On the Road to Iraq – Central and East Europe
I.EU and NATO – The Competing Alliances
II.The Euro-Atlantic Divide
III.Russia Straddles the Divide
IV.Russia’s Stealth Diplomacy
V.Losing the Iraq War
VI.Germany’s Rebellious Colonies
VII.The Disunited Nations

EU and NATO - The Competing Alliances

Saturday's vote in Ireland was the second time in 18 months that its increasingly disillusioned citizenry had to decide the fate of the European Union by endorsing or rejecting the crucial Treaty of Nice. The treaty seeks to revamp the union's administration and the hitherto sacred balance between small and big states prior to the accession of 10 central and east European countries. Enlargement has been the centerpiece of European thinking ever since the meltdown of the eastern bloc.

Shifting geopolitical and geo-strategic realities in the wake of the September 11 atrocities have rendered this project all the more urgent. NATO - an erstwhile anti-Soviet military alliance is search of purpose - is gradually acquiring more political hues. Its remit has swelled to take in peacekeeping, regime change, and nation-building.

Led by the USA, it has expanded aggressively into central and northern Europe. It has institutionalized its relationships with the countries of the Balkan through the "Partnership for Peace" and with Russia through a recently established joint council. The Czech Republic, Poland, and Hungary - the eternal EU candidates - have full scale members of NATO for 3 years now.

The EU responded by feebly attempting to counter this worrisome imbalance of influence with a Common Foreign and Security Policy and a rapid deployment force. Still, NATO's chances of replacing the EU as the main continental political alliance are much higher than the EU's chances of substituting for NATO as the pre-eminent European military pact. the EU is hobbled by minuscule and decreasing defense spending by its mostly pacifistic members and by the backwardness of their armed forces.

That NATO, under America's thumb, and the vaguely anti-American EU are at cross-purposes emerged during the recent spat over the International Criminal Court. Countries, such as Romania, were asked to choose between NATO's position - immunity for American soldiers on international peacekeeping missions - and the EU's (no such thing). Finally - and typically - the EU backed down. But it was a close call and it cast in sharp relief the tensions inside the Atlantic partnership.

As far as the sole superpower is concerned, the strategic importance of western Europe has waned together with the threat posed by a dilapidated Russia. Both south Europe and its northern regions are emerging as pivotal. Airbases in Bulgaria are more useful in the fight against Iraq than airbases in Germany.

The affairs of Bosnia - with its al-Qaida's presence - are more pressing than those of France. Turkey and its borders with central Asia and the middle east is of far more concern to the USA than disintegrating Belgium. Russia, a potentially newfound ally, is more mission-critical than grumpy Germany.

Thus, enlargement would serve to enhance the dwindling strategic relevance of the EU and heal some of the multiple rifts with the USA - on trade, international affairs (e.g., Israel), defense policy, and international law. But this is not the only benefit the EU would derive from its embrace of the former lands of communism.

Faced with an inexorably ageing populace and an unsustainable system of social welfare and retirement benefits, the EU is in dire need of young immigrants. According to the United Nations Population Division, the EU would need to import 1.6 million migrant workers annually to maintain its current level of working age population. But it would need to absorb almost 14 million new, working age, immigrants per year just to preserve a stable ratio of workers to pensioners.

Eastern Europe - and especially central Europe - is the EU's natural reservoir of migrant labor. It is ironic that xenophobic and anti-immigration parties hold the balance of power in a continent so dependent on immigration for the survival of its way of life and institutions.

The internal, common, market of the EU has matured. Its growth rate has leveled off and it has developed a mild case of deflation. In previous centuries, Europe exported its excess labor and surplus capacity to its colonies - an economic system known as "mercantilism".

The markets of central, southern, and eastern Europe - West Europe's hinterland - are replete with abundant raw materials and dirt-cheap, though well-educated, labor. As indigenous purchasing power increases, the demand for consumer goods and services will expand.

Thus, the enlargement candidates can act both as a sink for Europe's production and the root of its competitive advantage.

Moreover, the sheer weight of their agricultural sectors and the backwardness of their infrastructure can force a reluctant EU to reform its inanely bloated farm and regional aid subsidies, notably the Common Agricultural Policy. That the EU cannot afford to treat the candidates to dollops of subventioary largesse as it does the likes of France, Spain, Portugal, and Greece is indisputable. But even a much-debated phase-in period of 10 years would burden the EU's budget - and the patience of its member states and denizens - to an acrimonious breaking point.

The countries of central and eastern Europe are new consumption and investment markets. With a total of 300 million people (Russia counted), they equal the EU's population - though not its much larger purchasing clout. They are likely to while the next few decades on a steep growth curve, catching up with the West. Their proximity to the EU makes them ideal customers for its goods and services. They could provide the impetus for a renewed golden age of European economic expansion.

Central and eastern Europe also provide a natural land nexus between west Europe and Asia and the Middle East. As China and India grow in economic and geopolitical importance, an enlarged Europe will find itself in the profitable role of an intermediary between east and west.

The wide-ranging benefits to the EU of enlargement are clear, therefore. What do the candidate states stand to gain from their accession? The answer is: surprisingly little. All of them already enjoy, to varying degrees, unfettered, largely duty-free, access to the EU. To belong, a few - like Estonia - would have to dismantle a much admired edifice of economic liberalism.

Most of them would have to erect barriers to trade and the free movement of labor and capital where none existed. All of them would be forced to encumber their fragile economies with tens of thousands of pages of prohibitively costly labor, intellectual property rights, financial, and environmental regulation. None stands to enjoy the same benefits as do the more veteran members - notably in agricultural and regional development funds.

Joining the EU would deliver rude economic and political shocks to the candidate countries. A brutal and rather sudden introduction of competition in hitherto much-sheltered sectors of the economy, giving up recently hard-won sovereignty, shouldering the debilitating cost of the implementation of  reams of guideline, statutes, laws, decrees, and directives, and being largely powerless to influence policy outcomes. Faced with such a predicament, some countries may even reconsider.

The Euro-Atlantic Divide

 The countries of central and east Europe - especially those slated to join the European Union (EU) in May next year - are between the American rock and the European hard place. The Czech republic, Hungary and Poland, already NATO members, have joined Spain, Britain and other EU veterans in signing the "letter of eight" in support of US policy in the Gulf. NATO and EU aspirants - including most of the nations of the Balkans - followed suit in a joint statement of the Vilnius Group.

The denizens of the region wonder what is meant by "democracy" when their own governments so blithely ignore public opinion, resolutely set against the looming conflict.

The heads of these newly independent polities counter by saying that leaders are meant to mold common perceptions, not merely follow them expediently. The mob opposed the war against Hitler, they remind us, somewhat non-germanely.

But the political elite of Europe is, indeed, divided.

France is trying to reassert its waning authority over an increasingly unruly and unmanageably expanding European Union. Yet, the new members do not share its distaste for American hegemony. On the contrary, they regard it as a guarantee of their own security. They still fear the Russians, France's and Germany's new found allies in the "Axis of Peace" (also known as the Axis of Weasels).

