Humpty Obumpty and the Arab Spring

By Spengler

I've been warning for months that Egypt, Syria, Tunisia and other Arab oil-importing countries face a total economic meltdown (see Food and failed Arab states, Feb 2, and The hunger to come in Egypt, May 10). Now the International Monetary Fund (IMF) has confirmed my warnings.

The leaders of the industrial nations waited until last weekend's Group of Eight (G-8) summit to respond, and at the initiative of United States President Barack Obama proposed what sounds like a massive aid program but probably consists mainly of refurbishing old programs.

The egg has splattered, and all of Obumpty's horses and men can't mend it. Even the G-8's announcement was fumbled; Canada's Prime Minister Steven Harper refused to commit new money, a dissonant note that routine diplomatic preparation would have pre-empted.

The numbers thrown out by the IMF are stupefying. "In the current baseline scenario," wrote the IMF on May 27, "the external financing needs of the region's oil importers is projected to exceed $160 billion during 2011-13." That's almost three years' worth of Egypt's total annual imports as of 2010. As of 2010, the combined current account deficit (that is, external financing needs) of Egypt, Syria, Yemen, Morocco and Tunisia was about $15 billion a year.

What the IMF says, in effect, is that the oil-poor Arab economies - especially Egypt - are not only broke, but dysfunctional, incapable of earning more than a small fraction of their import bill. The disappearance of tourism is an important part of the problem, but shortages of fuel and other essentials have had cascading effects throughout these economies.

"In the next 18 months," the IMF added, "a greater part of these financing needs will need to be met from the international community because of more cautious market sentiments during the uncertain transition."

Translation: private investors aren't stupid enough to throw money down a Middle Eastern rat-hole, and now that the revolutionary government has decided to make a horrible example of deposed president Hosni Mubarak, anyone who made any money under his regime is cutting and running. At its May 29 auction of treasury bills, Egypt paid about 12% for short-term money, to its own captive banking system. Its budget deficit in the next fiscal year, the government says, will exceed $30 billion.

And the IMF's $160 billion number is only "external financing"; that is, maintaining imports into a busted economy. It doesn't do a thing to repair busted economies that import half their caloric intake, as do the oil-poor Arab nations.

Egypt's economy is in free fall. Its biggest foreign exchange earner was a tourist industry that won't come back for a decade, if ever. The IMF's $160 billion doesn't take into account the costs of teaching two-fifths of the Egyptian population to read, or raising crop yields to more than a fifth of American levels, or training university graduates to do more than stamp identity cards and shuffle papers. As the international organization made clear, this is what Egypt and its neighbors require merely to pay for essential imports.

Of course, the IMF's admission that Egypt, Tunisia, Syria and Yemen can't meet the majority of their import bill without foreign aid does not increase the probability that these countries will obtain financing on that scale. On May 30, the IMF announced that it would lend $3 billion to Egypt - a tenth of its budget deficit - sometime in June. The G-8 offered the grandiose pledge of $20 billion in their own money along with $20 billion from the IMF, World Bank, and so forth, to support the "Arab Spring", with the dissension of the Canadian prime minister. But it is unclear whether that represents new money, or a shuffling of existing aid commitments, or nothing whatever.

Whatever the Group of Eight actually had in mind, the proposed aid package for the misnomered Arab Spring has already become a punching bag for opposition budget-cutters. "Should we be borrowing money from China to turn around and give it to the Muslim Brotherhood?" Sarah Palin asked on May 27.

"Now, given that Egypt has a history of corruption when it comes to utilizing American aid, it is doubtful that the money will really help needy Egyptian people. Couple that with the fact that the Muslim Brotherhood is organized to have a real shot at taking control of Egypt’s government, and one has to ask why we would send money (that we don't have) into unknown Egyptian hands," the former Republican vice-presidential candidate added.

Whether any amount of foreign aid will stabilize Egypt's economic position is questionable, even if the industrial nations and the Arab Gulf states opened their purses, which is doubtful.

From Arab-language online media, it appears that Egypt's economic troubles have metastasized. Last month, rice disappeared from public storehouses amid press reports that official food distribution organizations were selling the grain by the container on the overseas market. Last week, diesel fuel was the scarce commodity, with 24-hour queues forming around gasoline stations. Foreign tankers were waiting at Port Said on the Suez Canal to pump diesel oil from storage facilities, as government officials sold the scarce commodity for cash.

