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US, France and Germany: Divisions and Lack of Professionalism Everywhere

We all need more team spirit. Obama's Afghanistan team is in disarray. Their egos seem to be as bloated as the ego's in the French soccer team.

While President Obama is angry with McChrystal's frank comments and perhaps insubordination, President Sarkozy is reportedly furious over the national team's behaviour inside and outside the soccer stadiums. It was not really a "team." He even cleared his schedule for a one hour meeting with the captain on the day of a general labor strike. That shows how important the soccer team is for France as a symbol of national integration and unity.

Germany's coalition government has been in disarray for months as well with some calling each other "wild pigs" and "gherkin troops" (rank amateurs). (There are also rumors that one cabinet member called the defense minister "rumpelstiltskin.") Though, thanks to the national soccer team's victory over Ghana today, Merkel's government won't collapse yet. ;-)

If Germany had failed to make it into the round of sixteen for the first time in history, it would have been a national fiasco. Let's do not forget that the German coach is not called "Trainer der Nationalmannschaft," but goes by the official sounding name "Bundestrainer," just like the top government titles "Bundeskanzler," "Bundespräsident" etc.

On Sunday, we will play against England. One British fan said on TV that the world cup was invented for England and Germany to play against each other. Good point. Still, it is regrettable (but not at all surprising) that the British tabloid The Sun uses military language to describe the upcoming match. Come on, guys. It's just soccer. The real war is in Afghanistan.

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The Annual "Will Europe Freeze?" Month

Ah yes, it is that wonderful time of year. Fresh snow, college football bowl games in the US, a new year...and uncertainty surrounding European energy security. Some things never seem to change.

This year adds a few new wrinkles to the annual, "Will Europe Freeze?" month however. For the first time in years, the center of energy disruption does not appear to be the Ukrainian border. Ukraine has paid in full and on time for its use of Russian gas during 2009, and both Russia and Ukraine appear determined to avoid a gas war during an election year. So this year, the energy disputes have shifted north.

First, Belarus and Russia remained locked in heated (excuse the pun) negotiations about oil supply prices between the two countries. Russia has already cut oil supplies to Belarus once this week and many analysts expect further restrictions in the weeks to come. The clash feels all too familiar: Russia, frustrated with its neighbor's overtures to the West decides to throw its weight around in the energy sector to bring it to heel. Of course, the blame also resides with Belarus which has for years subsidized its economy through cheap energy from Russia. If the country truly wants to play on the international arena, it must now be prepared to pay market prices for its resources.

Second, Lithuania has been compelled to shut down its aging nuclear power plant on New Year's Eve, leaving it completely dependent on Russia for its energy supply. The closure was required by the European Union, but leaves Lithuanians feeling very nervous. Russia has already played its energy card in the Baltic, shutting down its oil pipeline to Lithuania in 2007. Energy supply form other EU countries remains extremely weak, and a dramatic increase in energy prices is very likely for this Baltic country already struggling through an extremely difficult recession.

Finally, the UK is approaching capacity limits as it struggles with an extremely cold winter. The Wall Street Journal is reporting today that Britain only has gas storage capacity equivalent to 4% of annual consumption, compared with over 100% storage in the US and 19% in Germany. And National Grid warned this week that supply will be tight in coming weeks.

None of the preceding events really come as a surprise. Despite that, Europe has again been caught off guard. The Spanish Presidency is trying to salvage a July Commission proposal regarding gas security and supply but countries continue to insist the Commission is overstepping its authority. And efforts to encourage greater infrastructure developments within Europe remain merely efforts. So what will it take to really see the development of a true European energy policy? In the US, it took two oil embargoes before the country started developing strategic reserves. And the price of oil reached $160 a barrel before consumer's behavior started to change.

Readers Pat and Pamela both suggested that the Atlantic Review analyze Russian and European energy policy in the upcoming year. This will certainly be an important topic, particularly in the first few months. But at first glance, little has changed. The Russian energy policy of 2010 seems identical to that of preceding years: throw its weight around in the natural resource arena to extract concessions in the political realm. And there still is no real European energy policy to discuss. Europe continues to shiver and simply hope the heat stays on.

