Wednesday, March 11, 2015

Ukraine Bailout Risks Putting IMF Credibility On The Line.

The IMF may not be the most loved international entity. While it can be credited for executing many sovereign rescues, more recently in Europe, where countries like Romania, Greece, Hungary and Ireland found it necessary to ask for IMF help, it is also known for producing much misery in the process. It is quite obvious if one follows the policies it pushes on the borrower, that the loan comes with a wish list made up by those who do the lending through the IMF. The interests of those who draft that wish list tend to be in contrast to the interests of the country that is being bailed out.

While its policies are much criticized, reality is that it has been an important ingredient in maintaining a degree of stability on the international sovereign debt markets. Bond investors know that there is an extra layer of protection provided by an entity that is willing to lend whenever investors decide to freeze out a sovereign entity out of the markets. This leads to lower perceived risk and it leads to lower interest rates. Lower interest rates allow governments to tax less, invest more, thus facilitating more global growth.

For this reason the bailout that is about to be offered to Ukraine should worry us. It is no secret that the IMF is making a political decision here and not one based on fundamental guidance. Ukraine's situation is such that it does not meet the preconditions that are usually demanded in order to guarantee to some extent a return of the investment made by IMF contributors. In fact, the situation there is so bad that in my view the loss of this bailout money is almost 100% guaranteed. I simply do not see how Ukraine will be able to pay this money back. What I do see, is a pattern developing which will push the IMF and other entities participating in this bailout to keep sending in more money in order to avoid a collapse, which will make the ultimate loss more severe.

In fact, this is more or less in part what is happening right now, given that last year's bailout proved to be insufficient. It will not be long before the current program will also be seen as inadequate. For one thing, the program is built on the assumption that Ukraine will be able to restructure its debt, pushing maturities further out and most likely getting bondholders to agree to a haircut. Such a deal is not guaranteed by any means. Aside from that, pushing the maturity out means that Ukraine would have to deal with those bonds just as they would be required to pay back the IMF-led bailout funds as well. The ability to do that would depend on Ukraine stabilizing and achieving a relatively healthy rate of economic growth, which has no chance of taking shape. There are simply too many obstacles in the way.
First of all, there is Ukraine's economic dependence on Russia. About a quarter of all Ukrainian exports were headed to its Eastern neighbor. 

Many of the goods it is exporting even now are intermediate components used in Russia's defense industry. Russia has already started the process of cutting its reliance on these goods. For Ukraine, it can mean a loss of well over a billion dollars per year in trade. Odds of being able to find new customers for its intermediate and finished defense products are not very high. Aside from this, Exports to Russia of all sorts of products totaled $17 billion per year before the crisis started (link). That will be equivalent of 17% of Ukraine's GDP this year. Most of this source of much-needed foreign currency and source of jobs for Ukrainians will in my opinion shrink dramatically in the coming years.

There are also Russian companies invested in Ukraine which are likely to gradually move away. Russia also announced in January that it wants to end its reliance on Ukraine as a gas transit route, which will deprive Ukraine of as much as $3.5 billion per year in transit income. I believe that this is also likely to happen by 2020, even if the EU will try to obstruct. If Russia fails to get gas to Europe via an alternate route such as through Turkey, it will simply work to divert some volumes to other markets, or perhaps make use of it internally.

One of last year's two gas deals with China involves exports of 30 Bcm (1 Tcf) per year from the same Western gas fields that currently provide gas to Europe. That is almost 40% of the volume that flows through Ukraine to the European market. In the event that the EU would find itself without the gas flowing through Ukraine, I believe it would consent to allowing for the Nord Stream pipeline from Russia to Germany to be used at full capacity, which would divert a further 20 Bcm of gas from the Ukraine transit pipeline. Russia should have no difficulty finding other uses for the remainder, or it might even consider slowing the pace of extraction from those fields, given that most of the domestic market is also being supplied from them.

War in the East: Damned if it continues, and damned if it does not.

The current ceasefire seems to be holding for now, but in all honesty, I personally have doubts that it will continue to hold for long. On one hand there are the Russia-backed rebels who see an opportunity to create a new state made up of ethnic Russian majority regions in the East. They currently control only a small portion of the Donbass region, so it is tempting for them to keep fighting. The Kiev government on the other hand may be tempted to find a military solution to the situation in the East, especially given the very loud and aggressive voices in the US, calling for an intensification of the conflict through weapon supplies to the Kiev government. These calls are in fact an incentive for Ukraine to undermine the ceasefire, because more and more people believe that the US will send weapons if the ceasefire collapses.

An intensification of the conflict would most likely lead to a greater degree and spread of the destruction, regardless of who would prevail. The arming of the Ukrainian army would give Russia the excuse needed to do so openly as well. This would most likely include the introduction of air power, which will allow the rebels to attack targets far from their current front line. All of this will make it very hard for Ukraine to maintain a viable economy. It would therefore be left with no other choice but to default on its debts, including the money owed to the IMF and other contributors.

While, the IMF itself declared that it wants to see an end to the hostilities in order to ensure that the Ukrainian situation is such that it will allow for re-payment, peace in the East may not necessarily be more beneficial. While the current conflict is causing an economic disruption to a significant part of Ukraine's economy, and is costing the Kiev government a significant amount of money, it also has some benefits from Kiev's point of view. It allows the government to continue to play the nationalist card and gives it a scapegoat for the increasingly harsh living standards many Ukrainians are experiencing.
Ukraine's minimum wage was about $150/month in 2013. It has now fallen to about $60/month due to the currency depreciation. It could fall further still, once the IMF deal is implemented and Ukraine's central bank allows the currency to weaken. It went down to as low as $40/month last month, when the local currency, the hryvnia experienced a sharp sell-off.

Aside from the low wages, there are pension cuts, government layoffs and the economy will most likely have a hard time functioning given the central bank's move to raise interest rates to 30% last month, which will lead to more layoffs and stagnated wages in the face of high inflation. The IMF also asked for energy subsidies to be removed, which will among other things increase the cost of household heating by almost 300%.

Up to now, the government did a pretty good job of appealing to the population's patriotic and nationalist sentiments, in order to deflect criticism in regards to the state of the economy. If the conflict in the East dies down however, it is hard to see how they will be able to continue to blame the state of the economy on the conflict and on Russia. The IMF-imposed austerity programs will be what people will be feeling directly, not the effects of war on their lives.

