A couple months ago, the New Yorker posted a story and wonderful online video about a master pickpocket. This person was willing to demonstrate his art on camera. Even so, he moved so quickly that it can take multiple viewings to see just how he relived his target of his possessions. The key to it, of course, is misdirection. The pickpocket makes sure your attention is directed somewhere other than where the action is taking place.

This came to mind when reading Dan Drezner's rejoicing about recent polls showing improved U.S. public sentiment about trade. I welcome a new public receptiveness to trade as much as anyone, but Dan, in his euphoria, concludes:

"The spike in public enthusiasm from last year is politically significant. At a minimum, it suggests that President Obama won't face gale-force headwinds in trying to negotiate trade deals. Which means I could win my bet with Shadow Government's Phil Levy. Which is the only thing that matters."

Nor was Dan the only one to wax optimistic about trade prospects this past week. Mike Green thought things had gone rather well with Japanese Prime Minister Shinzo Abe's summit meetings with President Obama in Washington.

"Even on the trans-Pacific Partnership (TPP), where expectations were low, there was much more substance than met the eye.... The Japanese delegation had a quiet spring in their step after the summit and were keen to move on TPP in a matter of weeks..."

This, too, is promising. Peter Feaver had it exactly right when he noted that engagement with Japan could be an essential part of delivering on Obama administration promises of attention to Asia.

So, as far as public wisdom and the Asian pivot are concerned, these are both healthy developments. Yet, when it comes to prospects for trade policy accomplishments over the remainder of President Obama's term, anyone laying odds or taking wagers should pay close attention to where the action is. To that end, here are four questions to help maintain focus:

1. What will Japan's entry do for TPP prospects?

Japanese entry into the TPP, if it happens, will be a good thing. It will dramatically increase the economic significance of the TPP, and it will establish the agreement as the premier accord governing trade liberalization and economic rules in the Asia-Pacific region.

If Japan does not join, we have problems. The administration had previously suggested that Japan could enter in the next round, after this version of TPP concludes. That, however, would pose serious difficulties. Japan is no small economy able to sign on to an agreement with a few innocuous accession talks. If the TPP reaches a successful conclusion soon, after four or more years of negotiation, will there really be an eagerness to reopen the deal in the near future? But the size and complication of Japan's economic relations also mean that the task of concluding the TPP just got much harder. One former USTR recently opined at a conference that if Japan joins the talks the TPP will not be concluded in President Obama's term.  

2. What do key interest groups think?

While it does not hurt to have the public embracing trade, U.S. agreements are not decided by referendum. I will leave it to all the political scientists buzzing around this site to provide details, but a more sophisticated approach would focus on the dynamics of the Congress. A more sophisticated approach would still think about the relations with key constituencies, such as organized labor. From the time President Obama first took office, it appeared clear that he had the votes in Congress to pass the pending FTAs with Colombia, Panama, and South Korea. Yet he did not put them forward until late in 2011, despite loud complaints from the business community. This at least suggests that there was something more than vote counting going on.

Along these lines, there was an alarming bit of news in the Hill recently. One promising feature of a trade deal with Europe was that it would seem immune from divisive questions about labor standards that had plagued FTAs with developing countries such as Colombia. The Hill, however, reported that "unions want to use negotiations on a U.S.-European Union (EU) trade deal as leverage to win stronger labor laws here in the United States."

If so, this does not bode well. Those are among the worst trade fears of Republicans on the Hill -- the prospect that labor legislation that could not pass a straight vote could instead be slipped in through the back door of a trade deal.

3. How are Congressional relations these days?

Per the constitution, trade is Congress' domain. Congress can try to delegate some of the negotiating power to the executive branch but ultimately must approve of any deal that is struck. If this is to work through periods of detailed negotiations, there must be good, open communication between the Hill and the White House. In particular, the committees that deal with trade -- House Ways and Means and Senate Finance -- must be on board. As it happens, these are the same committees that deal with the sort of taxation issues that have been a recent struggle. I'll leave it to the reader to grade the degree of comity between branches.

One less subjective measure, however, is whether Congress grants the executive trade negotiating authority (known as TPA -- trade promotion authority). The administration has also been saying for years that the idea of TPA is a reasonable one, but the time is not ripe. In the 2013 trade agenda, released today, the administration said it would work with Congress on obtaining such authority. That will be a contentious fight, since it will raise issues such as the permissible scope of labor provisions in an accord. The document does not set a date.

4. Who's your USTR?

It is also helpful, when negotiating complex trade agreements, to have a representative who will go forth and conduct the negotiations. The incumbent USTR, Ambassador Ron Kirk, reportedly just held his going-away party. Though there have been rumors, the administration has not yet named a new USTR, much less confirmed one. That could prove an obstacle to racing ahead with complex agreements.

So I see the trade policy landscape a little differently than Dan Drezner does. He may want to keep in mind that, if you don't keep your eye on where the action really is, someone may take your lunch money. 

Shadow Government is pleased to run thus post from guest-blogger, Mark Kennedy, a former member of congress and former key advisor on trade issues in the Bush Administration.  He is currently Director of the Graduate School of Political management at George Washington University.

President Obama's surprise announcement in his State of the Union address that he plans to start talks on a free trade deal between the United States and the European Union could serve as a boon to the nation's economy or a bust for the nation's competitiveness. Though reaching any sort of deal will be difficult, leaders in the United States should avoid a proposal that could make American markets more like their European counterparts and should instead seek a plan that helps introduce the best of the American labor markets to the EU in order to boost growth on both sides of the Atlantic.

A successful free trade agreement (FTA) will achieve the following: expand U.S./EU trade, renew the Atlantic political/economic alliance, improve competitiveness in both markets, and set a benchmark for future trade accords.

In order to walk across the finish line together, the United States and the EU must effectively resolve their differences on two key economic policies.

Agriculture

The EU has several long-standing regulations preventing many U.S. agricultural products from coming to market. America has long argued that European demonization of genetically modified (GMO) crops as "Frankenfood" is not grounded in science. With the pressing need to meet the nutritional needs of a growing planet, the potential of GMO crops should not be set aside so quickly.

The United States' previous treatment of food controversies in free trade agreements can serve as a benchmark in this respect. The terms of the South Korean free trade agreement provided a timeline for when U.S. beef would gain access to Korean markets. A similar time-delayed structure with the EU would allow for officials to adjudicate the safety of American agriculture and for producers to make adjustments necessary to compete in a more open market. Allowing scare tactics to dominate what should be an economic and scientific debate is a loser for consumers on both sides of the Atlantic.

