Kirill I - The Holy Patriarch of Moscow and all the Rus'

Prison for protesting feminists, prison for gays who flaunt their homosexuality, prison for anyone publishing Lenin’s works … the so-called “nostalgia for Soviet values”, expressed recently by the official spokesman for the Moscow Patriarchate, has decidedly sinister overtones. Taking a  tough, aggressive stance, the Russian Orthodox Church seems more and more determined to provide the ideological backbone sadly lacking in Putin’s United Russia party – now discredited and in disarray. What is more, at the inauguration of his third mandate on May 7, the new president seemed inclined to abandon his party to its fate.

The crisis being experienced by United Russia looks like part of a more general crisis afflicting the whole of Russia’s party system – a system which has evolved within the limits of a “managed democracy” over the last few years.  Almost all the “official” parties, which had been allowed to participate in the elections  and which have representatives holding seats in the Duma, are experiencing internecine struggles  - fundamentally due to the fact that they are merely functionaries of the apparatus of power and have no real social base.

The explosion of street protests in recent months, rather than threatening the Kremlin, has instead created major problems for the political parties.  The Communist Party leadership, under the eternal auspices of Gennady Zyuganov, is being challenged with growing success by more courageous personalities like Sergei Udaltsov, whose outlook is more sympathetic to the protests, and the Just Russia Party has been broken  apart by factions and schisms, forcing it  increasingly into an opposition role, which was not one of its original goals. Even Zhirinovsky’s  Liberal Democrats are not immune from the contagion, having suffered a decrease in both electoral support and party discipline.

The general crisis is also affecting political parties that have not even taken shape yet: the Liberal Party, whose founding was announced by billionaire Mikhail Prokhorov, has seen its inauguration postponed to an unspecified date due to internal disputes; the Social Democratic party pre-announced by the dissidents from Just Russia has not yet managed to nominate a leader ….  as for United Russia, the fact that Putin passed on the party leadership to the previous President and current Prime Minister, Dmitri Medvedev , thus openly distancing himself from United Russia, speaks volumes about the state of the party – and is even more revealing than the millions of votes it lost in last December’s elections.

In this general chaos within the parties, the assertiveness of the Moscow Patriarchate appears even more significant, particularly as it is imbued with such a sense of urgency that caution has been thrown to the winds.  During the presidential campaign, the Patriarch, Kirill made a remarkable affirmation, describing Putin’s years as president as “A Blessing of God for Russia”, a statement which goes well beyond the traditional cordial relations between the Patriarchate and the Kremlin. These have continued uninterrupted since 1943 when Stalin, driven by the necessities of the Great Patriotic War (World War II) recreated a version of the national Church using a few of the clergy who had survived the decimation the dictator himself had ordered in previous years.

Patriarch Kirill I and President Vladimir Putin

During the seventy years since that time, the various patriarchs (Sergius I, Alexius I, Pimen I, Alexius II and now Kirill) have supported the regime in power and its leaders: Stalin, Khrushchev, Brezhnev, Andropov,  Gorbachev, Yeltsin and Putin.  But this support was always indirect, based on non-opposition and the silencing of dissenting voices within the Orthodox Church. Calling Putin a divine blessing goes somewhat beyond this tradition. It is also clear that the reciprocal understanding between the Patriarchate and the current leadership in the Kremlin is now far more explicit than in previous years.  Putin and Medvedev take advantage of every opportunity to be seen at the side of the Patriarch during the celebrations of each and every one of the country’s  religious festivals, and the Patriarch in turn enthusiastically blesses each new achievement of those in power.

The Church has begun to make explicit recommendations and specific requests to the leaders in the Kremlin – recommendations and requests that are only apparently eccentric or “colourful”.  Through the offices of the archpriest, Vsevolod Chaplin, for many years his spokesman, the Patriarch asked for the writings of Lenin to be banned under the new legislation relating to political extremism.  And only a few days later, once again through his spokesman, he praised the “system of values” upon which society was based in Soviet times, as an “alternative to capitalism which is currently in crisis” seeing that it “encouraged social justice instead of the ideology of money”.

It doesn’t seem to matter that the two statements directly contradict one another: one moment praising the values of Soviet times and the next requesting the banning of the writings that ensured the dominance of those very values for a time. Nor does it seem to matter that a few weeks ago Patriarch Kirill found himself involved in an embarrassing scandal involving expensive private apartments acquired in a somewhat dubious fashion, a multi-million dollar court case for damages against another member of the clergy (his next-door neighbour), luxury watches worth tens of thousands of dollars,  which were “disappeared” in official photographs, mysterious female “cousins” who were guests in his private apartment and so on.  These are all circumstances that in theory would invite a certain amount of prudence in matters of media exposure but that appears not to be the case.

Patriarch Kirill seems keen  to score political points at all costs, to impose his own line. Hence his request that the law on extremism be applied to the publication of the works of Lenin – which could mean jail-time for anyone publishing or selling them – something that would normally be unthinkable in Russia. Despite the fact that Communism collapsed over twenty years ago, despite the general refusal to adopt Socialist political solutions, and despite periods of harsh repression (the banning of the Communist Party between 1991 -93, and then the prosecutions that followed the flare-ups of civil war in Moscow), nobody has ever dreamed of banning what was for decades obligatory reading, and which is fundamental to the national history of Russia.

The Patriarch has also asked for other bans and further repression , all in the name of the national good – not in the name of morality.  A case in point is the jailing of three girls belonging to the punk group “Pussy Riot,” guilty of having “profaned” the Cathedral of Christ the Saviour in Moscow with a musical agit-prop show against Putin.  Although the Church has not formally requested indefinite detention for the three – who are currently in prison until 24 June, awaiting trial with a potential sentence of seven  years jail for “hooliganism” – it is clear to everyone that this is exactly what Kirill wants,  having repeatedly stated that it is “impossible to forgive” the girls for their “sacrilegious, blasphemous and anti-Russian actions”.

Apart from the fact that it has not been proven that the three girls participated in the action (they were arrested a few days later) and that technically no sacrilege took place (the show did not damage or sully anything in the cathedral and the words of the song they sang were not anti-religious in any way, merely calling upon the Virgin to get rid of Putin), what is worrying about the Patriarch’s statement  is his use of the words “anti-Russian” as this goes well beyond his brief of religious and social concerns.

The Patriarchate’s determination to stick to this political line was confirmed a few days later by the calling for a day of national prayer and a mobilisation of the faithful to “defend the Church from anti-Russian attacks”. On the plaza in front of the cathedral, 70,000 people responded to his call, whereas the demonstration called to protest against the unjust detention of “Pussy Riot” (who have the support of the majority of Russians – including the mainstream media) only managed to attract a few hundred people.

The campaign against “anti-Russian forces” has now turned on another important symbolic target:  freedom of sexual orientation.  Last winter in some regions of Russia – under pressure from the clergy – new legislation was brought in to criminalize “propaganda in favour of homosexuality” (which is put on a par with paedophilia) amongst minors, meaning anywhere near schools, nurseries and any other institutions for adolescents or minors.

Since April pressure has built up to have this legislation extended to the entire country. In the space of a few weeks, the law passed its first reading, just one step from becoming legislation.  The law itself is worded so vaguely that it risks being interpreted very rigidly, in reality transforming any public manifestation of homosexuality into a crime. What this would mean is a return to Soviet times when homosexuality was a crime punishable by law – particularly a return to the Stalinist and post-Stalinist years. ( Up until 1928, the freedom of sexual orientation was something that the USSR took pride in supporting).  It would also be in direct contradiction to  the Russian penal code, which as of 1993 abolished the crime of homosexuality.  Nevertheless, opinion polls show that the vast majority of Russians are strongly against any public manifestation of sexual diversity. It looks like the Church has decided to exploit this wave of public sentiment to assert itself yet further as the ideological guarantor of the nation.

Foreign exchange traders

In developing countries, who also did nothing to cause this collapse, the price has been very severe with funds for health, development, infrastructure and climate change being cut or suspended. FTTs are one of the few available options that could generate financial resources in sufficient quantity to make a meaningful contribution to the continuing costs of the global economic crisis.

This would ensure that the currently under-taxed financial sector pay a greater and fairer share of the costs that their actions caused. Importantly, the FTT would also help to regulate markets, curbing speculative market behavior and “short-termism”, and instead encourage more sustainable and equitable long-term economic growth. Yet despite this, and the growing international support for the FTT, opponents continue to peddle a series of ‘myths’ concerning its impact. All of these can be shown to be false. The aim of this article is to dispel these myths.

What is the Financial Transaction Tax (FTT)?
FTTs are a small tax on the purchase/sale or transfer of the four main financial asset classes: equities, bonds, foreign exchange and their derivatives. The European Commission (2011) proposes a tax rate of 0.1% on equities and bonds and 0.01% on derivatives. The Leading Group (2) (2010) suggests a 0.005% tax on foreign exchange. FTTs would raise substantial new revenue: an EU-wide FTT (excluding currency) would generate €57 billion (European Commission, 2011) a year and a broad-based FTT (including currency) rolled out across all developed countries would generate almost $300 billion annually (Spratt and Ashford, 2011). It is useful at the outset to put FTTs into context in relation to other costs of trading. In respect of a 0.1% FTT, this is less than 10% of total transaction costs and certainly no greater than other costs “such as trading commissions, spreads, price-impact of trading, clearing, settlement, exchange of fees and administration costs” (Persaud,2012, p.2). In fact, an FTT of this size would simply bring transaction costs back to where they were as recently as 10 years ago, when markets were arguably more robust.

Myth 1: FTTs have to be global to work
This is simply untrue. The world’s experience of FTTs is, in fact, the opposite of global, they have been successfully implemented unilaterally (see appendix 1). “FTTs are commonplace and have been introduced permanently or temporarily over many decades in over 40 countries” (Beitler, 2010) (3). A good example is the UK’s FTT on share transactions, which raises in the region of $5 billion for the finance ministry each year without a significant loss of business from the UK. Many countries, including South Korea, South Africa, India, Hong Kong, the UK and Brazil raise substantial amounts of revenue from FTTs. Brazil, for instance,currently taxes transactions of various assets at varying rates raising $15 billion in 2010 (Ministry of Finance, Brazil, 2011). The success of these existing FTTs clearly demonstrates that the tax does not need to be implemented globally to work. The myth that unless the FTT is global, financial institutions will simply relocate their transactions to avoid having to pay, is also not the case. The IMF confirms this, stating that FTTs “do not automatically drive out financial activity to an unacceptable extent” (IMF, 2011).The secret behind how successful they have been depends on how well they have been designed.

Myth 2: FTTs can be easily avoided
Actually avoidance of payment can be easily minimised by a well-designed FTT – one which turns the activity from a high return, low-risk venture, into a low return, high risk one. In other words, by setting the tax rate low and making the costs of non-compliance high, the incentive to avoid paying the tax is significantly reduced. Good design in respect of tax capture is critical for successful implementation. Using both the following two design principles together helps to minimise avoidance, by making the physical geography of the trade irrelevant therefore preventing relocation of trading as a means to avoid payment.

The “residence principle”, as proposed by the European Commission (2011)
Capture of FTT revenue would be based on the principle of tax residence of the financial institution or trader. Collection of tax depends on who is involved, not where the transaction takes place. For example, if a European state such as France levied an FTT, then any business or individual, registered as a French taxpayer, whether resident or non-resident in France, would be liable for payment of the tax, wherever in the world the asset is traded.

The “exchange of legal title principle” (sometimes referred to as stamp duty)
When an asset is traded, there is no registered change of legal ownership unless the FTT has been paid to the relevant authority. A non-taxed (or non-stamped) financial transaction cannot be legally enforced. Non-enforceability of a contract is a very high consequence of non-compliance, as the buyer will not receive legal title to the asset and the benefits this brings such as dividends or the ability to use the asset as collateral.

“Instruments which are non-taxed and are therefore not legally enforced, could not be considered eligible for central clearing by a clearing house. This is of crucial importance today and represents one of the ways in which FTTs are far more feasible than ever before, even for derivative instruments … Instruments held which have not been centrally cleared will incur a capital adequacy requirement that would far exceed the cost of an FTT” (Griffith-Jones and Persaud, 2012, p. 9).

These factors are too high a risk for investors to take and therefore the incentive to avoid the tax is substantially reduced. Finally, opponents are applying a ‘far tougher benchmark’ to the FTT than to any other tax – all taxes are to some extent avoided. 100% capture never happens. Take the example of income tax in the United States, which is a principal source of revenue for the US Government. A recent study by the IRS showed that non-compliance was about 19%, equating to a staggering $345bn for that tax year alone. However, the year’s income tax receipt was $2,000bn. No-one would argue that because nearly a fifth of potential revenue wasn’t captured, that this is not a valuable tax (ibid.2012). When considering any taxation measure, the aim is to design it in such a way as to minimise tax avoidance and evasion, which the above principles achieve – it cannot be eliminated altogether.

Myth 3: Ordinary people will bear the cost of FTTs
This is untrue. The FTT will be paid, first and foremost, by the principal buyers/sellers of financial assets. In fact 85% (4) of the taxable trades are carried out by banks and other financial institutions, such as hedge funds, whose clients are often high-net-worth individuals. Ordinary people do not, by and large, trade assets such as bonds or derivatives. The IMF has studied who will end up paying FTTs concluding that they would be “quite progressive” (IMF, 2011, p.35). This means they would fall on the richest institutions and individuals in society, in a similar way to capital gains tax. This is in complete contrast to VAT, or sales tax, which falls disproportionately on the poorest people. Most importantly, it is businesses, rather than individuals, who are constantly trading as opposed to making a one-off purchase as an investment, who will consequently pay the most in tax from an FTT. The greater the frequency of the transactions, the greater the tax bill. Most particularly the FTT will have an impact on High Frequency Trading (HFT) (5), which is regarded as a good outcome by many economists who believe HFT is disruptive and risky and should either be regulated against or considerably reduced in size.

