The LMU was considered sufficiently serious to be able to flirt with Austria and Spain when its Foundation Treaty was officially signed in 1865 in Paris. This despite the fact that its French-inspired rules seemed often to sacrifice the economic to the politically expedient, or to the grandiose.
The LMU was an official subset of an unofficial "franc area" (monetary union based on the French franc). This is similar to the use of the US dollar or the euro in many countries today. At its peak, eighteen countries adopted the Gold franc as their legal tender (or peg). Four of them (the founding members of the LMU: France, Belgium, Italy and Switzerland) agreed on a gold to silver conversion rate and minted gold and silver coins which were legal tender in all of them. They voluntarily limited their money supply by adopting a rule which forbade them to print more than 6 franc coins per capita .
Europe (especially Germany and the United Kingdom) was gradually switching at the time to the gold standard. But the members of the Latin Monetary Union paid no attention to its emergence. They printed ever increasing quantities of gold and silver coins, which constituted legal tender across the Union. Smaller denomination (token) silver coins, minted in limited quantity, were legal tender only in the issuing country (because they had a lower silver content than the Union coins).
The LMU had no single currency (akin to the euro). The national currencies of its member countries were at parity with each other. The cost of conversion was limited to an exchange commission of 1.25%.
Government offices and municipalities were obliged to accept up to 100 Francs of non-convertible and low intrinsic value tokens per transaction. People lined to convert low metal content silver coins (100 Francs per transaction each time) to buy higher metal content ones.
With the exception of the above-mentioned per capita coinage restriction, the LMU had no uniform money supply policies or management. The amount of money in circulation was determined by the markets. The central banks of the member countries pledged to freely convert gold and silver to coins and, thus, were forced to maintain a fixed exchange rate between the two metals (15 to 1) ignoring fluctuating market prices.
Even at its apex, the LMU was unable to move the world prices of these metals. When silver became overvalued, it was exported (at times smuggled) within the Union, in violation of its rules. The Union had to suspend silver convertibility and thus accept a humiliating de facto gold standard. Silver coins and tokens remained legal tender, though. The unprecedented financing needs of the Union members - a result of the First World War - delivered the coup de grace. The LMU was officially dismantled in 1926 - but expired long before that.
The LMU had a common currency but this did not guarantee its survival.It lacked a common monetary policy monitored and enforced by a commonCentral Bank - and these deficiencies proved fatal.
In 1867, twenty countries debated the introduction of a global currency in the International Monetary Conference. They decided to adopt the gold standard (already used by Britain and the USA) following a period of transition. They came up with an ingenious scheme. They selected three "hard" currencies, with equal gold content so as to render them interchangeable, as their legal tender. Regrettably for students of the dismal science, the plan came to naught.
Another failed experiment was the Scandinavian Monetary Union (SMU), formed by Sweden (1873), Denmark (1873) and Norway (1875). It was a by-now familiar scheme. All three recognized each others' gold coinage as well as token coins as legal tender. The daring innovation was to accept the members' banknotes (1900) as well.
As Scandinavian schemes go, this one worked too perfectly. No one wanted to convert one currency to another. Between 1905 and 1924, no exchange rates among the three currencies were available. When Norway became independent, the irate Swedes dismantled the moribund Union in an act of monetary tit-for-tat.
The SMU had an unofficial central bank with pooled reserves. It extended credit lines to each of the three member countries. As long as gold supply was limited, the Scandinavian Kronor held its ground. Then governments started to finance their deficits by dumping gold during World War I (and thus erode their debts by fostering inflation through a string of inane devaluations). In an unparalleled act of arbitrage, central banks then turned around and used the depreciated currencies to scoop up gold at official (cheap) rates.
When Sweden refused to continue to sell its gold at the officially fixed price - the other members declared effective economic war. They forced Sweden to purchase enormous quantities of their token coins. The proceeds were used to buy the much stronger Swedish currency at an ever cheaper price (as the price of gold collapsed). Sweden found itself subsidizing an arbitrage against its own economy. It inevitably reacted by ending the import of other members' tokens. The Union thus ended. The price of gold was no longer fixed and token coins were no more convertible.
The East African Currency Area is a fairly recent debacle. An equivalent experiment, involving the CFA franc, is still going on in the Francophile part of Africa.
The parts of East Africa ruled by the British (Kenya, Uganda and Tanganyika and, in 1936, Zanzibar) adopted in 1922 a single common currency, the East African shilling. The newly independent countries of East Africa remained part of the Sterling Area (i.e., the local currencies were fully and freely convertible into British Pounds). Misplaced imperial pride coupled with outmoded strategic thinking led the British to infuse these emerging economies with inordinate amounts of money. Despite all this, the resulting monetary union was surprisingly resilient. It easily absorbed the new currencies of Kenya, Uganda and Tanzania in 1966, making them legal tender in all three and convertible to Pounds.
Ironically, it was the Pound which gave way. Its relentless depreciation in the late 60s and early 70s, led to the disintegration of the Sterling Area in 1972.
The strict monetary discipline which characterized the union - evaporated. The currencies diverged - a result of a divergence of inflation targets and interest rates. The East African Currency Area was formally ended in 1977.
Not all monetary unions ended so tragically. Arguably, the most famous of the successful ones is the Zollverein (German Customs Union).
The nascent German Federation was composed, at the beginning of the 19th century, of 39 independent political units. They all busily minted coins (gold, silver) and had their own - distinct - standard weights and measures. The decisions of the much lauded Congress of Vienna (1815) did wonders for labour mobility in Europe but not so for trade. The baffling number of (mostly non-convertible) different currencies did not help.
