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Putin seems to be playing a long game
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he release of a list of 89 European figures that the Kremlin will no longer allow into Russia has drawn an angry response from EU leaders, while confirming Russia’s utter lack of interest in winding down the confrontation with the West over Ukraine. No surprise there. Nato’s supreme commander, General Philip Breedlove, recently claimed that Russia was sending more troops into south-east Ukraine, indicating that a fresh offensive aimed at expanding rebelheld territory is on the way. If that happens, all hope of re-establishing some kind of working relationship between the West and Moscow — if only over the common scourge of terrorism — is doomed in any case. The Kremlin may therefore feel it has nothing to lose now by ratcheting up the dispute with the West. The list of personae non grata, meanwhile, provides a glimpse into the mind-set of the Putin regime. For all the furore here over Nick Clegg, the list suggests Britain is a sideshow in Russian eyes. Only seven names from this country appear on it, including such obvious suspects as the head of MI5. By contrast, the three tiny former Soviet Baltic states supply a whopping 20 names and an almost equal number come from Poland. Add to that another 13 from Scandinavia, and that total is well over half of the entire list. Russia’s continued hostility to the nearby countries it once controlled is laid bare. It is hardly surprising that leaders in Warsaw, Riga, Tallinn and Vilnius are the most alarmed in Europe about Russian actions in Ukraine. As Russia-West relations remain stuck in permafrost, the big question is which side will blink. For now, as the robust response to the blacklist indicates, the US-European camp looks united in its determination at least to keep Vladimir Putin in diplomatic quarantine. No invitation for him to come to Dresden for the G7 summit. The German Chancellor, Angela Merkel, has called a return to the old G8 format that included Russia “unimaginable”, until the Kremlin changes course on Ukraine. However, Putin is playing a long game. Western leaders are singing from the same hymn sheet when it comes to condemning the Kremlin blacklist, but more important, unity over economic sanctions on Russia continues to fray, including within Germany itself. The crisis in Greece has given Russia new room to manoeuvre in the Balkans. Then, while there is persuasive talk of how Russia’s economic decline must eventually curb its great-power pretensions, Russia’s economic woes are nothing compared with Ukraine’s. The economy there is in such a mess — a point often missed amid the focus on the war in the east — that it could bring an abrupt end to the whole experiment of a pro-Western government in Kiev. No wonder plausible-sounding voices across the Continent are making a case for quietly easing the sanctions regime, recognising realpolitik in Ukraine — Russia’s de facto annexation of chunks of the south-east — and getting back to business with Putin, if only to use Russia’s good offices with the Assad regime to get a peace initiative for Syria off the ground.- The Independent
ECONOMICS
A time bomb is ticking fast in liquidity market NOURIEL ROUBINI
The murder most foul
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large number of relatives of those slain in the latest attack on buses in Balochistan are picketing the Governor’s House in Quetta. They have brought with them the bodies of 16 out of the 20 who died on the night of May 29. The attack had a number of features that mark it as different from some others. Firstly, there was no immediate ownership of the attacks, while similar attacks have usually been swiftly claimed by one or other of the terrorist groups. Secondly — the victims. All were reportedly Pakhtun, and they were selected by their killers on that basis, rather than on the basis of sectarian adherence which again has characterised previous mass killing of bus passengers. Thirdly — the number of attackers. Reports speak of as many as 40, and of at least two roadblocks being set up to spring the trap on the bus. As is usual Frontier Corps officers are carrying out search operations in the area, along with helicopter support and special forces. Two ‘miscreants’ are said to be dead and weapons and ammunition recovered. Yet another mass slaying in Balochistan, and questions must be asked and answered as to why the provincial government or the various security forces have not worked out a comprehensive security plan for transport, especially inter-city buses, in the province. At the very least, consideration should be given to running a convoy system for buses. This is unlikely to be popular with bus operators, but it is an effective way of offering protection to large groups of people, and has been used on a number of occasions in the recent past in Gilgit-Baltistan. Currently, security on the roads is reactive rather than proactive, which leaves the door wide open for those with murder in mind. This attack must also be seen as an intelligence failure. Groups of up to 40 armed men are visible, and they would have required several vehicles to transport themselves to the site of the ambush. And nobody noticed anything unusual happening? A whiff of collusion perhaps, or at least some grave suspicions. - The Express Tribune
Are the rich and powerful in India beyond the law? Who says that law is equal for all in India? Theoretically it is so as it is enshrined in the Constitution of the country and in the law text books. In practice, however, it is not so. If one is rich, famous, powerful and well connected, then one can get away even with a murder. The acquittal of Jayalalithaa and the manner in which the law was bent to accommodate Bollywood superstar Salman Khan are two glaring recent examples of how far the law is equal for all in India. In case of the cine star, his connections and money power came to play a critical role in keeping him out of jail. And, how could the law keep J. Jayalalithaa in jail and out of power, when the ruling party of the country is in such desperate
need of her support in the upper house of Parliament? K. K. Somasundaram Ruwi
Punishing austerity is leading Greece nowhere Greece, which has been at the centre of Europe’s present financial woes, is currently facing a serious political disintegration where neither pro-austerity nor the anti-austerity groups are realising the country is fast getting sucked into a vortex of cataclysm from which it may probably never recover. There exists a perceptible undercurrent of xenophobia in Greece — a deep resentment against the migrant workforce. The hidden anger of the people and the realities of the economic restructuring are becoming palpable with