Could financial institutions, especially banks, pass on the costof the FTT indirectly, to ordinary customers by raising fees on financial services, such as ATM withdrawals, loans, or mortgages?
This is highly unlikely. Firstly, legislators could regulate against such practices by simply prohibiting financial institutions from passing such costs on in this way. Secondly, the financial sector is highly competitive, which makes it less likely that institutions will pass on the costs to customers because they will lose business to others who don’t. For instance, some banks engage in financial activity that would attract the FTT far more than others. If they were to, for example, pass on their FTT costs by introducing a fee at their ATMs or charging more for their mortgages, but other banks didn’t, this would place them at a competitive disadvantage with the consequent risk of losing market share. There is a mantra trotted out to scare which is ‘the banks will always pass on the costs to their customers’ but in a competitive market place this may not always be as simple as it might first appear, or as the financial sector would have us believe.

Myth 4: Pensioners will pay
Pensioners will not bear the costs of an FTT. Compared to other investors (such as hedge funds of High Frequency Traders), pension funds (anywhere in the world) are long-term investors pursuing buy-and-hold strategies. The vast majority of their capital is invested over long time horizons, where a micro-tax applied at entry and exit from the market would be negligible compared with other costs and benefits. The key consideration when speaking about the impact of the FTT is the holding period. The cost of the FTT is disproportionately high for short-term trades (buying and selling a security every hour, every trading day over a year), marginal for medium-term trades (buying and holding a share over a 1-year period) and becomes negligible for long-term trades (buying and holding say a 10-year bond until maturity). Pension funds turn over their portfolio only once every 2 years. A high-frequency trader on the other hand turns over his entire portfolio in a day and would therefore pay 1,666 times more in transaction taxes than the average pension fund (Persaud,2012). A further important distinction needs to be explained. There are broadly two pension systems: those funded by public transfers (pay-as-you-go, tax-financed) and those funded by pre-funded capital investments (pension funds). The FTT could only impact the latter, as those funded by public transfers are not invested on the financial markets and thus not subject to the tax. Public transfers account for well over 50% of retirees’ income in all European countries (with the notable exception of the Netherlands, the UK and Finland). By contrast, pre-funded schemes account for less than 10% in 11 EU countries (France, Greece, Belgium, Spain, Portugal, Italy, Hungary, Austria, Poland, Slovakia & Czech Rep), 15% in Germany, and are a substantial source of income (above 20%) for 6 countries (Finland, Netherlands, UK, Denmark, Ireland, Sweden). Unsurprisingly, it is in the latter list of countries where concerns on this issue have been raised by business groups and the financial lobby. Finally, by reducing the systemic risks associated with high-frequency trading, the FTT would contribute to market stability, improving pension value over the long-term. The banks and hedge funds tend to benefit disproportionately from complex, highly volatile markets and a high volume of trading – skimming off the transaction fees and trading profits and exploiting their extra computing and technical firepower, while passing much or even all of the risk onto their clients. An FTT could reduce the chance for the banks to profit in this way at the expense of savers.

Myth 5: An FTT would reduce economic growth, causing unemployment and damage to the economy
On the contrary, an FTT would increase economic growth and help create jobs. In the UK, a broad-based FTT (as proposed by the EC) would raise £8.4 billion a year and boost GDP by 0.25%, or the equivalent of 75,000 new jobs (Persaud, 2012). Moreover, many of the countries that currently have FTTs display strong growth, such as: South Korea, Hong Kong, India, Brazil, Taiwan, South Africa and Switzerland. Indeed these are some of the fastest growing economies in the world. The biggest threat to long-term growth is not an FTT, but an out of control financial sector. By the end of 2009 the crisis had cost the most advanced G20 countries 6.2% of their GDP – $1,976 billion (IMF, 2010).

Attacks have been levelled against the FTT taking figures out of context from the recent Impact Assessment (IA) by the European Commission, where a figure of a 1.76% reduction in GDP was cited. This -1.76% figure is referred to in the IA as a ‘worst-possible’ case scenario and is not the finally concluded figure. It is argued that should the FTT be designed in the way the EC is proposing to implement it, the impact on GDP would be a total long-run loss of 0.53%, which would be a tiny amount if projected annually. And yet opponents have used this -1.76% figure to misleadingly extrapolate impacts, such as the loss of hundreds of thousands of jobs. Even the -0.53% figure is an over-estimate. There has been a recent updating of the model used by the Commission prepared by the same authors who undertook the original (Lendvai and Raciborki, 2011). This updated model attempts to reflect more realistically the way investment is financed and concludes that the negative impact of the FTT on GDP falls significantly to -0.2%. However, the Commission estimates are based on a model that even in this revised form is incomplete. This is because the IA has only factored in the negative implications of the FTT and none of the positive ones. Critically excluded is how FTT revenue could be invested in measures that would have a beneficial impact on growth, such as job-creation, infrastructure investment and poverty reduction. It is highly disingenuous of any analysis to look at the cost to an economy of a tax and not factor in any of these potential positive benefits. The EC Tax Commissioner Šemeta has recognised that the IA is inaccurate, conceding that it was the first attempt at modeling the impacts of a broad-based FTT on an entire region of the world and is very much a work-in-progress. The EC is carrying out further analysis on this subject and will shortly produce a paper which will account for the positive effects on growth from FTT revenue. A recent study by Griffith-Jones & Persaud (2012) specifically examines the impact of FTTs on decreasing the probability of economic crises. They conclude that the impact of introducing an FTT on the level of GDP would be positive, at around +0.25% (as a minimum). This overall positive impact would be even higherif it were combined with smart and progressive use of FTT revenues, which could help boost employment and rebalance the economy towards more sustainable and equitable growth.

Improving the allocation of human resources towards more productive sectors
Extremely high remunerations in the financial sector contribute to attracting some of the brightest graduates to financial activity, instead of to industry or commerce, or research on innovation. Should, as a result of the FTT, the income of some of the highest paid employees in the financial sector be relatively lowered, then it could encourage some of these very bright minds to move to sectors such as engineering and manufacturing, helping to rebalance the economy towards more fundamental long-term growth.

More equal growth
There is strong evidence (including in the EC Impact Assessment) that the FTT would be more progressive than other taxes. Therefore if the FTT replaces (or reduces) another tax, meaning it is fiscally neutral, this could imply that a higher proportion of households’ income would be consumed, as relatively poorer households spend a higher proportion of their marginal income than do relatively richer households. If revenues from an FTT allowed a country to lower its income tax or VAT, aggregate demand would rise, as would growth; this effect would be especially valuable in the current context where most economists see lack of aggregate demand as an important factor in slow growth or recession.

Myth 6: The FTT would result in job cuts
No, as illustrated above, an FTT would generate 75,000 new jobs in the UK alone (Persaud, 2012). The revenues raised, if used in a smart and progressive way, could be invested to help stimulate the labour market and increase employment in specific sectors such as manufacturing. This would help rebalance the economy, which especially in the UK had become over-reliant on the financial sector. The FTT may cause a relatively small reduction in the amount of people working in the specialist field of High Frequency Trading but this would be more than compensated by the increase in jobs in other areas of the economy, leading to a net increase in employment.

Myth 7: The FTT sounds like a nice idea, but no-one really takes it seriously
In fact, the FTT has gained substantial backing over the last two years. Extremely prominent advocates have declared support, not least the founder of Microsoft, philanthropist Bill Gates, whose report to the G20 Leaders in November 2011, specifically recommended FTTs (6). Other big names include: George Soros, Al Gore, Ban Ki Moon and Kofi Annan. The FTT was endorsed in 2011 by 1,000 leading economists, including Nobel prize-winners Joseph Stiglitz and Paul Krugman, and 1,000 parliamentarians from 30 countries. Momentum built up through 2011 and at the G20 Summit, Argentina, Brazil, France, Germany and South Africa declared their support. Presently, there is a strong initiative for an FTT in Europe. FTT legislation has been tabled by the European Commission (EC) and 9 EU countries are pushing for this to be fast-tracked: France, Germany, Spain, Italy, Portugal, Greece, Austria, Belgium and Finland. France has been prepared to put its money where its mouth is by passing unilateral FTT legislation in February 2012 modeled on the UK’s stamp duty on shares. Finally, please refer to the Global FTT Map (appendix 1) to see the extent to which FTTs have already been adopted around the world.

Myth 8: FTTs would reduce market liquidity, raise costs of capital and hurt the wider economy
Some argue that an FTT of the size being considered by the EU would, by increasing transaction costs and subsequently reducing trading volumes, reduce liquidity and raise the costs of capital, ultimately lowering investment and slowing economic growth and in the end not raise much revenue (Rogoff, 2011). This argument is disingenuous. The most obvious reason for scepticism is that the increase in transaction costs implied by the tax would actually only raise them back to the levels they were 10 years ago, when markets were if anything more robust than they are now. There were certainly no problems of liquidity (Persaud, March 2012). Turning to the cost of capital. If Rogoff is correct, in that a small increase in transaction costs would have a measurable impact on the cost of capital, we would expect large growth gains over the last few decades as a result of the sharp decline in transaction costs (due to advances in computerisation and deregulation). Yet the data does not back this up – growth was actually better during periods of high transaction costs, even before the crash (Baker, 2011). Lastly, as previously stated, those most affected by the FTT will be those engaged in High-Frequency Trading. High-frequency traders argue that they provide critical liquidity to markets, but this is deceptive. During calm times, when markets are already liquid, high-frequency traders support liquidity. But during times of crisis, they try to run ahead of the trend, draining liquidity just when it is needed the most – as was seen with the Flash Crash in New York in May 2010. If FTTs limit high-frequency trading it may even provide a bonus in improving systemic resilience. (Persaud, 2012). As Kapoor (2010) argues, it is far better then to have lower transaction volumes which provide more robust liquidity. Imposing financial transaction taxes will help remove the superfluous transactions from the market which serve no economic purpose and will ensure that the transactions that remain are driven more by fundamental economic motives.

Myth 9: Sweden’s failed FTT experience proves that FTTs don’t work
Opponents of the FTT often cite the negative experience of the Swedish transaction tax on equities, that was in effect from 1984 to 1991, as proof that FTTs do not work. However, the existence of successful FTTs in many other countries proves that the Swedish experience is the exception and not the rule. It is now widely acknowledged that the problems with the Swedish FTT were related to design flaws, not the general concept of financial transactions taxes.

A report by the International Monetary Fund to the G20 in September 2010 highlighted two major problems.

1. The equities tax was only levied on trades conducted through registered Swedish brokers, making this tax easily avoided by using non-Swedish brokers. As a result, much of the trading of Swedish stocks moved to British brokers. In contrast, the UK Stamp Duty falls on the purchase of shares in UK-registered companies wherever they are traded in the world, because it’s payment is connected to the legal transfer of ownership, and can therefore not be avoided. Most investors are willing to pay a modest tax to ensure legal title to their asset.

2. The tax on fixed-income trading activity, in effect from 1989- 1990, resulted in a shift to other financial instruments that were not subject to the tax, such as corporate loans and swaps. The IMF’s conclusion from the Swedish experience was not that FTTs should be rejected, rather they advise that the tax base “should be set as comprehensively as possible in order to deter avoidance, and should also take advantage of legal and administrative handles … to ensure compliance.” (7)

Myth 10: The FTT is a Brussels tax designed to fill EU coffers
No, this is not the case. FTTs, like all taxes, would be collected nationally. It is therefore up to each individual country how they spend the money. Both France and Germany, the countries most pushing the FTT, are against using the revenue for the EU budget. Civil Society, comprising Trade Unions and NGOs, do not favour the money going to Brussels, but instead support the revenue being used to meet domestic priorities such as the protection of public services and the honouring of international commitments to development and climate change. As illustrated in Appendix 1, FTTs are commonplace rather than unusual, and are raised at a national level. There is, however, precedent for the cooperative use of tax to be spent by cooperating countries on commonly agreed outcomes. A good example of this is the use of Air Passenger Duties to pay for UNITAID, a fund that purchases HIV/AIDS, TB and malaria treatments. The tax is collected nationally, pooled at the World Health Organisation in Geneva, and disbursed to great effect internationally, mostly in developing countries. FTTs collected by a number of countries could be used in a similar way, by using a proportion of the new money raised to meet international health obligations, such as to finance the Global Fund (8) or in respect of climate change, to finance the Green Climate Fund.

Myth 11: If the FTT is implemented, politicians will not increase spending in poorest countries on development or climate change.
In the present economic climate, ensuring that FTT revenue is spent on international commitments as opposed to domestic needs, is indeed a challenge. However, it is important to point out that this particular proposal owes more than most to the work of civil society to have become a seriously considered policy option. A poll published in January 2011 found that Europeans are strongly in favour of a financial transaction tax by a margin of 61 to 26 per cent. Support for an FTT, in the UK, is 65 per cent. Another survey published earlier suggests that more than four out of five people in the UK, France, Germany, Spain and Italy think the financial sector has a responsibility to help repair the damage caused by the economic crisis.(9)

The consequences of the financial crisis have been serious in Europe but they have been even worse in developing countries. Economic meltdown has left a $65 billion gap in poor country budgets and the World Bank estimates that globally an additional 64 million people have been forced to live on less than $1.25 a day. Foreign aid has suffered its biggest fall in 15 years, migrant remittances are dramatically reduced and climate change is putting millions of people at risk of hunger and homelessness. Last year the Global Fund to fight HIV/AIDS, TB and malaria had its funding round suspended with potentially devastating consequences for people who require life long treatments to survive. It is only just that an FTT redistributes some of the money from those who caused the financial crisis to those who had the least to do with it but are suffering its effects the most. FTT advocates have consistently asked of Governments that a fair proportion of new revenues be spent on domestic needs, but with the remainder split internationally between development and climate change. Politicians to date have responded favourably. Both France and Germany have stated that revenue from an FTT should, in part, be used for development and climate change purposes. In a speech to the G20 in November 2011, former President Sarkozy said that “France considers that a share, to be defined as – sizeable, majority or total – of the proceeds of the FTT must go to development.” Similarly German Chancellor Angela Merkel, in a statement to the Development Committee of the Bundestag in November 2011, stated “one could discuss the use of a part of the revenues from the Financial Transaction Tax for development and climate adjustment.”