The German principalities formed a customs union as early as 1818. The three regional groupings (the Northern, Central and Southern) were united in 1833. In 1828, Prussia harmonized its customs tariffs with the other members of the Federation, making it possible to pay duties in gold or silver. Some members hesitantly experimented with new fixed exchange rate convertible currencies. But, in practice, the union already had a single currency: the Vereinsmunze.
The Zollverein (Customs Union) was established in 1834 to facilitate trade by reducing its costs. This was done by compelling most of the members to choose between two monetary standards (the Thaler and the Gulden) in 1838.
Much as the Bundesbank was to Europe in the second half of the twentieth century, the Prussian central bank became the effective Central Bank of the Federation from 1847 on. Prussia was by far the dominant member of the union, as it comprised 70% of the population and land mass of the future Germany.
The North German Thaler was fixed at 1.75 to the South German Gulden and, in 1856 (when Austria became informally associated with the Union), at 1.5 Austrian Florins. This last collaboration was to be a short lived affair, Prussia and Austria having declared war on each other in 1866.
Bismarck (Prussia) united Germany (Bavarian objections notwithstanding) in 1871. He founded the Reichsbank in 1875 and charged it with issuing the crisp new Reichsmark. Bismarck forced the Germans to accept the new currency as the only legal tender throughout the first German Reich. Germany's new single currency was in effect a monetary union. It survived two World Wars, a devastating bout of inflation in 1923, and a monetary meltdown after the Second World War. The stolid and trustworthy Bundesbank succeeded the Reichsmark and the Union was finally vanquished only by the bureaucracy in Brussels and its euro.
This is the only case in history of a successful monetary union not preceded by a political one. But it is hardly representative. Prussia was the regional bully and never shied away from enforcing strict compliance on the other members of the Federation.
It understood the paramount importance of a stable currency and sought to preserve it by introducing various consistent metallic standards. Politically motivated inflation and devaluation were ruled out, for the first time. Modern monetary management was born.
Another, perhaps equally successful, and still on-going union - is theCFA franc Zone.
The CFA (stands for French African Community in French) franc has been in use in the French colonies of West and Central Africa (and, curiously, in one formerly Spanish colony) since 1945. It is pegged to the French franc. The French Treasury explicitly guarantees its conversion to the French franc (65% of the reserves of the member states are kept in the safes of the French Central Bank). France often openly imposes monetary discipline (that it sometimes lacks at home!) directly and through its generous financial assistance. Foreign reserves must always equal 20% of short term deposits in commercial banks. All this made the CFA an attractive option in the colonies even after they attained independence.
The CFA franc zone is remarkably diverse ethnically, lingually, culturally, politically, and economically. The currency survived devaluations (as large as 100% vis a vis the French Franc), changes of regimes (from colonial to independent), the existence of two groups of members, each with its own central bank (the West African Economic and Monetary Union and the Central African Economic and Monetary Community), controls of trade and capital flows - not to mention a host of natural and man made catastrophes.
The euro has indirectly affected the CFA as well. "The Economist" reported recently a shortage of small denomination CFA franc notes. "Recently the printer (of CFA francs) has been too busy producing euros for the market back home" - complained the West African central bank in Dakar. But this is the minor problem. The CFA franc is at risk due to internal imbalances among the economies of the zone. Their growth rates differ markedly. There are mounting pressures by some members to devalue the common currency. Others sternly resist it.
"The Economist" reports that the Economic Community of West African States (ECOWAS) - eight CFA countries plus Nigeria, Ghana, Guinea, the Gambia, Cape Verde, Sierra Leone, and Liberia - is considering its own monetary union. Many of the prospective members of this union fancy the CFA franc even less than the EU fancies their capricious and graft-ridden economies. But an ECOWAS monetary union could constitute a serious - and more economically coherent - alternative to the CFA franc zone.
A neglected monetary union is the one between Belgium and Luxembourg. Both maintain their idiosyncratic currencies - but these are at parity and serve as legal tender in both countries since 1921. The monetary policy of both countries is dictated by the Belgian Central Bank and exchange regulations are overseen by a joint agency. The two were close to dismantling the union at least twice (in 1982 and 1993) - but relented.
II. The Lessons
Europe has had more than its share of botched and of successful currency unions. The Snake, the EMS, the ERM, on the one hand - and the British Pound, the Deutschmark, and the ECU, on the other.
The currency unions which made it have all survived because they relied on a single monetary authority for managing the currency.
Counter-intuitively, single currencies are often associated with complex political entities which occupy vast swathes of land and incorporate previously distinct -and often politically, socially, and economically disparate - units. The USA is a monetary union, as was the late USSR.
All single currencies encountered opposition on both ideological and pragmatic grounds when they were first introduced.
The American constitution, for instance, did not provide for a central bank. Many of the Founding Fathers (e.g., Madison and Jefferson) refused to countenance one. It took the nascent USA two decades to come up with a semblance of a central monetary institution in 1791. It was modeled after the successful Bank of England. When Madison became President, he purposefully let its concession expire in 1811. In the forthcoming half century, it revived (for instance, in 1816) and expired a few times.
The United States became a monetary union only following its traumatic Civil War. Similarly, Europe's monetary union is a belated outcome of two European civil wars (the two World Wars). America instituted bank regulation and supervision only in 1863 and, for the first time, banks were classified as either national or state-level.