Labor Regulations

A common stumbling block for free trade agreements concern the differences between nations' labor regulations. American labor unions often balk at FTAs with the countries from the developing world because they fear that their members will be unable to compete with the emerging market's low-wage employees. This time around the shoe is on the other foot.

According to the World Economic Forum's 2012-13 Global Competitiveness Report, the United States' approach to labor flexibility is among the best in the world. EU nations tend to take a more populist and protectionist approach, which can limit productivity and harm young workers. Those protectionist policies have lead to high youth unemployment and unrest in EU nations like Greece and Spain. A final deal should recognize that and center labor arrangements around the idea that a growing economy can provide more job security than government rules.

European Commission President José Manuel Barroso warned at a press conference recently that the EU would not compromise on its "basic legislation" in trade talks.

Rather than approaching these trade discussions in a defensive posture, leaders on both sides should aggressively pursue outcomes that would be highly beneficial to their citizens and the world:

• Europeans should embrace the chance to remove labor restrictions that have for too long resulted in generational inequities and rigidities that hamper innovation
• Americans should be open to revisions authenticated by science and consistent with global competitiveness
• Both sides should seek to establish a standard that could serve as the template for the trans-Pacific trade agreement and others.

It is critical that those who support lower economic barriers stay engaged in support of a joint accord, but one that fosters openness rather than protectionism. A successful deal will expand Atlantic trade, strengthen the Atlantic alliance, improve competitiveness on both continents, and set a standard that stimulates expanded trade agreements with other regions

If the negotiating parties get it right, a U.S./EU free trade agreement could serve as a much needed shot in the arm for each side's economy and a template for future market innovation.

Pope Benedict XVI's surprise renunciation of the Chair of St. Peter generated a tsunami of commentary usually reserved for events such as a presidential election or a Super Bowl. The pope's struggles with scandal dominated most stories, some of which noted that while these scandals were not of his own makings, they created an enormous burden for him.

The announcement has been greeted with dismay, resigned sadness, and hope in the pope's admirers, Catholic and not. David Goldman, a.k.a. Spengler, wrote, "As the shepherd of the founding institution of the West, Benedict personally embodied its best traditions. He is one of the last men living to have assimilated the fullness of European culture, a member of the ‘heroic generation' of Catholic theologians that included Henri de Lubac and Hans Urs von Balthasar."

The analysis of Benedict's papacy will roll on in the run-up to the conclave that will select his successor, and long beyond. The world's fascination with this office suggests that a pope plays many roles with influence beyond the Roman Catholic Church.

One such role is diplomat. The Holy See is an international personality of long standing, recognized since the middle ages. (The State of the Vatican City is a more recent entity, established in the 1929 Lateran treaties to resolve the status of the pope and his former territories in Italy). The Holy See has its own diplomatic corps, formal relations with 179 countries (including the U.S. since the Reagan years), observer status at the UN, and it is to the Holy See and its head of state, the pope, that arriving ambassadors present their credentials.

Pope Benedict played this role effectively. Although some of his early trips were disturbed by awkward moments with the press, he learned. His 2008 visit to the United States, with stops in Washington and New York, was especially successful and was one of several encounters that cultivated a real friendship with President George W. Bush.

World leaders are eager to visit the pope. Certainly some of that eagerness is deference to Catholic constituencies at home. And, as probably the world's biggest distributor of aid to the poor in every land, the Church has a hand in human development that gives it shared interests with both donor and recipient countries.

In other cases, the substance of the meetings is more geo-political, as the Church deals with the persecution and plight of Christians in China, the Middle East, Pakistan, and elsewhere; faces concerns about encroachments on religious liberty in the United States and Europe; pursues unity within Christianity, including especially with the Orthodox Churches; and generally seeks the space to continue its ministries and activities. The story of Cold War cooperation between President Ronald Reagan, Pope John Paul II, and Prime Minister Margaret Thatcher is well told in John O'Sullivan's book, The President, The Pope, and the Prime Minister.

The Obama administration would be well served to consider all of this as it nominates a new ambassador to the Holy See, who will be received by a new pope.

But diplomat was not the role most cherished by Benedict. He was first a priest, second an intellectual force and phenomenally prolific theologian. He is one of the few people anywhere capable of debating, and changing the views of, a philosopher like Jurgen Habermas and co-authoring books with leading non-believing politicians such as Marcello Pera, former president of the Italian senate. Then a young priest, Benedict was a major influence in the Second Vatican Council and has spent much of his papacy clarifying the correct interpretation of that Council's teaching. He has constantly emphasized the vital complementarity of faith and reason to overcome fundamentalist extremism and secular nihilism.

Perhaps Benedict's most important legacy will be his writing during his papacy: his three volumes on the life of Jesus, his encyclical letters (especially Caritas in Veritate, or Love in Truth, and Spe Salvi, Saved in Hope) and his regular homilies. 

The betting has begun -- literally and figuratively -- on who will replace Benedict. The pope must be priest, teacher, diplomat, administrator, and reformer of a Church still recovering from self-induced tragedy and mismanagement, an arbiter of conservative and liberal viewpoints, authoritative yet gentle. As George Weigel writes in his recent book, Evangelical Catholicism: Deep Reform in the 21^st Century Church, no sane person wants the job, much like the American presidency. 

And as we look around us these days, those of us who are Catholics might recall the traditional prayer cited this week by David Warren: "Lord, do not send us the pope we deserve."

While we have no doubt that Bob Schieffer, the moderator of Monday night's foreign policy debate, will have plenty of material to choose from in formulating his questions for the candidates, we couldn't resist a chance to add our own suggestions. Following are some potential questions for the debate as submitted by the Shadow Government crew:

Peter Feaver:

1. Mr. President, is there any foreign policy challenge America faces that you would concede has gotten worse on your watch because of actions you have taken or not taken? In other words, is there any foreign policy problem that you would say can be blamed at least partly on you and not entirely on Republicans or President Bush?

2. Mr. President, what is the fairest criticism of your foreign policy record that you have heard from Governor Romney over the course of this campaign?

3. Mr. President, what is the most unfair criticism of Romney's foreign policy platform that you have heard your supporters levy over the course of this campaign?

