This Weekend’s Foreign Policy Must-Reads

A roundup of the most intelligent takes on global affairs this week

The Greek Warrior – New Yorker

Varoufakis, a mathematical economist with a modest academic reputation, had become a popular writer in Greece. When the snap election was called, he interrupted his professorship at the University of Texas, flew home to Greece, and launched a ten-day election campaign whose sole expense was the cost of gas for his motorcycle…Varoufakis was elected with a larger share of the vote than any other candidate, and he was named the finance minister.

Greece’s controversial former Finance Minister Yanis Varoufakis says he will miss his German counterpart Wolfgang Schäuble, whom he calls a “man of principle.” Does Schäuble feels the same for Varoufakis? Someone ask him. Please.

Pope Francis Against the World – The New Republic

The mistake made by the media all along has been to conclude that because Pope Francis can speak morally to a variety of issues we tend to think of as detached from moral reasoning (like economics, inequality, and property) that his authority is less limited than it really is. The truth is that Francis’s greatest ability outside the Church is his capacity to inspire, especially in those who don’t normally look to Catholic moral theology for their inspiration.

The general lack of international leadership and the number of current crises around the world offer an opening for a charismatic leader with the backing of a large flock. Yet, political leaders of both the left and right are confused about how (and whether) to engage him.

How to Smuggle $1,000 into North Korea – Politico EU

The smuggler will strap the items in a waterproof sack, swim across the river and bribe the guards on the North Korean border to let him pass into North Korea. These are guards that the smuggler has carefully built relationships with over time. Smuggling goods is highly punishable, and letting people pass through the North Korean border, rather than shooting them, could get the border guards killed instantly. But North Korea has become a country where money can solve any problem and can save lives.

And the cracks widen to let in a little more light. One day, North Korea will go from forgotten story to biggest story in the world in a matter of hours. And then one of the largest long-term humanitarian reclamation projects in history will have to begin.

“Death to America” and the Iran Deal – New Yorker

I talked to Iranians in Tehran from across the political spectrum about “Death to America!” I pointed out that, throughout the decades of tension, no American has been recorded going into a church and shouting “Death to Iran!” Some Iranians downplayed the revolutionary mantra’s importance; others insisted it still has strong symbolic merit. But all of them—particularly senior Iranian officials educated in the United States—seemed befuddled about why it would ever impact the fate of the nuclear deal.

When two countries refuse to talk to one another for 36 years, it takes time to find a common language. That process has only just begun, and there’s no guarantee that the two governments, or their citizens, will find much to say to one another anytime soon.

Why Greece’s Lenders Need to Suffer – New York Times Magazine

A world of bonds works only when the investors who buy the bonds are extremely nervous and wildly cautious…The bailout represented a transfer of wealth from the rest of the economy into the bond market — precisely the opposite of what is supposed to happen. Now, in the moral hand-wringing over Greece and its failure to pay, we see that bondholders expect to be bailed out constantly, even when they were obviously culpable in failing to manage their own risk.

Just as short-sided lenders helped inflate the housing bubble in the US, so Greece’s lenders helped fuel the destructive patterns of that country’s long-dysfunctional government. Another timely reminder that short-attention-span media simplifies too many stories when reality isn’t so clean.

TIME Turkey

These 5 Stats Explain Turkey’s War on ISIS — and the Kurds

Turkey enters the battle against ISIS, but it's real target seems to be the Kurds

On the heels of a major suicide bombing in the border town of Suruç a couple weeks ago, Turkey has officially joined the war against ISIS—though it’s not clear what it actually aims to achieve. Turkey and its leader Recep Tayyip Erdogan were riding high just a few years ago, with a strong economy and a growing international profile. Now the country’s economy is tumbling, and its politics are fragmenting. These 5 facts explain Turkey’s various motivations for going to war. Be warned—they’re complicated.

1. A Faltering Economy

Until recently, Turkey was an emerging market darling. In 2010, its economy was growing at a robust 9.2 percent. But by 2013, GDP growth had fallen to 4.1 percent. The slowdown has continued, and growth for 2015 is now forecast at 3.1 percent, which may actually be a generous estimate. Unemployment in the country has reached 11 percent, the highest rate in 5 years.

It’s not clear that joining the fight against ISIS will directly help Turkey’s economy. In fact, it probably won’t—fighting wars, especially open-ended ones, cost money. But it will distract a populace that’s growing increasingly unsettled by the economy’s slowdown.