Europe's very cold war: Russia cuts gas to Ukraine

Ukraine enters 2009 stuck between a bear and a hard place. 

The hard place is the west, who is like a friend who always says your invitation to the party is in the mail, but it never shows up.  Since the 2004 Orange Revolution Ukrainian President Viktor Yushchenko has pushed and pulled to move Ukraine toward EU and NATO membership, and yet its prospects remain shrouded in ambiguity.  While NATO has promised future membership someday, the Alliance decided to not move forward with Membership Action Plans for either Ukraine or Georgia at a NATO summit in December, again leaving them in limbo.  

And then there is the bear: Ukraine’s slow push west is a thorn in the toe of Russia who considers Ukraine part of its sphere of influence, and is increasingly tenacious in bearing its chilling grizzly teeth.
 
2009 is not likely to bring much warmer relations for Ukraine with either the west or Russia.  I wrote about Ukraine’s improbable 2009 NATO prospects in a post titled "Why Ukrainian’s don’t want NATO".  Regarding Ukraine’s easterly neighbor, Russia has launched the new year with a cut off of gas to Ukraine leaving it and a baker's dozen of European countries with (in some cases drastically) reduced gas supplies at a time when it is cold in Europe, very cold.

The reasons for Russia’s gas power play are both economic and political

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The Impact of the Oil Shock: Trade Networks Shrink

This is a guest blog post by Donald Stadler, an American living and working in London:

Washington Post economics columnist Robert Samuelson recently wrote a piece about the trade impact of the oil shock on the US, quoting economist Jeffrey Rubin of CIBC World Markets, who predicts that oil will go to $225 a barrel/$7 a gallon before this is finished.

Apart from the obvious impact on per-liter fuel prices in Europe (I have heard of diesel prices as high as £1.99 a litre in the UK), there are some interesting side effects on world trade.

The bottom line is that shipping cheap manufactures thousands of miles make much less sense than it has this past decade. Since 2000 the cost of shipping a 40 foot shipping container from East Asia to the US has gone from $3000 to $8000, and if oil prices go to $200 a barrel this will go to $15,000 per container.

Some production will be brought back to the US and Europe, and other production will go from Asia to nearby low-wage countries like Mexico (for the US) and Poland/Bulgaria/Romania, and perhaps Russia and Turkey (for the EU). This may be good news for factory workers in Italy and in depressed areas of Germany and the UK.

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High Demand Or Rather An Oil Bubble?

A tip from our reader Don has led us to an article in the London Times. In it, economics columnist Anatole Kaletsky argues that the astronomical oil price is not caused by economic fundamentals like supply and demand,

but rather the product of a typical financial boom-bust cycle, which could be deflated - especially with some help from sensible political action - as quickly as it built up. [...]
In the late stages of financial bubbles, it is quite normal for prices to become completely detached from economic fundamentals. House prices in Florida and Spain kept rising even after property developers built far more homes than they could possibly sell. The same thing happened in credit markets: mortgage securities kept rising even while banks created “special purpose vehicles” to acquire vast “inventories” of bonds for which there were no genuine buyers - and dozens of similar examples can be cited from the bubbles in internet stocks and Japan. Similarly, the International Gold Council reported this week that gold demand for commercial uses and investment fell 17 per cent in January, just as the gold price surged through $1,000 for the first time.
Now consider the situation today in oil markets: the Gulf, according to Mr Rothman, is crammed with supertankers chartered by oil-producing governments to hold the inventories of oil they are pumping but cannot sell. That physical oil is in excess supply at today's prices does not mean that producers are somehow cheating by storing their oil in tankers or keeping it in the ground. All it suggests is that there are few buyers for physical oil cargoes at today's prices, but there are plenty of buyers for pieces of paper linked to the price of oil next month and next year. This situation is exactly analogous to the bubble in credit markets a year ago, where nobody wanted to buy sub-prime mortgage bonds, but there was plenty of demand for “financial derivatives” that allowed investors to bet on the future value of these bonds.