This classification was necessary because by the end of the Civil War, notes - legal and illegal tender - were being issued by no less than 1562 private banks - up from only 25 in 1800. A similar process occurred in the principalities which were later to constitute Germany. In the decade between 1847 and 1857, twenty five private banks were established there for the express purpose of printing banknotes to circulate as legal tender. Seventy (!) different types of currency (mostly foreign) were being used in the Rhineland alone in 1816.
The Federal Reserve System was founded only following a tidal wave of banking crises in 1908. Not until 1960 did it gain a full monopoly of nation-wide money printing. The monetary union in the USA - the US dollar as a single legal tender printed exclusively by a central monetary authority - is, therefore, a fairly recent thing, not much older than the euro.
It is common to confuse the logistics of a monetary union with its underpinnings. European bigwigs gloated over the smooth introduction of the physical notes and coins of their new currency. But having a single currency with free and guaranteed convertibility is only the manifestation of a monetary union - not one of its economic pillars.
History teaches us that for a monetary union to succeed, the exchange rate of the single currency must be realistic (for instance, reflect the purchasing power parity) and, thus, not susceptible to speculative attacks. Additionally, the members of the union must adhere to one monetary policy.
Surprisingly, history demonstrates that a monetary union is not necessarily predicated on the existence of a single currency. A monetary union could incorporate "several currencies, fully and permanently convertible into one another at irrevocably fixed exchange rates". This would be like having a single currency with various denominations, each printed by another member of the Union.
What really matters are the economic inter-relationships and power plays among union members and between the union and other currency zones and currencies (as expressed through the exchange rate).
Usually the single currency of the Union is convertible at given (though floating) exchange rates subject to a uniform exchange rate policy. This applies to all the territory of the single currency. It is intended to prevent arbitrage (buying the single currency in one place and selling it in another). Rampant arbitrage - ask anyone in Asia - often leads to the need to impose exchange controls, thus eliminating convertibility and inducing panic.
Monetary unions in the past failed because they allowed variable exchange rates, (often depending on where - in which part of the monetary union - the conversion took place).
A uniform exchange rate policy is only one of the concessions members of a monetary union must make. Joining always means giving up independent monetary policy and, with it, a sizeable slice of national sovereignty. Members relegate the regulation of their money supply, inflation, interest rates, and foreign exchange rates to a central monetary authority (e.g., the European Central Bank in the eurozone).
The need for central monetary management arises because, in economic theory, a currency is never just a currency. It is thought of as a transmission mechanism of economic signals (information) and expectations (often through monetary policy and its outcomes).
It is often argued that a single fiscal policy is not only unnecessary, but potentially harmful. A monetary union means the surrender of sovereign monetary policy instruments. It may be advisable to let the members of the union apply fiscal policy instruments autonomously in order to counter the business cycle, or cope with asymmetric shocks, goes the argument. As long as there is no implicit or explicit guarantee of the whole union for the indebtedness of its members - profligate individual states are likely to be punished by the market, discriminately.
But, in a monetary union with mutual guarantees among the members (even if it is only implicit as is the case in the eurozone), fiscal profligacy, even of one or two large players, may force the central monetary authority to raise interest rates in order to pre-empt inflationary pressures.
Interest rates have to be raised because the effects of one member's fiscal decisions are communicated to other members through the common currency. The currency is the medium of exchange of information regarding the present and future health of the economies involved. Hence the notorious "EU Stability Pact", recently so flagrantly abandoned in the face of German budget deficits.
Monetary unions which did not follow the path of fiscal rectitude are no longer with us.
In an article I published in 1997 ("The History of Previous European Currency Unions"), I identified five paramount lessons from the short and brutish life of previous - now invariably defunct - monetary unions:
(A) To prevail, a monetary union must be founded by one or two economically dominant countries ("economic locomotives"). Such driving forces must be geopolitically important, maintain political solidarity with other members, be willing to exercise their clout, and be economically involved in (or even dependent on) the economies of the other members.
(B) Central institutions must be set up to monitor and enforce monetary, fiscal, and other economic policies, to coordinate activities of the member states, to implement political and technical decisions, to control the money aggregates and seigniorage (i.e., rents accruing due to money printing), to determine the legal tender and the rules governing the issuance of money.
(C) It is better if a monetary union is preceded by a political one (consider the examples of the USA, the USSR, the UK, and Germany).
(D) Wage and price flexibility are sine qua non. Their absence is a threat to the continued existence of any union. Unilateral transfers from rich areas to poor are a partial and short-lived remedy. Transfers also call for a clear and consistent fiscal policy regarding taxation and expenditures. Problems like unemployment and collapses in demand often plague rigid monetary unions. The works of Mundell and McKinnon (optimal currency areas) prove it decisively (and separately).
(E) Clear convergence criteria and monetary convergence targets.
The current European Monetary Union is far from heeding the lessons of its ill fated predecessors. Europe's labour and capital markets, though recently marginally liberalized, are still more rigid than 150 years ago. The euro was not preceded by an "ever closer (political or constitutional) union". It relies too heavily on fiscal redistribution without the benefit of either a coherent monetary or a consistent fiscal area-wide policy. The euro is not built to cope either with asymmetrical economic shocks (affecting only some members, but not others), or with the vicissitudes of the business cycle.
This does not bode well. This union might well become yet another footnote in the annals of economic history.
The Concert of Europe, Interrupted
By: Dr. Sam Vaknin
"(Plan for establishing) an economic organization … through mutual customs agreements … including France, Belgium, Holland, Denmark, Austria, Poland, and perhaps Italy, Sweden, and Norway".
