The Euro is lower once again yesterday, as concern rises that the region will be unable to form a united front against the approaching wave of refinancing in the European sovereign debt market, even as the finance ministers meet in Brussels to discuss what can be done on the issue of bailouts. The stock markets were mixed, gold was mostly unchanged. Not much attention appears to given to comments by Fed Chief Charles Plosser, who would once again not rule the possibility that the Fed may raise rates even if economic growth fauls to improve significantly, and unemployment remains high.
On the other side of the Atlantic, Hu Jintao was repeating, in written comments to the WSJ, that yuan-appreciation will not necessarily help resolve the trade balance issues, nor tame inflation at home, essentially refusing every argument that the Americans had been advancing in the months leading to the recent meeting. Continuing the complacent tone typical of Chinese authorities, he said that the recent rises in inflation are mostly manageable and moderate, adding that rising prices can "hardly be the main factor determining exchange rate policy". The Chinese president emphasized that the internationalization of the yuan will be a "fairly long process", adding that the dollar`s primacy as a reserve currency is a "product of the past". He is going to meet President Obama this week, so these comments do not seem to be very encouraging for those who would expect major breakthroughs to be reached in the meeting. To us, they seem as frank and strongly-worded as you would get from a Chinese official of his rank.
Meanwhile, some are questioning whether the strategically significant Arab world may see major dislocations in the coming months and years as the dictatorships and unpopular regimes that dominate the region at the moment face great popular discontent in the aftermath of the global economic downturn. This region has always been a focus of interest for upheavals of great magnitude, but it is only now that the populace finds itself in the position to risk everything against the power of batons, tanks, and bullets and to voice its discontent with despotism in unmistakable terms. For many years, it was thought that the rule of despots and dictators would be unassailable for the foreseeable future, and the term "Arab Street" had acquired the character of a joke in many circles, as the long-anticipated revolution of the people failed to materialize in every possible scenario including great turmoil in Israel, and the Iraq War. Many reasons exist for this, but perhaps the most important one among them was the long-lasting economic stability of the world that ensued the disintegration of the Soviet Union. Dictatorships that had been established towards the close of the Cold War benefited from the brutal tactics inherited from those times in their struggle for survival against their own peoples. And the lack of a severe economic crisis disarmed the people, who were mostly content with going on with everyday business, satisfied with cursing the leader occasionally, but too absorbed in material necessities and survival to stage a challenge to the despot. That seems to be over now, with the events in Tunisia starting a trend which, we believe, will see many more regimes crumble this decade.
The importance of this matter for global trends cannot be overemphasized. The region is home to the Suez Canal, huge reserves of oil, large stockpiles of conventional weaponry, and is defined by a political structure that has almost no meaning in terms of the relationships between the nations and cultures populating the region. There is, for instance, a lot more in common between an Egyptian, Syrian, Iraqi or Libyan than there is between a German and a Pole, and Italian, and a Swiss national. These nations are now united under the umbrella of the E.U. (with the exception of the Swiss), but the Arabs are living divided into sultanates, despotates and apanages the existence of which can only be justified on the basis of personal gain, corruption, and nepotism. This will not continue for long, probably, and who knows what this means for this rich region home to some 200 million people?
Bloomberg reports that Tunisia is in fact one of the more successful dictatorships in the Arab World, with regimes in Libya, Algeria, and Egypt ranking well-below the country in global measurements of corruption. Tunisia had unemployment of about 13 percent, which is not at all extraordinary in this part of the world. Even the more advanced Turkey on the other side of the Mediterranean has been suffering from double-digit unemployment rates for many years. Since nobody, including ourselves had been expecting a revolution in this country recently, it is but a matter of speculation to say who will be the next one to fall on the long list of candidates among Arab regimes.
We believe that these developments are being watched with concern by Israelis and the Americans, while the Iranians must feel some relief that the circle of pro-U.S. regimes surrounding them is slowly crumbling. It is a matter of time, to be sure, and we`ll do our best to update you as events in this important part of the world progress into the next year.
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