The government has so far done a decent job of preparing for this. It in fact installed tools of media control and laws which allow the state to go after anyone they deem to be inconvenient. The West will most likely be silent even as the Kiev government will resort to more and more repression in order to prevent a popular revolt. We already know this will be the case, because there was little reaction in the Western world, even as the Kiev government introduced media control laws in December, which seem quite repressive and extreme (link).

Having control of the media and the ability to detain people for things that would be seen as unjustified in most free and democratic states, should help prevent a mass revolt for a while. Increasing economic despair will however push people to revolt eventually, regardless of attempts by the government to keep a lid on it. What makes the situation particularly dangerous is the fact that there are many relatively independent militia groups currently fighting in the East on behalf of the government, which belong to groups that feel they were shut out from the reigns of power last year. These militias often display their new-Nazi allegiance openly as is the case with the Azov battalion which is currently one of the pillars of defense for the strategic city of Mariupol (link).

While these groups came in handy for the government in its quest to try to regain control of the rebel areas in the East, because these groups were in fact the only reliable fighting units at its disposal, given the lack of fighting spirit within the regular army, these groups may in the end prove to be more dangerous for the current government than for the ethnic Russian rebels. When the fighting will stop and people will gradually turn their anger at the government due to the economic situation, groups such as the Azov battalion and others will most likely seize the opportunity to try to install themselves into power.

Ukraine as a state lost its future the day after Yanukovic was ousted and the new government decided to make the repeal of historical minority rights its number one priority. That was the moment when they set their own house on fire and there is in my view little hope of going back. The IMF is pouring a lot of money into a country which no longer possesses the minimum level of social cohesion needed to keep it together. There are ethnic tensions, as well as social and ideological tensions, which are made even deeper by the Russia-West proxy fight for control of that country. In the end, there is a chance that Ukraine can be salvaged and saved from descending into failed state status. But this salvage may involve allowing for a complete write-off of all government debt in order to remove the extra burden, while the Ukrainian economy returns to viability. This of course will mean that the IMF will not get its money back either.


As is the case with all investments, contributors to the IMF fund expect to get their principal back, together with interest, as well as indirect benefits from the terms of the bailout. There are currently two states which have been bailed out in the past few years, which look increasingly unable to pay back the bailout funds. We know that Greece is unlikely to be able to avoid eventual default and the IMF will be part of that default. Ukraine is now the second candidate.

While most people who experienced the IMF recipe for a return to sovereign financial health will feel reason to rejoice if the fund takes a hard hit, the global economy will in fact end up more unstable as a result. Significant losses incurred on IMF loans will cause contributors to become more stingy with their contributions, leaving the IMF in a position of weakness when it comes to being able to secure the funds needed to execute a bailout. This in turn will mean that bond investors will feel less secure about the risk involved in investing in sovereign debt around the world, given that an extra layer of protection will be removed.

What this means is that even as the world is increasingly entering a period of low inflation, which is causing interest rates to also decline significantly around the world, there will be upward pressure on interest rates due to risk perceptions. The end-result will be a situation where inflation is relatively low and interest rates relatively high, which will make global debt more unsustainable This cannot but further hurt a global economy, which is already suffering from a very significant decline in growth rates since the beginning of the 2008 crisis.

Saturday, February 21, 2015

Ukraine: A Year Since Maidan

I stopped writing on my personal blog for a while, because I figured the volume of traffic is such that it will never make much difference.  I have to say that after following the mainstream media coverage of one particular event, namely the crisis in Ukraine, I realized that I was wrong to think that way.  It is true that my articles will never reach a very wide audience, but I have come to the conclusion that sadly the mainstream media, with its wide reach is now more likely to misinform than inform.  I think it is therefore up to sites such as my own to try to reach a few people and do a small part in trying to clear up many of the distortions that the consumer of information is bombarded with, to the point where people are made to believe whatever is in the interest of the sponsors of our main access sources of information, be it the media, or the people we elect and therefore believe that they represent our interests.

I will not pretend that what I have to offer here is free of bias.  I believe that anyone who makes such a claim is untrustworthy.  I do have bias in respect to the Ukraine conflict, and I think it has to do with my background, namely being a person born in Romania who is of Hungarian ethnicity.  I will therefore always feel sympathy towards the view of the ethnic Russian people living in Ukraine, especially given the hard-core nationalist nature of Ukraine's post-Yanukovic government, which saw it as its number one priority, the first day after they ousted him to repeal minority rights.  I have to admit that after such a move, there was never much hope of this new regime gaining much sympathy with me, given that I believe that respect for historical minorities and their right to avoid assimilation by the majority population should be a human right which should be observed everywhere.

Unfortunately, I doubt there are many people in the US government or the media who understand the very concept of a distinct ethnic and linguistic identity.  They most likely think of Russians as simply people who live in Russia and are Russian citizens.  Europe is however a place where a few hundred years ago a concept was born, which led to nation-states being formed, based on ethnic identity.  Unfortunately, borders were not necessarily always drawn in observance of this concept.  That is why I was born in Romania, and while I have Romanian citizenship, I consider myself to be of Hungarian ethnicity and to belong to Hungarian culture.  When there are certain transgressions that happen against the many ethnic Hungarians who live in neighboring countries, such as was the case in Slovakia, when the 2009 language law was passed, people in Hungary were understandably outraged, because they saw it as an attack on their ethnic kin.

It is the failure to understand or acknowledge this concept which is leading us down a path that is increasingly looking like it is taking us closer to a potential global-scale catastrophe, then we have been since perhaps the Cuban Missile Crisis.  If anyone doubts that things are now reaching such a danger point, think again.  US politicians are currently pandering to public opinion formed in large part thanks to very one-sided and outright unprofessional coverage of the Ukraine crisis for the past year and increasingly showing their tough guy or gal credentials by talking tough on arming Ukraine.  I think it will happen sooner or later, at which point we will have crossed the point of no return.

Russia's government will have only one option as an acceptable response which will save it from collapse and that is to provide full and open support to the ethnic Russian minority in Ukraine and that is exactly what it will do.  The end result will be a bloodbath fueled by a hardening of positions on both sides of this proxy war.

Missed opportunities to defuse the crisis.

We might all like to think that given the size of Russia's nuclear arsenal, as well as its very important role in global economic stability given its natural resources that it provides to the world, cooler heads will prevail and the best possible people are brought in to come up with a way out of this crisis.  I want to point to a list of missed opportunities since the day that Ukraine's corrupt president was ousted, which might have helped steer the situation in a different, less dangerous direction.  I honestly don't know whether these opportunists were missed on purpose due to certain desires to actually push for a crisis or due to incompetence, but in fact both possibilities point to incompetence in this case, because if anyone thinks that it is wise to escalate this thing, he/she must be a very incompetent person.