4. Mr. President, why do you say that Romney is proposing defense expenditures that the military have not asked for when Romney is just proposing restoring funding to the levels you claimed were needed in your own budget a few years ago. That budget, which you asked for, reflected what the military asked for didn't it? And didn't you order the military to accept deeper cuts -- thus they can't now speak up and ask for those levels to be restored without being insubordinate, so isn't it misleading to claim that they are not asking for them when you ordered them not to?

5. For both: Both campaigns have featured senior retired military endorsements as a way of demonstrating your fitness to be commander-in-chief. Don't you worry that such endorsements drag the military into partisan politics, thus undermining public confidence in a non-partisan military institution?

Paul Bonicelli:

1. Mr. President, history tells us that prestige matters; that is, nation-states who are regarded for their power, whether military, economic or moral, are less often challenged by those who wish to upset the peace or change the international order that favors the interests of the great powers. Has your administration seen an increase in the prestige of the United States or a decrease, and why?

2. For both: Isn't a reform of our foreign aid system and institutions long overdue, and shouldn't reform have as its primary goal the promotion of direct and tangible US interests, such as more trade with more countries that govern themselves democratically? If this is truly the appropriate goal for international development funds, then why aren't all aid recipients required to practice sustained and real democracy?

Phil Levy:

1. For both: Do you believe that the economically endangered nations of Europe should adopt policies of austerity, as countries like Germany have argued, or that they should turn instead to more fiscal stimulus? If you prefer stimulus, is there any level of debt/GDP at which you get concerned about their ability to pay those debts? If you believe these countries should borrow more, from whom should they borrow? Should the United States be offering funds?

2. For both: There has been almost no progress on global trade talks since the summer of 2008. How would you assess the health of the World Trade Organization and the world trading system? Is this important for the United States? What would you do to strengthen the WTO, if anything?

3. For both: In 2009, in response to the stimulus bill, a top Chinese economic official said, ""We hate you guys. Once you start issuing $1 trillion-$2 trillion... we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do...." Brazil's finance minister, Guido Mantega, has accused the United States Federal Reserve of igniting a global currency war with its policies of quantitative easing. To what extent does the United States need to consider the international ramifications of its economic policies? Do you believe a strong dollar is in the U.S. interest? If so, what does that mean?

Kori Schake:

1. For both: What do you consider the top two national security threats to our country?

2. For both: How do you see increasing energy independence for the United States affecting our foreign policy?

3. President Obama, you have threatened to veto any changes to the 2010 Budget Control Act, yet both your Secretary of Defense and the Chairman of the Joint Chiefs of Staff believe sequestration going into effect would be disastrous. How will you enact the Budget Control Act without damaging our national defense?

4. Governor Romney, you have committed to increase defense spending; where does the money come from to do that in year 1 of a Romney administration?

5. President Obama, Vice President Biden has said that your administration will withdraw U.S. forces from Afghanstan in 2014, whether or not the Afghan security forces are then capable of taking over the fight. Do you agree?

Paul Miller:

1. For both: Under what circumstances would you authorize military action against Iran's nuclear facilities? Will you intervene to stop the civil war in Syria? If so, what lessons have you learned from our recent experiences in Iraq, Afghanistan, and Libya that will shape how you undertake an intervention? How do you plan to accomplish a responsible transition to Afghan leadership for security there? What should be the mission of U.S. troops in Afghanistan after transition, and how many troops will be required to accomplish it? Or do you envision a complete withdrawal of all forces?

2. For both: Should the United States support the spread of democracy abroad? What is the role of democracy assistance in U.S. grand strategy, and how does it relate to our overall national interests? How will you respond to future peaceful uprisings like the Green Revolution or the Arab Spring?

3. For both: Some Americans are concerned that the government has accumulated too much power over the last decade in its effort to develop a robust counterterrorism capability. Others believe we need to keep those powers because the terrorist threat has not abated. Do you plan to sustain the government's new, post-9/11 war-time powers, reportedly including targeted killings and indefinite detentions, indefinitely? If not, will you publicly and explicitly commit to defining a clear end-state to the war against al Qaeda, the achievement of which will terminate the new powers?

Read on

Ever since Julian Assange sought the diplomatic protection of the government of Rafael Correa in the Ecuadorean embassy in London in June, there has been much commentary on the seemingly odd political pairing of a supposed champion of government transparency with an erratic president mostly known for his horrendous record of press abuse at home.

I have written previously that Assange's embrace of Correa exposes the former computer hacker as a fraud and that his reckless exposure of U.S. confidential documents was no blow for freedom of information.  Instead, that his real agenda was to try and harm the United States' attempts to play a leadership role in ensuring the security of the prevailing global system.

For Correa's part, many have speculated his association with Assange is meant to expressly counter his (well-deserved) international image as intolerant of a free and independent media.  Others see him embracing the Assange cause as an audition to replace an ailing Hugo Chávez of Venezuela as the leader of South America's perpetually angry Left.

It is certainly all that, but also more.  And President Correa pretty much summed it up in comments this week: "This is not a about patching up systems that have not worked for centuries," he said. "It is about changing the systems, and that is why we are clashing with national and international powers that want things to stay as they are."

Thus, his granting of political asylum to Assange is meant as a direct provocation and challenge to long-established roots of international order and accepted behavior.  Painstakingly built up by the United States and its allies over the last century, this interlocking system of institutions and largely accepted international norms has helped not only to maintain a remarkable level of global stability in recent decades, but has irrefutably created the conditions for unprecedented global economic growth that has pulled billions out of poverty.

Is the system perfect? Of course not. But as Robert Kagan has pointed out in his recent book, The World America Made, the alternatives are not very appealing.

But you will always have the outliers, the self-alienated who feel compelled to act out against the system for whatever reason - historical, cultural, or just plain personal.  This is precisely what Assange and Correa are all about: tearing down what has gone before, motivated by no more than spite. 

As the old Midwestern saying goes, "Any jackass can kick down a barn." In other words, destruction is easy. Where the credit for human progress lies is with the builders and creators - and those who carry the burden of protecting environments where builders and creators can thrive. 

Granting political asylum to someone wanted in Sweden (of all places!) for questioning on allegations of sexual assault is by any measure a gross abuse of accepted standards of behavior (no matter what outlandish conspiracies theories people think lie behind the charges).