The German "September Plan" to impose an economic union on the vanquished nations of Europe following a military victory, 1914
Europe spent the first half of the 19th century (following the 1815 Congress of Vienna) containing France. The trauma of the Napoleonic wars was the last in a medley of conflicts with an increasingly menacing France stretching back to the times of Louis XIV. The Concert of Europe was specifically designed to reflect the interests of the Big Powers, establish their borders of expansion in Europe, and create a continental "balance of deterrence". For a few decades it proved to be a success.
The rise of a unified, industrially mighty and narcissistic Germany erased most of these achievements. By closely monitoring France, the Big Powers were fighting the last war - instead of the three next ones. Following two ineffably ruinous world wars, Europe now shifted its geopolitical sights from France to Germany. In an effort to prevent a repeat of Hitler, the Big Powers of the West, led by France, established an "ever closer" European Union. Germany was (inadvertently) split and sandwiched and, thus, restrained.
To its East, it faced a military-economic union (the Warsaw Pact) cum eastern empire (the late USSR). To its West, it was surrounded by a military union (NATO) cum emerging Western economic supranational structure (the EU). The Cold War was fought all over the world - but in Europe it was about Germany.
The collapse of the eastern flank (the Soviet - "evil" - Empire) of this implicit anti-German containment geo-strategy led to the re-emergence of a united Germany. Furthermore, Germany is in the process of obtaining hegemony over the EU by applying the political weight commensurate with its economic and demographic might. It is a natural and historical leader of central Europe - the EU's and NATO's future lebensraum and the target of their expansionary predilections ("integration"). Thus, virtually overnight, Germany came to dominate the Western component of the anti-German containment master plan - while the Eastern component has chaotically disintegrated.
The EU - notably France - is reacting by trying to assume the role formerly played by the USSR. EU integration is an attempt to assimilate former Soviet satellites and dilute Germany's power by re-jigging rules of voting and representation. If successful, this strategy will prevent Germany from bidding yet again for a position of hegemony in Europe by establishing a "German Union" separate from the EU. It is all still the same tiresome and antiquated game of continental Big Powers. Even Britain maintains its Victorian position of "splendid isolation".
The exclusion of both Turkey and Russia from these re-alignments is also a direct descendant of the politics of the last two centuries. Both are likely to gradually drift away from European (and Western) structures and seek their fortunes in the geopolitical twilight zones of the world. The USA is unlikely to be of much help to Europe as it reasserts the Monroe doctrine and attends to its growing Pacific preoccupations. It will assist the EU to cope with Russian (and to a lesser extent, Turkish) designs in the tremulously tectonic regions of the Caucasus, oil-rich and China-bordering Central Asia, and the Middle East. But it will not do so in Central Europe, in the Baltic, and in the Balkan.
Of these three spots, the Balkan is by far the most ominous. Russia - as it has proved in 1877-8 - has historical claims there which it is willing to back militarily. Many of the nations of the Balkan are far closer to Russia than to the West and tend to regard the latter with suspicion and hostility. Turkey, if it so chooses, can easily assume the role of the protector of Balkan Moslems - sure to provoke Greek ire. A military conflict among two NATO members will constitute a body blow to the credibility and prestige of this alliance in search of an enemy. Moreover, Turkey is the prefect staging ground for operations in the Middle East, Central Asia and China. It constitutes a vital American interest and the pivot of NATO's southern flank. But it is derided by the EU, its NATO membership notwithstanding.
It is here, in the Balkan, that the New World Order and the End ofHistory hypothesis are being tested. A new European balance of the BigPowers will emerge here. But hitherto, alas, this particular concert ofEurope has been quite a cacophony.
The Eastern Question Revisited
A lecture organized by the daily "Politiken"
in Copenhagen, Denmark
June 25, 2001
By: Dr. Sam Vaknin
When the USSR disintegrated virtually overnight, in 1989, its demise was often compared to that of the Ottoman Empire's. This was a very lacking comparison. Turkey's death throes lasted centuries and its decomposition was taken to be so certain that its division and partition (the "Eastern Question") animated European geopolitics for the better part of two centuries. Yet, both left a power vacuum in the Balkan in their sorry wake.
The Big Powers of the time - Russia, Great Britain, France, Austria-Hungary, and the emerging Germany and Italy - possessed conflicting interests and sentiments. But, at this stage or another, most of them (with the exception of Austria-Hungary) supported the nationalist solution. It was Russia's favourite discussion topic, France espoused it under Napoleon III, everyone supported the Greeks and, to a lesser extent, the Serbs against the weakening Ottomans.
The nationalist solution encouraged the denizens of the Balkan to adopt national identities, to develop national myths, to invent a national history, and to aspire to establish modern nation-states.
The examples of Germany and, especially, Greece and Italy were often evoked. For a detailed treatment of this theme - see "Herzl's Butlers".
The competing solution was reform. The two Balkan empires - the Ottomans and Austria-Hungary - endlessly, tediously, and inefficaciously tinkered with their systems or overhauled them. But, to no avail. The half-hearted reforms often failed to address core issues and always failed to assuage the growing nationalist sentiment. It was a doomed approach.
Nationalist solutions were inherently self-destructive. They were mutually exclusive and strived to achieve ethnically homogeneous lebensraums by all means, fair and foul. The nation's genuine and natural ("historic") territory always overlapped with another nation's no less historic claims. This led to recurrent conflicts and to a growing sense of deprivation and loss as actual territories never tallied with national myths disguised as national histories. It also prevented the emergence of what du Bois calls "Double Consciousness" - the mental capacity to contentedly belong to more than one social or national grouping ("Afro-American", "Latino-American", "American Jew").