The Czechs, for instance, recall how France (and Britain) sacrificed them to Nazi Germany in 1938 in the name of realpolitik and the preservation of peace. They think that America is a far more reliable sponsor of their long-term safety and prosperity than the fractured European "Union".

Their dislike of what they regard as America's lightweight leadership and overt - and suspect - belligerence notwithstanding, the central and east Europeans are grateful to the United States for its unflinching - and spectacularly successful - confrontation with communism.

France and Germany - entangled in entente and Ostpolitik, respectively - cozied up to the Kremlin, partly driven by their Euro-communist parties. So did Italy. While the Europeans were busy kowtowing to a repressive USSR and castigating the USA for its warmongering, America has liberated the Soviet satellites and bankrolled their painful and protracted transition.

Historical debts aside, America is a suzerain and, as such, it is irresistible. Succumbing to the will of a Big Power is the rule in east and central Europe. The nations of the region have mentally substituted the United States for the Soviet Union as far as geopolitics are concerned. Brussels took the place of Moscow with regards to economic issues. The Czechs, Poles, Hungarians, assorted Balkanians, even the Balts - have merely switched empires.

There are other reasons for these countries' pro-Americanism. The nations of central, east and southeast (Balkans) Europe have sizable and economically crucial diasporas in the united States. They admire and consume American technology and pop culture. Trade with the USA and foreign direct investment are still small but both are growing fast.

Though the EU is the new and aspiring members' biggest trading partner and foreign investor - it has, to borrow from Henry Kissinger, no "single phone number". While France is enmeshed in its Byzantine machinations, Spain and Britain are trying to obstruct the ominous re-emergence of French-German dominance.

By catering to popular aversion of America's policies, Germany's beleaguered Chancellor, Gerhard Schroeder, is attempting to score points domestically even as the German economy is imploding.

The euro-Atlantic structures never looked worse. The European Union is both disunited and losing its European character. NATO has long been a dysfunctional alliance in search of a purpose. For a while, Balkan skirmishes provided it with a new lease on life. But now the Euro-Atlantic alliance has become the Euro-Atlantic divide.

The only clear, consistent and cohesive voice is America's. The new members of NATO are trying to demonstrate their allegiance - nay, obsequiousness - to the sole identifiable leader of the free world.

France's bid at European helmsmanship failed because both it and Russia are biased in favor of the current regime in Iraq. French and Russian firms have signed more than 1700 commercial contracts with Saddam's murderous clique while their British and American competitors were excluded by the policies of their governments.

When sanctions against Iraq are lifted - and providing Saddam or his hand-picked successor are still in place - Russian energy behemoths are poised to explore and extract billions of barrels of oil worth dozens of billions of dollars. Iraq owes Russia $9 billion which Russia wants repaid.

But the United States would be mistaken to indulge in Schadenfreude or to gleefully assume that it has finally succeeded in isolating the insolent French and the somnolent Germans. Public opinion - even where it carries little weight, like in Britain, or in the Balkans - cannot be ignored forever.

Furthermore, all the countries of Europe share real concerns about the stability of the Middle East. A divided Iraq stands to unsettle neighbours near and far. Turkey has a large Kurdish minority as does Iran. Conservative regimes in the Gulf fear Iraq's newfound and American-administered democracy. In the wake of an American attack on Iraq, Islamic fundamentalism and militancy will surely surge and lead to a wave of terror. Europe has vested historical, economic and geopolitical interests in the region, unlike America.

Persistent, unmitigated support for the USA in spite of French-German exhortations will jeopardize the new and aspiring members' position in an enlarged EU. Accession is irreversible but they can find themselves isolated and marginalized in decision making processes and dynamics long after the Iraqi dust has settled. EU officials already gave public warnings to this effect.

It is  grave error to assume that France and Germany have lost their pivotal role in the EU. Britain and Spain are second rank members - Britain by Europhobic choice and Spain because it is too small to really matter. Russia - a smooth operator - chose to side with France and Germany, at least temporarily. The new and aspiring members would have done well to follow suit. 
Instead, they have misconstrued the signs of the gathering storm: the emerging European rapid deployment force and common foreign policy; the rapprochement between France and Germany at the expense of the pro-American but far less influential Britain, Italy and Spain; the constitutional crisis setting European federalists against traditional nationalists; the growing rupture between "Old Europe" and the American "hyperpower".
The new and aspiring members of NATO and the EU now face a moment of truth and are being forced to reveal their hand. Are they pro-American, or pro-German (read: pro federalist Europe)? Where and with whom do they see a common, prosperous future? What is the extent of their commitment to the European Union, its values and its agenda?
The proclamations of the European eight (including the three central European candidates) and the Vilnius Ten must have greatly disappointed Germany - the unwavering sponsor of EU enlargement. Any further flagrant siding with the United States against the inner core of the EU would merely compound those errors of judgment. The EU can punish the revenant nations of the communist bloc with the same dedication and effectiveness with which it has hitherto rewarded them.

Russia Straddles the Euro-Atlantic Divide

Russian President Vladimir Putin warned on Tuesday, in an interview he granted to TF1, a French television channel, that unilateral American-British military action against Iraq would be a "grave mistake" and an "unreasonable use of force". Russia might veto it in the Security Council, he averred.

In a joint declaration with France and Germany, issued the same day, he called to enhance the number of arms inspectors in Iraq as an alternative to war.

Only weeks ago Russia was written off, not least by myself, as a satellite of the United States. This newfound assertiveness has confounded analysts and experts everywhere. Yet, appearances aside, it does not signal a fundamental shift in Russian policy or worldview.

Russia could not resist the temptation of playing once more the Leninist game of "inter-imperialist contradictions". It has long masterfully exploited chinks in NATO's armor to further its own economic, if not geopolitical, goals. Its convenient geographic sprawl - part Europe, part Asia - allows it to pose as both a continental power and a global one with interests akin to those of the United States. Hence the verve with which it delved into the war against terrorism, recasting internal oppression and meddling abroad as its elements.

As Vladimir Lukin, deputy speaker of the Duma observed recently, Britain having swerved too far towards America - Russia may yet become an intermediary between a bitterly disenchanted USA and an irked Europe and between the rich, industrialized West and developing countries in Asia. Publicly, the USA has only mildly disagreed with Russia's reluctance to countenance a military endgame in Iraq - while showering France and Germany with vitriol for saying, essentially, the same things.

The United States knows that Russia will not jeopardize the relevance of the Security Council - one of the few remaining hallmarks of past Soviet grandeur - by vetoing an American-sponsored resolution. But Russia cannot be seen to be abandoning a traditional ally and a major customer (Iraq) and newfound friends (France and Germany) too expediently.

Nor can Putin risk further antagonizing Moscow hardliners who already regard his perceived "Gorbachev-like" obsequiousness and far reaching concessions to the USA as treasonous. The scrapping of the Anti Ballistic Missile treaty, the expansion of NATO to Russia's borders, America's presence in central Asia and the Caucasus, Russia's "near abroad" - are traumatic reversals of fortune.