Thus, the central question in London is this, will established rules and norms prevail or are we prepared to allow the Assanges and Correas of the world to begin rewriting them as we go along?

For my money, the future most certainly should not be allowed to lie in the hands of these two pied pipers of anarchy.

Eurozone leaders emerged from their latest all-nighter with a plan that sent the markets into paroxyms of relief: The German and French stock markets were up more than 4 percent Friday. The key heralded result was a commitment to move toward a banking union. This was taken as a critical concession by German Chancellor Angela Merkel and a key move toward resolving the crisis.

As the good folks at Foreign Policy have helpfully documented, this is not the first time European summiteers have stepped out, bleary-eyed, and announced there would be economic peace in our time. It's roughly the 20th. I warned before about celebrating any European plan to have a plan, and that's what this is. But how good is the plan? Is it a significant step toward solving the euro crisis?

The most striking move was the promise of a banking union. The European Central Bank would be given new regulatory powers over eurozone banks and European bailout funds could be sent directly to ailing banks to support them, without adding to national indebtedness. It would be nice to be able to dissect the details of how this new scheme will operate, but there aren't any yet. The bailout funds cannot be tapped until the ECB is empowered, and that will take at least a few months.

In theory, a move to bolster Europe's ailing banks could help. As the 2008 financial crisis aptly demonstrated, the financial sector provides the lifeblood of an economy; cut it off and the economy turns distinctly blue. Europe's economies are notably more dependent on bank finance than the U.S. economy and the banks of the troubled economies on the periphery have had trouble raising funds and retaining deposits. A move to bolster them could potentially stop a direct drain on the funds of impoverished sovereigns and move toward restoring normal functioning and growth in those economies.

There has been a clamor for such moves, partly on the well-established theory that banking panics can be self-fulfilling. The normal operation of banks is risky. If everyone tries to get their money at once, even a healthy bank will succumb. This is the rationale behind deposit insurance. Let all those small savers know their money is secure, restore calm, and the insurance may never even need to pay out.

So that's the hope. If the eurozone banking troubles are just the result of unfounded panic, a new backstop could restore calm. If there are a limited number of banks troubled by past lending into now-burst real estate bubbles, a well-funded cleanup could set things aright.

But the potential problems are enormous. Here are five sets of questions facing the new European banking union plan:

1. Politics of operation. In the story above, banks are just going about their ordinary business when an unfounded panic attack strikes customers. But banks can make choices about how much risk to take on. Riskier projects can offer higher returns. This is why the bailout has been coupled with regulation; Chancellor Merkel does not want a situation in which "Heads Bankia wins, tails Brussels loses." Bank regulation is difficult in ordinary circumstances (banks are big and complicated and even they may not realize the risks they are running). The situation is even more complex when you have close relationships between banks and politicians and bank lending is used to further political or industrial policy ends. Will Germany or France tolerate that kind of interference from the ECB?

2. Back door fiscal union? One of the risky behaviors that European banks have recently engaged in has been lending to the governments of Greece, Spain, and Italy. If the banks are allowed to keep purchasing government bonds, then direct lending to the banks looks like a back-door fiscal union, only without controls on government spending, a point made by James Mackintosh of the Financial Times. That would also beg the question of where the money will come from, since the summit proposed no new resources and existing ones would not cover those countries' needs. If a new bank regulator cuts off the flow of funds from the banks to the governments, that raises the question of who will be left to lend to the governments. When bond buyers disappear, interest rates soar.

3. Politics of resolution. All of the political questions apply even more strongly when it appears a bailout has failed. Who decides to pull the plug? Will powerful governments let national champion banks be disassembled by eurozone technocrats? Who decides how the losses are allocated? There are already lawsuits from small Spanish shareholders who claim they were misled into funding Spanish banks. If such shareholders or bondholders are wiped out - normal in a bankruptcy - that can have an economic and psychological impact.

4. What about London? Britain is not in the eurozone, of course, but London is the financial center of Europe. The EU is supposed to have a single market in financial services. Omitting Britain entirely would be like saying that we would regulate finance in the United States, except in New York. But on what grounds could the ECB hold sway over behavior in London?

5. Which risk are you insuring against? In the standard deposit insurance story, some banks get unlucky with their loans and their depositors are rescued. Europe's problem is that there is another sort of risk lurking: euro departure. Imagine two Greek depositors, one of whom keeps his money in his Athens bank, the other who moves her money to Frankfurt. If Greece were to leave the euro, our two depositors would have drastically different experiences. He would be much worse off than she would be, since his savings would be in depreciated drachmas. Would deposit insurance compensate him? It is hard to believe it would, particularly when one hears Europeans talk about how a departure would be an unacceptable violation of European law. Even if Europe were tempted toward forgiveness and inclined to reimburse such losses, the cost would be enormous. This would be covering virtually all bank deposits in a departing country, not just an unlucky few. The latest summit did not propose any new funds, much less the trillions of euros this could cost. If you do not insure against this risk, then insuring against the lesser, idiosyncratic bank risk is completely futile. If you do insure against this risk, the promise has to be credible to do any good.

In sum: another European summit; a burst of euphoria; a plan to have a plan; and many questions left unanswered. Eurozone leaders have expressed their good intentions, but in mid-crisis it is the seemingly-obscure particulars of banking practice that will determine whether or not the markets' relief was merited.

Now that summer is upon us, the global economic problems are no less serious, but perhaps our blogging can be. This is summertime, when one just wants to roll down the car windows, crank up some classic songs on the iPod, and sing along.