This is the sort of general breakdown I observed in 1992 in Russia, following the collapse of the communist government. As an adviser to finance minister Yegor Gaidar, I heard stories of Russian officials selling unregistered trainloads of raw materials on foreign markets and depositing the proceeds in Swiss banking accounts. Anything of value that could find a buyer overseas was sold. I didn't last long as an adviser; looting and pillaging wasn't my area of competence. Russia, it should be recalled, is largely self-sufficient in food and is among the world's largest oil producers, while Egypt imports half its food. Russia had enormous resources on which to draw. Egypt, Syria and Tunisia have nothing.

For 60 years, the Egyptian army and associated crony capitalists ran the economy as a private preserve. Although the army remains in nominal charge, the public humiliation of Mubarak serves notice on the previous masters of Egypt's little universe that they are as vulnerable as their former patron. Everyone who can get out will and will take with them whatever they can.

Syria is also vulnerable to hunger, the UN's Food and Agriculture Organization (FAO) warned May 23. "Continuing unrest in Syria will not only affect economic growth but could disrupt food distribution channels leading to severe localized shortages in main markets," according to the FAO. ''Syria hosts one of the largest urban refugee populations in the world, including nearly one million Iraqis who have become more vulnerable because of rising food and fuel prices."

Nearly 700,000 Libyan refugees have reached Libya and Egypt, fleeing their country's civil war. At least 30,000 Tunisian refugees (and likely many more) have overwhelmed camps in Italy, and perhaps a tenth of that number have drowned in the attempt to reach Europe. A large but unknown number of Syrian refugees have fled to Lebanon and Turkey.

Robert Fisk wrote in the London Independent on May 30 that Turkey fears a mass influx of Syrian Kurdish refugees, so that "Turkish generals have thus prepared an operation that would send several battalions of Turkish troops into Syria itself to carve out a 'safe area' for Syrian refugees inside Assad's caliphate." The borders of the affected nations have begun to dissolve along with their economies. It will get worse fast.

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Israel as a GROWING Middle Eastern hegemon

Spengler indulges below in some straight-line extrapolation. Such extrapolations are almost always wrong but in this case it has considerable plausibility -- JR

Like the vanishing point in a perspective painting, long-term projections help us order our perceptions of what we see in front of us today. Here's one to think about, fresh from the just-released update of the United Nations' population forecasts: At constant fertility, Israel will have more young people by the end of this century than either Turkey or Iran, and more than German, Italy or Spain.

With a total fertility rate of three children per woman, Israel's total population will rise to 24 million by the end of the present century. Iran's fertility is around 1.7 and falling, while the fertility for ethnic Turks is only 1.5 (the Kurdish minority has a fertility rate of around 4.5).

Not that the size of land armies matters much in an era of high-tech warfare, but if present trends continue, Israel will be able to field the largest land army in the Middle East. That startling data point, though, should alert analysts to a more relevant problem: among the military powers in the Middle East, Israel will be the only one with a viable population structure by the middle of this century.

That is why it is in America's interest to keep Israel as an ally. Israel is not only the strongest power in the region; in a generation or two it will be the only power in the region, the last man standing among ruined neighbors. The demographic time bomb in the region is not the Palestinian Arabs on the West Bank, as the Israeli peace party wrongly believed, but rather Israel itself.

The right way to read this projection is backwards: Israelis love children and have lots of them because they are happy, optimistic and prosperous. Most of Israel's population increase comes from so-called "secular" Israelis, who have 2.6 children on average, more than any other people in the industrial world. The ultra-Orthodox have seven or eight, bringing total fertility to three children.

Europeans, Turks and Iranians, by contrast, have very few children because they are grumpy, alienated and pessimistic. It's not so much the projection of the demographic future cranked out by the United Nations computers that counts, but rather the implicit vision of the future in the minds of today's prospective parents.

People who can't be bothered to have children presumably have a very dim view of days to come. Reams have been written, to be sure, about Europe's demographic tailspin. Less has been said about Persian pessimism and Anatolian anomie.

Paradoxically, this makes Israel's present position dangerous, for its enemies understand that they have a very brief window in which to encircle the Jewish superpower. The collapse of Egypt and possibly that of Syria shortens this window. Nothing short of American support for a unilateral declaration of a Palestinian state on the 1949 armistice lines followed by economic sanctions against Israel, though, is likely to make a difference, and this seems unlikely.