An agreed consultative procedure with the crumbling NATO hardly qualifies as ample compensation. There are troubling rumblings of discontent in the army. A few weeks ago, a Russian general in Chechnya refused Putin's orders publicly - and with impunity. Additionally, according to numerous opinion polls, the vast majority of Russians oppose an Iraqi campaign.

By aligning itself with the fickle France and the brooding and somnolent Germany, Russia is warning the USA that it should not be taken for granted and that there is a price to pay for its allegiance and good services. But Putin is not Boris Yeltsin, his inebriated predecessor who over-played his hand in opposing NATO's operation in Kosovo in 1999 - only to be sidelined, ignored and humiliated in the postwar arrangements.

Russia wants a free hand in Chechnya and to be heard on international issues. It aspires to secure its oil contracts in Iraq - worth tens of billions of dollars - and the repayment of $9 billion in old debts by the postbellum government. It seeks pledges that the oil market will not be flooded by a penurious Iraq. It desires a free hand in Ukraine, Armenia and Uzbekistan, among others. Russia wants to continue to sell $4 billion a year in arms to China, India, Iran, Syria and other pariahs unhindered.

Only the United States, the sole superpower, can guarantee that these demands are met. Moreover, with a major oil producer such as Iraq as a US protectorate, Russia becomes a hostage to American goodwill. Yet, hitherto, all Russia received were expression of sympathy, claimed Valeri Fyodorov, director of Political Friends, an independent Russian think-tank, in an interview in the Canadian daily, National Post.

These are not trivial concerns. Russia's is a primitive economy, based on commodities - especially energy products - and an over-developed weapons industry. Its fortunes fluctuate with the price of oil, of agricultural produce and with the need for arms, driven by regional conflicts.

Should the price of oil collapse, Russia may again be forced to resort to multilateral financing, a virtual monopoly of the long arms of US foreign policy, such as the International Monetary Fund (IMF). The USA also has a decisive voice in the World Trade Organization (WTO), membership thereof being a Russian strategic goal.

It was the United States which sponsored Russia's seat at table of the G8 - the Group of Eight industrialized states - a much coveted reassertion of the Russian Federation's global weight. According to Rossiiskaya Gazeta, a Russian paper, the USA already announced a week ago that it is considering cutting Russia off American financial aid - probably to remind the former empire who is holding the purse strings.

But siding with America risks alienating the all-important core of Europe: Germany and France. Europe - especially Germany - is Russia's largest export destination and foreign investor. Russia is not oblivious to that. It would like to be compensated generously by the United States for assuming such a hazard.

Still, Europe is a captive of geography and history. It has few feasible alternatives to Russian gas, for instance. As the recent $7 billion investment by British Petroleum proves, Russia - and, by extension, central and east Europe - is Europe's growth zone and natural economic hinterland.

Yet, it is America that captures the imagination of Russian oligarchs and lesser businesses.

Russia aims to become the world's largest oil producer within the decade. With this in mind, it is retooling its infrastructure and investing in new pipelines and ports. The United States is aggressively courted by Russian officials and "oiligarchs" - the energy tycoons.

With the Gulf states cast in the role of anti-American Islamic militants, Russia emerges as a sane and safe - i.e., rationally driven by self-interest - alternative supplier and a useful counterweight to an increasingly assertive and federated Europe.

Russia's affinity with the United States runs deeper that the confluence of commercial interests.

Russian capitalism is far more "Anglo-Saxon" than Old Europe's. The Federation has an educated but cheap and abundant labor force, a patchy welfare state, exportable natural endowments, a low tax burden and a pressing need for unhindered inflows of foreign investment.

Russia's only hope of steady economic growth is the expansion of its energy behemoths abroad. Last year it has become a net foreign direct investor. It has a vested interest in globalization and world order which coincide with America's. China, for instance, is as much Russia's potential adversary as it is the United State's.

Russia welcomed the demise of the Taliban and is content with regime changes in Iraq and North Korea - all American exploits. It can - and does - contribute to America's global priorities. Collaboration between the two countries' intelligence services has never been closer. Hence also the thaw in Russia's relations with its erstwhile foe, Israel.

Russia's population is hungry and abrasively materialistic. Its robber barons are more American in spirit than any British or French entrepreneur. Russia's business ethos is reminiscent of 19th century frontier America, not of 20th century staid Germany.

Russia is driven by kaleidoscopically shifting coalitions within a narrow elite, not by its masses - and the elite wants money, a lot of it and now. In Russia's unbreakable cycle,  money yields power which leads to more money. The country is a functioning democracy but elections there do not revolve around the economy. Most taxes are evaded by most taxpayers and half the gross national product is anyhow underground. Ordinary people crave law and order - or, at least a semblance thereof.

Hence Putin's rock idol popularity. He caters to the needs of the elite by cozying up to the West and, in particular, to America - even as he provides the lower classes with a sense of direction and security they lacked since 1985. But Putin is a serendipitous president. He enjoys the aftereffects of a sharply devalued, export-enhancing, imports-depressing ruble and the vertiginous tripling of oil prices, Russia's main foreign exchange generator.

The last years of Yeltsin have been so traumatic that the bickering cogs and wheels of Russia's establishment united behind the only vote-getter they could lay their hands on: Putin, an obscure politician and former KGB officer. To a large extent, he proved to be an agreeable puppet, concerned mostly with self-preservation and the imaginary projection of illusory power.

Putin's great asset is his pragmatism and realistic assessment of the shambles that Russia has become and of his own limitations. He has turned himself into a kind of benevolent and enlightened arbiter among feuding interests - and as the merciless and diligent executioner of the decisions of the inner cabals of power.

Hitherto he kept everyone satisfied. But Iraq is his first real test. Everyone demands commitments backed by actions. Both the Europeans and the Americans want him to put his vote at the Security Council where his mouth is. The armed services want him to oppose war in Iraq. The intelligence services are divided. The Moslem population inside Russia - and surrounding it on all sides - is restive and virulently anti-American.

The oil industry is terrified of America' domination of the world's second largest proven reserves - but also craves to do business in the United States. Intellectuals and Russian diplomats worry about America's apparent disregard for the world order spawned by the horrors of World War II. The average Russian regards the Iraqi stalemate as an internal American affair. "It is not our war", is a common refrain, growing commoner.

Putin has played it admirably nimbly. Whether he ultimately succeeds in this impossible act of balancing remains to be seen. The smart money says he would. But if the last three years have taught us anything it is that the smart money is often disastrously wrong.

Russia's Stealth Diplomacy

Possibly irked by persistent American U-2 aerial spy missions above its fringes, Russia fired yesterday, from a mobile launcher, a "Topol" RS-12M Intercontinental Ballistic Missile (ICBM). On Wednesday, Agriculture Minister Alexei Gordeyev, offered Iraq aid in the form of wheat.

The Russian Grain Union, the industry lobby group, claims to have already provided the besieged country with half a million tons of grain under the oil-for-food program.

Russia linked with Syria in declining to approve the new oil-for-food draft resolution as long as it implied a regime change in Iraq. The Duma - having failed to ratify a key nuclear treaty with the USA - called to increase defense spending by at least 3.5 percent of gross domestic product, or about $4 billion this year.