The pressure on Germany to fix Europe's looming problems is something I've addressed before, more seriously. The ever-louder pleading for Chancellor Merkel to just do it already, though, has lately put me in mind of other sorts of importunings. So, with apologies to Billy Joel, herewith a reworking of his 1977 classic, "Only the Good Die Young" (redone as "Stopping the PIIGS Bank Run"):

Come on, Angela, don't make me wait/ You Protestant countries start much too late/ Ah but sooner or later it comes down to fate/ You know what must be done/ When they sold you the euro and took the Deutsche Mark away/ They promised restraint and said we'd converge some day/ Ah but they never told you the price that you'd pay/ Now that Bankia's come undone

Stopping the PIIGS bank run/ That's what I said/ Stopping the PIIGS bank run

 You might have heard we run with a dangerous crowd/ Private investors just can't be found/ Our national budgets often tend to run aground/ Ah but that never hurt no one

 So come on Angela show me a sign/ Send up a signal I'll throw you a line/ Those old time treaties you're hiding behind/ Just won't get it done

Darlin stopping the PIIGS bank run/ I tell you stopping the PIIGS bank run/ Stopping the PIIGS bank run

You get a fiscal treaty/ And more input as a consolation/ You'll set a brand new goal/ And no risk of an export hole/ But Angela they didn't give you/ Quite enough information/ You didn't count on Greece/ When you were counting on low debt/GDP

And they say there's political union for those who will wait/ Some say it's better though there may be a taint/ But wouldn't you rather laugh with the sinners/ Than cry with the saints?/ The sinners are much more fun

 You know you've got to stop the PIIGS bank run/ I tell you stopping the PIIGS bank run now/ You've got to stop the PIIGS bank run

 You said your voters told you/ All they worried about was inflation/ They worry about subsidies/ Transfers that continue endlessly

Come on, come on, come on Angela/ Don't make me wait/ You Protestant countries start much too late/ Sooner or later it comes down to fate/ You might as well get it done/ You've got to stop the PIIGS bank run/ Tell you baby/ You've got to stop the PIIGS bank run

Imagine this with an interwoven saxophone and you should be all set for  summer crooning on the autobahn. Of course, from a policy standpoint, Chancellor Merkel should probably have some of the same concerns about giving in that the apocryphal Virginia would have had in the Billy Joel original.

A few days ago, I had the privilege of testifying before the Senate Foreign Relations Committee on the subject of the upcoming NATO Summit in Chicago.

The whole testimony is here, but the bits that Shadow Govt readers need to know is this.

The gathering of allied heads of state has to be more than the administration's desire for a low-key "implementation summit." The NATO meeting needs to "provide credible reaffirmation of the Transatlantic Bargain -- one in which the United States demonstrates commitment to Europe's regional security interests and our European allies demonstrate that they stand ready to address global challenges to transatlantic security."

Toward that end:

First, the president must credibly reaffirm Europe's centrality in U.S. global strategy. The drifting apart of the two continents has many causes, but a key one is a U.S. transatlantic agenda whose dominant elements recently have been a vaguely defined reset of relations with Russia, a defense guidance that articulates a pivot to Asia, and reductions of combat capability deployed in Europe. Through robust military engagement with Europe, the United States would reinforce the credibility of its commitment to the North Atlantic Treaty and sustain, if not improve, the ability of European and U.S. forces to operate together within and beyond the North Atlantic area.

Second, the Chicago Summit should be used to reanimate the vision of a whole, free, and secure Europe as a guiding priority for the transatlantic relationship. NATO heads of state can and should: declare their intent to issue invitations to qualified aspirants no later than the next summit; underscore the urgency of resolving the Macedonia dispute with Greece over the former's name, the last remaining obstacle to Skopje's accession to the alliance; assert that Georgia's path to NATO can be through the NATO-Georgia Commission; and applaud Montenegro's significant progress under the Alliance's Membership Action Plan. By leading the effort to fulfill the vision of a unified, undivided Europe, the United States would drive forward a process that strengthens Europe's stability and security and thereby reaffirms the centrality of Europe in America's global strategy.

Third, the Alliance must chart its way forward in an era of financial austerity. In an age of austerity, the focus of the Alliance's Smart Defense initiatives should be on the practical and attainable. Such projects in the realms of effective engagement, JISR, logistics, and training are not only needed for operational purposes, they are more credible to NATO publics than promises concerning the distant future. 

Fourth, the Chicago Summit should be used to expand and deepen the partnerships the Alliance has developed around the world. The globalized and increasingly hybrid character of today's challenges make it important for the Alliance to expand and deepen its relationships with non-governmental organizations and non-member states around the globe. By leveraging the potential offered by a network of NATO global partnerships, the United States and Europe can "pivot" together in the effort to address the global challenges that already define this century.

Finally, NATO must demonstrate unambiguous determination to sustain a stable Afghanistan. In Chicago, NATO aims to map out a strategic partnership with Afghanistan that will endure well beyond 2014. The U.S.-Afghanistan Strategic Partnership, even if it is fleshed out robustly, will likely be insufficient to ensure success in Afghanistan in the absence of a long-term transatlantic commitment to the Afghan people.

In these ways, the Chicago Summit can emerge as an important, if not inspiring, benchmark of American commitment and European ambition regarding the Transatlantic Alliance.

Yesterday's elections in France and Greece are being interpreted as a rejection of austerity policies. The French president-elect, Francois Hollande, had campaigned against the austere pact struck between defeated president Nicolas Sarkozy and German chancellor Angela Merkel. The leading Greek political parties had been compelled to back austerity measures as a condition of the Greek bailout; they saw their combined support slide to roughly one third of the vote.

There is a rebellious thrill to such defiance, just as when a downtrodden employee finally tells his boss just where he can put his godforsaken job. After the thrill dissipates, it helps to have a Plan B.

In Europe's case, there is already a rallying cry -- growth! Instead of the soul-crushing paring away of social programs and the painful levying of taxes, Europe can just grow its way out of its problems. A faster-growing economy lifts people out of unemployment, reducing the need for welfare payments, and generates tax revenues as the people receive their new paychecks. The newly employed are newly confident, so they go out and spend. This further stokes the economy, creating a virtuous cycle.

The only catch is how to get this whole "growth" thing started. Here's one idea: The countries of Europe could get together, honestly critique the structural failings that have plagued their economies, acknowledge the need for radical change, and resolve to embrace reform. The European Union could set a strategic goal "to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion."

The quotes are there because this comes directly from the press release describing the EU's Lisbon growth strategy in March 2000. The concept of growth is not a new one. That particular strategy preceded a decade in which tepid reforms in many countries, fiscal laxity, and unchecked housing bubbles left the zone in its present state. This is not to argue that a failed past run at reform precludes trying again. But it does point out the obstacles to growth by proclamation.

Where else might one look for growth? Critics of austerity will point to the possibility of false economies. For example, if a worker renounces spending on transportation in an attempt at frugality, then fails to show up at work, the ensuing loss of that worker's job undoes any budgetary benefit from the saved gas money. The worker would have been better off spending a little to earn more. Applied to a country, the argument would be that some judiciously applied stimulus or well placed investments could launch that virtuous growth cycle described above.