(IMF World Economic Outlook, Bloomberg, Global Peace Index)

2. Stumbling AKP

The slowing economy has also upended the country’s politics. Turkey was a secular Muslim country for nearly a century until 2002, when Erdogan’s Islamic Justice and Development Party (AKP) rose to power. It went on to win four consecutive elections, peaking at 49.9 percent in 2011, while presiding over a booming economy. Since then Erdogan has seen his personal popularity plunge from 71 percent to 37.5 percent today. Support for the AKP dropped nearly 10 percent in elections this past June, and the party lost an absolute legislative majority it had enjoyed for 13 years. Who capitalized on the AKP’s poor election performance? The pro-Kurdish HDP, which entered parliament for the first time by capturing 13 percent of the vote. (Political parties must win at least 10 percent of the vote in Turkey in order to enter the legislature.)

Now the AKP must choose between inviting an opposition party to join a coalition government or calling early elections to try to regain its majority. Joining the ISIS war effort serves two political aims: it tarnishes the HDP by associating the party with Kurdish separatist groups accused of terrorism, and it drums up enough nationalist sentiment to peel off votes from the far-right Nationalist Movement Pary. Erdogan will watch the polls. If the AKP’s numbers rise toward 50 percent, he’s likely to push for another vote.

(Brookings, Guardian, Al-Jazeera, Reuters)

3. Syrian Refugees in Turkey

Turkey is currently providing shelter for nearly 2 million Syrian refugees, and that figure is projected to rise another 500,000 by the end of 2015. Put another way, more than half of the 4 million Syrians who have fled their country during the civil war now reside in Turkey. Ankara has established 25 refugee camps, and reports say they are relatively well-run. The problem is the cost—Ankara estimates that it has spent nearly $5.6 billion on refugees since the beginning of the crisis. Combined with its flagging economy, it is not clear how much longer Turkey can continue shouldering the burden. The sooner the fighting in Syria ends, the sooner these refugees can return home.

(European Commission, UNHCR, Al-Jazeera)

4. Violent History with the PKK

Now things start to get murky. On July 20, an ISIS suicide bomb ripped through the Turkish town of Suruç, killing 32 people. The victims were supporters of the Kurdistan Workers Party (PKK), the Kurdish separatist party based in Turkey and affiliated with the People’s Protection Units (YPG), the Kurdish group currently battling ISIS in Syria. After the Suruç attack, some Turks blamed the AKP government for not protecting the country against terrorism, while Turkish Kurds have accused the government of being complicit in the attacks. They claim that Erdogan’s government has tolerated ISIS attacks on Kurds because ISIS militants threaten Syria’s Bashar al-Assad, Turkey’s enemy, and also prevent Kurds from gaining ground in Syria that might help them to eventually create a larger Kurdish homeland in the region.

Erdogan may have declared war on ISIS to blunt criticism that he is soft on terrorism, but this bombing really speaks to the long strained relationship between Turks and Kurds. The Kurds are a sizeable ethnic minority in the region that have been agitating for independence for decades. The last 40 years have been marred by Turkish-Kurdish violence, claiming the lives of 40,000 people. A ceasefire was reached in March 2013, but it didn’t last long. According to Turkish security authorities, the PKK has carried out over 2,000 acts of violence in 2015 alone.

(Reuters, Wall Street Journal, Middle East Monitor)

5. A War Against…Whom?

It’s obvious that Ankara is alarmed by the progress Kurdish fighters in Syria are making against ISIS and Assad, which they fear will only stoke the independence dreams of Turkish Kurds. In response to the Suruç bombing, Turkish police launched security raids across the country, rounding up more than 1,300 suspects in a matter of days. But the number of PKK militants detained outnumber ISIS affiliates more than 6 to 1. Between July 23 and July 26, 75 Turkish jets flew 155 sorties against 400 or so PKK targets. Number of ISIS targets hit? Three.

Officially joining the war against ISIS will give Turkey the cover it needs to bomb the Kurdish separatists carving out territories along the Turkish border. And it seems Washington is willing to ignore attacks on Kurds in exchange for US access to the Incirlik airbase, useful for bombing ISIS inside Iraq. Only time will tell if Turkey and America’s political and military strategies will pay off.

(Reuters, The Independent, Al-Monitor, New York Times)

TIME brazil

These 5 Facts Explain Brazil’s Crippling Scandals

Brazil Dilma Rousseff
Giuseppe Lami—AP Brazilian President Dilma Rousseff speaks during a joint press conference with Italian Premier Matteo Renzi, at Chigi's Premier Palace in Rome on July 10, 2015.

From a tanking economy to rampant corruption scandals, the 'B' in BRICS is in trouble

There are a series of scandals growing in Brazil, Latin America’s biggest country and one of the world’s most important emerging markets. The fallout could bring down a president who was reelected less than a year ago. Here are the 5 facts that tell the story:

1. Brazil’s Economy

Scandals are most damaging when an economy is slowing down. Brazil had a $2.35 trillion economy in 2014, the seventh-largest in the world. But 2015 has gotten off to a rocky start; foreign investment is down from $39.3 billion in the first five months of 2014 to $25.5 billion this year. Overall investment in the country has fallen for seven straight quarters.