Myth 12: VAT on financial services or a Financial Activities Tax (FAT) (10) is preferable to an FTT
No. The FTT is the strongest option for a number of reasons. Firstly, unlike the FAT or VAT (11) alternatives, the FTT would reduce the amount of harmful economic activity that caused the crisis in the first place. By increasing the costs of transactions in financial markets, an FTT would discourage high-frequency trading and help to reduce excessive volatility and systemic risk. In contrast, whilst the other options would also generate revenue, they do not have a direct impact on the trading behaviour in financial markets and therefore fail to bring the same regulatory benefits as the FTT. Secondly, in terms of revenue generation, the FTT has the potential to raise greater amounts of income than these alternatives, particularly if the market in foreign exchange (FX) – the trade in money itself – were to be included. The EC estimates an EU-27 wide FTT (excluding FX) would bring in €57 billion and if rolled out across all developed countries (including FX) would generate almost $300 billion (Spratt and Ashford, 2011). Thirdly, compared with the FAT, the FTT is the stronger candidate as it is extremely hard to avoid since it is collected automatically when a deal is settled. A FAT, which is a type of extra corporation/income tax, is prone to avoidance through the use of tax management strategies, such as moving funds offshore, regularly employed by wealthy corporationsand high net worth individuals to reduce the amount of tax they pay. Fourthly, there is the political dimension. The FTT is a stronger candidate because it has the backing of countries such as Germany, France, Austria and Belgium, as well as the European Commission. There are many ways that the financial sector could be taxed, none are perfect, and a consensus (such as in the EU 27) is extremely unlikely. It is therefore important not to make the perfect the enemy of the good. If countries would like to see the financial sector pay a greater contribution in tax to compensate for the ongoing costs of the crisis they caused, it is critical to choose an option and pursue it through to implementation. The fact that the FTT has such strong backing is important in the context that no option to tax the financial sector, including the FAT or VAT option, will receive a consensus. Because of this it is important to single out and concentrate on the FTT since it is the stronger option, both interms of revenue potential and its stabilising effect economically, and not be distracted or delayed by the other options. It is important that proponents of the FTT are not drawn into endless discussion of possible alternatives. Opponents of the FTT use this tactic as a means to slow down or, if they are successful, permanently postpone implementation. In this scenario, the winners are the banks and the hedge funds, whilst the losers are all those who would benefit both from the greater economic stability the FTT would bring and the much needed revenue the FTT would provide that could protect jobs in developed countries and save lives in the developing world.

APPENDICES AND TABLES

APPENDIX 1: The Global Experience of FTTs

The Financial Transaction Tax (FTT) would be a good way to redress the imbalance in the current financial crisis – the costs of which have been huge, equivalent to 6.2% of world GDP – $1,976 billion (IMF, 2010). Ordinary citizens have borne the brunt – with job losses and cuts to public services.

APPENDIX 2: More on pensions

Pension funds make a one-time transaction to the asset manager so the FTT cost is marginal
Broadly speaking, there are two categories of financial investors: (i) asset owners – which include pension funds but also insurance companies and sovereign funds – and (ii) asset managers (or fund managers) – including banks’ asset management branches, money market funds, hedge funds and private equity. Asset managers (say a hedge fund) trade on behalf of asset owners (say a pension fund). A pension fund makes a one-time transaction to the asset manager when the pension fund attributes the investment mandate to the asset manager. Mandates span over a year, if not several years. As the holding period is long, the cost for the pension fund is therefore marginal. Asset managers will pay the bulk of the FTT. As noted above, the cost for the asset manager will depend on their investment strategy: high cost for a short-term holding period, low cost of a long-term period. Opponents to the FTT believe that 90-100% of the cost borne by asset managers will be transferred to pension funds. But there is no evidence that this will happen but rather be shared all along the investment chain. There is competition in the market place and asset managers will want to keep their clients.

Pension funds are heavy users of derivatives to hedge pension liabilities, so would they have to bear heavy costs if they were taxed.
It is true that pension funds are key investors in the USD+450tr interest-related derivatives market. But what matters is the holding period. In essence OTC derivatives are insurance schemes. Pension funds buy them because they have a legitimate need to insure a portfolio against the risk that it does not perform as strongly as has been predicted. If it doesn’t perform strongly enough the shortfall is covered by the derivative. They are therefore bought in order to manage risk, not for the purposes of speculation. Accordingly they hold OTC derivatives until they reach maturity, which can span over several years. As a result the small FTT they pay which very slightly increases the cost of the derivative is of no consequence in the context of a long-term business strategy.

Will the FTT reduce the return on investments on pension funds and limit their ability to manage market risks?
It is undeniable that the FTT will have some impact on the portfolio composition of pension funds and their risk management policy. But that is in fact the objective. There is a wide consensus that pension funds currently under-invest in “patient” and “productive” capital (infrastructure, green initiatives, SME finance) and are excessively reliant on external asset managers’ short termism. The FTT will encourage pension funds to reduce exposure to short-term trading and to increase pension money in long-term investments. FTTs should be part of a package of post-crisis reforms that can significantly reduce volatility and systemic risk in financial markets. Long-term investors like Pension Funds lose out from these risky markets while banks and hedge funds profit from the casino turnover. An FTT will contribute to reducing the level of risk posed by opaque and unstable markets.

An FTT would benefit pensioners in the long- term.
Global pension fund assets in the 11 major pension markets fell by $5 trillion during the 2008 financial crisis, a fall of 19% which took assets below 2005 levels (Reuters, 2009). The FTT would – by reducing the systemic risks associated with high-frequency trading – contribute to market stabilityand therefore improve pension value over the long-term and reduce future risk of such substantial losses to pension funds. Finally, FTT revenues would be invested in key public services, including health care, which pensioners depend on.
———————————————————————————————————————
REFERENCES
Baker, D. (2011). Ken Rogoff Misses the Boat on Financial Speculation Taxes. Center for Economic and Policy Research (CEPR). Available at:
http://www.cepr.net/index.php/blogs/cepr-­blog/ken-­rogoff-­misses-­the-­boat-­on-­financial-­speculation-­taxes
Beitler, D. (2010). Raising Revenue: a Review of Financial Transaction Taxes throughout the World. Available at:
http://www.stampoutpoverty.org/?lid=11289
Darvas, Z. and von Weizsacker, J. (2010). Financial Transaction Tax: Small is Beautiful. Available at:
http://econ.core.hu/file/download/mtdp/MTDP1019.pdf
European Commission (2011). Proposal for a Council Directive on a common system of financial transaction tax and amending Directive 2008/7/EC. Available at:
http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/financial_sector/com(2011)594_en.pdf
European Commission (2011). Impact Assessment. Accompanying the document ‘Proposal for a Council Directive on a common system of financial transaction tax and amending Directive 2008/7/EC’. Available at:
http://ec.europa.eu/taxation_customs/taxation/other_taxes/financial_sector/index_en.htm
Griffith-­‐Jones, S. and Persaud, A. (2012). Financial Transaction Taxes. Available at:
http://www.stephanygj.net/papers/FTT.pdf
Guardian (2012). France plans Tobin tax on financial transactions. Available at:
http://www.guardian.co.uk/business/2012/jan/30/france-­‐tobin-­‐tax-­‐nicolas-­‐sarkozy
Habbard, P. (2010). The Parameters of a Financial Transaction Tax and the OECD Global Public Good Resource Gap, 2012 – 2020. Trade Union Advisory Committee (TUAC). Available at:
http://www.ituc-­csi.org/IMG/pdf/1002t_gf_ftt.pdf
IMF 2010 Financial Sector Taxation –The IMF’s report to the G-20 and Background Materials -
http://www.imf.org/external/np/seminars/eng/2010/paris/pdf/090110.pdf
IMF (2011) Taxing Financial Transactions: Issues and Evidence. IMF Working Paper. Available athttp://www.imf.org/external/pubs/ft/wp/2011/wp1154.pdf
Kapoor, S. (2010). Bank Levy and Financial Transaction Tax. A Re-Define Policy brief.
Matheson, T. (2011). Taxing Financial Transactions: Issues and Evidence. IMF Working Paper. Available at:
http://www.stampoutpoverty.org/.lid=11384
Persaud,A.(2012).The Economic Consequences of the EU Proposal for a Financial Transaction Tax. Available at
http://www.stampoutpoverty.org/.lid=11536
Reuters (2009). Global pensions lose $5 trillion in 2008: study.Available at:
http://uk.reuters.com/article/2009/01/26/businesspro-us-pensions-assets-idUKTRE50P23620090126.sp=true
Rogoff, K. (2011). The wrong tax for Europe. Available at:
http://www.project-­syndicate.org/commentary/rogoff85/English
Schulmeister, S., Schratzenstaller, M. and Picek. O. (2008). A General Financial Transaction Tax: Motives, Revenues, Feasibility and Effects. Available at:
http://www.wifo.ac.at/wwa/jsp/index.jsp.typeid=8&display_mode=2&fid=23923&id=31819
Semeta, A. (2012). Rebalancing the financial transactions tax debate. It is time to banish the myths surrounding the European Commission’s proposal for a financial transactions tax (FTT). The Telegraph. Available at:
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9072297/Rebalancing-­the-­‐financial-­‐transactions-‐tax-­debate.html
Spratt, S. and Ashford, C. (2011). Climate Finance: A tool kit for assessing climate mitigation and adaptation funding mechanisms. Available at:
http://www.stampoutpoverty.org/.lid=10939
The Leading Group (2010). Globalizing Solidarity: The Case for Financial Levies. Available at:
http://www.stampoutpoverty.org/.lid=11377
Stewart (2007). Benefit Security Pension Fund Guarantee Schemes. OECD Working Papers on Insurance and Private Pensions, No. 5, OECD Publishing.http://www.oecd.org/dataoecd/38/63/37977335.pdf

————————————————————————————————————————————————–
NOTES

(1) Authored by David Hillman and Christina Ashford (Stamp Out Poverty). With thanks to Hernán Cortes (Ubuntu), Sarah Anderson (Institute for Policy Studies) and Pierre Habbard (Trade Union Advisory Committee) for their contributions.

(2) The Leading Group (LG) on Innovative Sources of Finance of Development, a grouping of more than 60 countries, have through an Expert’s Group carried out extensive study of the potential of FTTs, most especially harnessing the largest of these markets: foreign exchange.

(3) The countries are: Argentina, Australia, Austria, Belgium, Brazil, Chile, China, Colombia, Denmark, Ecuador, Finland, France, Germany, Greece, Guatemala, Hong Kong, India, Indonesia, Ireland, Italy, Japan, Malaysia, Morocco, Netherlands, New Zealand, Pakistan, Panama, Peru, Philippines, Portugal, Russia, Singapore, South Korea, Sweden, Switzerland, Taiwan, UK, US, Venezuela, Zimbabwe.

(4) European Tax Commissioner, Algirdas Semeta (2012)

(5) High-frequency trading (HFT) is the use of sophisticated technological tools to trade securities like stocks or options. It is highly quantitative, employing computerized algorithms to analyze incoming market data and implement proprietary trading strategies. Investment positions are held only for very brief periods of time – even just seconds – rapidly trading into and out of positions, sometimes thousands or tens of thousands of times a day. By 2010, high-frequency trading accounted for over 70% of equity trades taking place in the US and was rapidly growing in popularity in Europe and Asia (source: Wikipedia). Some finance experts believe the development of HFT is unhealthy and potentially destabilising. “Rapid increases in high frequency trading (HFT) have created a dangerously unstable web of computer-driven trading that spans global stock markets, putting them at risk of a system-wide ‘flash crash’.” See: Financial Crisis 2: The Rise of the Machines, (R. Gower, 2011):http://www.ubuntu.upc.edu/docus/Robin_Hood_Tax_Rise_of_the_Machine.pdf

(6) “FTTs already exist in many countries, where they generate significant revenue, so they are clearly technically feasible” Bill Gates report to the G20 Summit, November 2011, p.13: http://www.stampoutpoverty.org/.lid=11510

(7) Austrian economist Stephan Schulmeister has produced a more detailed analysis of the Swedish experience, which he contrasts with a much more effectively designed transaction tax in the United Kingdom – the full report can be assessed here http://www.wifo.ac.at/wwa/servlet/wwa.upload.DownloadServlet/bdoc/S_2008_FINANCIAL_TRANSACTION_TAX_31819$.PDF

(8) The Global Fund on HIV/AIDS, TB and Malaria

(9) Eurobarometer and YouGov polls, cited in Wikipedia

(10) The Financial Activities Tax (FAT) is a tax on excessive profits and remunerations.

(11) It is worth noting that the financial sector is currently exempt from VAT. According to the EC Commission the sector enjoys a tax advantage worth approximately €18 billion a year due to this exemption. Some argue that this tax advantage is one of the reasons the financial sector ought to, and can afford to, be taxed more.

The author David Abulafia and the cover of "The Great Sea"

Ranging from the prehistory of the Mediterranean, and the Neolithic temples in Malta of 3,500 BC, David Abulafia’s immensely readable  “The Great Sea: A Human History of the Mediterranean”  takes us all the way through the recorded history of the Greek, Roman and Ottoman empires right up to the present day and the dramatic fate of African immigrants, sailing across the Mediterranean desperately seeking a better life in Europe. Abulafia has skilfully condensed his encyclopaedic knowledge of the Mediterranean, managing to encapsulate hundreds of years of history in a few pages, where volumes have been needed in the past.

The Mediterranean has seen moments of momentous change. It was a unified highway of trade and culture under the Romans, the favoured path to Asia via the Suez Canal in the 19th century, as well as witnessing decisive naval battles that changed the course of human history, such as the Battle of Lepanto. Abulafia covers it all, from the sublime to the ridiculous, from the founding of monotheistic religions to the cultural impact of the bikini on unsuspecting Spanish locals. From the triremes of Rome to the US Sixth Fleet, the Mediterranean attracted everyone with ambition. The Dutch, British and Germans, and even the Russians, have all tried to stake their permanent claim on some strategic spot and the story is not over yet. In recent years the Chinese have joined in, with their purchase of one of the docks in Piraeus, Greece.

Abulafia has assembled a vast amount of information but never is it overwhelming. The lengthier histories are peppered with anecdotes to keep the reader gripped: one such tale described the response of Roger, the Norman Count of Sicily to a request by Christians to help in a campaign against the Mahdia – the prelude to his refusal was to “lift his thigh and make a great fart”. Another provided a grim description of the British warships anchored off Smyrna observing the massacre of 1919, on which “rousing sea shanties were played while officers dined in the mess, to drown out the terrified screams that were coming from the quayside a few hundred yards away”.