Only 28 percent of Russians polled now view the United States favorably, compared with 68 percent a mere few months ago. A majority of 55 percent disapprove of the USA in a country that was, until very recently, by far the most pro-American in Europe. A Russian telecom, Excom, is offering unlimited free phone calls to the White House to protest U.S. "aggression".

Washington, on its part, has accused the Russian firm, Aviaconversiya, of helping Iraqi forces to jam global positioning system (GPS) signals. Other firms - including anti-tank Kornet missile manufacturer, KBP Tula - have also been fingered for supplying Iraq with sensitive military technologies.

These allegations were vehemently denied by President Vladimir Putin in a phone call to Bush - and ridiculed by the companies ostensibly involved. Russia exported c. $5 billion of military hardware and another $2.6 billion in nuclear equipment and expertise last year, mostly to India and China - triple the 1994 figure.

Russia and the United States have continually exchanged barbs over the sale of fission technology to Iran. In retaliation, Atomic Energy Minister, Alexander Rumyantsev, exposed an Anglo-German-Dutch deal with the Iranians, which, he said, included the sale of uranium enrichment centrifuges.

Is Putin reviving the Cold War to regain his nationalist credentials, tarnished by the positioning, unopposed, of American troops in central Asia, the unilateral American withdrawal from the Anti-Ballistic Missile (ABM) treaty and the expansion of NATO and the European Union to Russia's borders?

Or, dependent as it is on energy exports, is Russia opposed to the war because it fears an American monopoly on the second largest known reserves of crude? Russia announced on Thursday that it would insist on honoring all prewar contracts signed between Iraq and Russian oil companies and worth of billions of dollars - and on the repayment of $8-9 billion in Iraqi overdue debt to Russia.

According to Rosbalt, every drop of $1 in oil prices translates into annual losses to the Russian treasury of $2 billion. Aggregate corporate profits rose in January by one fifth year on year, mostly on the strength of surging crude quotes. The Economist Intelligence Unit expects this year's GDP to grow by 3.8 percent. Foreign exchange reserves are stable at $54 billion.

The threat to Russia's prominence and market share is not imminent. Iraqi oil is unlikely to hit world markets in the next few years, as Iraq's dilapidated and outdated infrastructure is rebuilt.

Moreover, Russian oil is cheap compared to the North Sea or Alaskan varieties and thus constitutes an attractive investment opportunity as the recent takeover of Tyumen Oil by British Petroleum proves. Still, the long-term risk of being unseated by a reconstructed Iraq as the second largest oil producer in the world is tangible.

Russia has spent the last six months enhancing old alliances and constructing new bridges. According to Interfax, the Russian news agency, yesterday, Russia has made yet another payment of $27 million to the International Monetary Fund. The Russian and Romanian prime ministers met and signed bilateral agreements for the first time since 1989. This week, after 12 years of abortive contacts, the republics of the former Yugoslavia agreed with the Russian Federation on a framework for settling its $600 million in clearing debts.

Recent spats notwithstanding, the Anglo-Saxon alliance still regards Russia as a strategically crucial ally. Last week, British police, in a sudden display of unaccustomed efficacy, nabbed Russian oligarch and mortal Putin-foe, Boris Berezovsky, charged by the Kremlin with defrauding the Samara region of $13 million while he was director of LogoVaz in 1994-5.

The Russian foreign minister, Igor Ivanov, did not remain oblivious to these overtures. Russia and the USA remain partners, he asserted. RIA Novosti, the Russian news agency, quoted him as saying: "If we settle the Iraqi problem by political means and in an accord, the road will open to teamwork on other, no less involved problems."

As Robert Kagan correctly observes in his essay "Of Paradise and Power: America and Europe in the New World Order", the weaker a polity is militarily, the stricter its adherence to international law, the only protection, however feeble, from bullying. Putin, presiding over a decrepit and bloated army, naturally insists that the world must be governed by international regulation and not by the "rule of the fist".

But Kagan - and Putin - get it backwards as far as the European Union is concerned. Its members are not compelled to uphold international prescripts by their indisputable and overwhelming martial deficiency. Rather, after centuries of futile bloodletting, they choose not to resort to weapons and, instead, to settle their differences juridically.

Thus, Putin is not a European in the full sense of the word. He supports an international framework of dispute settlement because he has no armed choice, not because it tallies with his deeply held convictions and values. According to Kagan, Putin is, in essence, an American: he believes that the world order ultimately rests on military power and the ability to project it.

Russia aspires to be America, not France. Its business ethos, grasp of realpolitik, nuclear arsenal and evolving values place it firmly in the Anglo-Saxon camp. Its dalliance with France and Germany is hardly an elopement. Had Russia been courted more aggressively by Secretary of State, Colin Powell and its concerns shown more respect by the American administration, it would have tilted differently. It is a lesson to be memorized in Washington.

Losing the Iraq War

The Security Council just approved a tough resolution calling upon Iraq to disarm or face military action. The decade-old sanctions regime has provided countries such as Ukraine, Belarus and the Serb part of Bosnia-Herzegovina with lucrative commercial opportunities. According to international and Israeli media, they all illicitly sold arms and materiel - from active carbon filters to uranium - to the Iraq's thuggish rulers, though Ukraine still denies it vehemently.

The impending war and the lifting of sanctions likely to follow will grind these activities to a halt. This would not be the first time the countries of central and eastern Europe - from the Balkan to the steppes of central Asia - bear the costs of Western policies against Iraq.

In the wake of the Gulf War, Iraq defaulted on its debts to all and sundry. The members of COMECON, the now-defunct communist trade bloc, were hit hardest. According to Mikhail Margelov, chairman of the International Affairs Committee of Russia's Federation Council (upper house), Iraq still owes Russia alone c. $7-12 billion in pre-1990 principal, mainly for arms purchases.

Macedonian construction groups were active in Iraq between 1950-1990. They are owed tens of millions of dollars - the equivalent of 5 percent of GDP, say to sources in the government. Yugoslav, Czech, Polish, and formerly East German firms are in the same predicament.

A typical case: the Belarus news agency Belapan reported recently how Leonid Kozik, leader of the Federation of Trade Unions of Belarus, co-chairman of the Belarusian-Iraqi Joint Commission on Trade and Economic Cooperation and a close aide to Belarusian President Aleksander Lukashenka, traveled to Iraq in an effort  to recoup millions of dollars owed to the Belarusian metals and energy concern Belmetalenerga. The unfortunate company - the country's exclusive export channel to Iraq - sold to it a range of goods, including 500 tractors worth more than $5 million back in 1999.

The chances of recovering these debts diminish by the day. East-West Debt, an international financial company specializing in purchasing and recovery of overdue trade or bank debt in high-risk countries, published this advisory recently: "Many enterprises, banks and insurance companies are still holding uninsured trade debts on Iraq, due to exports or loans originating from before 1990. Please be aware that these claims on Iraq may become time-barred."

Russia reasonably claims to have sustained $30 billion in lost business with Iraq since 1991. Even now, dilapidated as it is, Iraq is a large trade partner. According to the United Nations, bilateral trade under the oil-for-food program since 1996 amounted to $4.3 billion. The real figure is higher. Russia's oil industry is private and keeps much of its revenues off the books.