Repeal of minority rights.

The day after Yanukovic fled due to the violence on the streets, the Ukrainian parliament decided as its first act to repeal Ukraine's law on minority language rights, which allowed for the use of a minority language, alongside Ukraine's official language in areas historically inhabited by ethnic minorities.  Aside from EU members Romania and Hungary, which expressed concern in regards to the ethnic Hungarians and Romanians living in Ukraine having their basic rights violated by this move, there was a complete failure on behalf of the Western world to react firmly and swiftly to this event, which in my opinion did more than anything to lead to the present conflict we are dealing with today.  I believe that a very strong rebuke by the EU and the US of this move by Kiev's new nationalist government would have not only tempered Ukrainian nationalism but also would have given some reassurance to the large ethnic Russian minority that it will not be left at the mercy of the new nationalistic Kiev regime.  The move to repeal minority rights was vetoed later on, but only after the new Kiev government in effect realized that it managed to set its own house on fire.  By the time the move was vetoed, the East of Ukraine was firmly in the grips of revolt. The Western media tried to emphasize throughout this conflict that it was all because of Russian propaganda, which is an outright shameless lie, which was repeated over and over again by most mainstream outlets.  I am not denying that Russian propaganda played a role, but the main cause of the rebellion in the East was in fact the justified fear that Ukraine had a new government that was showing very obvious hostility towards them.  Not to mention that Ukraine's president which enjoyed overwhelming support in the East was ousted through undemocratic means by a nationalist mob, spearheaded by extreme right organizations such as Svoboda and Right Sector.

We should keep in mind that on the issue of historical minority rights, the EU has a terrible record of ignoring the issue and accepting some very harsh policies among some EU members as was the case with the 2009 Slovak Language Law, which imposed very harsh fines of as much a an average yearly salary (5,000 Euros) for not observing the rules of the law, which prohibited the use of any other language aside from Slovak in certain circumstances.

The EU has France as one of its founding members.  France refuses to even recognize the existence of historical minorities on its territory, therefore EU laws and regulations evolved over time in a manner that had to accommodate this policy.  This is why I believe that allowing countries such as Estonia to become members of the EU and NATO was a huge mistake, which endangers our very existence.  There is no telling when a nationalist trend will sweep that small nation and they will decide to mistreat the Russian minority which makes up a quarter of that country's population.  At that point, Russia will once again be put on the spot, because it cannot just ignore ethnic Russians being mistreated, while we are bound by treaty to defend Estonia.  In other words, the world has become hostage to Estonian nationalism potentially going a bit too far and causing ethnic tensions which would pit two nuclear powers against each other, with no way for either side to back down.  If this lack of foresight on behalf of our leadership does not worry the public, I don't really know what would do it at this point.

This is also one of the reasons I believe that Ukraine is not a good fit for EU or NATO membership, therefore the EU association agreement should have never been offered, which would have spared us all from this mess.

The Odessa massacre.

In May, there was a confrontation in the city of Odessa between pro Kiev activists and ethnic-Russians protesting against the new government and for autonomy for themselves.  The clashes ended with tragedy, where a group of ethnic Russians took refuge in a government building, which was torched most likely due to Molotov cocktails being thrown back and forth, leading to 39 people being burned to death.

Given that no one was ever brought to justice for this crime, even though it is quite obvious that extreme right-wing organizations are to blame, it is never too late to condemn at the very least Kiev's inaction in punishing this act of hate, which led to the death of so many people.  But to date, this crime & failure to bring those responsible to justice was never condemned by Western officials.

I encourage all who are capable of keeping an open mind to take a step back and realize what this would look like from the point of view of the ethnic Russian minority living in Ukraine.  The Kiev government did not punish anyone for this hate crime committed against them.  Kiev's western backers, likewise did not condemn this atrocity but in fact just kept going with more condemnation of Russia for its support of ethnic Russians in Ukraine.  I don't know of any propaganda message that Moscow could have ever possibly come up with which could have had a stronger effect in solidifying the opposition of ethnic Russians to being subjected to the new Ukraine government and its obviously not very sympathetic backers from the West, than these actions.

Kiev's military offensive in the East.

While the Western media and officials wasted no time in condemning former Ukrainian president Victor Yanukovic for using violence as a means to stay in power in the face of the challenge posed to his rule by a violent mob, no major criticism was ever attempted at Kiev's military offensive last summer.  Back then Kiev was going up against an insurgent force that was very obviously under-equipped, yet the government went ahead and deployed heavy weapons, including against civilian targets, causing much death and destruction in the mainly ethnic Russian East of the country.  I fail to see how people can expect to see an outcome where Ukraine can be one again, given the death, suffering and destruction that has occurred in the Donbas region in the past months.  It is like demanding and expecting a spouse to return to a household where much abuse has taken place.

If there is one thing we can be sure of and everyone should have understood from the outset is that Putin cannot afford to allow the separatists to be defeated militarily.  He will go as far as he has to in order to prevent that from happening.  The West tried to push Russia into abandoning their ethnic kin through sanctions and arguably through the suppression of oil prices, but as we can see, it is not happening and will not happen.  Any further attempts to do so will only lead to a further escalation of not only the war in Ukraine but also of the economic conflict, which the US might not feel directly at the moment but the EU sure does as it loses tens of billions of Euros worth of exports and billions worth of revenue in the tourism industry as Russians cho ose to stay home.

The Economic Pain.


When the anti Yanukovic protests started in Kiev in the aftermath of his choice to pick Russia's offer over that of the EU, I am certain that the main driver of the protests was a desire by ordinary Ukrainians to take a path towards a better life.  Given that in 2013 Ukraine was the fifth poorest country on the continent, their desire for a new path is understandable.  Unfortunately, they failed to take into consideration the country's current economic ties.  Russia is Ukraine's biggest trading partner even now after a full year of conflict, with about a quarter of Ukraine's exports going to Russia and one third of imports coming from Russia as well.

Between the declining economic relationship with its main economic partner and the conflict with the ethnic Russian separatists in the East, Ukraine's economy has suffered huge damage in the past year.  The economy most likely shrunk by about 7.5% in 2014.  Worst of all, its currency the hryvnia is in complete free-fall.  It traded at around eight hryvnia to the dollar in 2013, while it is currently at twenty seven.  This means that the 1,200 hryvnia minimum monthly wage which was worth about $150 in 2013, is now worth just $45.  With inflation running in the 25% range and wages remaining stagnant, life which was already quite miserable before the Maidan revolution is now looking very bleak indeed.  Ukrainian wages now resemble something one might expect to see in most sub-Saharan African countries.