Thus, the Big Powers proffered a nationalist solution when a regional one was called for. Following two devastating Balkan Wars (1912 and 1913) and a World War (1914-1918), regional groupings began to emerge (example: Yugoslavia). The regional solution stabilized the Balkan for almost 7 decades (excluding external shocks, such as the combined invasions of Nazi Germany and fascist Italy).
Yet, the regional solution was dependent on both the existence of real or perceived outside threats (the USSR, the USA, Great Britain) - and on the leadership of charismatic figures such as Tito and Hoxha. When the latter died and the USSR evaporated, the region imploded.
The last two decades of the 20th century witnessed a resurgence of narrow geographical-political identities (a "Europe of Regions"). Countries - from the USSR to Italy to Belgium to Canada to Yugoslavia - were gradually reduced to geopolitical atoms: provinces, districts, regions, resurrected political units. Faced with the Yugoslav wars of succession, the Big Powers again chose wrongly.
Instead of acknowledging the legitimate needs, concerns, and demands of nations in the Balkan - they proclaimed two untenable principles: borders must not change and populations must stay put. They dangled the carrot of European Union membership as an inducement to peace. In other words, even as virulent nationalism was erupting throughout the Balkan, they promoted a REGIONAL set of principles and a REGIONAL inducement (EU) instead of a nationalist orientated one. Yet, as opposed to the past, the remaining Big Powers were unwilling to actively intervene to enforce these principles. When they did intervene feebly, it was either too late (Bosnia-Herzegovina, 1995), too one-sidedly (Kosovo, 1999), or too hesitantly (Macedonia, 2001). They clearly lacked commitment and conviction, or even the military ability to become the guardians of this new order.
The Big Powers (really, the West) would have done well to leave the Balkan to its own devices. Clearly its inhabitants were intent on re-drawing borders and securing ethnic homogeneity. Serbs, Croats, Bosniaks, Kosovars - were all busy altering maps and ethnically cleansing minorities. The clumsy and uninformed intervention of the West (led by the USA) served only to prolong these inevitable conflicts. By choosing sides, labelling, providing military and diplomatic succour, arming, intervening, cajoling, and imposing ill-concocted "solutions", the West internationalized local crises and prevented attrition and equilibrium - the prerequisites to peace. The West's artificial arrangements, served on the bayonets of SFOR and KFOR are unlikely to outlast SFOR and KFOR. Moreover, humanitarian military interventions have proven to be the most pernicious kind of humanitarian disasters. More people - Kosovars included - died in Operation Allied Force than in all the years of Serb repression combined. The Balkan is simply frozen in geopolitical time. It will re-erupt and revert to old form when Western presence is reduced and perhaps even before that.
The West should have ignored the Yugoslav wars of succession. But it would have done well to offer the combatants - Serbs, Croats, Albanians - a disinterested diplomatic venue (a benign, voluntary Berlin Congress or Dayton) to iron out their differences, even as they are fighting. The agenda of such a Congress should have included minorities and borders. There is no doubt that sporadic fighting would have punctuated the deliberations of such a congregation. It is certain that walk-outs, crises, threats, and break-ups would have occurred regularly.
But the participants could have aired grievances, settle disputes, discuss differences, judge reasonableness, form coalitions, help each other to multilateral give and take, and establish confidence building measures. With the West keeping all cards close to its chest, such a venue was and is sorely lacking.
With the exception of Imperial Russia, "stability in the Balkan" has always been the mantra. But stability is never achieved diplomatically. If there are lessons to be learned from history they are that diplomacy is futile, peacekeeping meaningless, imposed agreements ephemeral. War is the ultimate and only arbiter of national interest. Parties resort to peace only when they are convinced that all military or coercive options have been exhausted. When nothing further is to be gained by means of force and its application - peace prevails. But peace (as opposed to a protracted ceasefire) is impossible even a second before the combatants are struck by this realization. Equilibrium is never the result of honed negotiating skills - and always the outcome of forces matched in battle. Attrition, fatigue, a yearning for stability, a willingness to compromise - are all provoked and enhanced to the acutest level by bloodshed and atrocities. It is an inevitable phase. The road to peace is bloodied.
The Balkan has never been as politically fragmented as it is today. It has never been under the auspices of only one superpower. These are destabilizing facts. But one thing has not changed. The Balkan has always been the battlefield of numerous clashing and equally potent interests coupled with military might.
In the last decade, the West has been busy establishing protectorates (Bosnia-Herzegovina, Kosovo, and now, most probably, Macedonia) and effectively altering borders without admitting to it. NATO, that cold war anachronism, is still busy maintaining its southern flank, composed of the eternal adversaries, Turkey and Greece. Turkey is the natural road to Central Asia and its oil riches and, further on, to an ominously emerging China. The Balkan is, once again, the playground of the grand designers.
Europe's New Jews
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
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They inhabit self-imposed ghettoes, subject to derision and worse, the perennial targets of far-right thugs and populist politicians of all persuasions. They are mostly confined to menial jobs. They are accused of spreading crime, terrorism and disease, of being backward and violent, of refusing to fit in.
Their religion, atavistic and rigid, insists on ritual slaughter and male circumcision. They rarely mingle socially or inter-marry. Most of them - though born in European countries - are not allowed to vote. Brown-skinned and with a marked foreign accent, they are subject to police profiling and harassment and all manner of racial discrimination.
They are the new Jews of Europe - its Muslim minorities.
Muslims - especially Arab youths from North Africa - are, indeed, disproportionately represented in crime, including hate crime, mainly against the Jews. Exclusively Muslim al-Qaida cells have been discovered in many West European countries. But this can be safely attributed to ubiquitous and trenchant long-term unemployment and to stunted upward mobility, both social and economic due largely to latent or expressed racism.