Tens of thousands of Russians used to purchase Iraqi goods in Turkey and sell them back home - a practice known as the "shuttle trade".

Russia and Iraq have confirmed in August that they are negotiating $40-60 billion worth of cooperation agreements in the oil, agriculture, chemical products, pharmaceuticals, fertilizers, irrigation, transportation, railroads and energy sectors. According to the Washington Post, some of the 67 10-year accords relate to oil exploration in Iraq's western desert. An Iraqi delegation, headed by the minister of military industry, visited Belarus last month in an effort to conclude a similar economic package. But such contracts are unlikely to be materialized as long as the sanctions remain intact.

Radio Free Europe/Radio Liberty reports that Russian firms already control two fifths of sales of Iraqi oil in world markets. Even American companies use Russian fronts to trade with the embargoed country, claim sources in the energy sector. The Financial Times exposed two years ago similar arrangements between United States based suppliers, oil and service companies and west European entities.

According to the New York Times, a Russian consortium, led by Lukoil, signed a 23-year, $3.5 billion agreement with Baghdad to rehabilitate some of its crumbling oil fields. According to the BBC, Lukoil also inked unusually favorable production-sharing agreements with the desperate Iraqi government.

Whether these $20 billion dollar concessions will be honored by Baghdad's post-war new rulers is questionable. Even the current regime is incensed that Lukoil hasn't started implementing the contracts due to UN sanctions. According to Asia Times, the Iraqi government has recently excluded the Russian firm from its list of accredited suppliers under the oil-for-food program.

A Russian state-owned oil company, Zarubezhneft, is said by the London Observer to have signed a $90 billion contract to develop the bin-Umar oilfield. It subcontracted some drilling rights in the West Qurna fields to Tatneft, another Russian outfit. The Washington Post reported a $52 million service contract signed last October between Slavneft and the Iraqi authorities.

The International Energy Agency's World Energy Outlook 2001 claims that the Iraqis have awarded foreign oil contracts worth a staggering $1.1 trillion, much of it to Russian, French, and Chinese firms. Russia is well-placed to enjoy Iraq's graces while Saddam is in power. It is scrambling to secure similar access in an American-sponsored post-conflict reign. According to the Observer, hence much of the haggling in the United Nations over language and America's freedom of action.

Even more crucially, Russia's aspirations to replace Saudi Arabia as the world's largest and swing producer and to become America's primary source of oil may be dashed by United States control of Iraq's enormous proven reserves.

The rising tensions in the Gulf may be providing Russia and its extractive behemoths with a serendipitous windfall - but, in the long run, Russia's rising oil star is threatened by a permanent American stranglehold over Iraq's 112 billion barrels.

A successful American campaign not only jeopardizes Russia's future interests - but its present income as well. A drop in oil prices - more than likely as Iraq is pacified and its oil production surges - will hurt Russia. Below a certain price for crude, Russia's domestic fields are not worth developing.

Between the rock of contract-freezing sanctions and the hard place of American dominance, Russia was forced to vote in favor of the United States sponsored resolution in the Security Council. It may signal a new period of cohabitation - or, more likely, the beginning of a long tussle over commercial interests and economic benefits.

Germany's Rebellious Colonies

 Invited by a grateful United States, the Czech Republic on Saturday sent a representative to meet with Iraqi opposition in Kurdish north Iraq. The country was one of the eight signatories on a letter, co-signed by Britain, Italy, Spain and the two other European Union central European candidate-members, Poland and Hungary, in support of US policy in the Gulf.

According to The Observer and the New York Times, American troops in Germany - and the billions of dollars in goods and services they consume locally - will be moved further east to the Czech Republic, Poland and the Baltic states. This shift may have come regardless of the German "betrayal".

The Pentagon has long been contemplating the futility of stationing tens of thousands of soldiers in the world's most peaceful and pacifistic country.

The letter is a slap in the face of Germany, a member of the "Axis of Peace", together with France and Belgium and the champion of EU enlargement to the east. Its own economic difficulties aside, Germany is the region's largest foreign investor and trading partner. Why the curious rebuff by its ostensible protégés?

The Czech Republic encapsulates many of the economic and political trends in the erstwhile communist swathe of Europe.

The country's economic performance still appears impressive. Figures released yesterday reveal a surge of 6.6 percent in industrial production, to yield an annual increase of 4.8 percent. Retail sales, though way below expectations, were still up 2.7 percent last year. The Czech National Bank (CNB) upgraded its gross domestic product growth forecast on Jan 30 to 2.2-3.5 percent.

But the country is in the throes of a deflationary cycle. The producer price index was down 0.8 percent last year. Year on year, it decreased by 0.4 percent in January. Export prices are down 6.7 percent, though import prices fell by even more thus improving the country's terms of trade.

The Czech koruna is unhealthily overvalued against the euro thus jeopardizing any export-led recovery. The CNB was forced to intervene in the foreign exchange market and buy in excess of 2 billion euros last year - four times the amount it did in 2001.

It also cut its interest rates last month to their nadir since independence. This did little to dent the country's burgeoning current account deficit, now at over 5 percent of GDP.

Unemployment in January broke through the psychologically crucial barrier of 10 percent of the workforce. More than 540,000 bread earners (in a country of 10 million inhabitants) are out of a job. In some regions every fifth laborer is laid off. There are more than 13 - and in the worst hit parts, more than 100 - applicants per every position open .

Additionally, the country is bracing itself for another bout of floods, more devastating than last year's and the ones in 1997. Each of the previous inundations caused in excess of $2 billion in damages. The government's budget is already strained to a breaking point with a projected deficit of 6.3 percent this year, stabilizing at between 4 and 6.6 percent in 2006. The situation hasn't been this dire since the toppling of communism in the Velvet Revolution of 1989.

Ironically, these bad tidings are mostly the inevitable outcomes of much delayed reforms, notably privatization. Four fifths of the country's economy is alleged to be in private hands - a rate similar to the free markets of Estonia, Slovakia and Hungary. In reality, though, the state still maintains intrusive involvement in many industrial assets. It is the reluctant unwinding of these holdings that leads to mass layoffs.

Yet, the long term outlook is indisputably bright.

The ministry of finance forecasts a rise in the country's GDP from 59 percent to 70 percent of the European Union's output in 2005 - comparable to Slovenia and far above Poland with a mere 40 percent. The Czech Republic is preparing itself to join the eurozone shortly after it becomes a member of the EU in May 2004.

Foreign investors are gung ho. The country is now the prime investment destination among the countries in transition. In a typical daily occurrence, bucking a global trend, Matsushita intends to expand its television factory in Plzen. Its investment of $8 million will enhance the plant's payroll by one tenth to 1900 workers. Siemens - a German multinational - is ploughing $50 million into its Czech unit. Siemens Elektromotory's 3000 employees export $130 million worth of electrical engines annually.