The country's economy is set to shrink to under $100 billion, compared to $178 billion in 2013 and GDP per capita will officially drop bellow the level of Europe's current poorest member Moldova, at just under $2,200 per capita, which is down from $3,900 in 2013.  Meanwhile, its debt/GDP ratio will go from 40% in 2013, to over 80% by the end of this year.  S&P which is where I got this data from, forecasts a relatively strong rebound in 2016, which should see 2015 as the low-point for Ukrainians, but personally, I doubt that will be the case.  Ukraine is set to tie itself to the EU economy, which is more or less in stagnation mode for almost a decade now, which means that demand for Ukrainian made goods will be limited, while Russia will continue to de-leverage its economy from its ties with Ukraine.

Just to offer an example, Gazprom's chief announced last month that it will end its reliance on Ukraine as a gas transit route one way or another within the next few years (link).  Ukraine currently receives about $3.5 billion in gas transit fees every year, which it will lose in just a few years.  There will be many other shocks coming Ukraine's way due to its diminishing ties with Russia.  In addition to that, there will be the shock therapy it will have enforced on it by the IMF in coming years, which it will be in no position to resist.  I believe that in the best-case scenario, it will take at least a generation for Ukrainians to once again enjoy the miserable living standards they had in 2013.

The EU & Russia

There has been much media coverage of the effects of this conflict on the Russian economy.  There is not much I can add to what has already been said, except perhaps point out that the main hit to Russia came from the lower oil prices, which may or may not be the result of Western actions meant to pressure Putin.  The price of oil cannot stay this low indefinitely, because it will eventually cause global shortages within the next few years as more and more companies opt to cut investment.  Reality is that many oil companies, especially in the shale oil and oil sands were not doing very well to begin with, even when oil was at $100/barrel.  If prices remain at current levels beyond this year, we are likely to start seeing massive defaults on the almost $200 billion that shale oil companies borrowed in the past five years or so.  So, while things may be tough for Russia right now and the pain might last into next year, Russia will survive and will recover.  Its leaders may even come away with some important lessons out of this and recognize that they need to start creating the environment needed to allow for honest private enterprise to develop and prosper within a less corrupt environment and with clear laws in place to govern business.

The EU may have only suffered minor economic pain thus far, but I believe it is the bigger loser in all this for the long-term.  The EU needed to have a strong relationship with Russia, because it needs its natural resources.  While all the talk lately has been about diversifying away from Russia, the reality is that the EU cannot do that at an affordable price.  There are simply no viable alternatives, while the current alternative sources, such as Norway and Netherlands are set to start declining.  The decline that is forecast for Holland alone by 2030, is equivalent to the loss of the 63 billion cubic meters that the EU was going to receive via South Stream before it obstructed it.  Norway's gas production will also decline significantly by 2030 as well.  The EU is therefore in no position to accept a significant decline in Russian gas imports.  Its only long-term alternative is to drastically increase LNG imports, which tends to be far more costly.  I think this is the last thing the EU, which failed to grow its economy since 2007 needs going forward.  It is obviously already un-competitive compared to other major competitors, so more expensive energy is not what it needs to settle for.

So was Maidan worth it for anyone?  We can no longer ask this of ordinary Ukrainians given measures such as the "Truth Ministry", which was introduced in December.  We have no way of knowing how they feel one year on.  I don't think the Russians are happy about it.  Westerners continue to be caught up in the spirit of hostility towards Russia, and are yet to see and feel many of the consequences as a result.  It seems we think it was worth it, but it is clearly the result of public opinion being formed by a very aggressive mainstream media campaign which wants to present things this way.  But, if we actually take the time to look at the consequences, there seems to be no winner in all of this.

Saturday, June 15, 2013

John Nash versus the environmental movement.

       A little-covered event took place a month ago.  CO2 concentrations in the air reached 400 ppm.  It is not good news for our planet and all its inhabitants.  From the moment measurements of CO2 concentrations in the environment started being taken in 1958, when CO2 concentrations were 315 ppm, till now, we added another 85 ppm, which is an increase of 27%, and CO2 concentrations increased by almost
45% since the industrial revolution began.  The worst part is that the rate at which we are increasing Carbon Dioxide concentration in the environment is actually speeding up, and so things will only get worse.

            In 1958, we were consuming less than half the petroleum we now consume.  Same thing goes for coal.  Natural gas was almost absent in our energy mix.  Some people expressed hope that at least the rate of increase in emissions will slow, given the current economic environment since the 2008 crisis, but the rate of emissions actually increased by over 10% since 2007 according to EIA data[i].  It is hard to say with certainty at what rate we will continue to increase the Carbon Dioxide concentration in our environment, and it is even harder to predict accurately the effects.  What we do know for a certainty, is that the next milestone, which will be 500 ppm, will be reached in just a few decades (around 2035 at current rates of emissions increase).  We will not be prepared to either prevent us from racing towards the next milestone, which will be 600 ppm, a thing that will most likely happen within my expected lifetime, nor will we be able to deal with any of the negative consequences.  We simply do not have the global institutional capacity to meet this potential threat to our lives.

The Obstacle:

            This month will mark one year since Rio + 20.  It was an event, meant as a follow-up to the original Rio summit in 1992, which was supposed to help change the unsustainable path of the global economy.  Some die-hard optimists left with the illusion that something did indeed happen at the summit.  In reality, it was an even more colossal failure than the first one.  The first one managed to convince a few nations to at the very least undertake the futile attempt at saving the world unilaterally, at the price of undermining their own economies, as is the case with Europe and its commitment to the Kyoto protocol.  The second one brought no new agreements of great relevance into place, aside from a few private companies such as Microsoft, pledging to go carbon neutral and some of the wealthier countries pledging some aid to the developing world, which is good, but it is not planet-saving good.  The fact that unlike the first summit, where most of the leaders of the relevant world attended, this time around, the leaders of countries such as the United States and Germany shunned it, says it all.  I just started publishing on my blog last year and I wrote an article each month leading up to the event, to try to warn as many people as possible about the impending failure (and the root of it), and then one more to sum up the results.  Through this exercise, I realized an important thing that I already suspected to be true.  It is not the global business elites or right-wing politicians who are our main obstacle to sustainable development; it is in fact the environmental movement and their idealistic and ideology-based platform, which is to blame.