The book looks at the people and events that shaped the Mediterranean and made it quite literally the centre of the world. Abulafia recounts how the Phoenicians, Greeks, Etruscans, Genoese, Venetians and Catalans at different times dominated the Mediterranean either by force of arms or through the vitality of their merchants, or both. The book also looks at the intriguing city states, and the free commercial and religious zones that sprang up along the coast, which were often characterised by convivencia, allowing Muslims, Jews and Christians to live together to the commercial benefit of all. Cities such as Smyrna and Salonika were prime examples. But other cities, now mere faded glory such as Amalfi, are also examined, highlighting their commercial savvy and the links they created with other cities across the sea – which in the early years of commerce was safely navigable for only a few months of the year.

The aim of the book is very different from that of the other great Mediterranean scholar, Fernand Braudel, who favoured identifying historical patterns over centuries and the broad (albeit slow and relentless) sweep of socio-economic and geographical phenomena. Abulafia has deliberately taken a human focus in his stated aim of finding evidence of a unified Mediterranean:  periods when the sea became “integrated into a single commercial, cultural and even (under the Romans) political zone, and how these periods of integration ended with sometimes violent disintegration, whether through warfare or plague.” Abulafia focuses on the coastal regions and islands of the Mediterranean, not straying too far inland, but he highlights the dichotomy of coastline cities being open to influences from other countries and cultures while at the same time being firmly embedded within their own hinterland.

The author David Abulafia

The early history of the Mediterranean is characterised by the struggle for mastery of the major islands in the Mediterranean such as Sicily, Malta and Rhodes. These islands offered a safe haven and access to basic supplies, as merchants and travellers were obliged to hug the coasts and stop for fresh water and food every few days. An island outpost was invaluable. The prime mover of the Mediterranean Sea’s economy was the search for access to timber, salt and wheat, but equally the demand for exotic goods made foreign merchants ever welcome far from home.

Piracy and slavery featured heavily right up until the 19th century, and there are tales of pirates landing unexpectedly and carrying French fishermen and their families off into slavery. There was a thin line between piracy and official state conquest, and slavery did not discriminate between classes – affecting the highest and the lowest born: it all depended on finding yourself in the wrong place at the wrong time.

The book is also the history of the mass expulsions of the Arabs and Jews from Spain, the Pieds Noirs from Africa and the relentless flow of immigrants and refugees escaping hunger and war in Africa, desperately seeking a new life in Europe, but often ending up in internment camps, or being repatriated.

David Abulafia’s “The Great Sea: A Human History of the Mediterranean”

Abulafia, in his search for periods when the Mediterranean was a unified entity, is the first to admit that the real discovery is the diversity and the constant cultural flux in the life and history of the Mediterranean, even in periods of greatest unification, such as under the Roman Empire. The Mediterranean was in a state of continual change, with countries and city states influencing each other politically, religiously and culturally.

The history of the Mediterranean is also the history of cities and islands such as Sicily, Malta, Venice, Barcelona, Beirut and Alexandria some of which have passed from greatness to disaster like Smyrna and Salonika, while others have been reborn in a completely different guise, like Venice and Barcelona. There is much faded glory in this book, from the once important island of Motya off of Sicily, to the formerly burgeoning Catalan empire and once bustling cities like the ancient Roman town of Puteoli.

The strategic and cultural importance of the Great Sea is by no means on the wane: it is still vibrant and in a constant state of flux. As Abulafia says, the Mediterranean was “the most vigorous place of interaction between different societies on the face of this planet”. And so it remains.

Protesters in Algeria

Algeria’s instability claimed another self-immolation victim, Rechak Hamza, on April 29. Hamza set himself on fire in Jijel, in eastern Algeria, suffering third-degree burns. He was airlifted to a hospital in Constantine before succumbing to his injuries. His funeral was held on May 2.Hamza was a 25-year old cigarette vendor working in the densely populated Moussa Village district of Jijel. He committed his desperate act following an altercation with local police, who forced him to dismantle his stand and only means of livelihood. For local residents, it was yet another instance of hogra — an Algerian term for the “contempt” of the ruled by the rulers. Hogra arrogantly condones the violence of a selected few against the many.

Violent protests broke out in Jijel once the news broke of Hamza’s death in Constantine. Police attempted to barricade Moussa Village to contain angry crowds of 1,000 or more people as youths marched on the provincial capital. Tensions in Jijel remain high, and a police inquiry into the incident is underway.

Algeria has seen hundreds of such self-immolations this year, including at least 60 in the coastal city of Doran alone. Yet unlike in neighboring Tunisia, these sparks have yet to set Algeria aflame. Many Algerians feel that the country already had its “Arab Spring” when Islamists won the first round of the national elections in 1991, leading to a fierce state crackdown and a civil war.

It’s not likely that the parliamentary elections on May 10 will resolve the deep divisions in Algerian society. Even before the announcement of the official results, the Islamist coalition began accusing the authories of election fraud. The Islamists are shown to be coming in a distant third, behind two pro-government parties. El Watan and other independent newspapers, citing country-wide disaffection, have expressed skepticism over the governmen’t final voter turn-out count.  The final report from international election monitors is not expected before July. Algerians may not wait that long before resuming their protests.

Bread before Ballots
The National Liberation Front (FLN) has ruled Algeria since 1962, surviving the massive riots in 1988, a decade-long civil war in the 1990s, and more recently the wave of revolutions in the region. Following an outbreak of protests in Algeria’s major cities last year, the government instituted a handful of unimpressive reforms, including a call for parliamentary elections on May 10.

Algerians may have other things on their minds. The prices of consumer goods have steadily increased since late February, leading many to accuse the government of manipulating food prices ahead of the general elections. The use of food prices for political leverage is not new in Algeria; analysts seem to be of two minds about their precise utility. The first camp believes that the government covertly drives food prices up by controlling the amount of produce available in the market, then exploiting the rising prices as an electoral issue. Another school of thought is that rising food prices create a distraction for citizens, leading them to abstain from the political process (and the opposition) by forcing them to worry about le pain quotidien instead of politics.

The opaqueness, corruption, and straightforward hogra of those in power make it difficult to fully unravel the level of political manipulation in food prices. But the basic fact remains that Algerian citizens end up footing the bill when the economy is used in the political struggle to maintain power.

Real Hogra
Abdelaziz Belkhadem, the secretary general of the FLN and personal representative of President Bouteflika since 2008, perfectly exemplifies the hogra in Algeria. Belkhadem is part of a rotating cast of elites in President Bouteflika’s cabinet who reshuffle themselves among ministries and roles to give the illusion of change. Belkhadem said in a conference on May 1 in the city of Boumerdes that the “multiparty and democratic system has not responded to the aspirations of the Algerian people,” citing the failure of political parties created since the “opening” of the political field in the late 1980s to create any alternative programs or offer social solutions. He continued by accusing certain parties in the opposition of promoting a false platform and unattainable reforms.

Algeria’s current political system, which is entirely dominated by the FLN, allows almost no room for any type of genuine democratic practice. Belkhadem’s comment, a disingenuous broadside from one of the country’s privileged elites, exemplifies how far the leadership has strayed from the masses.

Belkhadem’s suggestion that the FLN — the self-described “party of the mujahideen” — is the only party that cares about the interests of the nation is insulting to those who have witnessed the ongoing suppression of genuine popular appeals. Despite the “opening” of the political field and the broader regional upheavals, censorship on information in Algeria continues, so most of the population is forced to get domestic news from foreign new sources. ENTV (the state’s official television channel) all but blacklisted the opposition parties in the run-up to the elections. Silencing the opposition in every conceivable way supports the parody of the democratic system in Algeria.

Parliamentary Elections
Forty-four political parties, nearly half of which are brand new, and numerous independent candidates are vying to win the newly enlarged parliament’s 462 seats. Yet as Hadda Hazzam, a columnist for Algerian daily El-Fadjr, wrote, “The majority of the participating parties have neither platforms nor charismatic figures capable of promoting change or of creating a powerful opposition against the authorities.” Average citizens in Algeria are both overwhelmed with the number of unknown candidates and skeptical of the entire “democratic” process. The profusion of parties without tangible future plans, as well as a disconnect between the general populace and the leaders of the parties, all work in favor of ensuring the existing state of affairs and all of its associated fraud.

One of the differences between this election and previous elections is the delegation of some 200 international monitors. The delegation will remain in Algeria until June to observe the entire electoral procedure and produce a report expected in July. But even before election day they ran into problems as the authorities denied the EU mission’s access to the national voters registry. Patriots on Fire, one of the rare blogs on Algeria in English, opined, “Algerian rulers have missed another opportunity and are playing with fire.”

Still, the public’s present lack of interest and cynical attitude toward the politicians’ empty promises and rhetoric do not detract from the power they have to dismantle the status quo. Belkhadem did not neglect to urge young people “not [to] hear those who incite rebellion.” He continued, “I know there are gaps. But we must protect our country because it is inappropriate to go back to square one.”

A Missing Link
Algeria’s 50^th year of independence is this July. It has been 50 years of manipulation and exploitation by the government. Algeria’s rulers may have evaded the first wave of regional revolution, but it would be a fatal mistake for them to think they are now in the clear. Only genuine democratic reform and a rollback of the hogra-based system can deter more extreme approaches to change in the future. Cosmetic changes to the political system will only strengthen the hand of anti-democratic radicals.

Algerians still do not identify with their leaders. According to El Watan, Algeria’s youth, who make up roughly three-quarters of the country’s 37 million inhabitants, planned on abstaining en masse in protest of the vote’s credibility. In order for the country to progress any further, there is a dire need to start by finally connecting the leaders and the masses. Despite the hype of reform,  the latest election will not accomplish that goal.

——————————————————————————————————————————————————-

Wided Khadraoui graduated from the London School of Economics with an MSc in conflict studies. She is a contributor to Foreign Policy In Focus and writes on issues on the Middle East and North Africa, especially the Maghreb, at www.livefromthecasbah.com.  Article courtesy of http://www.ips-dc.org/

Graffiti in Spain protesting against the crisis and austerity measures

Fiscal tightening is the watchword all across Europe. The measures adopted so far have not yet proved to be a cure-all for financial market concerns about debt sustainability. They have, however, coincided with renewed economic slowdown or even contraction. This brings into question the desirability of fiscal austerity.¹

Two examples: Italy and Britain
How much of Italy’s slowdown is due to austerity and how much is due to the near debt-meltdown last summer? There is little doubt that the credit crunch that followed the sudden loss of credibility of Italian fiscal policy (whether or not justified by fundamentals) has a lot to do with the severe slowdown that this country is experiencing. The current fiscal tightening is arguably contractionary, but the alternative of not reacting to the credibility loss would have produced much worse consequences.

Things are more complex for the UK; it hasn’t lost credibility and it borrows at low interest rates. Does this mean UK policymakers are shooting themselves in the foot? Are they keeping the economy underemployed for years and thus destroying potential output with their austerity drive? Or, are they wisely forestalling a bond market rebellion like those seen on the continent that would prove much costlier?

Unfortunately we cannot know the answers definitively. Ten years from now some observers will deride the belief that the ‘confidence fairy’ would be summoned by belt-tightening; others will declare that their conservative fiscal attitude saved the countries from Greece’s fate. With only one economic path visible to historians and firm evidence in scant supply, we may never know.

A new Vox debate
The solution is a vigorous debate – which this column hopes to contribute to by launching a new Vox debate on the issue of austerity. There is a lot at stake in addressing the austerity question in the right way; which of the competing views is right matters greatly for policymaking and economic and social outcomes.

The terms of the debate are clear.

● The debate is not about the desirability of restoring safer fiscal positions after the large increase in gross and net public debt in the last few years.

This can be safely taken for granted.

● The question is whether governments should relent in their efforts to reduce deficits now, when the global economy is still weak, and policy credibility is far from granted.

● Under what circumstances would be wise to do so?

Budget policy vastly differs across countries.

● By and large, countries fall into three categories. At one extreme we have countries already facing a high and volatile risk premium in financial markets. At the other extreme we have countries with strong fiscal shoulders, actually enjoying a negative risk premium. A third category includes countries not facing a confidence crisis, yet with inherent vulnerabilities – a relatively high public debt, a fragile financial sector, and high unemployment.
● The question of how to ensure debt sustainability is vastly different across these.

Moreover:

● Not only specific conditions at country-level, but also policies at regional and global level may cause a given fiscal measure in a country to have vastly different effects.
●International considerations will complicate the analysis; a policy which may be perfectly viable and desirable for a country conditional on an international context, may not work in another, say, depending on the degree of international cooperation, especially in providing liquidity assistance and ‘firewalls’ against contagion.

Issues in front-loading austerity measures
Since 2008, the fiscal policy debate has gone through several phases.

●The first phase was dominated by a call for fiscal stimulus to avoid another Great Depression.

Thinking about deficit corrections in the future was seen as irrelevant, when not counterproductive, as it was feared that prospective consolidation plans would create additional uncertainty about the terms of the recovery.

● The second phase, from 2010 onward, saw the focus shift to fiscal consolidation as high public debt started to loom large.

This policy shift occurred despite a global economy that was not yet on a firm recovery path and monetary policy at or near the zero lower bound in many countries.

● The third phase may have begun; with weak growth, calls for austerity appear to have fallen out of fashion again.

The ranks of commentators who view austerity as potentially self-defeating have swollen (Cafiso and Cellini 2012, Cottarelli 2012, Gros 2011, Krugman 2012). These authors argue that the weak output growth caused by fiscal austerity may itself fuel market doubts about government solvency. Higher funding costs, combined with lower activity, might thus worsen the fiscal position, defeating the very purpose of the initial tightening measures. As observed by Olivier Blanchard, the “damned if you do it, damned if you don’t” attitude on fiscal austerity by financial markets may appear quite schizophrenic (Blanchard 2011).

New thinking: Self-defeating tightening in a liquidity trap
Recent contributions on the mechanism through which fiscal contraction in a liquidity trap is counterproductive provide an important change in perspective, relative to the initial debate.