That's plausible enough. But, as with growth by proclamation, the idea of government spending to boost the economy is not a novelty in Europe. It is possible to have long, involved debates about the past effects of such spending, or whether this time would be different. In the interests of brevity, though, one can circumvent such a debate with the simple requirement that if an individual or a country is to borrow more, there must be someone willing to lend. Our worker who needs wheels for a way to work can go to the bank and get a car loan, if the bank is persuaded of the wisdom of the venture. What of France and Spain and Greece? If they are to borrow more, they must find willing lenders. At the moment, those seem rather scarce. Private credit seems to be drying up. China has been unenthused about European proposals that it buy up debt. The United States is a borrower itself, competing (successfully) for lenders' favor. Germany could lend the money, but its skepticism led to the austerity pact in the first place.

The alternatives to austerity seem ever fewer. One popular one -- a eurobond (a variant of fiscal union) -- is not much different from finding willing lenders. In this case, instead of lenders, our borrowing countries just need to find someone to co-sign their loans. It has not escaped Germany's notice that its liability as a co-signatory is not much different than it would be as a lender.

Then there is the European Central Bank. Aren't central banks supposed to be lenders of last resort? Actually, the ECB is prohibited from funding governments this way, but it has overcome some of those inhibitions and found some clever ways around such strictures (lend the money to troubled banks, who then buy up sovereign debt). One can argue whether the risks of aggressive monetary policy outweigh the benefits (see Robert Samuelson today). In any case, the ECB has made clear that its intervention should not be seen as an easy substitute for fiscal control and reform.

If Greece were not in the euro zone, the International Monetary Fund would surely have suggested that it seek growth through a currency depreciation. That still may be Greece's best hope, but it will hardly offer an escape from austerity. A Greece that renounced its remaining debts and left the euro would still need primary budget balance.

Europe has maneuvered itself into a difficult spot. The Keynesian prescriptions for government spending to counteract slumps presume that governments saved in the good times. Many of Europe's troubled governments did not. That leaves them with few good options now. So, in a twist on the old cry accompanying changes in European leadership: Austerity is dead! Long live austerity!

Trilateral dialogues come in many forms. Those that mix allies with competitors can have the deleterious consequences of diminishing like-mindedness for the sake of inclusivity. More successful trialogues combine like-minded countries that can bring capabilities to bear in ways that cut across national and regional divides, creating an effect that is greater than the sum of its parts.

One of the unfortunate consequences of the rhetoric surrounding the U.S. "pivot" to Asia was the perception that Washington, even as it intensified its commitment to trans-Pacific leadership, was pivoting away from Europe, home to its historic allies. U.S. Assistant Secretary of State for East Asia Kurt Campbell is working hard to correct that interpretation and transcend regional divides -- by leading a U.S. push to coordinate with Europe on Asia in unprecedented ways.

As he told the Trilateral Forum Tokyo organized by the German Marshall Fund of the United States and the Tokyo Foundation today, there are enormous opportunities for the Atlantic allies to work together in a structured, systematic way in rising Asia. These include:

Burma, where a historic political opening can be constructively encouraged (and where backsliding on liberalization can be deterred) through close coordination between the United States and the European Union, including via a graduated loosening of the sanctions that helped spur Burma's military government to opt for managed political change -- and where the allies can bring to bear lessons learned in Europe (for instance, in the Balkans) to support Burma's fragile process of ethnic reconciliation.

China, where U.S. and European concerns over issues like human rights, protection of intellectual property, and rule of law are convergent, and where the West wields much more leverage than commonly understood as a result of being China's dominant trade and investment partners.

Asian institution-building, where no one can teach Asian nations with only a superficial history of multilateral cooperation more about how to build durable and robust regional institutions in the fields of security, trade and investment, and transnational governance.

Security issues, where Europeans have not been pivotal players since the days of gunboat imperialism a century ago, but where a more global Europe must step up its game as competition among Asia's rising and established powers creates dangerous security dilemmas that threaten international security and prosperity.

This is more than just talk: American and European officials now meet regularly on an Asia-specific agenda; the United States and the EU have agreed to roll out a new mechanism for transatlantic cooperation on Asia at the next ASEAN Regional Forum summit this summer. This is an initiative that should be welcomed by Asian officials who overwhelmingly believe Europe punches below its weight in Asia, despite the resilience of European power and ideas in the world, deep economic ties, and the increasingly global impact of developments across the Indo-Pacific region.

The reality is that for too many European nations -- and for too many European Union officials -- China trade policy has been a substitute for an all-of-Asia strategy that encompasses the full spectrum of Western interests and leverages Western ties to powers of great significance, including Japan, South Korea, India, and Indonesia. For their part, American officials until recently have given little creative thought to connecting the two alliance systems that the United States has built and nurtured for 60 years, spanning the Atlantic and Pacific oceans, into a more global arrangement that transcends bureaucratic stovepipes constructed for another era.

Asia's rise is a global phenomenon, not simply a regional one: to take just one example, consider how China's rise affects global energy markets, global governance, and developments in Africa, the Middle East, and Latin America. At the same time, military modernization and intensifying competition within Asia -- between Japan and China, North and South Korea, and India and China, for instance -- implicates Western powers with deep ties to Tokyo, Seoul, New Delhi, and Beijing.

Power shifts within Asia promise to displace existing balances in ways that will require the United States, to sustain its leadership, to secure every advantage it can in a more fluid environment by working with its friends, many of whom are in Europe. From the Asian perspective, every key power has a compelling stake in Europe's ability to emerge from its sovereign debt crisis and restore economic growth. Despite wishful thinking about decoupling between the West and the rest, the global economy cannot grow sustainably as long as Europe, a primary market for and source of Asian trade and investment, is in the grip of recession.

Given the overlapping interests of Asian and Western democracies, it only makes sense to coordinate much more systematically, rather than relying on a set of outdated regional toolkits unadapted to a more globalized century. Similarly, to the extent that China is both a top economic partner and top security concern for so many countries, it only makes sense for them to use their combined influence to manage relations with Beijing from a position of strength -- rather than succumb to a more national approach that will disadvantage every country that cannot alone match China's clout.

For these reasons, the U.S. State Department's effort to bridge that Atlantic and Pacific communities, if matched by seriousness in European and Asian capitals, promises to pay dividends for Western interests in a more non-Western world.

