will it be Bush’s third war?

Pakistan: Will it be Bush’s third war?

Once an ally and now a foreign policy blunder, nation is becoming area of operations

By ANDREW J. BACEVICH

President Bush will leave office without concluding either of the two wars he initiated after Sept. 11, 2001. Now, in the waning months of his administration, the president seems intent on expanding his “global war on terror” still farther. To the existing fronts in Afghanistan and Iraq, he is adding a third: Pakistan.

Eclipsed perhaps only by Iraq, Pakistan ranks in the very top tier of the Bush administration’s foreign policy blunders. Even as it vowed after 9/11 never to compromise with evil, the administration wasted no time in forging an alliance with Pakistani President Pervez Musharraf, the army general who seized power in 1999 through a military coup. Although Musharraf was anything but a democrat, Bush proclaimed him a close friend and ally. Washington quickly began funneling military and economic aid toward Islamabad, the total since 2001 exceeding $13 billion.

Unfortunately, Musharraf was not only a dictator but was also incompetent. Two themes defined his presidency: a gradual erosion of domestic legitimacy that paralyzed and then doomed his regime, and a steady erosion of Pakistan’s already shaky control over its frontier provinces bordering Afghanistan. For Taliban and al-Qaida fighters ousted from their Afghan sanctuaries, the Pakistani Northwest Frontier became a refuge in which to establish training camps and support areas. Although U.S. civilian and military officials pushed and prodded Musharraf to crack down on this Taliban and al-Qaida presence, little effective action resulted.

As measured by return on investment, Musharraf turned out to be a lousy bet. By the spring of this year, with Musharraf’s days obviously numbered, the Bush administration abandoned its friend and ally. In doing so, it found itself without a policy as far as Pakistan was concerned.

To fill the void, Bush turned to the Pentagon. Nearly seven years into the Afghan war and five years into the Iraq war, Pakistan has become the next problem that the president intends to solve through the application of armed force. Without congressional authorization and almost entirely shielded from public view, a new war has begun.

Rather than a partner, Pakistan is becoming an area of operations. Even as Washington denounces Russia for violating Georgian sovereignty, U.S. violations of Pakistani sovereignty have become routine. The most commonly employed tactic relies on missile-firing drones to patrol Pakistani airspace and attack suspected al-Qaida or Taliban militants. Yet there is also evidence of a growing willingness to put boots on the ground. On Sept. 3, in a widely reported incident, U.S. special operations troops raided a village in South Waziristan, leaving a dozen or more Pakistanis dead.

The Bush administration seemingly has concluded that Pakistan poses the primary obstacle to success in Afghanistan. As long as jihadists can freely infiltrate across the border shared by those two countries, the thinking goes, victory in the Afghan war will remain elusive.

“We can hunt down and kill extremists as they cross over the border from Pakistan,” Adm. Michael Mullen, chairman of the Joint Chiefs of Staff, recently remarked. “But until we … eliminate the safe havens from which they operate, the enemy will only keep coming.”

Will raids, however vigorously executed, clean out the Taliban and al-Qaida havens? Not a chance. At best, they will keep jihadists off-balance. In the meantime, as U.S. operations inevitably produce a stream of noncombatant casualties, they will exacerbate anti-Americanism in Pakistan. As the recent bombing of the Marriott hotel in Islamabad, the Pakistani capital, reminds us, one unintended consequence might be to jeopardize Pakistan’s already precarious stability.

The real aim of these raids is to goad Pakistan’s senior military leadership into action. Gen. Ashfaq Kayani, the chief of the Pakistani army, has declared categorically that “the sovereignty and territorial integrity of the country will be defended at all cost.” Kayani also insists that “no external force is allowed to conduct operations inside Pakistan.” Each time an American aircraft enters Pakistani airspace and fires on some Pakistani village, Kayani is made to look a fool.

The problem with this strategy of goading is twofold.

First, U.S. expectations probably exceed Pakistani capabilities: Pakistan’s army is large but not notably effective, especially as a counterinsurgent force.

Second, Pakistani national security priorities differ from our own. Traditionally, Pakistani generals like Kayani worry more about India than the Taliban. In short, when it comes to doing our bidding, Pakistan’s army can’t and won’t.

Rather than prodding Pakistan to act, the Pentagon over the next several months could again find itself starting something that it cannot finish. In that event, Bush will bestow on his successor an exceedingly unwelcome surprise.

Germany takes hot seat as Europe falls into the abyss

Germany takes hot seat as Europe falls

into the abyss

We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars.

By Ambrose Evans-Pritchard
European Central bank Governor Trichet

Star-crossed bankers: The European Central Bank played a shockingly destructive role Photo: REUTERS

Investors will learn today whether the Paulson bail-out – fattened to $850bn (£480bn) by Congress – can begin to halt the death spiral in the credit system. So far, the response looks terrible.

Germany is now in the hot seat. The collapse of a rescue deal for Hypo Real Estate on Saturday threatens a €400bn (£311bn) bankruptcy that nearly matches the Lehman Brothers debacle for sheer scale.