A key point here is the recognition that much of the advanced world is currently in an unemployment and underemployment crisis. Destruction of jobs and firms today may be expected to have persistent effects on potential output in the future. These effects in turn translate into a fall in permanent income, and hence demand, today (see DeLong and Summers 2012 and Rendahl 2012).

In a liquidity trap, this creates a vicious self-reinforcing circle. Today’s unemployment creates expectations of low prospective employment, which in turn causes an endogenous drop in demand, reducing activity and raising unemployment even further. This vicious cycle may have little to do with price stickiness and expectations of deflation at the zero lower bound, an alternative mechanism early on stressed by Eggertsson and Woodford (2003) and more recently by Christiano et al (2011). Independent of deflation, the vicious cycle can be set in motion by expectations of lower income when shocks create persistent high underemployment. Theory suggests that this effect can be sizeable. The question is its empirical relevance.

The empirical evidence indeed weighs towards large multipliers at times of recession (Auerbach and Gorodnichenko 2010) or at times of crisis (Corsetti et al 2012), as opposed to very small multipliers when the economy operates close to potential and monetary policy is ‘unconstrained.’ In light of these results, it can be safely anticipated that the current fiscal contractions will exert a pronounced negative effect on output.

This is why, with a constrained monetary policy, there is little doubt that governments with a full and solid credibility capital should abstain from immediate fiscal tightening, while committing to future deficit reduction (the virtues of this policy are discussed by Corsetti et al 2010 and Werning 2012).

The problem is that, in the current context, promising future austerity alone may not be seen as sufficiently effective. Keeping market confident in the solvency of the country has indeed provided the main motivation for governments to respond to nervous financial markets with upfront tightening.

Credibility, sovereign risk, and macroeconomic instability
In a recent paper (Corsetti et al 2012), my co-authors and I highlight issues in stabilisation policy when the government is charged a sovereign-risk premium. The root of the problem is the empirical observation that sovereign risk adversely affects borrowing conditions in the broader economy. The correlation between public and private borrowing costs actually tends to become stronger during crises. Perhaps in a crisis period high correlation is simply the by-product of common recessionary shocks, affecting simultaneously but independently the balance sheets of the government and private firms. Most likely, however, it results from two-way causation.

In the current circumstances, there are good reasons to view causality as mostly flowing from public to private. First, in a fiscal crisis associated with large fluctuation in sovereign risk, financial intermediaries that suffer losses on their holdings of government bonds may slow down lending. Second, both financial and non-financial firms face higher risk of loss of outputs and profits due to tax hikes, increase in tariffs, disruptive strikes, and social unrest, not to mention lower domestic demand.

There are at least two implications of this ‘sovereign-risk channel of transmission’, linking public to private borrowing costs, for macroeconomic stability.

● First, if sovereign risk is already high, fiscal multipliers may be expected to be lower than in normal times.

The presence of a sovereign-risk channel changes the transmission of fiscal policy, particularly so when monetary policy is constrained (because, for example, policy rates are at the zero lower bound, or because the economy operates under fixed exchange rates). When sovereign risk is high, the negative effect on demand of a given contraction in government spending is offset to some extent by its positive impact on the sovereign-risk premium.

Some exercises we carry out suggest that, typically, consolidations will be contractionary in the short run. Only under extreme conditions does the model predict either negative multipliers (in line with the view of ‘expansionary fiscal austerity’) or counterproductive consolidations (in line with the view of ‘self-defeating austerity’). To the extent that budget cuts help reducing the risk premium, there is some loss in output, but not too large.

● Second, due to the sovereign-risk channel, highly indebted economies become vulnerable to self-fulfilling economic fluctuations.

In particular, an anticipated fall in output generates expectations of a deteriorating fiscal budget, causing markets to charge a higher risk premium on government debt. Through the sovereign-risk channel, this tends to raise private borrowing costs, depressing output and thus validating the initial pessimistic expectation.

Under such conditions, conventional wisdom about policymaking may not apply. In particular, systematic anticyclical public spending is arguably desirable when policy credibility is not an issue. In the presence of a volatile market for government bonds, however, anticipation of anticyclical fiscal policy may not be helpful in ensuring macroeconomic stability. A prospective increase in spending in a recession may feed confidence crises by amplifying the anticipated deterioration of the budget associated with output contractions.

Thorny issues for highly indebted countries
This possibility poses a dilemma for highly indebted countries. In light of the above considerations, countries with a large amount of debt may be well advised to tighten fiscal policies early, even if the beneficial effect of such action – prevention of a damaging crisis of confidence – will naturally be unobservable. From a probabilistic perspective, even a relatively unlikely negative outcome may be worth buying insurance against if its consequences are sufficiently momentous. In the current crisis, unfortunately, we know that such insurance does not come cheap.

Beyond austerity
The near-term costs of austerity mean we should keep thinking about alternatives, such as making commitments to future tightening more credible (eg entitlement-programme reforms).

However, the presence of a sovereign-risk channel also provides a strong argument for focusing on ways to limit the transmission of sovereign risk into private-sector borrowing conditions.

● Strongly capitalised banks are a key element here.

The ongoing efforts, coordinated by the European Banking Authority, to create extra capital buffers in European banks correspond to this logic.

● Another element is the attempt by monetary policymakers to offset high private borrowing costs (or a possible credit crunch) when sovereign-risk premium is high.

Normally, the scope to do this is exhausted when the policy rate hits the lower bound. Recent unconventional steps by the ECB, however, suggest that more is possible. The extension of three-year loans to banks, in particular, appears to have reduced funding strains, with positive knock-on effects for government bond markets.

● These arguments are especially strong for either countries already facing high interest rates in the market for their debt, or countries reasonably vulnerable to confidence crises.² These countries would be ill advised to relax their fiscal stance.

● The arguments apply less to governments facing low interest rates.

The main issue is where to draw the line. Under what circumstances is it safe to postpone implementation of fiscal corrections?

Conclusion
There is an increasing tide in favour of reconsidering fiscal austerity programmes, in recognition of the persistent effects of underemployment of labour and capital on potential output. At the same time, however, it should be recognised that weak growth in countries facing precarious fiscal positions is not sufficient evidence against fiscal austerity. Where sovereign risk is high, fiscal tightening remains an important avenue to bring down deficits at a limited cost to economic activity, as risk premiums recede over time. In addition, fiscal austerity may well have important unobserved benefits, by preventing greater macroeconomic instability which tends to arise in the presence of high sovereign risk.

In light of these considerations, it is perhaps useful to move beyond the headlines of ‘expansionary contractions’ and ‘self-defeating fiscal austerity’. As a matter of fact, most governments face specific questions on how to reform their spending and taxation, rather than a general question of ‘how much’. Not only the intensity, but also and especially the content of upfront budget cuts currently contemplated in countries may be expected to have a first-order impact on the current recession.

Moreover, budget considerations are sensible insofar as in addition policymakers actively explore other ways to contain sovereign-risk premiums, or at least reduce their impact on broader economic conditions. Indeed, the big burden for the crisis countries in the Eurozone may be uncertainty of the common institutional and policy framework, favouring a solution for the debt overhang problem (a stock, not a flow problem), joint support to stem confidence crises and contain the transmission to the private sector (see Whelan 2012 on the ‘fiscal compact’). Fiscal and monetary interventions are sensible when directly targeted to these. They are counterproductive to the extent that they exacerbate the credibility problem and feed uncertainty. There is vast unexploited room for nonstandard and standard monetary interventions. But again, without a sense of direction, ie without a political and institutional development, the scope for the occasional action by existing institutions appears quite limited.

References
Auerbach, A and Y Gorodnichenko (2010), “Measuring the output responses to fiscal policy”, American Economic Journal, Economic Policy.
Blanchard O (2011), “2011 in review: Four hard truths”, IMF.org.
Cafiso, G and R Cellini (2012), “Fiscal consolidations for debt-to-GDP ratio containment? Maybe … but with much care”, VoxEU.org, 20 March.
Christiano, L, M Eichenbaum, and S Rebelo (2011), “When is the government spending multiplier large?”, Journal of Political Economy, 119(1):78-121.
Cottarelli, Carlo (2012), “Fiscal Adjustment: too much of a good thing?“, VoxEU.org, 8 February.
Corsetti, Giancarlo, Keith Kuester, André Meier and Gernot Müller (2010), “Debt consolidation and fiscal stabilization of deep recessions”, American Economic Review, 100:41-45, May.
Corsetti, Giancarlo, Keith Kuester, André Meier and Gernot Müller (2012), “Sovereign risk, fiscal policy and macroeconomic stability“, IMF Working paper 12/33.
Corsetti, Giancarlo and Gernot Müller (2012), “Has austerity gone too far?”, VoxEU.org, 20 February.
DeLong, B and L Summers (2012), “Fiscal Policy in Depressed Economy”, Brookings, 20 March.
Eggertsson, GB and M Woodford (2003), “The zero interest-rate bound and optimal monetary policy”, Brookings Papers on Economic Activity, 1:139-211.
Eichengreen B and K O Rourke (2012), “A tale of two depressions redux”, VoxEU.org, 6 March.
Gros, D (2011), “Can austerity be self-defeating?”, VoxEU.org, 29 November.
Krugman, Paul (2012), “Blunder of Blunders“, New York Times Blog, 22 March.
Rendahl P (2012), “Fiscal Policy in an Unemployment Crisis”, Cambridge University, 2012.
Sutherland, D, P Hoeller, and R Merola (2012), “Fiscal Consolidation: Part 1. How Much is Needed and How to Reduce Debt to a Prudent Level?”, OECD Economics Department Working Paper 932, OECD Publishing.
Werning, Iván (2012), “Managing a Liquidity Trap: Monetary and Fiscal Policy”, MIT mimeo
Whelan, Karl (2012), “Golden rule or golden straightjacket?”, VoxEU.org, 25 February.

Somali Militiamen

In any federal system, the gray area between the powers of the federal government and those of the constituent states is a constant battleground. What is remarkable about the U.S. federal system, for example, is that even though power is relatively decentralized — each of the 50 states has its own constitution— the center still holds supreme. Allegiance to the union dwarfs all other loyalties to state or local identities.

In comparison, Somalia’s recent experiment with federalism seems to have further fragmented the country and incited the creation of competing clan-based entities that may ultimately dampen the effectiveness, if not the foundation, of the central government.

Balkanizing Somalia

Since the fall of the unitary state in 1991 and the subsequent two decades of lawlessness, local Somali communities have been gradually drifting away from one another into more exclusive clans protected by regional authorities. With the absence of a functioning national government to restore public confidence and provide basic governmental services, most Somalis below the age of 30 today generally identify with regional and clan-based entities that are antithetical to the existence of a central government.

As a consequence, Somalis are more inclined to rejoice in the achievements of their local groups than to take note of their collective national tragedy. This exclusive group pride seems to metastasize as international community actors and western scholars overemphasize bottom-up approaches to peace building — as if the ongoing conflict over power at the national level does not trickle down to local entities when power and resources shift to the local level. Around two-dozen regional governments have been formed and more are on the way, jostling each other and challenging the legitimacy of the national government.

The political boundaries of these newly formed entities are often undefined and contested, sometimes partially or completely overlapping with the territories of already existing states. National authorities have provided little guidance on the number, makeup, population, or boundaries of these states, as well as the process of establishing them. The draft constitution only stipulates that the union of two or more regions of the 18 subdivisions from the military regime in the 1980s is required to form a legitimate federal state.

What is uniquely alarming about these new federal states is the inherent desire of their governing entities to maintain clan hegemony, prestige, and domination over others, as well as the absence of grassroots consultation and the exclusion of women and local minorities. The Somali Supreme Court — which regrettably exists only in name — lacks both the capacity and the constitutional authority to adjudicate these complex federal matters.

This balkanization of Somalia into mini-states has the potential to spark new clan-based wars and prolong the Somali conflict. Additionally, fearful that a strong Somalia could stir up political mischief in their own fragile and ethnically complex societies, Somalia’s neighbors take every opportunity to promote the fragmentation of Somalia into weaker regions. A weaker Somali state with countless federal entities will undoubtedly make it easier for neighboring states and international businesses to secure favorable bilateral agreements for control of Somalia’s natural resources and long coastline.

In Search of a New Model

Somali politicians and intellectuals continue to debate whether the nation needs a unitary, decentralized unitary or a sensible federal system.

Federalism is seen in many corners of Somali society as the best option to suppress the dictatorial tendencies endemic to many unitary systems that concentrate power and resources and exercise total control over the social, economic, and political interests of society. On the other hand, supporters of the unitary system fear that a weakened central authority may render a functional Somali union impossible. Many see clan-based federalism as a zero-sum game in which power gained by the states creates powerful clan hegemonies that exact a hefty price from the honor and overall standing of the national government.

What complicates the matter for Somalia is that national identity and citizenship take a secondary role to clan identity when interests of individuals and groups in society are at stake. Moreover, clan-based regions do not guarantee legitimate ownership of land and property to non-member citizens living in the region, nor do they provide any legal basis for the effective participation of other clans in the political process. What ultimately cripples the clan-based system is that it fails to resolve or even address the clan rivalries that have proven so troublesome in the past; in fact, it simply recapitulates these rivalries at another level.

A decentralized unitary system of government that divides power among the national, regional, and local levels may be ideal to meet the demands of both the proponents and opponents of federalism. It would enable Somalia to rebuild a new government that is responsive and accountable to its citizens and yet strong enough to guarantee its survival in a volatile region, especially with neighboring Kenya and Ethiopia exploiting Somali divisions to pursue their own interests inside the country.

Toward a Sustainable Federalism

Ending the Somali conflict requires a system that promotes fairness, justice, and the equitable distribution of national resources. A clan-based federal system cannot deliver this desired outcome. It would only shift the reckless competition for power and resources away from the national government to the states, possibly sparking new conflict among them.

Social, political, and economic insecurity breed a reckless desire for domination that fuels endless rivalry and conflict. This is exactly what brought Somalia to its knees in the first place and what incapacitates it today. To overcome their present malaise, Somalis need to transcend this endless clan rivalry.

Communities in conflict cannot be expected to coalesce around a stable state government when they are deeply concerned about the potential misuse of state power by their rivals. Therefore, a genuine and authentic reconciliation among clan communities needs to take place before the makeup of a new Somalia can be considered.