On the flight from Rome to Mexico prior to his visit to Cuba, Pope Benedict XVI stirred the hearts of many by declaring that Marxism had lost its relevance in the 21^stcentury.  The comment was seen as a preview to how he would comport himself in Cuba -- an anticipated and welcome contrast to the traditional international indulgence of the Castro dictatorship.

Alas, that was to be the most provocative thing he had to say over the entire trip. Instead, it is what he said next that appears to typify how the Church is approaching its mission in Cuba: that the Church was ready to help the island find new ways of moving forward without "traumas."

Apparently, "traumas" is Vatican-speak for the kind of upheavals seen elsewhere in the world of late, in which populations have risen up against oppressive and bankrupt dictatorships.

In other words, the Church has decided that its role in Cuba is not to be a change agent and it would shun any abrupt turn away from Castroism. It also means that the Church is placing its faith in the Castro regime (and its repressive apparatus) to manage a "soft landing" as Cuba supposedly transitions to wherever it is transitioning.

That is why the Pope's trip is a profound disappointment to many who were hoping for a stronger signal that the cries of the Cuban people were being heard for a better future over their dysfunctional and spiritless existence under the Castro regime. 

Pope Benedict did pepper his public remarks in Cuba with words like "liberty," "prisoners," (although not "political prisoners") and reached out to "Cubans, wherever they may be" (more than one million in exile), but even the international press covering the visit seemed disappointed by his lack of powerful symbolism and rhetoric. The Pope "delivered a carefully worded, nuanced and balanced arrival address" and "kept his language lofty, his criticism vague and open to interpretation."  Frankly, there is little in Cuba today that is "open to interpretation."

Indeed, the effort to avoid saying anything that would offend the Castro government was too conspicuous, as was the smothering regime choreography of the visit -- high-ranking officials always appearing near the Pontiff, media restrictions to control public perceptions, the arrests of dissidents. The Cuban people needed no translation on what was really going on: The regime was demonstrating that the Church did not exist as an alternative voice of authority, but that they and the Pope were compatible.

Neither was the visit enhanced by the fact that the Pope declined to meet with beleaguered Cuban dissidents (as Pope John Paul the Great had done 14 years earlier) because of a "busy schedule," yet found the time to reportedly add a last-minute meeting with cancer-stricken Venezuelan President Hugo Chávez (in Cuba for medical treatment), a man who has notoriously insulted Church leaders in Venezuela time after time.

In one encouraging note, however, a brave Cuban refused to go along with the regime's charade and began shouting during one of the Pope's addresses: "Down with the Revolution! Down with the dictatorship!"  As he was being led away, he was punched by an official wearing a Red Cross vest. (Such is life in Cuba.) His fate remains unknown.

Cuba is, of course, hostile territory for the Church, which has been repressed -- at times violently -- for five decades. And it stands to reason there may be a bit of a whipped dog syndrome in the Church's reluctance to be bolder. But the Church is not without its own strengths -- a fact that terrifies the Castro regime, hence, the overexertion to try and co-opt it. But the bottom line is Pope Benedict declined the opportunity to meet the regime on equal terms, and the Cuban people are poorer off for it.

The irony is that the Vatican's choice of a passive and accommodating approach will only help to bring about the kind of turmoil it ostensibly seeks to avoid -- as the pent up frustrations of the Cuban people continue to be denied any viable outlet. It also diminishes the Church's own image as an honest broker in a future Cuban transition. 

History will ultimately render the verdict on the Vatican’s choice, but the record shows that placing one’s faith in the hoped-for good will of a dictatorship never really does work out very well in the end.

Within the next 24 hours, observers say, we are likely to see an agreement reached among Greek political parties that will clear the way for a second bailout from Europe and the IMF. Observers have been saying this for two months now, but never mind. It is certainly possible that the members of the Greek ruling coalition will meet the demands of "the troika" of lenders -- the European Commission, the European Central Bank, and the International Monetary Fund. And even plausible suggestions of a crisis resolution have tended to bring a feeling of euphoria to markets -- a good Greek word.

There are optimists and pessimists about Euro zone prospects. I'm in the latter camp, but it's interesting to see where the analyses diverge. You would probably get broad agreement that the essence of the euro zone problem is that a number of countries on Europe's periphery have racked up unsustainable levels of debt. There is also a general consensus that if those peripheral countries followed the traditional prescription of devaluing their currency (by leaving the euro zone), this would be a large economic shock for Europe and, thus, for the rest of the world (note, though, the different views among Northern European leaders on whether Greece alone might be expendable).

The divergence in opinion really comes in the analysis of potential solutions. Here are three ways one might look at fixes:

1. Could Europe as a whole handle the debt issue?
This is the question the optimists ask. The answer, they find, is yes, Europe could. While individual countries within the euro zone have debt problems, the zone as a whole is roughly in balance. If everyone agrees that the money is there and that failure to find a solution could be very costly, then it's just a matter of a little obligatory posturing before the money is reshuffled and the matter solved. Another way of putting this would be that economic hurdles are difficult to overcome, but political hurdles are trivial.

2. Could current national leaders in the Euro Zone handle the debt issue? Posing the question this way takes political constraints a little more seriously. While there are certainly now phone numbers and interlocutors for an apocryphal Kissingerian call to Europe, the major players are still national. Chancellor Merkel ultimately answers to a German electorate, President Sarkozy to a French citzenship, and Prime Minister Papademos to a Greek. Those German voters are distinctly unenthused about bailouts and a central bank that is willing to print money to solve problems. Those Greek voters are distinctly unenthused about austerity programs in the face of 19 percent unemployment. With these political constraints, the problem looks significantly harder. The question becomes whether these leaders can overcome the reluctance of their respective electorates and 'do what must be done.' Those who analyze at this level are hanging on every report out of Athens and Berlin.

3. Can countries commit that all future governments will follow the paths agreed today?
This is the pessimists' playground. What happens when leaders fail to persuade their electorates that their unpopular measures were really necessary? They're usually ousted in the next election. There are certainly some policies that, once undertaken, are very difficult to revoke. But the central issues in Europe now revolve around annual national budgets, for which commitments are eminently reversible. One can try to lock in good behavior at a constitutional level -- as much of Europe just did with its brand new fiscal pact, and as it did at the zone's inception with the Stability and Growth Pact. These have proven exceedingly difficult to enforce in practice.

A story on Greek politics in the New York Times nicely captured the essence of this last problem.