None of this would have been possible without Germany's vote of confidence and overwhelming economic presence in the Czech Republic. The deteriorating fortunes of the Czech economy are, indeed, intimately linked to the economic stagnation of its northern neighbor, as many an economist bemoan. But this only serves to prove that the former's recovery is dependent on the latter's resurrection.

Either way, to have so overtly and blatantly abandoned Germany in its time of need would surely prove to be a costly miscalculation. The Czechs - like other central and east European countries - mistook a transatlantic tiff for a geopolitical divorce and tried to implausibly capitalize on the yawning rift that opened between the erstwhile allies.

Yet, Germany is one of the largest trading partners of the United States. American firms sell $24 billion worth of goods annually there - compared to $600 million in Poland. Germany's economy is five to six times the aggregated output of the EU's central European new members plus Slovakia.

According to the New York Times, there are 1800 American firms on German soil, with combined sales of $583 billion and a workforce of 800,000 people. Due to its collapsing competitiveness and rigid labor laws, Germany's multinationals relocate many of their operations to central and east Europe, Asia and north and Latin America. Even with its current malaise, Germany invested in 2001 $43 billion abroad and attracted $32 billion in fresh foreign capital.

Indeed, supporting the United States was seen by the smaller countries of the EU as a neat way to counterbalance Germany's worrisome economic might and France's often self-delusional aspirations at helmsmanship. A string of unilateral dictates by the French-German duo to the rest of the EU - regarding farm subsidies and Europe's constitution, for instance - made EU veterans and newcomers alike edgy. Hence the deliberate public snub.

Still, grandstanding apart, the nations of central Europe know how ill-informed are recent claims in various American media that their region is bound to become the new European locomotive in lieu of an aging and self preoccupied Germany. The harsh truth is that there is no central European economy without Germany. And, at this stage, there is no east European economy, period.

Consider central Europe's most advanced post-communist economy.

One third of Hungary's GDP, one half of its industrial production, three quarters of industrial sales and nine tenths of its exports are generated by multinationals. Three quarters of the industrial sector is foreign-owned. One third of all foreign direct investment is German. France is the third largest investor. The situation is not much different in the Czech Republic where the overseas sales of the German-owned Skoda alone account for one tenth the country's exports.

The relationship between Germany and central Europe is mercantilistic. Germany leverages the region's cheap labor and abundant raw materials to manufacture and export its finished products. Central Europe conforms, therefore, to the definition of a colony and an economic hinterland. From a low base, growth there - driven by frenzied consumerism - is bound to outstrip the northern giant's for a long time to come. But Germans stands to benefit from such prosperity no less than the indigenous population.

Aware of this encroaching "economic imperialism", privatization deals with German firms are being voted down throughout the region. In November, the sale of a majority stake in Cesky Telecom to a consortium led by Deutsche Bank collapsed. In Poland, a plan to sell Stoen, Warsaw's power utility, to Germany's RWE was scrapped.

But these are temporary - and often reversible - setbacks. Germany and its colonies share other interests. As The Economist noted correctly recently:

"The Poles may differ with the French over security but they will be with them in the battle to preserve farm subsidies. The Czechs and Hungarians are less wary of military force than the Germans but sympathize with their approach to the EU's constitutional reform. In truth, there are no more fixed and reliable alliances in the EU. Countries will team up with each other, depending on issue and circumstances."

Thus, the partners, Germany and central Europe, scarred and embittered, will survive the one's haughty conduct and the other's backstabbing. That the countries of Europe currently react with accommodation to what, only six decades ago, would have triggered war among them, may be the greatest achievement of the Euro-Atlantic enterprise.

The Disunited Nations 

Arab nations plan to table a resolution at the United Nations General Assembly condemning the U.S.-British led "invasion" and "occupation" of Iraq and calling for immediate troop withdrawal. A similar effort at the Security Council last week failed, doomed by the veto powers of both alleged aggressors.

This is not likely to endear the organization to the Bush administration whose hawks regard it as a superfluous leftover from the Cold War era. Rep. Ron Paul (R-Texas) even introduced legislation to withdraw from the organization altogether. Nile Gardiner, a visiting fellow at the Heritage Foundation, summed up these sentiments in Insight Magazine thus

"I think the U.N. has been in gradual decline for many years. It failed to act spectacularly in Rwanda and did nothing about Slobodan Milosevic's brutal regime. Iraq is the latest in a long line of failures."

Admittedly, like any bureaucracy, the organization is self-perpetuating, self-serving and self-absorbed. But it - and its raft of specialized offshoots - still give back far more than they receive. In recognition of the U.N.'s crucial role, several liberal Democrats have entered legislation to create a "permanent U.N. security force" and to "voluntarily contribute" to the U.N. Population Fund.

Consider peacekeeping operations. At a total annual cost of c. $5 billion last year, U.N. peacekeeping missions employ close to 40,000 police and military and another 11,000 civilians from 89 countries. The budget is shoestring and more than half the pledged contributions are still outstanding. The U.N. consumes less than 0.001 percent of the world's gross domestic product. As James Paul, Executive Director of Global Policy Forum, observes:

"All UN staff, including the specialized agencies and funds, are fewer than the civil service of the City of Stockholm or the staff of McDonalds. The core UN budget is one half of one percent of the US military budget and far less than the cost of one B-2 bomber aircraft."

Even the United States Mission to the United Nations, on its Web site, seeks to debunk a few myths. Despite a massive increase in remit and operations, the organization's budget, at $2.6 billion, has remained constant since 1995. The workforce was cut by 11 percent, to 9000 employees, since 1997:

"The UN has done a great deal to increase efficiency and overall accountability. In 1994, the UN created the Office of Internal Oversight Services (OIOS) to serve as the inspector general and promote efficient management and reduce waste, fraud and abuse. During the year ended June 30, 2001, OIOS recommended $58 million in savings and recoveries for the UN and persuaded UN program managers to implement hundreds of recommendations for improving management and internal controls. OIOS investigations also led to successful convictions of UN staff and others for fraud and stealing UN funds."

Yet, bad - and expensive - habits die hard. Budget discipline is lax with no clear order of priorities. The United Nations suffers from an abundance of obsolete relics of past programs, inertly and futilely maintained by beneficiary bureaucrats. Follow-up U.N. conferences - and they tend to proliferate incontrollably - are still being held in exotic resorts, or shopping-friendly megalopolises. United Nations entities at the country level duplicate efforts and studiously avoid joint programming, common databases and pooling of resources.

The aforementioned OIOS has hitherto identified more than $200 million in waste and fraud and issued 5000 recommendations to improve efficiency, transparency and accountability. Disgusted by the flagrant squandering of scarce resources, the United States - which covers one fifth of the august establishment's pecuniary needs - accumulated more than $1.2 billion in arrears by 1999, double the debts of all other members combined.

It has since repaid the bulk of these even as it reduced its share of the United Nations' finances. It now contributes 22 percent of the regular budget, down from 25 percent and 25-27 percent of the costs of the U.N. peacekeeping forces, down from 30-31 percent.

But a row is brewing in the corridors of power with regards to the proposed budget for 2004-5. Ambassador Patrick Kennedy, United States Representative for United Nations Management and Reform, called it "a step backwards". The European Union, predictably, "fully concurred" with it and urged members to increase the budget in line with the U.N.'s enhanced responsibilities.