Chancellor Angela Merkel has been forced to pull her head out of the sand, guaranteeing all German savings, a day after she rebuked Ireland for doing much the same thing. Reality intrudes.

During the past week, we have tipped over the edge, into the middle of the abyss. Systemic collapse is in full train. The Netherlands has just rushed through a second, more sweeping nationalisation of Fortis. Ireland and Greece have had to rescue all their banks. Iceland is facing an Argentine denouement.

The US commercial paper market is closed. It shrank $95bn last week, and has lost $208bn in three weeks. The interbank lending market has seized up. There are almost no bids. It is a ghost market. Healthy companies cannot roll over debt. Some will have to sack staff today to stave off default.

As the unflappable Warren Buffett puts it, the credit freeze is “sucking blood” out of the economy. “In my adult lifetime, I don’t think I’ve ever seen people as fearful,” he said.

We are fast approaching the point of no return. The only way out of this calamitous descent is “shock and awe” on a global scale, and even that may not be enough.

Drastic rate cuts would be a good start. Central bankers still paralysed by a misplaced fear of inflation – whether in Europe, Britain, or the US – have become a public menace and should be held to severe account by our democracies. The imminent and massive danger is now self-feeding debt deflation.

The lesson of the 1930s is that any country trying to reflate in isolation will be punished. The crisis will ricochet from one economy to another until every one is crippled. We are seeing it play again in this drama as our leaders fail to rise above their narrow, parochial agendas.

The European Central Bank – which raised rates into the teeth of the crisis in July – has played a shockingly destructive role in this enveloping slump. Its growth predictions this year have been, and still are, delusional. Neglecting its global role, it has vastly complicated the fire-fighting efforts of Washington.

It could have offered “cover” to the US Federal Reserve this spring when Ben Bernanke was forced by events to slash rates to 2pc. It could at least have signalled an end to monetary tightening. That is how an ally ought to behave.

Instead, it stuck maniacally to its Gothic script, with equally unhappy consequences for both sides of the Atlantic, as well as for China, Japan, and India. The euro rocketed yet further, which it turn set off an oil shock as crude metamorphosed into an anti-dollar with leverage.

The ECB policy was self-defeating, even on its own terms. It merely drove headline inflation even higher, while deeper forces of underlying debt deflation pulled the real economies of Germany, Italy, France, and Spain into a recessionary vortex.

Far from offering reassurance, the weekend mini-summit of EU leaders served only to highlight that nobody is in charge of this runaway train. There is still no lender of last resort in euroland. The £12bn stimulus package is risible.

Angela Merkel has revealed her deep limitations. It was she who vetoed French efforts to launch a pan-EU rescue package, suspecting that any lifeboat fund would prove to be Trojan Horse – a way of co-opting German taxpayers into colossal transfers of wealth to Latin Europe.

In that she is right, but it is too late now for dysfunctional EU political games. By demanding that those who caused the damage should pay for it, she crossed the line into caricature, or worse.

Her comments echo word for word the “we’re alright Jack” attitudes of Euro-pols during the first US banking crises in 1930-1931, until the storm hit Europe and the entire cast was swept away by furious electorates, or simply shot. Thankfully, this EU stupidity is at last drawing serious criticism.

“We have to make sure Europe takes its responsibilities, like the US: action must be taken quickly and in a concerted manner,” said IMF chief Dominique Strauss-Kahn.

As for the US itself, it has not yet exhausted its policy arsenal. It can escalate further up the nuclear ladder. The Fed can cut interest rates from 2pc to zero. If that fails, it can let rip with the mass purchase of US debt.

“The US government has a technology, called a printing press,” said Fed chief Ben Bernanke in November 2002. (His helicopter speech).

In extremis, the Treasury/Fed can swoop into any market to shore up asset prices. They can buy Florida property. They can even buy SUV guzzlers from the car lots in Detroit, and mangle them in scrap yards. As Bernanke put it, the Fed can “expand the menu of assets that it buys.”

There is a devilish catch to this ploy, of course. It assumes that foreign creditors will tolerate such action.

Japan entered its Lost Decade as the world’s top creditor, with a vast pool of household savings to cushion the slump. America starts its purge with net external liabilities of $3 trillion, and a savings rate near zero. Foreigners own over half the US Treasury debt, and two thirds of all Fannie, Freddie, and other US agency bonds.

But the risk of a dollar collapse is one for the distant future. Right now the world faces the opposite problem. There is a wild scramble for dollars as a $10 trillion pyramid of global lending based on dollar balance sheets “delevers” with a vengeance.

This is a “short squeeze” on those who have used the dollar for a vast global carry trade. International banks are facing margin calls on their dollar leverage. It is why the Fed is having to provide $1.25 trillion in dollar liquidity for the entire global system, according to estimates by Brad Setser from the Center for Geoeconomic Studies.

The crisis engulfing Europe, Asia and emerging markets, makes life easier for Washington. The United States is becoming a safe-haven again.

The Fed can now hope to pursue monetary stimulus “a l’outrance” without being slapped down by the currency, debt, and commodity markets. Take comfort where you can.