            The failure of the summit was mainly due to the same obstacle that guaranteed the failure of every other attempt to get a global framework in place to deal with sustainability issues.  The fact that it fails to register after all these decades of trying it their way, that it does not work, baffles and saddens me at the same time.  The basic formula that environmentalists use to approach this problem is convincing the world that urgent action is needed; therefore, everyone should get together and agree to do their part.  In trying to create this sense of urgency, they often tried to make an argument for urgent action, due to imminent danger.  This claim has not always been 100% truthful, giving ammunition to the opponents of such actions.  So, like I said, it is the environmentalists, not the perceived opponents who are the main obstacle

Here is why:

It is something I mentioned in my book, published already one and a half years ago, and it is proving to stay true with every passing day, because there is always evidence reinforcing it.  Environmentalists tend to have an opinion of being on average smarter and better informed than those they perceive as the obstacle to sustainability. In fact, on this one, they allow ideological points of view to relegate them to supporters of foolish, unviable solutions to our problems, while the ones who frame their own ideological view that we are already on a sustainable path, may be wrong in their view, but are right and logical in choosing to oppose environmentalist initiatives.

            What makes the environmentalist agenda so flawed and unviable is a rather simple concept, which we all act on, through our instincts as human beings, but it took a mathematician to describe.  I am referring to John Nash (known better to the masses from the movie: “A Beautiful Mind”), whose main contribution of relevance to our discussion is Game Theory.  It is a rather simple concept, which I really wish the environmental movement would bother to apply to its ideological agenda to make sure it is viable.

The basic concept:

Imagine two criminals working together, who are caught in the act.  The police do not have enough evidence to be certain they can convict them, so they put them in separate rooms and lean on them, in order to get them to testify against one-another.  If neither collaborates, chances are that they both walk.  If both of them make a deal, chances are that they will both get convicted and receive a reduced sentence.  If one talks, while the other does not, the one who does not collaborate ends up getting a full sentence, while the other one gets a reduced sentence.

Choices (do, do not snitch)
Collaborate (suspect2)
Do not (suspect 2)
Collaborate (suspect1)
3,3 years in prison
3,10 years in prison
Do not (suspect1)
10,3 years in prison
0,0 years in prison
Note:  given the combined choices, the most likely outcome will be three years in prison for each.

 In real life, the reason law enforcement relies on this practice is because it works, in other words, they know that they can make the partners in crime turn on each other, even though clearly the best choice for both is to not collaborate.  The catalyst that makes this possible is the desire to avoid the full sentence.  It is no different from our desire to get insurance.  We lose some money through the regular payments, and in fact, we tend to pay more for it than we will likely get back over a lifetime, because after all, insurance companies are profit-based institutions, so they will never pay out more than what they take in.  So, if we all refused to insure ourselves for health, natural disasters, and other calamities, collectively we would be better off, but we do not, because we do not want to end up being on the losing end, when a disaster does happen.

            Applying the same concept in reverse, because in the case of reducing emissions collaboration is in fact the potentially dangerous path, which may leave one or more parties holding the bag, we get the same “prisoner’s dilemma” which John Nash described.  In this case, however, we should replace criminals with countries, divided into developed and developing and years in prison with something more appropriate such as manufacturing jobs gained.  So, just like not collaborating would have brought the best result for the two criminals, in this case collaboration would most likely bring the best result, for we could still have growth and development, without the negative side effects of our unsustainable path.  No one collaborating, in this case means that we would keep going and initially benefit from exploiting the environment, until something will give, and we will eventually experience total collapse of the current world order, with terrible consequences for all.  One side collaborating, while the other side does not, in this case would mean that the side trying to mitigate the impending disaster would self-sacrifice itself, while the non-collaborative side would initially gain two-fold, while in the end, this route will still lead to eventual collapse, only perhaps somewhat later, because of the partial collapse of  the collaborating side of the global economy.

Choices (do, or do not unilaterally self-sacrifice)
Developing world (do)
Developing world (do not)
Developed world (do)
100, 100 (million jobs)
-50, 150 (million jobs)
Developed world (do not)
150, -50 (million jobs)
150,150 (million jobs)

Note:  Applying the Nash concept to this problem, in reality would lead to what will be the most likely scenario in the long-run, which is that neither side will self-sacrifice, because as I indicated, it would lead to most jobs created initially (not taking negative effects of unsustainable development into consideration.  As we can see, collaboration is not as enticing for either side, because it would mean losing out on the possibility of gaining an extra 50 million jobs, even though collectively it would lead to the second largest initial increase in collective gain, and it would be done responsibly, with fewer side-effects.  The environmental movement, through its call for voluntary self-sacrifice for the greater good, in fact advocates for the least attractive scenario, therefore their agenda is doomed.

            It is therefore understandable why the Rio + 20 summit failed miserably, and why most other such initiatives will fail as well in the future.  It is such a basic concept, yet through my experience over the past eighteen months, since I started writing articles and published my book, I found that even though no one can put up a relevant argument against it, everyone finds a way to reject it.  Based on face-to-face conversations I had about the problem, and my proposed alternative of implementing a standardized global trade tariff, designed to encourage sustainability uniformly around the world, with consequences in place for those who refuse to collaborate, I found that it is impossible to move people who care about this issue from their ideological line.  After carefully explaining the problem and the solution, I found that even though there was no counter-argument, eventually, after a while, the other parties found themselves facing some discomfort and a desire to move back to their ideological views.  I had responses, such as “yeah but if we don’t all do something, we will all be worse off, while doing something will benefit everyone”.  Thus they decided to simply ignore the very relevant “prisoner’s dilemma”, even though they fully understood it, in order to get back to their old convictions.  It was almost like a drug addict justifying one more hit.  It is a testament to how powerful and effective ideological indoctrination can really be.  We are fully ready, no matter how intelligent we are, to defend our line, even if we have to turn ourselves occasionally into mindless morons, and ignore the evident facts to the contrary.

            So, in the end, this is what it comes down to.  A fight to free people from their ideological indoctrination and it is unfortunately not the ones who oppose sustainable development who are the main target that needs to be re-programmed.  It is the message of the environmentalist movement that is sending people to the other side in droves.  It is one thing to tell a US factory worker that he/she should agree to sacrifice his/her own well-being and that of their families, for the greater good, even though even the most ignorant of them know that even if the US and Europe were to slash emissions by 50% in the next few decades, it would not be enough to offset the growth in emissions from the developing world.  They also know that cutting emissions aggressively here, makes emissions levels grow faster elsewhere, because of outsourcing.  It would be an entirely different thing, if one were to tell them that we should fight for a standardized global trade tariff that would end the outsourcing of jobs by firms looking for the place where they can maximize profit, because other countries allow for the maximum exploitation of the environment and their people that is possible, while putting the planet on a sustainable path.  Now, who could argue with that?  Unfortunately the environmentalists do.      

