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Debt Will be More Manageable with Smart Tax Cuts

Atlantic Review appreciates that two Wall Street Journal contributors respond to our blog post on their article.

George Pieler and Jens Laurson took issue with the French finance minister's claim that German productivity ails Europe's economy. Joerg Wolf agreed with their criticism in Atlantic Review's post Germany as Maya the Bee, but expressed disagreement on the issue of tax cuts, even though that was not a central part of their article.

Jens Laurson and George Pieler have now submitted the following riposte, which we appreciate and are happy to post here:

In commenting on our Wall Street Journal piece ("Not so Faaaaast, Germany"), Joerg Wolf, Editor of the Atlantic Review, disagrees with the following observation: "Germany should cut taxes.  But it should do so for its own good..."

Mr. Wolf makes three points which we should like to examine; hoping to clarify an evident misunderstanding that has arisen.

Mr. Wolf says Germany has been advised to cut taxes "especially of top earners, over the past twenty years.  Such advice is neither helpful nor original and creative."  Well, neither originality nor creativity was our intent, nor is that an argument against the argument. The question is, whether it is good advice. Certainly if it is such oft-repeated advice there must be something to it?  For the record, we think cutting taxes is good-indeed essential-advice. This is partly because Germany has one of the highest top personal tax rates in world (47%). More worryingly, the German state absorbs nearly half the nation's GDP which means an astonishing, if hidden loss of productivity.  This formula has worked for Germany so far, a reflection of popular acceptance of high taxes in exchange for government-guaranteed income security programs.  We don't think that will work so well in the future, though. The German tax cuts over the last two decades Mr. Wolf mentions, in any case far outweighed by the tax increases in the same time, are irrelevant to this discussion.

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Obama's Afghan Strategy: Regional Perspectives

The Atlantic Review is pleased to present this guest article by Dr. Shanthie Mariet D'Souza of the Institute for Defence Studies and Analyses, New Delhi, India.

Dr. D'Souza (image file)President Barack Obama’s ‘new strategy on Afghanistan’, unveiled on December 1 at the U.S. Military Academy at West Point, linking additional troop deployment to a timetable of drawdown of forces and narrowly defined goals, misses out on the core essentials of counter-insurgency (COIN) campaigns which hinges on time, long-term commitment, institution building and larger political strategy. Ultimately, COIN campaigns are won in the political domain, where military is only one of the many essential elements to achieve the long-term solution.

As the debate on the troop surge raged in the United States following the controversial Afghan presidential elections and waning domestic support for the Afghan war, President Obama announced his decision to send 30,000 troops within the first half of 2010, nearly acceding to his top military commander General McChrystal’s request for an additional 40,000. President Obama banking on his approach of ‘multilateralism and diplomacy’ has requested NATO allies to pitch in another 10,000 troops. So far NATO appears to have managed to garner support for another 7,000. Combined with NATO troops, the top US Gen. McChrystal would eventually get the required number of 40,000. The amount spent on Afghan war will increase from an estimated $130 billion in fiscal 2010 to $160 billion.

With increased troop levels, Gen. McChrystal had promised to turn the tide of the Taliban momentum in 12 months. By adopting a ‘population-centric’ COIN strategy of ‘clear, hold, build and transfer’, the additional troop could help in ‘clearing and holding’ insurgency afflicted areas in the south and east. However, with focus of troop deployment being the South and the East, concerns abound regarding the stability of Afghanistan’s North and the West. The Taliban insurgency which works through various networks has the capacity to cause instability in these regions, as witnessed recently in Kapisa, Kanduz and Baglan. More importantly, the COIN strategy does not look at new measures of cutting the symbiotic nexus and sources of funding of the various strands of Taliban insurgency which is a huge motley of various anti government groups, followers of Afghan warlord Gulbuddin Hekmatyar’s radical group Hizb-i-Islami, the Haqqani network, Al Qaeda and its affiliates, religious clerics, narcotic traffickers, bandits and tribal fighters in the Pakistan-Afghanistan border region. For instance, the Haqqani network, operating in Khost, Paktia, Paktika, and North Waziristan has now extended its activities to Ghazni, Logar and Wardak provinces.
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Debt Debaters