Even worse, Brazil’s currency, the real, has lost 20 percent of its value since January. This by itself isn’t a bad thing—a less valued currency should make its assets cheaper and more attractive to foreign investors. Instead, Brazil’s economy is expected to shrink 1.5 percent this year.

Political scandals, and the uncertainty they create, are helping to scare off investors. The most visible involves Petrobras, the state-controlled oil company. As the scandal has unfolded, Petrobras stock has fallen 60% over the past year, and the company has had to write off $2 billion in bribery-related costs, while grappling with low oil prices.

(World Bank, Economist, Google Finance, CNN Money)

2. Petrobras Investigation

Why is a corruption scandal involving one company causing such shockwaves? Because it implicates the country’s highest political officials. The scandal began in March 2014, when Petrobras’s chief of refining was caught in a money-laundering investigation. In a bid for leniency, he confessed that companies awarded contracts from his division had diverted 3 percent of each contract’s value into political slush funds. Most of the money went to members of the governing Workers’ Party or their coalition allies. Initial estimates value the bribes at nearly $4 billion. Over two dozen executives from Brazil’s largest construction companies have already been arrested, and more than 50 politicians are now under investigation.

(Economist, WSJ)

3. Dilma Rousseff

This scandal could reach to the political mountaintop, because current Brazilian President Dilma Rousseff served as energy minister and chairwoman of Petrobras during the years of alleged corruption. There is still no evidence that Rousseff had knowledge of wrongdoing. But given the number of politicians from her Workers’ Party implicated in the scandal, a growing number of people say she is at least guilty of unpardonable negligence. Political opponents are calling for her impeachment, and the public’s suspicion is reflected in her poll numbers. In June 2012, Rousseff enjoyed a 59 percent favorability rating; in March 2014, around the time the scandal broke, her numbers had fallen to 36 percent. Her favorability rating has now plummeted to just 15 percent, according to Brazilian pollster CNT-MDA. Nearly 63 percent of Brazilians favor impeachment. On March 15, 1 million demonstrators gathered to protest Rousseff and the corruption of her government and the worst is probably yet to come.

(Financial Times, Bloomberg (a), Bloomberg (b), Reuters (a), Reuters (b))

4. Lula

Why? Because her mentor and political patron, former President Luiz Inacio Lula da Silva, is now being investigated for influence-peddling on behalf of Brazil’s construction giant Oderbrecht. Oderbrecht’s CEO was arrested last month on charges that he paid Petrobras nearly $155 million in bribes. When Lula left office, he held an approval rating of 90 percent, and Rousseff, his chosen successor, rode his coattails to the presidency. Rousseff should be worried; if Lula is indicted, he may blame Rousseff’s government, withdrawing his support for her. If so, Rousseff defenders within the ruling party may finally turn their backs on her.

Lula isn’t the only former president being investigated over Petrobras. Fernando Collor de Mello, Brazil’s president in the early 1990s, had over $1 million is cash and vehicles seized last week while investigators determine his role in Petrobras bribes.

(Wall Street Journal, Guardian, New York Times)

5. CARF and other scandals

Petrobras has dominated international headlines, but it’s not the only corruption scandal threatening the government. The latest involves the Administrative Council of Fiscal Resources (CARF), a division of the finance ministry. It’s alleged that some of its members, tasked with resolving tax disputes filed by corporations, ruled in favor of firms in exchange for 1 to 10 percent of the saved revenue. Over the last 10 years, the government is believed to have lost tax revenue of much as $5.8 billion. That’s nearly 50 percent more than the bribery figures associated with the Petrobras case. But because this case involves mid-level bureaucrats instead of top government officials, it receives far less attention from international media.

By the way, don’t forget Brazil hosts the 2016 Summer Olympics. Brazil has budgeted $8 billion for the Rio de Janeiro games—but Rio Mayor Eduardo Paes has bragged publicly that 57% of the financing will come from private sources instead of taxpayer pockets. Given Brazil’s current political climate, this news will raise eyebrows and new questions.

(Economist, Guardian)


TIME Economy

How a Good Government Can Beat Bad Debt

Bremmer is a foreign affairs columnist and editor-at-large at TIME.

It’s not the size of the debt that counts. It’s the ability to manage it

The one major country more deep in debt than Greece is one you might not expect: Japan. Greece’s debt-to-GDP ratio is a staggering 173%, according to the International Monetary Fund. Japan’s debt-to-GDP ratio? 246%.

Yet despite major challenges, Japan has options and a dynamic economy, while Greece is on life support. That’s in part because it’s not the size of the debt that counts. It’s the ability to manage it. That’s a useful motto to remember when comparing one country’s debt burden with another’s.

Unlike Greece, Japan has control of its own currency, allowing policymakers a lot more flexibility in dealing with an economic slowdown. Japan can choose between stimulus and austerity in ways that Greece, locked inside the euro zone, can’t. And while the overwhelming majority of Japan’s debt is owned by Japanese institutions and individuals who remain committed to financing the government, Greece’s creditors are overwhelmingly foreigners.