Moreover, the stereotype is wrong. The incidence of higher education and skills is greater among Muslim immigrants than in the general population - a phenomenon known as "brain drain". Europe attracts the best and the brightest - students, scholars, scientists, engineers and intellectuals - away from their destitute, politically dysfunctional and backward homelands.
The Economist surveys the landscape of friction and withdrawal:
"Indifference to Islam has turned first to disdain, then to suspicion and more recently to hostility … (due to images of) petro-powered sheikhs, Palestinian terrorists, Iranian ayatollahs, mass immigration and then the attacks of September 11th, executed if not planned by western-based Muslims and succored by an odious regime in Afghanistan … Muslims tend to come from poor, rural areas; most are ill-educated, many are brown. They often encounter xenophobia and discrimination, sometimes made worse by racist politicians. They speak the language of the wider society either poorly or not at all, so they find it hard to get jobs. Their children struggle at school. They huddle in poor districts, often in state-supplied housing … They tend to withdraw into their own world, (forming a) self-sufficient, self-contained community."
This self-imposed segregation has multiple dimensions. Clannish behavior persists for decades. Marriages are still arranged - reluctant brides and grooms are imported from the motherland to wed immigrants from the same region or village. The "parallel society", in the words of a British government report following the Oldham riots two years ago, extends to cultural habits, religious practices and social norms.
Assimilation and integration has many enemies.
Remittances from abroad are an important part of the gross national product and budgetary revenues of countries such as Bangladesh and Pakistan. Hence their frantic efforts to maintain the cohesive national and cultural identity of the expats.
DITIB is an arm of the Turkish government's office for religious affairs. It discourages the assimilation or social integration of Turks in Germany. Turkish businesses - newspapers, satellite TV, foods, clothing, travel agents, publishers - thrive on ghettoization.
There is a tacit confluence of interests between national governments, exporters and Islamic organizations. All three want Turks in Germany to remain as Turkish as possible. The more nostalgic and homebound the expatriate - the larger and more frequent his remittances, the higher his consumption of Turkish goods and services and the more prone he is to resort to religion as a determinant of his besieged and fracturing identity.
Muslim numbers are not negligible. Two European countries have Muslim majorities - Bosnia-Herzegovina and Albania. Others - in both Old Europe and its post-communist east - harbor sizable and growing Islamic minorities. Waves of immigration and birth rates three times as high as the indigenous population increase their share of the population in virtually every European polity - from Russia to Macedonia and from Bulgaria to Britain. One in seven Russians is Muslim - over 20 million people.
According to the March-April issue of Foreign Policy, the non-Muslim part of Europe will shrink by 3.5 percent by 2015 while the Muslim populace will likely double. There are 3 million Turks in Germany and another 12 million Muslims - Algerians, Moroccans, Pakistanis, Bangladeshis, Egyptians, Senegalese, Malis, or Tunisians - in the rest of the European Union.
This is two and one half times the number of Muslims in the United States. Even assuming - wrongly - that all of them occupy the lowest decile of income, their combined annual purchasing power would amount to a whopping $150 billion. Furthermore, recent retroactive changes to German law have naturalized over a million immigrants and automatically granted its much-coveted citizenship to the 160,000 Muslims born in Germany every year .
Between 2-3 million Muslims in France - half their number - are eligible to vote. Another million - one out of two - cast ballots in Britain. These numbers count at the polls and are not offset by the concerted efforts of a potent Jewish lobby - there are barely a million Jews in Western Europe.
Muslims are becoming a well-courted swing vote. They may have decided the last election in Germany, for instance. Recognizing their growing centrality, France established - though not without vote-rigging - a French Council of the Islamic Faith, the equivalent of Napoleon's Jewish Consistory. Two French cabinet members are Muslims. Britain has a Muslim Council.
Both Vladimir Putin, Russia's president and Yuri Luzhkov, Moscow's mayor, now take the trouble to greet the capital's one million Muslims on the occasion of their Feast of Sacrifice. They also actively solicit the votes of the nationalist and elitist Muslims of the industrialized Volga - mainly the Tatars, Bashkirs and Chuvash. Even the impoverished, much-detested and powerless Muslims of the northern Caucasus - Chechens, Circassians and Dagestanis - have benefited from this newfound awareness of their electoral power.
Though divided by their common creed - Shiites vs. Sunnites vs. Wahabbites and so on - the Muslims of Europe are united in supporting the Palestinian cause and in opposing the Iraq war. This - and post-colonial guilt feelings, especially manifest in France and Britain - go a long way toward explaining Germany's re-discovered pacifistic spine and France's anti-Israeli (not to say anti-Semitic) tilt.
Moreover, the Muslims have been playing an important economic role in the continent since the early 1960s. Europe's postwar miracle was founded on these cheap, plentiful and oft-replenished Gastarbiter - "guest workers". Objective studies have consistently shown that immigrants contribute more to their host economies - as consumers, investors and workers - than they ever claw back in social services and public goods. This is especially true in Europe, where an ageing population of early retirees has been relying on the uninterrupted flow of pension contributions by younger laborers, many of them immigrants.
Business has been paying attention to this emerging market. British financial intermediaries - such as the West Bromwich Building Society - have recently introduced "Islamic" (interest-free) mortgages. According to market research firm, Datamonitor, gross advances in the UK alone could reach $7 billion in 2006 - up from $60 million today. The Bank of England is in the throes of preparing regulations to accommodate the pent-up demand.