Previous regional systems under both the post-independence government and the military government were based on clan-dominated settlements that lacked the necessary ingredients for social cohesion, economic viability, and clan diversity. Most Somali clans contest the unfairness inherent in the use of these regions as a basis for forming new regional governments.

Therefore, a meaningful and practical federal system can only take root if it is not based on clan-ism. It would require a limited number of regions with clearly defined boundaries, viable economies, strong clan diversity, homegrown (not diaspora-based) leadership, access to the sea and water sources, and true grassroots participation among all inhabitants.

If Somalia is to become a politically stable, economically viable, and peaceful nation that can compete with other African countries, clan-dominated federal states must be made a thing of the past.

Thankfully, it seems that there is widespread acknowledgement inside Somalia about the importance of cultural diversity as a national strength. However they choose to structure their government, Somalis must recognize that the future of Somalia depends on their harmonious coexistence and the equitable distribution of natural resources among all Somali citizens.

The state of the Somali union can be strengthened by the collective understanding that a divided and clan-based Somalia will not usher in a new era of peace and tranquility so badly needed in the region. On the contrary, what Somalis desperately need is a new vision that acknowledges everyone’s value, anchored in a solid social compact and genuine reconciliation.

Article courtesy of http://www.ips-dc.org/

The cover of "Europe in the Looking Glass " and Robert Byron

Some wise soul once suggested that we should never meet our heroes.  In the case of Robert Byron’s recently republished “Europe in the Looking Glass”,  the adage should be adapted to: “Never read your hero’s first book”.  Robert Byron’s “The Road to Oxiana” was and remains an absolute classic of travel literature but his first book “Europe in the Looking Glass” is a very different kettle of fish – in fact it is rather embarrassing.  But what should one expert of a 21-year-old Etonian of the jeunesse dorée of the 1920s?

In 1924, Robert Byron was sent down from Oxford for “misdemeanours”, a euphemism which conjures up a tuxedo-clad and champagne-fuelled episode from Brideshead Revisted.  As a  result he was kicking his heels in London, and, having little to amuse him, he embarked on a trip with two friends to drive to Athens, stopping off on the way to see the delights of European culture. The project was – he remarked rather grandly for one of his years: “to further the new sense of European consciousness”.

Their choice of car, dubbed “Diana” in waggish style, demanded attention: a massive and flashy Sunbeam convertible that caught the eye of all passers-by, and received a few insults too along the way, all of which seemed to be water off a duck’s back to Byron and his chums.  This was not a strenuous walking tour that depended on the kindness of strangers.  Nor was it a character-building slog.  Robert Byron clearly had quite enough character already, and not a few opinions.   The various stops on the way always ended up in 5-star hotels with room service and hot running water.  In this day and age, where rough and ready travel writing searches for hitherto untold delights and epiphanies, this all seems a little too cushy.  To be fair, Byron was no soft-bellied aesthete; his indifference to personal hardship and suffering in his imaginative diary of a trip to Peshawar from Venice, “The Road to Oxiana” attests to that.

Received ideas were anathema to the young Byron and he would have done anything to shock.  His lifelong interest in Byzantine art, which he saw as superior to that of the Renaissance, was the perfect example of a man fighting against commonly held ideas of little worth (as he saw them) – despite the fact that Byzantine art had by that time already been passed over as a decadent and flimsy aesthetic.   Byron was not to be put off.

"Europe in the Looking Glass" by Robert Byron - published by Hesperus

Information on the inside cover  reveals that this book has remained unpublished for over 80 years, and we now know why.  However, only a few years later Byron would pen the seminal work, so you cannot help but think the best of him and look for clues of his future genius, if only as an excuse not to lob the book in the bin.  There are a few hints at future greatness but they are so well camouflaged as opinionated guff that your loyalty to the future Robert Byron is sorely tried.

The book offers few gems on architecture (one of Byron’s key interests) but there are some cringingly awful throwaway lines such as: “There can seldom have lived a good artist with such a capacity for bad work as Bernini”.  One begins to suspect that having a strong opinion has more value than an informed opinion.

None of the travellers actually say “spiffing” but you they seem to come awfully close.  No doubt it would be a mistake to judge the 1920s by today’s more republican and egalitarian standards, but there is no getting away from the sensation that Byron is travelling about with a silver spoon firmly lodged in his mouth.  The book’s introduction by Jan Morris, is a tour de force.  She loyally describes the travellers’ self indulgence and opinionated mulch as so much joie de vivre, or the faux incompetence of a more innocent bygone era –mere high-jinx and adolescent dogmatism.  She is balanced and fair and more humane than many other reviewers will ever be, I suspect.

The key moments of the trip are the group’s Italian and Greek experiences,  although Byron actually has little to say about Italy. His only contact with reality appears to have been a solitary walk through the streets of Naples where the poverty  (one can sense) gave him a real shock.  In Greece he is feted for his surname.  The poet, Lord Byron, to whom he was a very distant relation, was still then a national hero to the Greeks for the part he played in liberating Greece from the Turks.  Byron has a great deal to say about the massacre in Smyrna, when the Royal Navy stood by  merely watching the Turks  hack down Greeks and foreigners as they desperately tried to escape by throwing themselves into the sea.  He does not actually say anything of note about Greek or Italian art, and is more taken up with his chance encounters  with the Fascisti of Italy (who left him unimpressed) and wayward Englishmen floating about Greece, in whose company he had his friends behave appallingly, smashing their glasses to the floor to get the waiter’s attention in one episode – resembling spoiled brats with more sterling than sense.  But then again, nobody’s perfect.

If you look closely, there are some seeds of his future genius – the unmistakable Byronesque  turn of phrase and his telling descriptive power, not to mention his horror of clichés.  It is surprising how quickly Byron matured as a writer and a man, as it was only a few years later that he wrote the very stylish, humorous and intelligent “The Road to Oxiana”, for which he is still known worldwide and which Bruce Chatwin hailed as “a sacred text, beyond criticism”. We will never know how he might have developed as a writer.  Byron’s life was brief. A mere four years after his classic travel book was published, the ship he was travelling on in the North Atlantic was torpedoed and his body was never found.

Erotic wall painting from Pompei

Belligerent twins, Romulus and Remus are central to the myth of the founding of Rome. However behind this myth lie others, more startling and unearthly, with strong undercurrents of sexuality.  It was the poet Virgil who put mythology to the service of state power by inventing a Trojan ancestry for the twins and thus the Roman people, helping to consolidate Emperor Augustus’s power base and his claim to power. But behind Virgil’s sycophantic genius for creating institutional myths lie more visceral tales bound up with fertility rituals and the initiation rites of the early Romans.

The real myths are rather more extraordinary, involving flying phalluses, she-wolves, prostitutes, the god Mars and divine oracles and often had marked sexual connotations.  Sex was not something to be hidden or ashamed of in ancient Rome, but sexuality was strictly managed by the state. Brothels abounded, but all in the name of political stability and a strong desire to assuage the collective anxiety regarding fertility.

The primitive cult of the erect phallus and sexual dynamism was a key element of ancient societies.  Men went from being unaware of the purpose of their erections to venerating them unconditionally, once they made the reproductive connection. In every civilisation, from the very earliest, the male organ was considered to possess the power to ward off evil and increase fertility. Ancient Rome was no exception.

Flying phallus charms to ward off evil - Naples Museum of Archaeology

The earliest evidence of the cult of the phallus was found in Egypt where Isis, after the dismemberment of the body of Osiris, unable to find his penis, moulded an erect phallus to give to mankind so that they could worship it. From there, the cult of the phallus spread to Greece and then to Italy.

In ancient Rome, the phallus was not considered obscene or indecent as it is now. Plutarch, in his Life of Romulus, describes the incredible scene witnessed by Tarchetius, the cruel king of Alba Longa near Rome. One day, a huge phallus emerged from his hearth and started flying around his house.  He consulted an oracle who explained to him that this was the spirit of Mars, the god of war, expressing his annoyance with him, as he was impatient to see him sire a successor to the throne.

The only way to appease the god was to offer him a virgin. The oracle told him that the child born of this union would excel in virtue, fortune and strength (rhome). Tarchetius tried to convince his daughter to have sexual relations with this huge phallus but she refused, considering it undignified, and ordered a slave girl to take her place. From this union, twins were born, Romulus and Remus, who the perfidious king ordered should be abandoned near the River Tiber so as to kill them. Miraculously the river withdrew and a she-wolf came down from the mountains and suckled them.

Erotic wall painting from Pompei

In order to understand sexuality in the ancient world we must also bear in mind the mentality of the Roman civis, (a fully-fledged citizen of Rome). He had the right to impose his will on his family unopposed and had been brought up in the conviction that imposing oneself on one’s enemies through military might, and on one’s fellow citizens through rhetoric was the greatest of personal achievements.  Right from the earliest days of Roman civic life, the concept of being able to “overwhelm” was the supreme value, one that was applied when a man became a pater familias with the power of life and death over his wife, his children (for the duration of his life) and his slaves.  A confirmation of this social power was his right to sodomize his slaves, but only “actively”: passivity in a Roman was seen as a sign of depravity and something to be punished.

Sexual passivity in a free man is a crime, for a slave a necessity, for a freed slave a duty.

Seneca, Controversiae., 4.10

To ensure greater social stability, Roman men were allowed to frequent the many brothels, the lupanari, which were to be found in every city. In Pompeii alone there were 25 of them.  The brothels were dark, cramped, dirty and darkened by candle smoke.  There was a catalogue describing the services available, painted as frescoes on both the internal and external walls.  The “service” itself  lasted no longer than a few minutes, in fact the clients did not even take off their shoes – as evidenced by the numerous imprints of shoes on the stone beds. Rudimentary contraceptive devices were used:  rubbing oils, tampons soaked in lemon juice, potions and condoms made out of animal intestines.

The fee for a single “service” was 2 “asses” (coppers) which was the same as the price of a glass of wine at the time.  The reason for the fee being so low was a careful political calculation; the prostitutes, the gladiatorial games and the public baths all cost very little so that every Roman could enjoy the benefits. Above all it would mean that they would be more docile and malleable, thus leading to fewer riots and uprisings.  The Roman Senate knew that the serious uprisings all took place in major urban centres and in this way they did their best to prevent them from happening.

Homosexuality was considered a Greek vice and was very common, so much so that male prostitutes were far more expensive than their female “colleagues”.  Homosexuality between women was considered the worst of all depravities and was severely punished.

The she-wolf (la lupa) suckling Romulus and Remus from Rome's Capitoline Museum

The so-called “rigid morality” of the Romans did not prohibit prostitution at all, ensuring its status as the oldest profession on earth. Livy, in his Acca Larentia, tells us that the she-wolf who suckled Romulus and Remus was in fact a woman known as  lupa, (meaning she-wolf in Latin) – a prostitute who serviced the peasant farmers.  From her name comes, we are told, the word for lupanare (brothels) and perhaps the very name of Rome derives from the word ruma, a suckling breast.

The brothels were open all hours of the day and night and it was a common sight to see fathers taking their young sons there in the hope of satisfying their offspring’s primordial instincts – in order to avoid the disorder that can be caused by uncontrolled desire.  Strict order and control reigned in Roman society, and anyone who went beyond its clearly defined limits was severely punished. Young boys wearing a bulla (a type of pendant), matrons, free-born men and young girls from good families could in no way be importuned, but if they were, there was a very clear law, the lex Scatinia, which punished the offender with a fine of 10,000 sesterci.  Roman morality did not distinguish between the sexes, but it was highly attentive to social rank.

Prostitution was not a disgrace for those who worked in the brothels and prostitutes practised their profession of their own volition.  Just as a normal citizen might choose to become a gladiator, women could become prostitutes – but this choice was tantamount to social death. Prostitutes lost the right to vote, and had to dress in a special manner, but once they had declared their intention to become a prostitute in front of the Aedile (who was in charge of public order), they could practise their profession undisturbed. If we can believe the Roman playwright Plautus, frequenting high-class prostitutes was not really advisable, even though they might offer pleasure and gratification.  The downside was that they brought their patrons to psychological and financial ruin.  These vampire/courtesans were central figures in Plautus’s plays.

Priapus weighing his penis

Even in pre-Roman society the phallus was seen to have propitiatory attributes, being frequently involved in the initiation rites of young boys.  On 17 March, during the feast of the Liberalia, the adulthood of young people was officially recognised and it is said that the male genitalia were openly worshipped in the name of the god Libero.  A huge phallus was placed on a cart which was driven first through the countryside and then through the city where at the end of the procession it was “crowned” by a matron of the nobility. Plutarch described one of these countryside festivals.

At the head of the group, there was an amphora filled with wine, mixed with honey and a vine branch, followed by a basket of figs, followed by the virgins who carried the phallus which with the fields were irrigated.

Plutarch (De cupiditate divitiarum, VIII, 527 D)

In Lavinium, these celebrations lasted a full month, during which time obscene language was used – the worst obscenities being thought to have the power to purify and make one fertile. The use of obscene language was very important – it gave the young men  the sense of virility that every true Roman citizen needed. The festival ended in the Temple of Jupiter where young boys officially enrolled for military service.

There are excesses from the past which to the modern mind may seem like picturesque rituals: such as Plutarch’s description of the falloforia organized by Ptolomey of Alexandria – a procession with celebrants carrying a 50-metre phallus covered in gold. The falloforia rite moved on to Ancient Greece where other solemn processions were held in honour of Priapus and Dionysus, in which once again large wooden phalluses were carried to ritual chanting. Surprisingly such traditions are not dead – even though the link to fertility and initiation rites may be a little hazy. Today in Japan for example, the Kanamara Matsuri (literally the festival of the erect penis) is held annually and is a lively descendant of these ancient rituals.

The Kanamara Matsuri "Falloforia" that is still held in Japan

———————————————————————————————————————————————————–

Ludovico Pisani is an archaeologist currently studying at the University of Rome. He has worked on a variety of archaeological digs: that of Lucus Feroniae (Capena), Tor Vergata (Rome), Pyrgi (Santa Severa) and Gabii (Rome). He has also worked with the State Department of Archaeology in southern Etruria and Rome. He is currently working with the Vatican Museum.