But Japan is also simply better governed than Greece. Estimates vary on the scale of tax evasion in Greece and its impact on the country’s economy, but at the end of 2014, Greeks reportedly owed their government about $86 billion in unpaid taxes. That’s a big problem in a country where tax revenue represents nearly a quarter of GDP.

A primary function of government is to ensure “rule of law.” Property rights are protected, contracts are enforced, and corruption is punished. For 2014, the World Justice Project ranked Japan 12th in the world on rule of law, between Canada and Britain. Greece ranked 32nd, between Georgia and Romania. In the same report Japan was ranked as the 11th best country for absence of corruption, while Greece was 34th. Greece was 49th in order and security; Japan was No. 1.

As a result, investors have much greater confidence that Japan can manage its debt. That’s why Japan’s 10-year bond yield stands at about 0.4%, and Greece’s yield is at about 11%. It’s cheaper and easier for Japan to borrow the money to finance spending that can boost growth, which adds to tax revenue and helps manage the debt.

It’s not how much you owe. It’s whether you can handle it. And that depends on the quality of your government.

This appears in the August 03, 2015 issue of TIME.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.


5 Ways the Nuclear Deal Will Revive Iran’s Economy

While the attention inside the U.S. on the proposed Iran nuclear deal has been on its weapons capability, there is another story. As part of the deal, Tehran will get relief from international sanctions, which could lead to a resurgence in its economy.

Here are five statistics to understand the winners and losers from an Iranian economic revival.

Economic Impact of Sanctions

Isolation from the international banking system and the loss of oil revenues have cost Iran’s currency, the rial, two-thirds of its value against the dollar since sanctions were tightened in 2011. Inflation climbed north of 40 percent. Prices of basic foods and fuel, in particular, have soared. It’s estimated that the most recent round of sanctions has dragged down Iran’s GDP by 20 percent and contributed to an unemployment rate of 10.3 percent.

Iran will now become the largest country to rejoin the global marketplace since the breakup of the Soviet Union. By some estimates, Iran’s economy will grow by an additional two percentage points, to more than 5 percent GDP growth, within a year. After an additional 18 months, GDP growth could reach 8 percent.

(Jerusalem Post, BBC, CNN, CIA, Reuters)

Social Impact of Sanctions

Scaling back sanctions will also help Iran keep its best and brightest at home. From 2009 to 2013, more than 300,000 Iranians left the country in search of better opportunities abroad. Today, 25 percent of Iranians with a post-graduate education live in developed OECD countries outside Iran. This is, by some estimates, the highest rate of “brain drain” in the world. According to the World Bank, the Iranian economy loses out on $50 billion annually as talent looks elsewhere for work. Removal of sanctions will persuade some educated Iranians to take their chances at home.

(Bloomberg, Al-Monitor)

Iran’s Return to Oil Markets

Iran has the fourth largest proven crude oil reserves in the world, estimated at 157.8 billion barrels. That’s enough to supply China for 40 years. Iran already produces 2.8 million barrels per day. The International Energy Association forecasts that an end to sanctions will allow Iran to ramp up production by an additional 600,000 to 800,000 barrels per day within months, roughly 4 percent of global output. The re-entry of Iranian oil to the global market could lower 2016 forecasts for world crude oil prices by $5-$15 per barrel. That’s good news for oil consumers but bad news for Saudi Arabia, which stands to lose significant market share in years to come as both Iran and Iraq increase production and exports.

(BBC, Energy Information Administration (a), Energy Information Administration (b) Bloomberg (a), Bloomberg (b), Wall Street Journal)

Foreign winners

As Iran reenters the global economy, its consumer market of 78.5 million people—the second largest population in the Middle East after Egypt—will attract plenty of international interest. Turkey, the United Arab Emirates, and Oman will reap the first obvious gains from trade with and investment in Iran. Also in line to benefit are international oil companies. Tehran is already in the process of securing about $100 billion in new energy deals with Western firms. Iran needs all the help it can get—its run-down energy sector requires some $200 billion in investment for much-needed upgrades.

Other sectors will benefit, as well. In 2014, select U.S. healthcare companies received authorization to do business in Iran for humanitarian purposes, but the latest tightening of sanctions cut their exports to the country by 50 percent. In addition, Iran’s transportation minister has announced that the country will need to replace as many as 400 commercial aircraft over the next 10 years; that’s at least $20 billion in potential revenue for foreign aviation companies like Airbus and Boeing.

China, Russia, and France are also likely to benefit from Iran’s revival. All are well-placed to do more business in Iran. And all will gain as the increasingly anxious Saudis look to diversify away from deep dependence on the United States for defense supplies and markets for Saudi oil exports.