Wednesday, May 1, 2013

Winnipeg Police: The new municipal tax collectors & perhaps a future model for cash strapped municipalities around the world.

            Since the 2008 crisis, municipalities have been having a tough time financially speaking.  House prices cratered in many places, causing property taxes to plummet, which is the main pillar of income for local budgets.  Tax rates could be raised to deal with the problem, but too often; this has a counterproductive effect because individuals and businesses are ever more likely to consider tax rates when deciding on a place to live and operate.  Problem is that the same businesses and individuals also demand that proper infrastructure be in place, as well as maintaining a pleasant atmosphere for the urban area they inhabit and work in.

            In an effort to expand the tax base, many municipalities opt for tax cuts, or freezes, while costs still go up.  This approach too often backfires, because other competing municipalities are left with no choice but to follow suit in order to counteract the effects caused by the municipality, which opted for tax rate cuts.  A few years after, the realization sets in that the race to the bottom of the tax rates is not a solution.

Winnipeg’s approach:  Indirect taxation.

            The city of Winnipeg in Manitoba, Canada found ways to keep property tax rates low, spending on an increasing path, and a viable balance sheet.  It does not involve the usual left-right ideological argument on whether to increase or cut taxes.  It involves a strategy meant to increase the tax intake, through increasingly stringent and aggressive enforcement of traffic laws.  In 2012, there were 57,000 traffic violation tickets handed out, while in 2008, there were “only” 28,000[i].  At an average price of about 200 Canadian dollars each, the extra 29,000 tickets brought it an extra 5.8 million dollars, compared to 2008.  It may not seem like a whole lot, given the city’s 900 million dollar budget for 2012[ii], but it helps plug the gaps in a budget that continues to grow.  Winnipeg’s budget grew by almost 53 million dollars from the previous year.

System of checks and balances out the window.

            I should point out that in order to make it possible to achieve this increase in revenue in the name of “public safety”, there had to be one institution willing to play ball, and the worrying sign is that in the case of Winnipeg, they are perfectly willing to do so.  I’m referring to the courts, because after all, it would be hard to do this without the judges.

            The courts are supposed to be there to make sure that the state does not abuse its powers, among other things.  I speak from experience however when I say that when it comes to this tax collection scheme, the courts are in no mood to challenge the will of the city.  I myself became the victim of one of the photo radar operations in the summer of 2008.  I decided to challenge the ticket on the basis that the evidence collected by the photo radar was self-contradictory.  It showed that I made a right turn on red, in an intersection in a time interval of 2.1 seconds, which meant that my average speed was no higher than 6-7 km/h (4 mp/h), which is slower than walking speed.  At the same time, it showed that my initial speed was 26 km/h, which means that during the 2.1-second interval, I had to decelerate to a certain speed, and then accelerate again, as I was clearing the turn.  We also have to keep in mind that any normal driver starts accelerating about half way through the turn.  This would be impossible to achieve at an average speed of 6-7 km/h, without coming to a full stop, given the initial speed recorded by the radar at the start of the 2.1-second interval.

            So, I went down to the courthouse, convinced that I would have a chance to explain to the judge that it is unreasonable to give someone a ticket, which defies the basic laws of physics.   I was wrong, because as I took the stand, I was told that I cannot be my own “expert witness”.  In other words, they expected someone contesting a traffic ticket to get a physics or math professor to testify on something that anyone with basic understanding of the nature of things would understand that it does not add up.  Thus, I was not even allowed to present my case, but they did grant me a reduction in the fine.  During my time spent in the courthouse, there were about twenty others who came to challenge the validity of their ticket, none got away with it.  There was one particularly sad case of a person who received three tickets, three mornings in a row, because they reduced the speed on a road, for construction, even though there was no one actually working there at the time the supposed “crime” of speeding through a construction site took place.  His total bill came to 600 dollars, which is more than the average weekly wage of an average Winnipeg resident.  The system of checks and balances on our institutions is not always, what it ought to be.

Why we should expect institutions that are more abusive.

            It is important to point out that unlike many towns in the United States and elsewhere in the western world, Winnipeg and other Canadian towns were not affected in any way by the 2008 crisis.  Since 2008, Winnipeg home prices are up about 45%, which defies all logic, yet this is where we stand.  Higher home prices mean higher revenues, so unlike most towns in the US where home prices are down, thus so are local revenues, Winnipeg is looking solid as far as its budget goes.  I am frankly surprised that we don’t yet see widespread proliferation of this practice all around the western world just yet, but I am sure we will.  Following a few recent municipal bankruptcies in the US, I am convinced that many city councils and mayors will look more actively to new innovative ways of increasing revenues without raising the actual property tax rate applied on homeowners. 

Urban living, a nightmare coming to a neighborhood near you.

            There are some serious negative side effects to the practice of turning a municipal police force into tax collectors.  Winnipeg has been going into this direction for about a decade now, beginning with the decision taken to introduce photo radar machines.  The result is that Winnipeg is known as one of the highest crime rate cities in Canada.  In 2011, Winnipeg once again won the status of homicide capital of Canada, while it did not do all that bad in terms of keeping at the top of the list of most other crime categories either.  Overall, Winnipeg was ranked 9’th out of 100 cities in overall crime rates compared in Canada for 2011[iii].  Many people prefer to attribute this to the high percentage of Native Americans living there.  There is a definite correlation when also looking at other cities in Canada.  My counterargument to that is that especially given the high crime rate in Winnipeg, the police force should be used more wisely.  Now, if a city that is financially sound is willing to put aside public safety in order to collect taxes in the name of public safety, just imagine what a town nearing financial collapse might be willing to do.