Kofi Annan, the U.N. General Secretary since 1997, is promoting the nation-building and humanitarian credentials of his reformed outfit for the postwar reconstruction of Iraq. American President George Bush is less than keen and Prime Minister Tony Blair of Britain has moderated his pro-multilateralist rhetoric following his meeting with Bush last week.

Even erstwhile keen supporters of the United Nations, such as Japan, a surprising member of the "coalition of the willing", are hesitant. Japan contributes close to one fifth of the international body's regular budget. Yet, disillusioned by its inability to gain permanent membership of the Security Council despite its economic clout, Japan announced, in January, its intention to cut its participation by 5 percent.

The United States seems to wish to consign the organization to the humanitarian aspects of Iraq's restoration. Last Friday, the U.S. Agency for International Development (USAID) granted $8 million to the U.N.'s Children's Fund (UNICEF) to pay for sanitation, healthcare and potable water schemes in Iraq as well as for micronutrients, vitamins and medicines for its malnourished and disease-stricken populace.

Succumbing to its niche typecasting, the United Nations has launched an unprecedented $2.2 billion "emergency appeal for immediate humanitarian assistance for the people of Iraq over the next six months, with $1.3 billion devoted to a massive food aid operation ... to help the displaced, refugees, children, the elderly and other especially vulnerable groups." The donor funds will augment the proceeds of the revamped oil-for-food program, now entirely under the control of the General Secretary.

So, is the United Nations really "just a farce" and its members mostly "petty despots" as Conrad Black, The Canadian media mogul, has it in recent interviews? Or, paradoxically, has this international body been strengthened by its faithful depiction of resistant world opinion in the face of perceived Anglo-Saxon bullying? The global assembly's future largely depends on an incensed and disenchanted United States.

Unable to rely on the kindness of strangers, Annan is reaching out to new constituencies.

At the 1999 World Economic Forum in Davos, he challenged the global business community to enter a "Global Compact" with the U.N. to uphold "human rights, labour standards and environmental practices." The International Chamber of Commerce, representing 7,000 business organizations in 137 countries, picked up the gauntlet and published a joint statement at a July 1999 meeting with United Nations bigwigs.

This uneasy partnership drew severe criticisms from non-governmental organizations the world over. Corpwatch, a California-based NGO, observed acidly that "in the first 18 months of the Global Compact, we have seen a growing but secret membership, heavy influence by the International Chamber of Commerce, and a failure to publish even a single case study of sustainable practices. The Global Compact logo has been used without attribution by DaimlerChrysler, even as Global Compact officials insist that use of the general UN logo is strictly controlled. The Global Compact represents a smuggling of a business agenda into the United Nations. It should not be considered a contribution to or framework for the Johannesburg Summit."

The United Nations - like NATO and other Cold War critters - is an organization in search of a purpose. The demise of the USSR constituted a tectonic shift in international affairs. The U.N.'s inability to accommodate its institutions to the supremacy of the United States, the demography of China, the decline of Britain and France and the economic clout of Germany and Japan are symptoms of denial and delusion that are detrimental to the future of this otherwise benign and useful establishment. The war in Iraq is merely a rude wake-up call. And about time, too.

The Economies of the Middle East

Yesterday, in the Islamic Financial Forum in Dubai, Brad Bourland, chief economist for the Saudi American Bank (SAMBA), breached the embarrassed silence that invariably enshrouds speakers in Middle Eastern get-togethers. He reminded the assembled that despite the decades-long fortuity of opulent oil revenues, the nations of the region - excluding Turkey and Israel - failed to reform their economies, let alone prosper.

Structural weaknesses, imperceptible growth, crippling unemployment and deteriorating government financing confined Arab states to the role of oil-addicted minions. At $540 billion, said Bourland, quoted by Middle East Online, the combined gross domestic product of all the Arab countries is smaller than Mexico's (or Spain's, adds The Economist).

According to the Arab League, the gross national product of all its members amounted to $712 billion or 2 percent of the world's GNP in 2001 - merely double sub-Saharan Africa's.

Even the recent tripling of the price of oil - their main export commodity - did not generate sustained growth equal to the burgeoning population and labor force. Algeria's official unemployment rate is 26.4 percent, Oman's 17.2 percent, Tunisia's 15.6 percent, Jordan's 14.4 percent, Saudi Arabia's 13 percent and Kuwait sports an unhealthy 7.1 percent. Even with 8 percent out of work, Egypt needs to grow by 6 percent annually just to stay put, estimates the World Bank.

But the real figures are way higher. At least one fifth of the Saudi and Egyptian labor forces go unemployed. Only one tenth of Saudi women have ever worked. The region's population has almost doubled in the last quarter century, to 300 million people. Close to two fifths of the denizens of the Arab world are minors.

According to the Iranian news agency, IRNA, the European Commission on the Mediterranean Region estimates that the purchasing power parity income per head in the area is a mere 39 percent of the EU's 2001 average, comparable to many post-communist countries in transition. In nominal terms the figure is 28 percent. These statistics include Israel whose income per capita equals 84 percent of the EU's and the Palestinian Authority where GDP fell by 10 percent in 2000 and by another 15 percent the year after.

Faced with ominously surging social unrest, the Arab regimes - all of them lacking in democratic legitimacy - resort to ever more desperate measures. "Saudisation", for instance, amounts to the expulsion of 3 million foreign laborers to make room for indigenous idlers reluctant to take on these vacated - mostly menial - jobs. About one million, typically Western, expat experts remain untouched.

The national accounts of Arab polities are in tatters. Saudi Arabia managed to produce a budget surplus only once since 1982. Per capita income in the kingdom plunged from $26,000 in 1981 to $7000 today. Higher oil prices may well continue throughout 2003, further masking the calamitous state of the region's economies. But this would amount to merely postponing the inevitable.

Arab countries are not integrated into the world economy. It is possibly the only part of the globe, bar Africa, to have entirely missed the trains of globalization and technological progress. Charlene Barshefsky was United States Trade Representative from 1997 to 2001. In a recent column published by the New York Times, she noted that:

"Muslim countries in the region trade less with one another than do African countries, and much less than do Asian, Latin American or European countries. This reflects both high trade barriers ... and the deep isolation Iran, Iraq and Libya have brought on themselves through violence and support for terrorist groups ... The Middle East still depends on oil. Today, the United States imports slightly more than $5 billion worth of manufactured goods and farm products from the 22 members of the Arab League, Afghanistan and Iran combined - or about half our value-added imports from Hong Kong alone."

Indeed, Jewish Israel and secular Turkey aside, 8 of the 11 largest economies of the Middle East have yet to join the World Trade Organization. Only two decades ago, one of every seven dollars in global export revenues and one twentieth of the world's foreign direct investment flowed to Arab pockets.

Today, the Middle East's share of international trade and FDI is less than 1.5 percent - half of it with the European Union. Medium size economies such as Sweden's attract more capital than the entire Middle Eastern Moslem world put together.