(Economist Intelligence Unit, FT, National Interest, Reuters, Wall Street Journal)

Regional Tensions

Critics of the deal insist that more money for Iran means more problems for the Middle East. Sunni Saudi Arabia and Shia Iran are already fighting via proxies in Iraq, Syria, and Yemen, but Iranian and Saudi military spending have not been comparable. According to the Stockholm International Peace Research Institute, the Saudi government spent more than $80 billion on defense in 2014. The U.S. Congressional Research Service has reported that Iran spent just $15 billion. As sanctions relief injects more money into the Iranian economy, this rivalry will intensify. Even under sanctions, Iran continued to fund Hezbollah operations in the region, which analysts believe cost Tehran between $60 million and $200 million a year. Tehran also found ways to funnel $1 billion to $2 billion a month to prop up the Assad regime in Syria.

Finally, the United States could benefit indirectly from Iran’s windfall if Tehran decides to spend more to help Iraqi Shia militia groups fight ISIS. From the Obama administration’s point of view, better that Iran does more so that Americans don’t have to.

(Foreign Policy, Christian Science Monitor)


No, China Is Not in an Economic Meltdown

Recent media coverage of wild price swings on China’s benchmark Shanghai Composite got one major thing wrong: treating China’s stock market as if it operated like markets in the West. It doesn’t, and won’t anytime soon.

Although the volatility in Shanghai will likely continue, the market isn’t headed for an October 1929–scale meltdown. China’s government has tools it can use to protect the market that Washington doesn’t have to boost Wall Street. Beijing can use state-run media, for instance, to signal that the market won’t be allowed to fall indefinitely. It can push high-profile brokers to buy billions in shares, order state-owned pension funds to hold their market positions and put a freeze on initial public offerings to keep money from moving out of existing stocks into new ones. It can also decree that no one who owns more than 5% of a company is allowed to sell. The Chinese government has in fact already done all these things and has other tools–effective, if far from perfect–if it needs them.

In truth, the performance of China’s immature stock market tells us much less about the state of the real economy in the country than the S&P 500 reveals about the state of economic conditions in the U.S. When the Shanghai Composite climbed 150% in less than 11 months from July 15, 2014, to June 11, 2015, we didn’t see any corresponding surge in economic activity across China. Nor did we see a freeze in China’s broader economy as the market fell 31.5% in the three weeks from June 12 to July 8. These swings reflect not underlying economic weakness in China but the role that short-term speculating plays in its stock market.

Recent volatility, even if it worsens, will not halt the country’s broader financial-sector reform effort. The Chinese leadership has spent the past three years building internal support for its economic agenda and is unlikely to back off now.

Although the stock market’s recent thrill ride caused little lasting damage, Beijing faces genuine longer-term risks. It must do more to ensure that banks extend loans and credit more efficiently. It also wants equity markets like the Shanghai Composite to generate finance for Chinese companies and rising living standards for ordinary citizens, and that can happen only if the state stops intervening so directly in market operations. The larger question is whether China can continue to slow its economy at a manageable pace–and that’s not one that can be answered by watching the rise and fall of China’s stock prices.

Bremmer is the president of Eurasia Group, a political-risk consultancy

This appears in the July 27, 2015 issue of TIME.
TIME foreign affairs

This Weekend’s Foreign Policy Must-Reads

A roundup of the smartest takes on politics and global affairs

Healing a Wounded Sense of Morality – The Atlantic

“Moral injury is its own separate trauma with symptoms that can include feelings of shame, guilt, betrayal, regret, anxiety, anger, self-loathing, and self-harm. Last year, a study published in Traumatology found that military personnel who felt conflicted about the ‘rightness’ or ‘wrongness’ of a combat situation were at an increased risk for suicidal thoughts and behavior afterwards, compared with their peers who didn’t have that same sense of ambiguity. The main difference between the two combat-induced traumas is that moral injury is not about the loss of safety, but the loss of trust—in oneself, in others, in the military, and sometimes in the nation as a whole.”

For the men and women who fight, wars never entirely end. Nor does the moral responsibility to care for veterans. The better we understand the particulars of the traumas they have faced, the more we can do to help them.

Denmark’s Nativist Threat – Jacobin

“The populist message of the [right-wing Danish People Party] has expanded well beyond attacks on immigration. The party has increasingly campaigned on the safeguarding of welfare rights and social protection, successfully placing themselves to the left of the Social Democrats in the popular imagination (despite having voted for almost all of the recent neoliberal economic reforms). This has allowed them to reach broader electorates that would otherwise be repelled by their harsh anti-immigration stance.”

These are trends that we are seeing across the continent. And while the world focuses on the dramatic brinkmanship that continues between Greece and its creditors, the more insidious threats to European unity continue to grow.