            Many towns, which are short on funds, might resort to not only transforming their municipal public safety employees into tax collectors, they may also lay off a large proportion of them, as well as cut infrastructure and other spending.  Economic data for the last few quarters and years as well as near term growth forecasts, which are constantly being revised down, are an indication that the boom times will not come back any time soon.  Because of changes in economic dynamics in the last century, such as increased capital and human mobility, municipal governments have no chance of using their comparatively archaic and outmoded tools of income collection to redress the problem of increasingly larger gaps in the need versus the means to run their cities effectively.  Raising taxes does not lead to higher tax intake even for the short-run anymore, because individuals as well as businesses react rather fast.  It does not take long for people to start avoiding investing in such places, which has the opposite effect of reducing the tax base.  In the absence of proper funding of the local budgets, the Western World’s most important part of their infrastructure is now at risk.  It will lead to desperate measures, such as the one in Winnipeg, where it is not even an issue of desperation, as well as other cost cutting efforts which will make urban living an increasingly unpleasant experience.  It is even possible that this is the beginning of the end of the urbanization trend started centuries ago in the Western World.  More and more signs point to major shifts coming.  The best thing we can do is realize the shift in the trend so we can prepare ourselves.

Monday, April 15, 2013

Romania: Europe’s Achilles Heel?

            Much media coverage regarding the economic crisis in the European Union focused on the banking and government finance fiasco, unleashed four years ago by the realization that Greece was a huge mess, which became Europe’s mess thanks to the monetary union.  From there, contagion spread, Italy and Spain ran into troubles, and recently we had the Cyprus bailout, which gave us occasion to witness the unbelievable act of property expropriation in the form of the takeover of people’s bank accounts.  Now there is talk about Slovenia perhaps needing a bailout, in order for its banking institutions to survive, and there are even rumors circulating about countries like Luxembourg being next.  All this is enough to make one’s head spin, and it certainly was enough to stall out Europe’s economy for more than half a decade now.  In fact, we may have to wait until 2015 before Europe starts showing signs of recovery from a crisis that started in 2008.  That is, if nothing else goes wrong in the meantime, and many signs indicate that many more things may still go wrong, and the EU is not prepared to deal with them.  It is now crunch time for the Europeans, I believe this decade will decide whether they will continue to be global leaders in living standards and economic success, or whether the continent will disintegrate. It is even conceivable that they will revert to a state of conflict, which Europeans cannot afford, given that they are already experiencing demographic freefall.

Dangers lurking in seemingly obscure corners:

            At the eastern edge of the European Union, there is a member country called Romania, which most people know of, for its connection to tales about vampires.  I think it is important to point out that Romania is also part of a region known as the Balkans, which was nicknamed in the past as “Europe’s powder keg”.  The First World War started in the region.  The most recent bloody episode in European history also happened in the region, known as the “Yugoslav Wars”, with about 140,000 dead, according to the International Center for Transitional Justice and who knows how many brutal rapes (40-60,000 by most credible estimates), loss of property, displacement, and other sources of human suffering.  It was a painful last reminder to Europeans that the twentieth century was a tale of not only prosperity and advancement, but also gruesome deeds of hate, chauvinism and extreme inhumanity, with tens of millions of victims, who paid with their lives, often under conditions and circumstances that give the human species a reason to loathe itself.  Now the European Union has a few members from this volatile region.  Romania is one such state, and as a rebuff to West European idealism, has shown no evidence that principles of reciprocity in respect towards other nations will rub off any time soon.  There is no chance whatsoever that Romanians will ever have a shared project to write a common history book with their Hungarian neighbors, and their ethnic Hungarian co-inhabitants of the country itself, like the French and Germans did.
Romania; a potential destabilizing factor in the EU.

            For those who do not know much about Romania, I want to start off, by giving some relevant background information to help people visualize the problem better.  Romania in its more or less current form teritorially speaking came into existence in the aftermath of the First World War.  Their prize for entering the war on the side of the entente powers was the region of Transylvania, which historically was part of the Hungarian kingdom, and has had a multi-ethnic population for most of its existence as a political entity.  Since the annexation of this territory, for the first time in at least 800 years of co-habitation by Romanians, Hungarians and Germans, the region is being ethnically homogenized to the point where its historical ethnic mix is no longer recognizable, except for a few enclaves, where Romanians are not yet demographically so dominant as to threaten the complete extinction of other cultures.  In 1918, the population of Transylvania and the part of Banat ceded to Romania, included aside from a slight Romanian majority, also a sizable German population, which made up 12% of the total, and Hungarians who were 32% of the total.  Now, the German population has all but disappeared after over 800 years of existence, while the ethnic Hungarian population officially makes up about 19%, but in reality, it is more like 17%, because there are probably about 100,000 Rromas (Gypsies) who claim their ethnicity to be Hungarian.  Even this number is misleading, because aside from a few counties where there are still cohesive communities, most of the region is now on its irreversible road to complete ethnic homogenization, so most minority communities are already condemned to extinction.  There is no evidence that measures meant to protect other historical minorities in other countries, such as is the case with the Germans in Italy, French in Canada, or Swedes in Finland, such as giving Hungarian official language status, at least where it is still feasible, will ever come to pass.  In fact, the opposite is true, because Romanian authorities are now engaged in measures meant to impede any practical use of the Hungarian language[i].

            It is the last few remaining pockets of solid ethnic Hungarian inhabitants and the attitude of Romanian society towards their continued presence, which should be a source of concern for EU stability.  In recent months, there has been a flare-up of incendiary actions as well as media miss-portrayal of the facts, which has led to tensions, which already led to street protests in many towns, mainly by Romanians, calling for among other things, the ouster of the ethnic Hungarian minority.

            These recent problems are no accident.  It is obvious that someone is fanning the flames, of an otherwise already simmering fire.  There is never a sure way of knowing what the reason is behind this deliberate inflaming of nationalism, but my personal guess is that it has to do with the current plan of regional reorganization of local counties.  The plan includes the incorporation of the two counties that still have an ethnic Hungarian majority into a bigger county, where Hungarians will become a minority of less than 30%, meaning that they will no longer have a voice in their own local matters, except at a municipal level, if they are in the majority there.  This is not necessarily the intended goal of Romania’s political elites.  I believe the overall re-drawing of Romania’s map has more to do with more individual based considerations that many politicians desire to achieve, having more to do with monetary and power gains, rather than nationalistic goals.  Nevertheless, creating the perception among the Romanians that busting up the last ethnic stronghold of the Hungarians is the most important reason for them to support their project, would help gain popularity for the project, needed to make it reality.