The article quotes a book by George Soros which is available on Amazon.de or Amazon.com.

Global Oil Panic: The United States of America

Oil prices are on the up and up, setting new records at the pump. Each time this happens, a spate of panicky reactions in national politics, all isolated from each other, burst up. First, a brief look at the state of the debate in the USA:

In the USA, McCain has proposed reacting to the higher oil prices by temporarily cutting taxes. This is in keeping with the Republican solution to everything -- cut taxes. Hillary Clinton has jumped on the McCain tax cutting train, hoping to draw more contrasts with Barack Obama. Meanwhile, Obama finds himself in the same camp as George W. Bush in opposing a symbolic tax holiday. A few paragraphs from the New York Times, via Drezner:

At a meeting with voters in North Carolina on Monday, Mr. Obama said lifting the gas tax for three months would save the average consumer no more than $30, a figure confirmed by Congressional analysts. Mr. Obama has previously dismissed Mr. McCain’s proposal as a “scheme.”

“Half a tank of gas,” Mr. Obama told his audience. “That’s his big solution.”

President Bush’s spokeswoman essentially sided with Mr. Obama in saying that tax holidays and new levies on oil companies would not address the long-term problems of dependence on foreign oil.

Dana Perino, the White House spokeswoman, said gasoline prices were “entirely too high, but I think it would be disingenuous and unfortunate for American consumers for them to be led to believe that there is a short-term fix.”

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Boeing's New "Greener" 787 Airliner

The Times Online:
The lower weight and fewer parts mean that the 787 should use 20 per cent less fuel and require 30 per cent less maintenance than its predecessors. Boeing said that the model would make less noise and its Rolls-Royce and General Electric engines pollute less than those in equivalent-sized jets.
Sounds like good environmental progress! I have not found any definitive information, but a few articles suggest that Boeing jets have been more fuel efficient than Airbus jets in the past and that Boeing will continue to lead with the new airliners. Does anybody know more details and direct comparisons?

Meanwhile, Forbes writes about the Airbus vs Boeing competition:
Airbus took 680 firm orders in the first half of 2007, according to figures published on its website today, and has overtaken US rival Boeing which notched up 544 orders for the year to July 3. Airbus also outperformed its US rival in terms of deliveries over the period, reporting a record 231 for the first half of the year.

Sweden's IKEA Promotes Environmental Consciousness in the United States

Quote from a Reuters article on MSNBC
Sweden's IKEA will charge U.S. customers five cents for disposable plastic shopping bags in what the international furniture giant said on Wednesday was a first step to ending their use altogether. IKEA said the decision to stop giving away free bags to customers aimed to reduce the estimated 100 billion bags thrown away by all U.S. consumers each year.
IKEA is believed to be first major retailer in the United States to undertake such a program, according to National Retail Federation spokesman Scott Krugman. (...)
The average American family of four throws away about 1,500 single-use polyethylene bags, which do not degrade for around 1,000 years, IKEA said. Less than 1 percent are recycled.
The NGO Reusable Bags mentions similar statistics: "According to The Wall Street Journal, the U.S. goes through 100 billion plastic shopping bags annually. An estimated 12 million barrels of oil is required to make that many plastic bags." This  contributes a bit to dependency on foreign oil and global warming, in addition to increasing the shopping costs to consumers by 4 billion dollars annually. Plastic bags pollute the air in the production process and later pollute the soil of landfills or kills sea animals, writes Reusable Bags in The Real Cost of "Free". I don't know how many plastic bags the average German or European consumes, but it is definitely too many. Germans produce increasingly less trash, but it is still too much.

From the British ITV News:
Analysis by the Local Government Association revealed that UK households send almost 27 million tonnes of rubbish to landfill every year. This is equivalent to almost half a tonne for every home in the country. The figures also show that Britain sends seven million tonnes more rubbish into landfill than any other country in Europe. Germany, which has a population 25% larger than the UK, disposes of less than half the amount of rubbish into the ground.