This post is from Andrew Zvirzdin, who used to be a guest blogger, but now joins Atlantic Review as part of the team. Andrew is originally from upstate New York and is currently finishing his second year of grad school at the Maxwell School in Syracuse

After the implosion of the Dubai miracle in the desert, investors are nervously looking elsewhere for the next debt debacle. No small wonder that the focus has turned to European countries with high debt loads such as Greece and Italy. Top European monetary gurus have been quick to assure investors that no European default is likely. But these days, anyone with a big credit card bill looks suspect in international finance.

The remarkable thing is that the EU has taken a significant lead in charting the course towards global economic recovery, despite its heavy debt burden. Consider for example that Germany and France were among the first countries to escape the present recession late this summer. Their robust growth was due in part to automatic stabilizers already in place when the financial crisis hit. And the notorious-and by some estimates, beneficial-cash-for-clunkers program in the US was inspired by Germany and other European countries who already had similar but more successful programs.

Now, as Europe is fading as the American health care punching bag, the continent's ability to live with government debt is under close scrutiny. Paul Krugman has recently warned (here and here) against an excessive focus on fiscal deficits in the US, pointing to Europe as an example: "If these countries can run up debts of more than 100 percent of GDP without being destroyed by bond vigilantes, so can we." CNBC is less positive in its assessment but acknowledges that Italy's resilience despite high debt levels means there is still a "lot of debt tolerance out there."

Still, debt will remain a worry on everyone's mind for some time to come, though the Eurozone has the tools needed to weather this storm (as I have written about here and here), and the US still has its financial strength. With the US and European countries consistently ranked as among the most indebted countries in the world, both sides of the Atlantic will likely need to work together on debt-related matters. Indeed, as the eurozone has already shown, teaming up with other indebted nations makes it that much harder to be bullied around by international markets.

That Vision Thing (Or: The Best of Atlantic Review)

This is a guest post from our long-time reader and commenter John Hadjisky, who comments as "John in Michigan" on Atlantic Review

I've been thinking about how to explain the trans-Atlantic relationship to an average citizen on either side, in broad strokes. Part of the problem is a lack of common vocabulary. Here on Atlantic Review we tend to bash away at that problem using a combination of rants and highly technical analysis. I have nothing but praise for a good rant, especially one that attracts readers. But, rants have obvious problems. Technical arguments, meanwhile, at best are wonkish, and at worst are nit-picking.

Occasionally, however, we get some real gems here. So for my first official guest post, I decided to mine the archives and highlight what I like best about Atlantic Review. I hope everyone will add their own "best of" links.

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Europe? Yawn

This is a guest post from Andrew Zvirzdin.  Originally from upstate New York, Andrew is currently finishing his second year of grad school at the Maxwell School in Syracuse.

Exciting things have been happening in Europe this fall, and indeed for much of this year. Federal elections in Germany, the Lisbon referendum in Ireland, and the intense public debate on Afghanistan in the UK and Germany are all events that have significant repercussions for the United States. Yet many Americans do not seem to have noticed all that much.

To be sure, some discussion of Europe continues to pop up during the American health care debate, but the caricatures painted are grossly distorted and nearly unrecognizable. (Who knew that the UK hated senior citizens so much?) According to Anne Applebaum at, Europe is really only good for photo-ops and speech-making. Considering the intense transatlantic soul-searching after the Iraq War and the prominent roll Europe played in last year's presidential campaign, the American ennui with Europe is somewhat surprising.

My suspicion is that the lack of interest in Europe is only a reflection of America's decreasing attention span. Particularly as the economic crisis leads leaders and citizens to focus inwards, public interest is best captured by flashy slogans and polarizing phrases. Complex discussions about strengthening stable partnerships quickly lose public appeal in the Twitter era. America's relationship with European countries does not fit well in an era of resurging partisan politics and cable television.