            The latest worrying sign that this is an organized campaign meant to foment ethnic hatred is a recent article published by Larry Watts on the mainstream news site Adevarul, which was an inflammatory attack, meant to vilify the Ethnic Hungarian minority through a distorted presentation of Transylvania’s history (the clasical, Hungarians bad, Romanians good).  Larry Watts, as the name suggests, is not of Romanian origin, thus the article had the added effect of having the illusion of impartiality on its side.  What most readers did not realize is that Larry Watts is not just any ordinary foreigner.  He claimed asylum in Romania, during Ceausescu’s communist dictatorship, and since then he seems to have been well integrated in the repressive Securitate (secret service) apparatus.  He continued his presence in the re-named, but not purged secret service, after the revolution. He maintained close ties to former post communist president Ion Illiescu (A former high ranking communist), who is among other things, suspected to have used a choreographed incident of violence in March, 1990 between ethnic Hungarians and the Romanian majority as an excuse to keep the Securitate apparatus intact, citing national security.  So, in other words, Romania has seen this movie before, and it had dramatic negative effects for the country, including the labeling of the country as a risk to any investment, due to instability, as well as the fact that they played right into the hands of the former communist apparatus, which even after 23 years, still seems to hold much clout and ability to influence things.  Unfortunately, people there are far too oblivious, and caught up in their hatred of the Hungarian minority, seeded into them from early childhood through what they call “history lessons” around there, and rasied to fever pitch by the intense media campaign which started a few months back.  It has been a vicious campaign, involving even the lowest of the low technique of brazen acts of information falsification[ii].  This is what is happening in a European Union member country presently, which is far from the ideal of the EU of bringing peace to the continent.  It is another sign of EU failure.  I bet, if one were to go back a decade or so, and tell the original members of the EU that they would have a member among them, where such events would be commonplace, they would have never believed that it could be possible, yet here we are. 

The danger few seem to understand:       

            It seems to me that most people think that the only source of danger in this situation would be widespread violent, perhaps even armed conflict between the two sides, which everyone feels they can prevent through official action.  That kind of violence is unlikely to happen, because the Hungarian minority has been too decimated in the past decades, to pose a risk of widespread violence.  Hungarians in Romania have no choice but to swallow any injustice or humiliation (which lately has been almost a daily event).  Problem is that next door, there are ten million Hungarians who do not have to accept their ethnic kin to be treated that way, and any retaliation on their part, does not have to involve violence, nor does it have to come in the form of official government action.  We live in the 21’Th century, and we are highly inter-connected.  For instance, Romania exports about $50 billion dollars worth of goods to the European Union.  Problem is that most of it has to go through Hungary, with few cost effective alternatives as a last resort. 

There is no danger that the Hungarian government itself would block the flow of goods from Romania.  The EU would simply lean on them a little bit, and they would back down.  But what if it was not the government who would act, but a political organization such as the extreme right wing Jobbik, backed by about a million sympathizers?  By mobilizing only a small fraction of their supporters, they could block all border entry points to and from Romania with ease.  The Hungarian government would not be able to do anything to stop it, because the action would enjoy widespread popular support, so like I said, it is all out of the hands of government entities.

The economic ramifications of such a disruption in the flow of goods would have a devastating effect not only on the original intended target, but also on the entire EU economy.  Fifty billion dollars worth of goods per year may not seem like such a big piece of the trade pie within Europe, which is measured in trillions of dollars.  Problem is that many of the goods exported from Romania are not finished goods, but intermediate, which could have an exponential and devastating effect on EU industrial output, and Europe’s global market share in manufactured goods.  An airbag manufactured in Romania may only cost a few hundred dollars at most, but it goes into a Volkswagen manufactured in Germany, which costs perhaps $20,000, or more.  The financial crisis is one thing to have to deal with; move some newly printed money here, a bailout there, some budget cuts, and so on.  Industrial disruption however is not so easily addressed. It is real physical economic disruption, which cannot be fixed at a push of a financial button.

            This situation, potentially spinning out of control is the last thing that Europe needs right now, given the already much covered by the media financial situation they are facing.  European goods still have a chance to be sold in large volume to the rest of the world.  A fortunate thing, because the European consumer is not in the mood to buy, given that youth unemployment is approaching as much as 50% in many countries, and even overall unemployment is now higher in the EU than it was in the US, during the worst stages of the housing bust.  If they are not able to finish and ship their products, their market share will slip, and perhaps never recover.

            This is a danger it seems no one is anticipating, and no one identified to date.  Proof of it comes in the form of the attitude of EU officials towards the Hungarian minority living in EU states, such as Romania or Slovakia.  The green light for what is going on now in Romania was given a few years back by the Union, when they effectively declared that the Slovak language law, which allowed for ad-hoc prosecution of the Hungarian minority for use of their language in public, was “within EU norms”.  This set the guidelines for the Romanian government.  Ironically, it even gives such abuses legitimacy, because it allows governments to claim that they are not doing anything wrong, because after all they are abiding by world-famous EU guidelines for human rights.

            Some like to push the myth that the EU is powerless to act in such situations, but that is not necessarily true.  Last year, when EU MP, Tokes Laszlo approached Viviane Redding, who oversees the EU justice system and pointed out to her that the Romanian government is using the courts in order to re-nationalize property belonging to the Hungarian Reformed Church, such as is the case with the Szekely Miko school, she told him she was not interested.  It is a strange position to take by someone in charge of overseeing that all members of the EU are following the rule of law.  She certainly seems to have no trouble intervening in Hungary’s affairs over such legal changes as more rigorous examination of religious cults, in order to prevent fraud.  This really is meant to prevent fraud and not meant to oppose religious freedom, because most mainstream religious organizations are aproved and recognized, yet it is being attacked rigorously, even before there were any victims of such a measure as proof of religious repression as a result of the law.

            If no outside action is taken, I believe it is now only a matter of time before things will blow out of the ability to control, of all authorities in the region and into the hands of non-official entities.  As I pointed out, ethical considerations are not the main reason why this needs to be addressed.  We are living in a world, which no longer tolerates these sort of disruptions to our economic activities.  A European Union, which allows such problems to go un-addressed, is a Union that has no future.  It will break up, and it will likely mean the end of European relevance on the global stage, and perhaps worse.

[i] Romanian authorities are currently going after any entity which might decide to advertise for a job position, and include a request for knowledge of the Hungarian language.  It is a double-standard measure, for no other language is persecuted in this manner, and it is in fact worse than other minorities made up of immigrants, such as Latinos in America (Hungarians being a historical minority, should generally be granted more rights than immigrants, not fewer).
[ii] Earlier this year Romanian TV station Antena 3 falsified an image of Covasna county’s official site, claiming that they do not provide Romanian language information.  This is just an example of a barrage of distorted information that is hitting the public daily for a few months now.