Tuareg

Could you give us the general picture of what is going on in Mali at the moment?
The Tuaregs have been fighting an insurgency against the  central power in Mali since the late 1950s but in terms of open fighting, since 1963.  So this is a very old story.  What we are seeing is the latest chapter, but a chapter with a great many differences.  The Tuaregs this time are better equipped, better trained and better led than they ever have been before and as a result they have been able to clinch a series of military victories which have given them control of the northern half of Mali – bar the big cities, such as Timbuktu and Gao, which they haven’t attacked yet although I suspect now with all the confusion that is going on in Bamako they might take their chances in the next 48 hours and do just that.

This time people are referring to a Libyan knock-on effect, with Tuaregs returning from Libya, having fought with Gaddafi, now heavily armed and with a lot of money to spend.  Is this a true picture?
The answer is both yes and no.  The relationship between Gaddafi and the Tuaregs goes back to the 1970s, when Gaddafi had a romantic vision of the Tuaregs as  superlative warriors.   Gaddafi himself, as everyone knows, had a vision of himself as a liberator of oppressed peoples throughout the world.  He took it upon himself to bring the Tuaregs  into his fold and he trained them up to be soldiers.  This happened particularly in the 1980s.  The relationship between them at that time was always very ambiguous, as on the one hand he said that he wanted to help the Tuareg people to win back their homeland, but on the other hand he seemed to do precious little to  help make that happen  in concrete terms – apart from giving a bunch of young Tuareg men some military training in Libya, who he then sent to fight wars in Chad and Lebanon  but not back home in Mali or Niger.  They have  always had a complex relationship, which I like to compare to the Irish Republican movement and the USA.  Libya was a source for money and support but no actual encouragement to reach their goals.

How did the Tuaregs end up working in Libya?
The reason why a lot of Tuaregs ended up in Libya is that it is a very oil-rich nation which had a lack of manpower.  Not only Tuaregs, but many sub-Saharan Africans ended up working in Libya.  Some of those Tuaregs were actually a part of the Libyan army.  The Malian press have accused the MNLA (National Movement for the Liberation of Azawad) of being Libyan mercenaries but  in reality they weren’t mercenaries but actually regular members of the Libyan army and had been for 20 years.  For example the leader of the MNLA,  Mohamed Ag Najm, was a colonel in the Libyan army.   The story goes, and I need to check some of this but, it appears that there was a very well known Tuareg rebel/freedom fighter/bandit depending on your point of view called Ibrahim Ag Bahanga who was a real thorn in the side of the Malian authorities from 2006 onwards  until he was defeated militarily in 2008 and exiled to Libya. There, he started to make connections with all these Tuareg officers in the Libyan army, many of whom were in the same clan and the same tribal group as he was.   When the Libyan uprising started in Benghazi and things started to go very wrong for Gaddafi, Ibrahim Ag Bahanga and  others persuaded some Tuareg officers in the Libyan army to defect, raid the Libyan army arsenals and take the weaponry back to Mali.  I have also heard a rumour, which I have not been able to confirm, that they actually had a meeting with the National Transitional Council, the anti-Gaddafi rebels, to get their blessing for this project.

Map of Mali - Wikimedia Commons

This seems the perfect way to get them out of the way
Yes, exactly, and weaken Gaddafi’s army. So this is what they did, and throughout the autumn and summer of 2011, they were ferrying arms back into Mali. During one of these trips, Ibrahim Ag Bahanga was killed,  some people say in a car accident, although he had so many enemies that it seems incredible that he could have died in a mere car accident.   So what you have is a group of very experienced Libyan Tuareg soldiers, who had been trained and employed in Libya,  now in  the north-east of Mali with a great deal of weaponry. From about October 2011 onwards, they basically started preparing the uprising, with long meetings out in the desert where they indulged in a great deal of soul searching about what had gone wrong in previous uprisings,  so as to get it right this time.  What happened is that they entered into an alliance with a much younger group of Tuaregs, you might say young intellectuals, very Internet savvy young Tuaregs, who set up the National Movement of Azawad, the MNA at the end of 2010.  They eventually merged with the MNLA.  This was an important move as one of the aspects that was deemed to be lacking in previous uprisings was good communications with the international media, and with the world at large.  This alliance, this youth wing, if we can call it that, has been very active on the Internet since the uprising started, posting opinions, press releases and denunciations. This is a completely new development, which has led to there being a propaganda war between Mali and the MNLA, alongside the actual military operations.

When we talk about Tuaregs we are talking about many different tribes, spread over different countries. Some say the MNLA is just a small group of a few thousand fighters. What sort of support does the MNLA have from Tuaregs as a whole?
There are roughly 1.5 million Tuaregs, although an accurate census does not exist.  They are spread out over 5 countries: Mali, Algeria, Libya, Niger and Burkina Faso.  They have a very complex clan and tribal structure, at the top of which you have 5 large confederations which are then  broken down into tribes, then clans and families etc.  It’s very complex. They don’t all see eye-to-eye and historically they have fought against each other, sometimes very bitterly.  The idea of a Tuareg identity is a relatively recent phenomenon.  Up till about 50 years ago, they did not see themselves as a unified people, they saw themselves as different families, tribes and clans – nomads from different parts of the desert who often fought against each other.

Tuareg Rebels

So who are the MNLA?
The MNLA are basically led by Tuaregs from the north-east of Mali, especially by  two particular clans, called the Iforas and Idnan.  The Iforas are the traditional rulers of north-eastern Mali. The Idnan are also a traditional warrior clan, bearing in mind that their society is very hierarchical and each clan had its different role. All of these old structures have been modified and deconstructed over the last one hundred years, but basically these two groups, the Iforas and the Idnan, are very much at the head of the MNLA.  Support for the MNLA amongst Tuaregs is quite broad, partly as a result of the MNA’s propaganda and certainly before this latest conflict happened, I got the feeling from talking to various friends, that a lot of Tuaregs felt that at last they had a rebel organisation that was worthy of their cause.  However they do not represent all Tuaregs by any means, and even less, all the people living in the north of Mali, where there are quite a number of different ethnicities apart from the Tuareg, including Arabs, Songhai and Peulh.  All I can say is that it’s been along time since a rebel movement has enjoyed the level of support that the MNLA have, but this support is by no means universal.

Is there any internal opposition?
There is one group that is seemingly opposed to the MNLA and they are called the Inghad. They are the former subordinate or ‘vassal’ class in the old hierarchical structure, subordinate to the more noble Idnan and Iforas Tuaregs.  Many of the Inghad were in favour of the Tuareg lands becoming part of the Republic of Mali, as the socialist  principles upon which the Malian Republic was built  meant that  they were freed from their subservient status in Tuareg society.  One of the most frequently touted names in this conflict is a Tuareg military commander called Colonel al-Hajj Gamou.  He has been the Malian army’s champion in the north-east for quite a number of years and he is an Inghad,  from one of these vassal tribes.  Ag Gamou has been built up as the defender of the Malian cause in the north.  Apart from the Libyan Tuareg presence in the MNLA, there have also been a lot of desertions to the MNLA from the Malian army since December, as the Malian army did comprise a large number of Tuaregs. The actual number of people in the MNLA is difficult to gauge but I am sure that the numbers are growing.

Ibrahim Ag Bahanga

What are the aims of the MNLA?
They want a country of their own, a country called Azawad, which will comprise the three northernmost provinces or regions of present-day Mali – Timbuktu, Gao and Kidal.  There has long been a debate within Tuareg society about what they want;  autonomy within a federalist Malian structure or a completely independent state.   After the last big rebellion in the early 1990s, when the suffering among the civilian population was quite extreme, many Tuaregs fell back to a more conciliatory position, saying that they did not want an independent country but wanted their rights; cultural rights and economic rights.  This position has hardened in recent years to the point where the MNLA want absolute independence for Azawad,  the long-dreamed-of Tuareg state.

Is there a historical basis to the Azawad borders?
The Malian border was invented by the French.  It’s the border that was drawn up between French Algeria and French Sudan in 1904, so it really has no basis in tribal geography.  There is some logic to it, as southern Algeria is deemed to be the zone of influence of a Tuareg confederation called the Kel Ahaggar and north-eastern Mali that of the Iforas, who I mentioned previously – the more dominant group. By saying that they are only interested in Mali, the MNLA are trying to limit the fear and concern of neighbouring states that a Tuareg uprising in Mali will lead to Tuareg uprisings elsewhere in all the 5 other countries where Tuareg are present.

So the neighbouring countries are very nervous.
Yes, they are terrified, especially the Algerians. This uprising could have a twofold effect on Algeria. Not only do the Algerians not want the Tuaregs in the south to get any strange ideas, although in the history of independent Algeria, the Tuaregs in southern Algeria have never shown any desire to stage a mass rebellion, so if one were to happen it would be completely unprecedented. But more important is the solidarity with the Malian Touareg uprising which is being felt in Algeria by the Berber peoples who have their own cause. The Tuaregs are a Berber people, Imazighen, which means they have linguistic and cultural ties with the Kabyle, the Chaoui, the Chleuch etc further north.  There is a lot of noise about this rebellion coming out of the Algerian blogosphere from Algerian Berber groups, especially from Kabylia, but elsewhere as well.   The Algerians are scared of a knock-on effect on the Berbers.

What about the coup that happened recently?  How do you read that?
It is all very confusing, it has all just happened.  It sounds like all this started last Wednesday when the Malian Defence Minister, Sadio Gassama and another desert fox officer, Major Colonel Abderrahmane ould Meydou - who along with Ag Gamou is Mali’s champion up in the desert – visited the barracks in Kati, a suburb of the capital Bamako and a military town of sorts. They received a very aggressive reaction from the soldiers and they were more or less chased off the premises. Remember this is a Minister of Defence sent running from the barracks by his own soldiers.   The soldiers then marched into Bamako,  took over the Koulouba palace which is the presidential palace and the ORTM (TV station) and declared they were suspending the constitution, until further notice.

Mali coup leaders

What are their grievances?
The conduct of the war against the MNLA has in their eyes been a thing of shame.  They feel the army is underfunded, undersupplied and there are stories of soldiers almost dying of hunger because of not getting enough food.  There was also supposedly a massacre of Malian soldiers in a village north of Kidal called Aguel’hoc, which the Malians claim was perpetrated by AQIM (Al Qaeda in Islamic Maghreb) but the jury is out on what actually happened.  But in Bamako, people certainly believe that the soldiers were badly treated and brutally murdered in Aguel’hoc.  The Malian army also suffered some serious defeats a couple of weeks ago, in Tessalit, which is up near the Algerian border.  The MNLA captured a lot of soldiers, and the head of the MNLA, Mohamed Ag Najm, in an interview with El Watan, the Algerian newspaper, said that the MNLA had tried to hand back the soldiers to the Malian authorities but that Mali did not seem to want them.  So there is also the feeling that the soldiers are being abandoned.  There is a lot of anger and this anger has clearly boiled over.  The big question is “Who is behind this putsch?”  The leader of this little junta, Captain Sanogo, is a complete unknown, although he has fought on the frontline and has experience of the north-east.  Whenever he and his junta make declarations on the TV, it is clear that there are no senior officers involved in this coup at all -  no-one above the rank of captain.  I think it is generally accepted that when there is a military coup in an former French colony, the French army have got something to do with it, or at least some prior knowledge, as the links between the armies in Mali and Senegal for example and the French army are very close.  Most senior Malian officers will have been trained in French military academies.  It is possible that this coup may be the exception and that it is being led by a group of fairly young junior soldiers who are clearly very angry. It looks like they have taken over but it is not clear if the rest of the army has gone over with them. The jury is completely out on this, we will see how this situation develops.

What about the AQIM (Al Qaeda in the Islamic Maghreb)?  Does this group exist and are there any links with the MNLA as some have suggested?
No Tuareg has ever killed or maimed another human being in the name of religion – certainly not in the last sixty years. I say that just to make clear that there is no cultural affinity between the Tuareg and AQIM. There is no question that AQIM does actually exist, this has been verified, but the more difficult question is who are its friends and enemies?  They carry out kidnappings and have murdered people, including soldiers and policemen and have carried out suicide attacks.  But there is a great deal of conjecture about this whole issue.  What does certainly happen is that many western African and North African governments use Al Qaeda to discredit political or independence and autonomy movements.

Iyad Ag Ghali

What are AQIM’s relations with the Tuaregs?
Before this rebellion, the supreme leader of the Tuareg rebel movement was Iyad Ag Ghali, who is an Iforas Tuareg.  He led the rebellion in the early 1990s and was also involved in the 2006 rebellion.  But he got religion in the late 1990s, thanks to Pakistani preachers who started visiting northern Mali with the aim of converting the Tuareg to the Salafist fundamentalist view of Islam.  In most cases they were unsuccessful, but they did manage to convert Ag Ghali who has, apparently, over the last 10 years, become increasingly extremist. In the run up to this uprising, he went to see the MNLA and offered to be their leader, as he had been in the past, but this time his candidature was rejected. The MNLA have made it absolutely clear on many occasions that they are a secular and democratic revolutionary movement, with the emphasis on secular.  Iyad was also apparently rejected as leader of the Iforas clan too.  The Iforas are still being led by a very ancient man called Intala Ag Attaher, so despite an imminent  succession crisis in the clan, he was turned down as the amenokal,  as they call a leader in the Tuareg language.  He declared that he wanted to bring shariah law to the Tuareg homelands and most Tuaregs do not want shariah. The role of women is relatively prominent, free and strong in Tuareg society.  Tuareg society is not profligate or hedonistic, but it is religiously tolerant and people are free to express their own minds. It is a matriarchal society and very different from Saudi Arabian society, for example.

Was that the end of Iyad Ag Ghali?
No, he went on to form a movement called Ansar Al Din, which means the “followers of the faithful”. There are reports that he got together a group of like-minded Tuaregs with similar tribal allegiances and they, it is said, are fighting alongside the MNLA as a semi-autonomous wing of the rebel movement. They were apparently very present in the Aguel’hoc and Tessalit battles.  The problem is that their presence has allowed Mali to construct the theory that the MNLA are in cahoots with Al Qaeda.  There is also the fact that the Tuareg, probably for monetary reasons, have done odd jobs, a bit of kidnapping, a bit of supplying, guiding and driving for Al Qaeda.  It is important to understand that when Al Qaeda arrived in the area in 2007/2008, they destroyed the tourist industry, destroyed the NGO industry and destroyed any kind of outside involvement in the area, which catapulted it into a state of economic crisis.  So if someone comes along and says: “I’ll give you $500 to drive this van” or whatever, you can imagine that the temptation is extraordinary.