Yet, their very integration, however hesitant and gradual, renders the Muslims in Europe vulnerable to the kind of treatment the old continent meted out to its Jews before the holocaust. Growing Muslim presence in stagnating job markets within recessionary economies inevitably generated a backlash, often cloaked in terms of Samuel Huntington's 1993 essay in Foreign Affairs, "Clash of Civilizations".
Even tolerant Italy was affected. Last year, the Bologna archbishop, Cardinal Giacomo Biffi, cast Islam as incompatible with Italian culture. The country's prime minister suggested, in a visit to Berlin two years ago, that Islam is an inherently inferior civilization.
Oriana Fallaci, a prominent journalist, published last year an inane and foul-mouthed diatribe titled "The Rage and the Pride" in which she accused Muslims of "breeding like rats", "shitting and pissing" (sic!) everywhere and supporting Osama bin-Laden indiscriminately.
Young Muslims reacted - by further radicalizing and by refusing to assimilate - to both escalating anti-Islamic rhetoric in Europe and the "triumphs" of Islam elsewhere, such as the revolution in Iran in 1979. Tutored by preachers trained in the most militant Islamist climates in Saudi Arabia, Yemen, Somalia, Pakistan and Iran, praying in mosques financed by shady Islamic charities - these youngsters are amenable to recruiters from every fanatical grouping.
The United Kingdom suffered some of the worst race riots in half a century in the past two years. France is terrorized by an unprecedented crime wave emanating from the banlieux - the decrepit, predominantly Muslim, housing estates in suburbia. September 11 only accelerated the inevitable conflict between an alienated minority and hostile authorities throughout the continent. Recent changes in European - notably British - legislation openly profile and target Muslims.
This is a remarkable turnaround. Europe supported the Muslim Bosnian cause against the Serbs, Islamic Chechnya against Russia, the Palestinians against the Israelis and Muslim Albanian insurgents against both Serbs and Macedonians. Nor was this consistent pro-Islamic orientation a novelty.
Britain's Commission for Racial Equality which caters mainly to the needs of Muslims, was formed 37 years ago. Its Foreign Office has never wavered from its pro-Arab bias. Germany established a Central Council for Muslims. Both anti-Americanism and the more veteran anti-Israeli streak helped sustain Europe's empathy with Muslim refugees and "freedom fighters" throughout the 1960s, 70s and 80s.
September 11 put paid to this amity. The danger is that the brand of "Euro-Islam" that has begun to emerge lately may be decimated by this pervasive and sudden mistrust. Time Magazine described this blend as "the traditional Koran-based religion with its prohibitions against alcohol and interest-bearing loans now indelibly marked by the 'Western' values of tolerance, democracy and civil liberties."
Such "enlightened" Muslims can serve as an invaluable bridge between Europe and Russia, the Middle East, Asia, including China and other places with massive Muslim majorities or minorities. As most world conflicts today involve Islamist militants, global peace and a functioning "new order" critically depend on the goodwill and communication skills of Muslims.
Such a benign amalgam is the only realistic hope for reconciliation. Europe is ageing and stagnating and can be reinvigorated only by embracing youthful, dynamic, driven immigrants, most of whom are bound to be Muslim. Co-existence is possible and the clash of civilization not an inevitability unless Huntington's dystopic vision becomes the basic policy document of the West.
Curriculum Vitae
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Born in 1961 in Qiryat-Yam, Israel.
Served in the Israeli Defence Force (1979-1982) in training and education units.
Education
Graduated a few semesters in the Technion - Israel Institute ofTechnology, Haifa.
Ph.D. in Philosophy (major : Philosophy of Physics) - Pacific WesternUniversity, California.
Graduate of numerous courses in Finance Theory and InternationalTrading.
Certified E-Commerce Concepts Analyst.
Certified in Psychological Counselling Techniques.
Full proficiency in Hebrew and in English.
Business Experience
1980 to 1983
Founder and co-owner of a chain of computerized information kiosks inTel-Aviv, Israel.
1982 to 1985
Senior positions with the Nessim D. Gaon Group of Companies in Geneva,Paris and New-York (NOGA and APROFIM SA):
- Chief Analyst of Edible Commodities in the Group's Headquarters inSwitzerland.
- Manager of the Research and Analysis Division
- Manager of the Data Processing Division
- Project Manager of The Nigerian Computerized Census
- Vice President in charge of RND and Advanced Technologies
- Vice President in charge of Sovereign Debt Financing
1985 to 1986
Represented Canadian Venture Capital Funds in Israel.
1986 to 1987
General Manager of IPE Ltd. in London. The firm financed international multi-lateral countertrade and leasing transactions.
1988 to 1990
Co-founder and Director of "Mikbats - Tesuah", a portfolio management firm based in Tel-Aviv.
Activities included large-scale portfolio management, underwriting, forex trading and general financial advisory services.
1990 to Present
Free-lance consultant to many of Israel's Blue-Chip firms, mainly on issues related to the capital markets in Israel, Canada, the UK and the USA.
Consultant to foreign RND ventures and to Governments on macro-economic matters.
President of the Israel chapter of the Professors World Peace Academy(PWPA) and (briefly) Israel representative of the "Washington Times".
1993 to 1994
Co-owner and Director of many business enterprises:
- The Omega and Energy Air-Conditioning Concern
- AVP Financial Consultants
- Handiman Legal Services
Total annual turnover of the group: 10 million USD.
Co-owner, Director and Finance Manager of COSTI Ltd. - Israel's largest computerized information vendor and developer. Raised funds through a series of private placements locally, in the USA, Canada and London.