Caucasian Jihad – The Economist

“Russia may hope that letting jihadists leave the country is good riddance. Insurgent activity in the North Caucasus has certainly gone down. The chances of [Islamic State] militants returning are slim; Russia does, in fact, tightly control its borders. Yet Akhmet Yarlykapov, a Dagestan expert at the Russian Academy of Sciences, says the tactic is short-sighted. Russia itself is faced with a major threat from IS: it recently claimed the entire territory of Caucasus as one of its provinces.”

This is a dangerous strategy, because it presumes that extremism can be stopped at the border. But if the Islamic State can use the Internet and social media to bring recruits to Syria and Iraq, it can also inspire like-minded people to launch attacks where they live.

The Invisible Digital War – Foreign Policy

“Project Shield uses Google’s infrastructure — which has been bolstered greatly to keep services like YouTube and Gmail online — to protect news and human rights-focused websites from [distributed denial of service] attacks. Google allows the websites under its protection to route their traffic through its servers, which are built to withstand even the most massive of attacks, dramatically reducing the load on their partners’ web infrastructure… The initiative, which is currently accepting applications for new sites, protects any organization that is focused on news, human rights, or election monitoring, regardless of their political views.”

Information activism in action. Once upon a time, turmoil in a police state set off a race for the TV and radio broadcast centers. Control of information is now a much more complex operation, and governments and their challengers are playing both offense and defense. Good for Google in creating Project Shield to provide protections for consumers of information and ideas.

Charlie Hebdo’s Multi-Million-Dollar Pile of Tragedy Money – Vanity Fair

“For Charlie Hebdo, the small satirical weekly transformed into a global symbol of freedom of expression by the slaughter early this year of its staff, money has also been an adversary, an idea that sat uneasily with its history and causes… Charlie Hebdo, irreverent mocker of all forms of power, reportedly finds itself sitting on more than $33 million in cash, a once unthinkable sum… All the money, [Charlie Hebdo writer Patrick Pelloux] muses, complicates this rebirth. It raises, again, the question of the paper’s political allegiances. Charlie, in its self-image, is of the left, the scrappy outsider rather than the moneyed insider. It is above all of the school that believes there is a right in Western democracies to laugh at everything, to blaspheme, and to commit sacrilege. It’s an equal-opportunity, anti-clerical mocker unconcerned by bad taste.”

Another collision at the intersection of Ideology and money. “Which side are you on, boy? Which side are you on?”


2 Markets for Thrill Seekers to Watch

Shanghai and Puerto Rico make waves

There are many ways adrenaline junkies can get their fix. Those not into sky-diving or bungee jumping can invest in Puerto Rico or play China’s stock market.

Shanghai Swings

The Shanghai Shenzhen CSI 300 Index is up 68% over the past 12 months. It’s also down more than 30% over the past 30 days. This turmoil tells us little about the strength of China’s economy, which continues to slow at a manageable pace. But it does say something about China’s bid to reform its financial markets. Beijing wants equity markets to become a crucial source of finance for Chinese companies and an engine of rising living standards for ordinary citizens. To make this happen, the state has already loosened its grip on market operations. Retail investors can now buy or short shares, and foreign investors have new opportunities to share in the fun.

As recent losses mount, however, Beijing faces pressure to intervene. The party leadership knows that direct intervention to stabilize prices might not work. It could also create conditions for an even more frightening correction later, with consequences for pension and insurance funds. But letting the market crash would risk intense public anger and a lasting loss of confidence.

The leadership has already acted at the margin. The government has publicly backed a move by leading brokers to buy $19 billion in shares. State-owned pension funds have been instructed to hold their market positions. The government will probably maintain a freeze on IPOs and press other brokers and financial institutions to buy shares. Yet the volatility will likely continue. Investors can’t count on courts for protection, and Chinese companies are not known for their transparency. The market will look mainly for signals from the government, delaying Beijing’s moves to liberalize its financial system.

Puerto Rico in the dollar zone

While the world has focused on Greece, Puerto Rico finds itself (at least) $72 billion in debt, and Governor Alejandro García Padilla says this sum is “unpayable.” As a commonwealth, it can’t allow its municipalities to file for Chapter 9 bankruptcy to restructure debt. Like their counterparts in Athens, Puerto Rican officials should have seen this day coming. The island has been in recession for almost a decade. Just 40% of Puerto Rican adults participate in the workforce. More than 5% of the population has left in search of better opportunities on the mainland.

However, Greece owes money to many countries, institutions and investors. Virtually all of Puerto Rico’s debt is held by Americans. And Greece might still go its own way, relieving other euro-zone countries of the need to finance an economy that won’t be viable anytime soon. But there is no possibility of a “Prexit.” Puerto Rico will not drop out of the “dollar zone,” and it will continue to benefit from a federally funded social safety net–at a cost to U.S. taxpayers.