Failing to capture the public attention is fine as long as public officials continue to engage with each other. Important discussions concerning the future of NATO, the Open Skies Initiative, and international financial regulation are all currently taking place, with significant consequences for both Europe and the US. Sometimes the most fruitful discussions occur under the radar of public interest. But the danger is that public officials will lose interest themselves; they are after all beholden to the people. For now at least, the important discussions are ongoing.

The paradox is similar to what the European Union faces with its members. Slow, steady, and boring progress has benefitted EU citizens without anyone really noticing, and that is the problem. Citizens of EU countries do not realize how valuable the Union is to economic growth and international competitiveness; likewise, Americans do not recognize how valuable its European allies are in promoting stability and security around the world. Unfortunately, until transatlantic leaders learn to distill the value and importance of Europe in 140 characters or less, many Americans will continue to yawn at the "Old Continent."

Obama: Peace Prize is 'Affirmation of American Leadership'

US President Barack Obama accepted the Nobel peace prize, but stated that "I do not view it as a recognition of my own accomplishments, but rather as an affirmation of American leadership on behalf of aspirations held by people in all nations."

This speech has made clear that Obama sees himself as re-establishing American soft power. What should he do with the 10 million Swedish Kronor?

The German "Obama Girl" Adores Steinmeier

The election campaign in Germany was pretty boring, but it got a bit more interesting in recent weeks as the opinion polls show some movement. Merkel will most likely remain chancellor, but its open whether she will govern with the Liberal Democrats, or have to continue to work with the Social Democrats. The latter gained a few percentage points in the polls in recent weeks.

And now, a German "Obama girl" has appeared. She sings that she has a crush on German Foreign Minister Steinmeier ("Steini") from the Social Democrats. Will everything change now? Is Steinmeier going to become chancellor after all? Nah, I doubt it. It's just funny that pretty cheap versions of Obama type campaigning are appearing now in Germany.

For a bit more seriousness have a look at the The Obama Check by the TapMag blog ranking German politicians' Obamaness.

Related post on Atlantic Review: Germans Learned Nothing from Obama

Ukraine Has Averted Economic Meltdown. Now What?

This is a guest post from Andrew Zvirzdin.  Originally from upstate New York, Andrew is currently finishing his second year of grad school at the Maxwell School in Syracuse.

The world has started to pay closer attention to Ukraine and it shows. Since the gas crisis in January of this year and the staggering decline of the Ukrainian economy through the first half of the year, officials in Europe and the US have worked in close collaboration with and for Ukraine. The support and attention (along with an improving global economy) has helped Ukraine avoid the calamitous economic fate I previously feared. But the real questions surrounding the country’s political identity remain.

Nearly all recent news in Ukraine seems positive. The EU announced last month that it had cobbled together a group of international banks willing to lend Ukraine $3.6 billion to buy gas in the near term. Prime Minister Yulia Tymoshenko further announced that all outstanding gas disputes have been resolved after meeting with Prime Minister Vladimir Putin on September 1. And industrial production and steel exports are starting to climb higher. With money in their pockets, gas in the tank, and happier neighbors, Ukraine appears ready to reemerge as a strong regional player. 

But underneath the surface, Ukraine remains severely divided by its two big neighbors and its two executives. Pro-west President Viktor Yuschenko continues to speak glowingly of Ukraine’s western neighbors, claiming that Ukraine would soon sign an Association Agreement with the EU. Prime Minister Tymoshenko meanwhile has appeared to grow closer to Russia in recent months, culminating with her praise of Prime Minister Putin at the September summit. The Ukrainian population appears as divided as their leaders; forging closer relations with Russia and the West are both distasteful options for a majority.

So who really speaks for Ukraine? And if there were such a person, what would they say? Hopefully, this will become clearer following the presidential elections to be held on January 17, 2010. But until then, political confusion threatens to undermine any new economic security. The EU has stipulated a number of reforms as a condition for the loans, including fighting corruption while raising the heavily-subsidized price of gas for Ukrainians. It is not at all certain that the politicians are up to the task. Institutional reform­—to explicitly delineate executive power —is even more needed and less likely. The end result is that Ukraine will remain confused and unsure of which direction to face for some time to come. As temperatures start to fall, that prospect will surely cause some Europeans to shiver.