"After years of turning its back on its social welfare platform, the Socialist Party, known as Pasok and Greece's dominant political force since 1974, has virtually disintegrated, falling to fifth place with 8 percent support, according to a poll that the firm Public Issue released on Tuesday.

...The most probable winner of future Greek elections would be New Democracy, which held power from 2004 until 2009, when Greece's debt soared from slightly more than 100 percent of its gross domestic product to at least 127 percent.

Its leader, Antonis Samaras, has been criticized repeatedly by European leaders as irresponsible, but with every new tax increase in Greece, some voters are warming to his constant critique of austerity in the absence of growth measures. The party is leading in opinion polls, with Public Issue putting its support at 31 percent of the vote."

The story also noted that "the hard left and extreme right are rising."

Thus, Greek acquiescence today guarantees nothing after the next vote. The magnitude of this problem is not lost on the major European players. In fact, the quest for a solution can be seen as the unifying theme behind Northern European proposals to address the crisis: the fiscal austerity pact, fiscal union, Brussels oversight of national budgets, even political union. Each of these would insulate future tax and spending decisions from the whims of Greek voters.

Barring a momentous development along such constitutional lines, Greek voters still have a say. So if, in the near future, there is an announcement of an accord among current political leaders, the question will be which Greek word is most pertinent: euphoria, or democracy.

Signs are gathering that the European Union's most recent bail out has not stemmed the rising tide of concern in markets about Europe's fundamental financial or political solvency.

Britain's government barely prevented a rebellion by conservatives against their own Prime Minister forcing a national referendum on whether to remain in the European Union, and Britain isn't even principally exposed to the default risk because it does not participate in the common currency. Still, the Business Secretary is planning for "armageddon" of the euro's collapse.

Spain voted out its socialist government over the weekend, bringing in an opposition that ran on a "not the people who got you into this mess" platform but refused to commit itself to a program for reducing Spain's 40 percent unemployment rate for those under 25. Yields on Spanish bonds rose on the election results, suggesting a lack of confidence the new government will continue the draconian austerity measures that got its predecessor voted out.

One French commentator pointed out resentfully that once Berlusconi resigned, markets began to realize France was actually in a worse position than Italy. Even though Italian bonds are trading at 7 percent interest -- generally considered unsustainable levels -- Italy at least has a primary surplus, where France does not. France's debt may soon be downgraded, pulling it further into the contagion pool. Berlusconi's antics ensured he got attention that otherwise would have been scrutinizing France's balance sheet; technocratic Mario Monti removes that heat shield.

The European Financial Stability Fund, created to backstop governments shut out of lending markets, is nowhere near large enough to placate market concerns. Subtracting obligations to Greece, the EFSF has somewhere around $200 billion in the bank. Italy alone will need to refinance nearly $400 billion in the coming year. European countries being pulled down the drain are now sharp-edged in their calls to let Greece fail in order for the EFSF to have money to save others.

The debate has taken on a strong moral overtone, as David Gordon of the Eurasia Group has pointed out: thrifty northern Europeans believe those countries in trouble deserve it and are persuading themselves it would be wrong to shield sinners from the consequences. A Puritanical ethos has overtaken European solidarity.

Europeans may desire to shift the bail out to the IMF, but there is little prospect poorer countries will countenance using all available IMF reserves for rich Europeans during a time of global economic downturn. EU appeals to the Chinese and other potential sovereign lenders have not been successful. 

The European Commission, which has been shoved to the sidelines by national governments -- itself a rather striking statement of the limits of pooled sovereignty that is the core promise of the European project -- has tried to interject itself into the debate by advocating issuance of bonds by the EFSF, something Germany has adamantly refused.

Adopting the Euro bond proposal would constitute a change to the EU treaty -- which forbade bail outs at Germany's insistence -- requiring ratification in every EU country. It would surely fail in Germany, but it would also fail in numerous other EU countries.

All of which means that worse is yet to come for Europe's financial crisis. Markets are sure to continue testing governments' credibility. Banks' exposure has not been honestly assessed or politically owned up to in the condemnatory countries like Germany. The EU stress tests were widely dismissed as politicized and Germany is hoping markets will continue as carrion on profligate spenders rather than turn their attention to profligate lenders.

American conservatives have few reasons to cheer Timothy Geithner as Treasury Secretary, but the stress testing of American banks was serious, quiet, and gave our banking system essential time to strengthen balance sheets, which is something Americans can be thankful for this week.

President Obama has before him an opportunity to promote U.S. values and a more comprehensive policy toward Russia because of the political and economic needs of Vladimir Putin and his "court." The right action now will promote U.S. interests, arguably the interests of the Russian people, and make it possible for the United States to have a better relationship with what we hope will be a more democratic Russian government in the not too distant future.

Russia's Prime Minister and de facto power center, Putin, currently finds his position not as stable as he'd like it to be. Poll numbers for his party remain low, cynicism remains high, all around him many of the world's autocrats and corrupt regimes are collapsing or wobbling, and the Russian economy and standard of living is stagnating even in a time of high oil prices.

This perhaps explains Russia's renewed effort to gain entrance into the WTO. This is good news in and of itself as free trade is a boon to all countries, but the U.S. policy should not be simply to say "amen" and push for Russia's accession with no other considerations. Russia's desire to join the WTO is just one of several levers that the president can use as part of a strategy to support Russia's becoming a more democratic country and the delegitimization of those trying to return it to tsarism.

The strategy the president should pursue could be comprised of three parts. First, a "reset" on U.S. policy toward Russia in terms of how we react to the government's treatment of dissidents and democratic activists. This effort is actually already in motion in that the president plans to nominate Michael McFaul to be the next ambassador to the Russian Federation. Dr. McFaul is a well-known and respected expert on Russia; but more importantly, he is an expert on democratic development and a firm supporter of same. His nomination alone sends a strong signal that the Obama administration is serious about its concerns regarding Russian politics. McFaul should go to Moscow with the full backing of the president to be an influential voice for democratic governance; he should be instructed to meet with dissidents and democratic activists. The timing is excellent: some of the best known democratic leaders in Russia have formed a new party and petitioned the government to allow it to participate officially. The U.S. position should be clear that such a party should be welcomed. Perhaps Putin will grasp that doing this makes Russia look good for WTO purposes if he needs a reason beyond just doing the right thing.

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