Bremmer is the president of Eurasia Group, a political-risk consultancy

This appears in the July 20, 2015 issue of TIME.
TIME Economy

These 5 Facts Explain Greece’s Bank Shutdown

greece bank shutdown referendum
Simon Dawson—Bloomberg/Getty Images Pedestrians pass the headquarters of the Bank of Greece SA, Greece's central bank, in Athens on June 28, 2015.

Capital controls may have stopped Greek banks from bleeding out, but how long can they stave off the panic?

As the people of Greece are learning, without functioning banks, the daily lives of citizens and businesses come screeching to a halt. Capital controls—limitations on the free movement of money—are seen as desperation measures, and whether they work depends on how well the medicine suits the disease. If currencies or banks themselves are harming an economy, capital controls may work; otherwise, watch out. These five stats explain some of the most recent implementations of capital controls and how Greece compares.


When the global financial crisis hit in 2008, Iceland’s banks were caught with assets valued at over $185 billion, roughly 14 times the size of the country’s annual output, giving a whole new meaning to the phrase “too big to fail.” Fearing exposure to the overleveraged banking sector, investors started fleeing the krona. Iceland’s currency lost over 50 percent of its value against the euro in just months. Assessing the situation, the government in Reykjavik decided stopping the flow of money out of the banks was the only way to prevent a bad situation from turning into utter catastrophe. Iceland’s GDP fell by 10 percent from 2009 through 2010. But the exchange rate stabilized shortly after capital controls were introduced, and Reykjavik eased its monetary policy, making borrowing cheaper. For the past three years, Iceland has been growing at about a 2 percent rate per year.

(NYT, Economist, Vox EU, Economist)


After years of growth, the economies in East Asia started to sour in 1997 when Thailand was forced to unpeg its currency from the U.S. dollar. The crisis spread to neighboring countries, and global investors started selling Malaysian assets to bet on the depreciation of the currency, the ringgit. By mid-1998, the ringgit’s value had fallen 40 percent, the stock market’s value had plummeted 75 percent, and Malaysia imposed capital controls that September. The government had tried raising interest rates to keep money from fleeing the country, but the move hurt businesses and the economy, which contracted by 7.4 percent in 1998. Capital controls allowed the Malaysian government to spend money on public works projects without injecting too much liquidity into the Malaysian money supply. By 1999, Malaysia was growing again at 6.1 percent.

(IMF, Economist, World Bank)


At its height, Cyprus’s banking sector was 7.5 times the country’s annual GDP of roughly $23 billion, largely fueled by Russian investors using Cypriot banks as tax havens. But Cypriot banks also held a significant amount of Greek government debt. In 2011, Cyprus’s banks were required to accept a 50 percent write-down on that debt. With its banks severely weakened, Nicosia was forced to request its own bailout from Europe in March 2013, to the tune of 10 billion euros. But harsh conditions were attached: first, Laiki Bank—at the time the island’s second largest financial institution—would be shut down and its “good” assets would be merged with the Bank of Cyprus. Following that, all deposits in the Bank of Cyprus above 100,000 euros would be subject to a 47.5 percent haircut, with depositors receiving bank shares in exchange for their lost cash. In this case, capital controls were imposed to give Cypriot authorities time to restructure the banking sector. Nearly two years later, those controls have finally been lifted and Cyprus’ economy has started to recover.

(Reuters, NYT, FT, Economist)


Like Greece, Argentina had a long history of government overspending and weak institutions. Despite growing for most of the 1990s, by 1999 the Argentine economy was mired in recession and saddled with 14.5 percent unemployment and unsustainable government debt. But unlike Greece, Argentina had its own currency, the peso, which was pegged at an exchange rate of one peso to one U.S. dollar. In December 2001, Buenos Aires imposed capital controls while it forced a conversion of its banks’ dollar deposits into pesos, but at a new exchange rate of 1.4 pesos to the dollar (the adoption of a floating exchange rate ultimately dragged the peso’s value down almost 90 percent overall). The government limited withdrawals to 250 pesos a week in a move known as El Corralito, or “the little fence.” Even with these draconian measures, Argentina defaulted in 2002 on more than $81 billion owed to external creditors, though notably it paid its debt to the International Monetary Fund. The immediate aftermath was miserable: unemployment went north of 20 percent, with over 50 percent of the population living in poverty. But Argentina started to recover by June 2002 as domestic growth was boosted by its newly devalued peso and its traditionally strong agriculture sector. Argentina has been limping on since.