Is unemployment a big issue in this conflict?  What is the social background?
The social context is that the north-east of Mali has been more or less forgotten in terms of the general development of the country.  The first uprising was in 1963 and for the next 20 years, right up until the next uprising in the 1990s, the area was completely marginalized – it was a no-go area, you couldn’t even visit it.  It was basically a military occupied zone. Then in 1991 there was a revolution of sorts in Mali and the dictator Moussa Traoré was thrown out. What is ironic is that the current President Touré came to power in that military coup in 1991 which came off the  back of a Tuareg uprising.  Since then there have been attempts to develop the north.  Rather large sums of money have been thrown at the north, some of which, it has to be said, have been embezzled by unscrupulous Tuareg leaders.  However what really angered many of the Tuaregs was that a large chunk of the fund called the PSPDN was being used to build military barracks, and to remilitarize the north. That is one of the reasons why the fighting broke out on 17 January this year. This made them feel it was either now or never,  otherwise the military presence was going to become too well-established.

On a normal day when the conflict is in abeyance, how are relations between Malians and Tuaregs?
They normally get on pretty well.  Until recently, there were a lot of Tuaregs living in Bamako, the capital. They worked in the Malian administration in various jobs, working for NGOs, government bodies, teaching in the universities. That kind of social mixing was happening in other cities like Segou, Mopti, Timbuktu and Gao as well. But there is a historic enmity as well.  Malians sometimes think that the Tuareg are fundamentally racist and possess this ‘slave owner’ mentality.  Tuaregs often think that black southerners are racist towards them, calling them the ‘Red Skins’ and other pejorative names.  So there is some social tension between them.  Having said that, I think that many Tuaregs had made their peace with the idea that they were a part of Mali and that they were just going to have to get on with living in Mali.

And what about the neighbours, like Mauritania?  Mali has accused Mauritania of actually interfering in Malian affairs by supporting the Tuareg.  Is there any truth in these accusations?
If you read the Malian press there are constant accusations against various outside entities and countries, such as Mauritania. That particular accusation is based on the fact that the MNLA’s political wing has basically set up shop in Nouakchott, the capital of Mauritania. So the political leaders are based there and there is a suspicion in Mali that there have been high level governmental links between Mauritania and the MNLA.  The official statements from the Mauritanian President  all say that Mauritania respects Malian territorial integrity and that conflicts must be resolved by peaceful means. Behind the scenes, who knows?  That said, I don’t think any country wants to see an independent Azawad.  It is too dangerous.  They are also suspicious in Mali regarding Algeria, as Algeria considers north-eastern Mali to be its backyard, its own zone of influence. The Algerians have always manipulated Tuareg politics in that area. They did so especially to counteract the influence of Gaddafi when he was in power. So there was something of a fight between the Algerians and Gaddafi as to who was the real friend of the Tuaregs.

What about oil and gas?  Is the area strategic in terms of its mineral resources?
Yes, one thing that has been happening in the last 5 years is that northern Mali has been explored,  and parcelled off as lots for oil drilling. Those lots have already been sold off – and I should say this is where things get very murky and where some serious investigative journalism needs to be done.  Total, the French oil company, were involved in the exploration, as were the Qatar Petroleum Company.  As we know, both Qatar and France were heavily involved in the overthrow of Gaddafi and many Malian commentators see a conspiracy theory in which France (remembering that France and the Tuaregs did try and set up a Tuareg state back in the ’50s prior to Malian independence which was quashed by the FLN in Algeria and the leaders of independent Mali) have always rued the  fact that they lost all their colonies and access to the rich minerals in northern Mali.  So many Malians see the Tuareg rebellion as being engineered by the French. In general, the Sahara is very fertile ground for conspiracy theories as it’s so hard to verify anything that goes on there. Even people who know a lot about Al Qaeda are convinced that Al Qaeda in Islamic Maghreb is a creation of the Algerian secret services. Others are convinced they were invited into northern Mali by the Malian government itself in order to be able to delegitimize any Tuareg insurgency.  The Sahara plays on the mind.  There are also rumours about drug trafficking and that the Malian government and army have had a role in that.  Tuaregs too.  The whole area is a dream for authors of crime and conspiracy novels.

If the situation deteriorates in Mali surely the French will not sit back and watch it happen?
It is difficult to say, it depends what links they have with these young soldiers involved in the coup. It is not clear if the French have any control over them.  I am inclined to think the French will try and re-install President Touré – presenting themselves as the defenders of democracy – and bring things back to the way they were. The French are also terrified of the Islamic threat. They have already lived through their Algerian experience so this is nothing new to them, but they will not want Mali to become an Islamic state. One thing that is not talked about very much is the creeping influence of Salafist fundamentalist ideology in southern Mali. This has been happening over the last three years.  But as for the big picture, we will have to wait and see how this coup plays out.

—————————————————————————————————————————————————————-

Andy Morgan

Andy Morgan is a full time writer, journalist, researcher and event programmer. He is currently writing a book about Tuareg/Berber musicians Tinariwen and the Sahara, whilst helping to research and edit another book about Manu Chao. He also writes about music, culture, society and politics for The Independent, fRoots, Songlines and many other publications.  For full details visit www.andymorganwrites.com

Many thanks to Richard Trillo for his kind assistance.

Farmer in Honduras

With its muddy roads, humble huts, and constant military patrols, Bajo Aguán, Honduras feels a long way away from the slick polish of the recurring UN climate negotiations in the world’s capital cities. Yet the bloody struggle going on there strikes at the heart of global climate politics, illustrating how market schemes designed to “offset” carbon emissions play out when they encounter the complicated reality on the ground.

Small farmers in this region have increasingly fallen under the thumb of large landholders like palm oil magnate Miguel Facussé, who has been accused by human rights groups of responsibility for the murder of numerous campesinos in Bajo Aguán since the 2009 coup. Yet Facussé’s company has been approved to receive international funds for carbon mitigation under the UN’s Clean Development Mechanism (CDM).

The contrast between the promise of “clean development” and this violent reality has made Bajo Aguán the subject of growing international attention — and a lightning rod for criticism of the CDM.

The Coup and Its Aftermath
In June 2009, a military coup in Honduras deposed the government of Manuel Zelaya, stymieing the government’s progressive social reforms and experiments with participatory democracy. “It was not only to expel President Zelaya,” says Juan Almendarez, a prominent Honduran environmental and humanitarian advocate. The coup happened “because the powerful people in Honduras were acting in response to the people’s struggles in Honduras.”

The result has been social decay and political repression. The homicide rate in Honduras has skyrocketed under the Porfirio Lobo regime, registering as the world’s highest in 2010. Human rights groups highlight the ongoing political assassinations of regime opponents. In this small country of 8 million people, 17 journalists have been killed since the coup. LGBTI organizers, indigenous rights activists, unionists, teachers, youth organizers, women’s advocates, and opposition politicians have also received death threats or been killed. Those responsible are rarely punished by the justice system, which instead devotes its energies to prosecuting social and human rights activists. Protests are often met with teargas canisters and live ammunition.

The coup has also proved a setback for campesino activists seeking to halt the encroachment of large landowners on their farms.

The Struggle for Land in Bajo Aguán
Highly unequal land distribution has long been an issue in Honduras, and genuine land reform has been evasive. However, partial agrarian reform in 1961 made the rainforests of Bajo Aguán available for cooperatives of farmers who migrated there from other parts of the country. Clearing the forests to make the land suitable for farming was extremely difficult work, but the farmers’ perseverance turned it into one of the most desirable and fertile agricultural lands in the country.

However, under pressure from international financial institutions, Honduras’s government passed the Law of Agricultural Modernization in 1994, allowing large producers to extend their territories beyond the maximum legal property limits. As a result, large landowners began to buy up the land of small farmers, effectively reversing whatever limited land reform had been achieved. The human costs were immense. According to Juan Chinchilla of the Unified Campesino Movement of Aguan (MUCA), “it forced masses of farmers to migrate to the cities and to the U.S. under terrible conditions.”

An older movement, the MCA (Campesino Movement of Aguan), has organized several dramatic acts of resistance to this dislocation. In May 2000, the collective orchestrated a remarkable mass occupation of a former U.S. military base on a large tract of arable land controlled by agro-industrialists. Coordinating with landless farmers from all over the country, the MCA organized 50 trucks and, early one morning, entered the former base and tore down its fences. This occupation continues today, despite threats and persecution.

In 2008, MUCA occupied one of Miguel Facussé’s palm oil processing plants and subsequently entered into negotiations with then-President Zelaya to have occupied lands legally transferred to small farmers. When the coup occurred and jeopardized these hard-won gains, landless farmers mobilized against it, with MUCA officials travelling to the Nicaraguan border to meet Zelaya on his second attempt to return to Honduras. It was there that MUCA decided to organize a mass land occupation starting on December 9, 2009.

But despite this resistance, aggressive landholders buoyed by the coup have continued their onslaught against the farmers of Bajo Aguán. According to the Inter-American Commission of Human Rights, 42 farmers were assassinated between September 2009 and October 2011 in Honduras. More recent reports have the numbers in the 50s by 2011. In one surprisingly brazen incident in November 2010, after five farmers were killed in El Tumbador, Facussé gave a press statement acknowledging that it was his hired security guards who were responsible.

A community member from the Marañones settlement in Bajo Aguán described an eviction of small farmers from the Guanchía cooperative on 8 January 2010, carried out by a contingent of 500 police and soldiers with teargas and guns: “It was a violent eviction where they had nothing legal to show us; the first greetings they gave us were the weapons. They began to shoot at us, to capture and beat our compañeros. There were captured children, nine of them…compañeras were raped…our homes were destroyed, our food – they took part of it and destroyed the other parts.”

Almost every farmer I interviewed said that it was unsafe to leave their settlements. The countryside is dotted with military checkpoints, and farmers have been killed travelling to or from their settlements. “The way we see it, it has become a crime to be a farmer here,” Heriberto Rodríguez of MUCA explained. There have been at least four military operations in the area since 2010.

Palm Oil and Power
Bajo Aguán’s small farmers are already under siege. But carbon trading with the global North could help to fuel in this aggression even further under the Clean Development Mechanism (CDM). Set up under the current UN climate treaty, the CDM is supposed to encourage “clean” technology in the South and to provide Northern actors with the most efficient (i.e., cheapest) way to reduce global pollution. The basic equation is simple: a project in the global South that ostensibly reduces carbon emissions generates carbon credits. These credits can then be bought and sold by companies in the global North, who can use them to meet government requirements to reduce pollution without actually reducing emissions in their factories or power plants.

Dinant, Facusse´s palm oil company, has set up one of these projects. In the past, the company’s palm oil mill pumped its waste into large open pits, a process that produces large quantities of methane. Dinant’s project involves capturing this greenhouse gas and using it to power the mill. The project’s blueprint claims that it will reduce pollution in two ways: first, by not letting the methane from open pits escape straight into the atmosphere, and second, by preventing pollution from burning the fossil fuels that were formerly used to power the mill.

Dinant’s approval is obviously problematic for a number of reasons.

First, with the expanding palm oil industry contributing to massive deforestation in sensitive tropical regions, it’s ironic that Dinant would be rewarded for environmentally sound practices. Moreover, its CDM approval essentially endorses a business model of producing palm oil for export—instead of food for local consumption—in a country where one in four children suffers chronic malnutrition. As Heriberto Rodríguez argued, “We don’t need palm oil here. We need what we can eat.”

Finally, if Wikileaks cables detailing some of Facussé’s more unsavory dealings—including but not limited to his potential links to drug traffickers (to say nothing of his documented violence against local farmers)—are any indication, Facussé’s misdeeds are no secret to the North. And yet one CDM board member told a journalist that “we are not investigators of crimes” and that there is “not much scope” to reject the project under CDM rules.

As rights groups have brought these problems to light, Northern companies associated with the project have pulled out one by one, including a consultant that contributed to the project application, the German government bank that had agreed to give a loan to Dinant, and the French electricity company that had agreed to buy the credits. This has left Miguel Facussé and Dinant out on a limb. However, the struggle to stop European carbon market money from flowing to Bajo Aguán is not finished: the CDM board has re-approved the project, and the British government has not withdrawn its support, which means that new buyers could still appear.

Not for Sale
At an international human rights conference in February, MUCA signed an agreement with the Lobo regime that included a financing plan for the farmers to pay the large landholders for occupied land. But critics say that even if the government can be trusted (itself a questionable proposition), the crucial issues of assassinations and impunity were ignored. Facussé´s company is now accusing farmers of new “invasions.”

Needless to say, the situation in Bajo Aguán continues to be incredibly dangerous. Local rights groups have called for a Permanent Human Rights Observatory to witness, document, and discourage the ongoing violence against farmers in the region.

Although growing international condemnation has made it more difficult for Dinant to access carbon market money, the project remains officially sanctioned, and loans from international development banks have not been cancelled. Heriberto Rodríguez, speaking from his roadside hut in an Aguán settlement, had no doubt about the impact of this international support: “Whoever gives the finance to these companies also becomes complicit in all these deaths. If they cut these funds, the landholders will feel somewhat pressured to change their methods.”

MUCA spokesperson Vitalino Alvarez rejects the idea of carbon trading projects altogether. “To get into these deals is like having [our land] mortgaged,” he said. “So to this we say no; this oxygen, we don’t sell it to anybody.”

———————————————————————————————————————————————————-

Rosie Wong has accompanied the anti-coup movement in Honduras since 2009, visiting Honduras three times and doing organizing work in Sydney, Australia. She compiles monthly updates at http://www.sydney-says-no2honduras-coup.net and can be contacted at latinamerica.emergency@gmail.com. Kylie Benton-Connell, currently based in Brazil, provided research support.

This work by Institute for Policy Studies is licensed under a Creative Commons Attribution 3.0 United States License.
Based on a work at www.ips-dc.org.