Israel already is a high-tech superpower. Israeli leads the Group of 7 industrial nations in patent applications. As Professor Reuven Brenner of McGill University wrote in the January 2010 issue of First Things:

"Today Israel's venture capital industry still raises more funds than any other venue except the United States. In 2006 alone, 402 Israeli hi-tech companies raised over $1.62 billion - the highest amount in the past five years. That same year, Israel had 80 active venture capital funds and over $10 billion under management, invested in over 1,000 Israeli start-ups."

Maintaining the stunning progress of the past decade will be a challenge, because Israel's high-tech sector received a one-time boost from Russian emigration. As Brenner observes:

"Of the million Russians who moved to Israel during the 1980s and 1990s, more than 55 percent had post-secondary education, and more than half held academic and managerial positions in their former country ... This made Israel the world leader in the scientist and engineer workforce, followed by the United States with 80 and Germany with 55 scientists and engineers per 10,000 members of its labor force."

Israel's prowess in the arts matches its accomplishments in technology and business. Israel has become something of a superpower in that most characteristically Western art form, classical music. In a July 21, 2010, survey of Israeli music for the webzine Tablet, I wrote, "Israelis take to classical music - the art form that most clearly creates a sense of the future - like no other people on earth, to the point that music has become part of Israel's character, an embodiment of the national genius for balancing hope and fear."

Israel has one the largest local audience for chamber music recitals of any country in the world, and its leading musicians occupy top slots around the world - for example Guy Braunstein, concertmaster (principal violin) of the Berlin Philharmonic.

This, I believe, explains the implacable hostility of Israel's neighbors, as well as the Europeans. It is the unquenchable envy of the dying towards the living. Having failed at Christianity, and afterward failed at neo-pagan nationalism, Europe has reconciled itself to a quiet passage into oblivion.

Israel's success is a horrible reminder of European failure; its bumptious nationalism grates against Europe's determination to forget its own ugly embrace of nationalism; and its implicitly religious raison d'etre provokes post-Christian rage. Above all, it offends Europe that Israel brims with life. Some of Europe's great nations may not survive the present century. At constant fertility, Israel will have more citizens than any of the Eastern European countries where large numbers of Jews resided prior to the Holocaust.

In the constant fertility scenario, Israel will end the century at a median age of 32, while Poland will have a median age of 57. That is an inherently impossible outcome, because in that case most of Poland's population would be elderly dependents. To support them, the remaining young people would have to emigrate and work overseas (perhaps in Israel).

The Muslim world, meanwhile, is turning grey at an unprecedented rate. Turkey's and Iran's median age will surpass the 40-year mark by mid-century, assuming constant fertility, while Israel's will stabilize in the mid-30s. Europe will become an impoverished geriatric ward.

The implications of these trends have not escaped the leaders of the affected countries. "If we continue the existing trend, 2038 will mark disaster for us," Turkish President Recep Tayyip Erdogan warned in May 2010

I do not know whether Erdogan chose the year 2038 by statistical projection, or whether he consulted the Muslim counterpart of Harold Camping, but it will do as well as any. Iran's President Mahmud Ahmadinejad, meanwhile, has warned repeatedly of "national extinction" if the country's low birth rate persists.

What happens to Egypt and Syria in this scenario is of small importance. Neither country will come out of the present crisis in any condition to fight, if they come out of it at all. Egypt's social structure - with two-fifths of the country immured in extreme rural poverty, and another quarter starving on thin subsidies in Cairo and Alexandria - simply is not viable.

There is no civil society underneath the military. The collapse of Mubarak's military dictatorship came about when food price inflation revealed its incapacity to meet the population's basic needs. But the collapse of military rule and the flight of the army-linked oligarchy that milked the Egyptian economy for 60 years is a near-term disaster.

In place of the orderly corruption over which Mubarak presided, there is a scramble on the part of half-organized political groups to get control of the country's shrinking supply of basic goods. Civic violence likely will claim more lives than hunger.

Refugees from Libya and Tunisia have swamped the refugee camps on the closest Italian island, and hundreds have drowned in small boats attempting to cross the Mediterranean. By the end of this year, tourists on the Greek islands may see thousands of small boats carrying hungry Egyptians seeking help. Europe's sympathy for the Arab side may vanish under an inundation of refugees.

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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)

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