The combination of macro liquidity and market illiquidity is a time bomb. So far, it has led only to volatile flash crashes and sudden changes in bond yields and stock prices
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paradox has emerged in the financial markets of the advanced economies since the 2008 global financial crisis. Unconventional monetary policies have created a massive overhang of liquidity. But a series of recent shocks suggests that macro liquidity has become linked with severe market illiquidity. Policy interest rates are near zero (and sometimes below it) in most advanced economies, and the monetary base (money created by central banks in the form of cash and liquid commercial-bank reserves) has soared doubling, tripling, and, in the United States, quadrupling relative to the pre-crisis period. This has kept short- and long-term interest rates low (and even negative in some cases, such as Europe and Japan), reduced the volatility of bond markets, and lifted many asset prices (including equities, real estate, and fixed-income private- and public-sector bonds).And yet investors have reason to be concerned. Their fears started with the “flash crash” of May 2010, when, in a matter of 30 minutes, major US stock indices fell by almost 10 per cent, before recovering rapidly. Then came the “taper tantrum” in the spring of 2013, when US long-term interest rates shot up by 100 basis points after then-Fed Chairman Ben Bernanke hinted at an end to the Fed’s monthly purchases of long-term securities. Likewise, in October 2014, US Treasury yields plummeted by almost 40 basis points in minutes, which statisticians argue should occur only once in three billion years. The latest episode came just last month, when, in the space of a few days, ten-year German bond yields went from five basis points to almost 80. These events have fuelled fears that, even very deep and liquid markets such as US stocks and government bonds in the US and Germany may not be liquid enough. So what accounts for the combination of macro liquidity and market illiquidity? For starters, in equity markets, high-frequency traders (HFTs), who use algorithmic computer programs to follow market trends, account for a larger share of transactions. This creates, no surprise, herding behaviour. Indeed, trading in the US nowadays is concentrated at the beginning and the last hour of the trading day, when HFTs are most active; for the rest of the day, markets are illiquid, with few transactions. A second cause lies in the fact that fixed-income assets such as government, corporate, and emergingmarket bonds are not traded in more liquid ex-
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Tradition is a guide and not a jailer W. SOMERSET MAUGHAM
changes, as stocks are. Instead, they are traded mostly over the counter in illiquid markets. Third, not only is fixed income more illiquid, but now most of these instruments which have grown enormously in number, owing to the mushrooming issuance of private and public debts before and after the financial crisis are held in open-ended funds that allow investors to exit overnight. Imagine a bank that invests in illiquid assets but allows depositors to redeem their cash overnight: if a run on these funds occurs, the need to sell the illiquid assets can push their price very low very fast, in what is effectively a fire sale. Fourth, before the 2008 crisis, banks were market makers in fixed-income instruments. They held large inventories of these assets, thus providing liquidity and smoothing excess price volatility. But, with new regulations punishing such trading (via higher capital charges), banks and other financial institutions have reduced their market-making activity. So, in times of surprise that move bond prices and yields, the banks are not present to act as stabilisers. In short, though central banks’ creation of macro liquidity may keep bond yields low and reduce volatility, it has also led to crowded trades (herding on market trends, exacerbated by HFTs) and more investment in illiquid bond funds, while tighter regulation means that market makers are missing in action. As a result, when surprises occur for example, the Fed signals an earlier-than-expected exit from zero interest rates, oil prices spike, or eurozone growth starts to pick up the re-rating of stocks and especially bonds can be abrupt and dramatic: everyone caught in the same crowded trades needs to get out fast. Herding in the opposite direction occurs, but, because many investments are in illiquid funds and the traditional market makers who smoothed volatility are nowhere to be found, the sellers are forced into fire sales. This combination of macro liquidity and market illiquidity is a time bomb. So far, it has led only to volatile flash crashes and sudden changes in bond yields and stock prices. But, over time, the longer central banks create liquidity to suppress short-run volatility, the more they will feed price bubbles in equity, bond, and other asset markets. As more investors pile into overvalued, increasingly illiquid assets such as bonds the risk of a long-term crash increases. This is the paradoxical result of the policy response to the financial crisis. Macro liquidity is feeding booms and bubbles; but market illiquidity will eventually trigger a bust and collapse. - Project Syndicate
each passing day. Punishing austerity has led Greece nowhere. We have seen its society breaking down, people in large numbers forced to come out into the streets, strikes galore, the number of homeless multiplying, drug addiction, HIV cases spiralling upward, healthcare collapsing, and many areas turning into ghettos. Joseph Desilva Al Ghubra
Political will is needed to end the bane of terrorism The war on terror has failed because the fundamentals of the campaign were wrong. Killing terrorists does not ensure terror is dead. What is needed is a political will to end terror and that was sadly lacking. Even the tactics were flawed. Drones killed
more innocents that terrorists. Every innocent killed produced two new recruits for Al Qaeda and its franchisees. Hiren Shah Wadi Kabir
Youth must refrain from habits unsafe for health Promoting healthy practices and health consciousness at an early stage is extremely important. Admitted, parents and even teachers have a critical role in inculcating this awareness. The youths too need to remain much more vigilant about their health. They must take care of themselves, lead a more disciplined life and refrain from habits that may jeopardise their health in many ways. Ajmal Ahmed Ruwi
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