(NYT, NYT, Telegraph, Economist, BBC)


And now, Greece. Last week, Athens decided to shutter banks in a defensive move to prevent a bank run as the government’s negotiations with its creditors collapsed. Upward of $45 billion has been pulled out of Greek banks since mid-December over fear that deposits would be seized and forcibly converted from the euro to a new drachma. If this conversion were to happen, things would get much worse for the Hellenic Republic—Standard & Poor’s recently estimated that Greece could lose 20 percent of its GDP over the next four years if it were to leave the euro, on top of the 25 percent it has already lost since the crisis started. Unlike Argentina, Greece doesn’t have a strong export industry that can benefit from the competitiveness of a devalued currency, meaning unemployment would climb even higher than the current rate of roughly 26 percent. What’s worse is that even if Greece went the way of the drachma, it would still have a mountain of debt that’s denominated in euros—Greece needs to make payments worth another 10.33 billion euros to the European Central Bank and the IMF in July and August alone. And that’s not including the IMF payment of 1.5 billion euros it just missed last week. So while capital controls may have stopped Greek banks from bleeding out, the Greek economy overall is still critically wounded.

(CNBC, Fortune, Guardian, BBC)

TIME Racism

These 5 Facts Explain America’s Enduring Racial Divide

***BESTPIX*** Charleston In Mourning After 9 Killed In Church Massacre
Joe Raedle—Getty Images Monte Talmadge walks past the memorial on the sidewalk in front the Emanuel African Methodist Episcopal Church after a mass shooting at the church killed nine people in Charleston, S.C., on June 20, 2015.

Decades of racism have badly hurt black America

Baltimore was two months ago. Ferguson was eight months before that. And now Charleston. For many black Americans, there really are two Americas. As a thought experiment, we looked at the health, wealth and other stats on black America, and compared it internationally. The results show that America—all of America—needs to do much, much better.

1. Education

Education is supposed to be the great equalizer. The world may not be fair, but it’s supposed to be a lot fairer within the four walls of a classroom. But the numbers tell a different story. African Americans are twice as likely as whites not to finish high school. If white America were a country, its high school graduation rates would rank with the likes of the U.K. and Finland; black America would be on par with Chile and Poland. Black students are suspended and expelled at roughly three times the rate of their white counterparts. Of students who receive multiple suspensions, 42 percent are black; and 34 percent of students expelled are black. And the world they are sent out to isn’t much kinder.

(US News, OECD, US News)

2. Wealth

What happens after high school? 21% of whites end up successfully completing a college degree, compared to only 13% of blacks. But even if they achieve that milestone, the payoff is nowhere near the same. A white family at the median sees a return of approximately $56,000 after completing a four-year degree; a black family sees a return of around $4,900. In fact, “black household wealth is just over the median wealth of an adult” in the Palestinian territories, which is not a comparison you want to see made about any group living in America in 2015. Looking at GDP per capita, blacks make $23,000 compared to the U.S. national average of $53,000. If black America really were its own country, it would be ranked 44th globally on that figure—between crisis-hit Portugal and post-Communist Lithuania. The most damning statistic? The median black household has just 6 percent of the total wealth ($7,113) that the median white household has ($111,146).

(US News, Forbes, Atlantic, Politifact, Forbes, Washington Post)

3. Health

No surprise, a less wealthy lifetime means a less healthy lifetime—and it starts from the beginning. Infant mortality for blacks in America is 11.5 for every 1,000 births; the figure for whites is 5.2. Black Americans’ rates put them with the likes of Mexico (12.58) and Thailand (9.86), whereas white Americans are much closer to Switzerland (3.73) and Japan (2.13). That’s how the racial disparity starts, but how does it end? Black Americans can expect to live a full four years less on average than whites, who on average make it to 79. A life expectancy of 75 years places black Americans below Tunisia, Panama, Costa Rica and Cuba.

(US News, Economist)

4. Incarceration

From bad to worse: 1 in 3 black males will go to prison at some point in their life if current trends continue, compared to 1 in 17 white males. Women fare better, but not much—black women are incarcerated at (only) twice the rate that white women are across the country. Overall, blacks only make up some 14 percent of the national population, but are 38 percent of the total prison population. If black America were its own country, it would rank No. 3 on the world list of absolute prison incarceration, ahead of Russia, Brazil, India and Thailand. And once in prison, it gets worse; 60 percent of all prisoners sent to solitary confinement are black.

(Huffington Post, US Department of Justice, Salon, International Center for Prison Studies, Salon)

5. Violence

America’s homicide rate is a national tragedy—but it’s much worse if you’re black. White America’s rate of 2.5 deaths per 100,000 is just somewhat higher than Finland (2.0), Belgium (1.7) and Greece (1.7). But at 19.4 deaths per 100,000 people, black America’s homicide rate puts it above Burma (15.2) and just below Nigeria (20.0). But it’s fatal police shootings where the figures become truly tragic. If you are a young black male in America today, you are 21 times more likely to be shot and killed by a police officer than if you are a young white male. If you’re black, you’re also more than twice as likely to be shot and killed by a police officer while unarmed. Over the past year, 41 percent of all unarmed people killed by police were black.

America is better than this. It’s about time we show it.

(FiveThirtyEight, ProPublica, Guardian, Salon)

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