Some Arab countries periodically go through spastic reforms only to submerge once more in backwardness and venality. Oil-producers attempted some structural economic adjustments in the 1990s. Jordan and Syria privatized a few marginal state-owned enterprises. Iran and Iraq cut subsidies.

Almost everyone - especially Lebanon, Egypt, Iran and Jordan -  increased their unhealthy reliance on multilateral loans and foreign aid.

Young King Abdullah II of Jordan, for instance, dabbles in deregulation, liberalization, tax reform, cutting red tape and tariff reductions. Aided by a free trade agreement with America passed by Congress in 2001, Jordan's exports to the United States last year soared from $16 million in 1998 to $400 million.

A similar nostrum is being administered to Morocco, partly to spite the European Union and its glacial "Barcelona Process" Euro-Mediterranean Partnership. But, as everyone realizes, the region's problems run deeper than any tweaking of the customs code.

The “Arab Human Development Report 2002”, published in June last year by the United Nations Development Program (UNDP), was composed entirely by Arab scholars. It charts the predictably dismal landscape: one in five inhabitants survives on less than $2 a day; annual growth in income per capita over the last 20 years, at 0.5 percent, exceeded only sub-Saharan Africa's; one in six is unemployed.

The region's three "deficits", laments the report, are freedom, knowledge and manpower. Arab polities and societies are autocratic and intolerant. Illiteracy is still rampant and education poor. Women - half the workforce - are ill-treated and excluded. Pervasive Islamization replaced earlier militant ideologies in stifling creativity and growth.

In an article titled "Middle East Economies: A Survey of Current Problems and Issues", published in the September 1999 issue of the Middle East Review of International Affairs, Ali Abootalebi, assistant professor of political science at the University of Wisconsin, Eau Claire, concluded:

"The Middle East is second only to Africa as the least developed region in the world. It has already lost much of its strategic importance since the Soviet Union's demise ... Most Middle Eastern states ... probably do, possess the necessary technocratic and professional personnel to run state affairs in an efficient and modern manner .... (but not) the willingness or ability of the elites in charge to disengage the old coalitional interests that dominate governments in these countries."

The looming war with Iraq will change all that. This is the fervent hope of intellectuals throughout the region, even those viscerally opposed to America's high-handed hegemony. But this may well be only another false dawn in many. The inevitable massive postwar damage to the area's fragile economies will spawn added oppression rather than enhance democracy.

According to The Economist, the military buildup has already injected $2 billion into Kuwait's economy, equal to 6 percent of its GDP. Prices of everything - from real estate to cars - are rising fast. The stock exchange index has soared by one third. American largesse extends to Turkey - the recipient of $5 billion in grants, $1 billion in oil and $10 billion in loan guarantees. Egypt and Jordan will reap $1 billion apiece and, possibly, subsidized Saudi oil as well. Israel will abscond with $8 billion in collateral and billions in cash.

But the party may be short-lived, especially if the war proves to be as decisive and nippy as the Americans foresee.

Stratfor, the strategic forecasting consultancy, correctly observes that the United States is likely to encourage American oil companies to boost Iraq's postbellum production. With Venezuela back on line and global tensions eased, deteriorating crude prices may adversely affect oil-dependent countries from Iran to Algeria.

The resulting social and political unrest - coupled with violent, though typically impotent, protests against the war, America and the political leadership - is unlikely to convince panicky tottering regimes to offer greater political openness and participatory democracy.

War will traumatize tourism, another major regional foreign exchange earner. Egypt alone collects $4 billion a year from eager pyramid-gazers - about one ninth of its GDP. Add to that the effects of armed conflict on traffic in the Suez Canal, on investments and on expat remittances - and the country could well become the war's greatest victim.

In a recent economic conference of the Arab League, Egyptian Minister of State for Foreign Affairs, Faiza Abu el-Naga, pegged the immediate losses to her country at $6-8 billion. More than 200,000 jobs will be lost in tourism alone. Egypt's Information and Decision Support Centre (IDSC) distributed a study predicting $900 million in damages to the Jordanian economy and billions more to be incurred by oil-rich Saudi Arabia.

The Arab Bank Federation foresees banking losses of up to $60 billion due to contraction in economic activity both during the war and in its aftermath. This may be too pessimistic. But even the optimists talk about $30 billion in foregone revenues. The reconstruction of Iraq could revitalize the sector - but American and European banks will probably monopolize the lucrative opportunity.

War is likely to have a stultifying effect on the investment climate.

Saudi Arabia and Egypt each attract around $1 billion a year in foreign direct investment - double Iran's rising rate. But global FDI was halved in the last two years. This years, flows will revert to 1998 levels. This implosion is likely to affect even increasingly attractive or resurgent destinations such as Israel, Turkey, Iraq and Iran.

Foreign investors will be deterred not only by the fighting but also by a mounting wave of virulent - and increasingly violent - xenophobia. Consumer boycotts are a traditional weapon in the Arab political arsenal. Coca-Cola's sales in these parched lands have plummeted by 10 percent last year. Pepsi's overseas sales flattened due to Arabs shunning its elixirs. American-franchised fast food outlets saw their business halved. McDonald's had to close some of its restaurants in Jordan.

Foreign business premises have been vandalized even in the Gulf countries. According to The Economist "in the past year overall business at western fast-food and drinks firms has dropped by 40% in Arab countries. Trade in American branded goods has shrunk by a quarter."

These are bad news. Multinationals are sizable employers. Coca-Cola alone is responsible for 220,000 jobs in the Middle East. Procter & Gamble invested $100 million in Egypt. Foreign enterprises pay well and transfer technology and management skills to their local joint venture partners.

Nor is foreign involvement confined to retail. The $35 billion Middle Eastern petrochemicals sector is reliant on the kindness of strangers: Indian, Canadian, South Korean and, lately, Chinese. Singapore and Malaysia are eyeing the tourism industry, especially in the Gulf. Their withdrawal from the indigenous economies might prove disastrous.

Nor will these battered nations be saved by geopolitical benefactors.

The economies of the Middle East are off the radar screen of the Bush administration, accuses Edward Gresser of the Progressive Policy Institute in a recently published report titled "Blank Spot on the Map: How Trade Policy is Working Against
the War on Terror".

Egypt and most other Moslem countries are heavily dependent on their textile and agricultural exports to the West. But, by 2015, they will face tough competition from nations with contractual trade advantages granted them by the United States, goes the author.

Still, the fault is shared by entrenched economic interest groups in the Middle East . Petrified by the daunting prospect of reforms and the ensuing competitive environment, they block free trade, liberalization and deregulation.

Consider the Persian Gulf, a corner of the world which subsists on trading with partners overseas.

Not surprisingly, most of the members of the Arab Gulf Cooperation Council have joined the World Trade Organization a while back. But their citizens are unlikely to enjoy the benefits at least until 2010 due to obstruction by the club's all-powerful and tentacular business families, international bankers and economists told the Times of Oman.

The rigidity and malignant self-centeredness of the political and economic elite and the confluence of oppression and profiteering are the crux of the region's problems. No external shock - not even war in Iraq - comes close to having the same pernicious and prolonged effects.

Via a Parte 3