1993 to 1996
Publisher and Editor of a Capital Markets Newsletter distributed by subscription only to dozens of subscribers countrywide.
In a legal precedent in 1995 - studied in business schools and law faculties across Israel - was tried for his role in an attempted takeover of Israel's Agriculture Bank.
Was interned in the State School of Prison Wardens.
Managed the Central School Library, wrote, published and lectured on various occasions.
Managed the Internet and International News Department of an Israeli mass media group, "Ha-Tikshoret and Namer".
Assistant in the Law Faculty in Tel-Aviv University (to Prof. S.G.Shoham).
1996 to 1999
Financial consultant to leading businesses in Macedonia, Russia and theCzech Republic.
Collaborated with the Agency of Transformation of Business with SocialCapital.
Economic commentator in "Nova Makedonija", "Dnevnik", "Izvestia","Argumenti i Fakti", "The Middle East Times", "Makedonija Denes", "TheNew Presence", "Central Europe Review" , and other periodicals and inthe economic programs on various channels of Macedonian Television.
Chief Lecturer in courses organized by the Agency of Transformation, by the Macedonian Stock Exchange and by the Ministry of Trade.
1999 to 2002
Economic Advisor to the Government of the Republic of Macedonia and to the Ministry of Finance.
2001 to present
Senior Business Correspondent for United Press International (UPI)
Web and Journalistic Activities
Author of extensive Websites in Psychology ("Malignant Self Love") - AnOpen Directory Cool Site
Philosophy ("Philosophical Musings")
Economics and Geopolitics ("World in Conflict and Transition")
Owner of the Narcissistic Abuse Announcement and Study List and theNarcissism Revisited mailing list (more than 3900 members)
Owner of the Economies in Conflict and Transition Study list.
Editor of mental health disorders and Central and Eastern Europe categories in web directories (Open Directory, Suite 101, Search Europe).
Columnist and commentator in "The New Presence", United PressInternational (UPI), InternetContent, eBookWeb and "Central EuropeReview".
Publications and Awards
"Managing Investment Portfolios in states of Uncertainty", LimonPublishers, Tel-Aviv, 1988
"The Gambling Industry", Limon Publishers., Tel-Aviv, 1990
"Requesting my Loved One - Short Stories", Yedioth Aharonot, Tel-Aviv, 1997
"The Macedonian Economy at a Crossroads - On the way to a HealthierEconomy" (with Nikola Gruevski), Skopje, 1998
"Malignant Self Love - Narcissism Revisited", Narcissus Publications,Prague and Skopje, 1999, 2001, 2002
The Narcissism Series - e-books regarding relationships with abusive narcissists (Skopje, 1999-2002)
"The Exporters' Pocketbook", Ministry of Trade, Republic of Macedonia,Skopje, 1999
"The Suffering of Being Kafka" (electronic book of Hebrew ShortFiction, Prague, 1998)
"After the Rain - How the West Lost the East", Narcissus Publications in association with Central Europe Review/CEENMI, Prague and Skopje, 2000
Winner of numerous awards, among them the Israeli Education MinistryPrize (Literature) 1997, The Rotary Club Award for Social Studies(1976) and the Bilateral Relations Studies Award of the AmericanEmbassy in Israel (1978).
Hundreds of professional articles in all fields of finances and the economy and numerous articles dealing with geopolitical and political economic issues published in both print and web periodicals in many countries.
Many appearances in the electronic media on subjects in philosophy and the Sciences and concerning economic matters.
Contact Details:
palma@unet.com.mk
vaknin@link.com.mk
My Web Sites:
Economy / Politics:
http://ceeandbalkan.tripod.com/
Psychology:
http://samvak.tripod.com/index.html
Philosophy:
http://philosophos.tripod.com/
Poetry:
http://samvak.tripod.com/contents.html
After the Rain
How the West
Lost the East
The Book
This is a series of articles written and published in 1996-2000 inMacedonia, in Russia, in Egypt and in the Czech Republic.
How the West lost the East. The economics, the politics, the geopolitics, the conspiracies, the corruption, the old and the new, the plough and the internet - it is all here, in colourful and provocative prose.
From "The Mind of Darkness":
"'The Balkans' - I say - 'is the unconscious of the world'. People stop to digest this metaphor and then they nod enthusiastically. It is here that the repressed memories of history, its traumas and fears and images reside. It is here that the psychodynamics of humanity - the tectonic clash between Rome and Byzantium, West and East, Judeo-Christianity and Islam - is still easily discernible. We are seated at a New Year's dining table, loaded with a roasted pig and exotic salads. I, the Jew, only half foreign to this cradle of Slavonics. Four Serbs, five Macedonians. It is in the Balkans that all ethnic distinctions fail and it is here that they prevail anachronistically and atavistically. Contradiction and change the only two fixtures of this tormented region. The women of the Balkan - buried under provocative mask-like make up, retro hairstyles and too narrow dresses. The men, clad in sepia colours, old fashioned suits and turn of the century moustaches. In the background there is the crying game that is Balkanian music: liturgy and folk and elegy combined. The smells are heavy with muskular perfumes. It is like time travel. It is like revisiting one's childhood."
The Author
Sam Vaknin is the author of Malignant Self Love - Narcissism Revisitedand After the Rain - How the West Lost the East. He is a columnist forCentral Europe Review and eBookWeb , a United Press International (UPI)Senior Business Correspondent, and the editor of mental health andCentral East Europe categories in The Open Directory and Suite101 .
Until recently, he served as the Economic Advisor to the Government ofMacedonia.
Visit Sam's Web site at http://samvak.tripod.com