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      Shamima Begum: The Sensitive Case of IS Returnees

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      Born in the UK to Bangladeshi parents, Shamima Begum left London as a 15-year-old in 2015. Using her British passport, she traveled to Turkey with two of her friends from school. From there, Begum and her friends crossed into Syria, where they met their Islamic State (IS) contacts. While in Syria, Begum married an IS fighter. On February 19 this year, the Special Immigration Appeals Commission had stripped Begum of her citizenship as she was deemed to be a national security threat. On July 16, however, UK authorities granted this now adult British woman, who had joined a terrorist group as a teenager four years earlier, the right to return to Britain to challenge the UK government’s removal of her citizenship.

      The commission ruled that the decision to revoke Begum’s British citizenship did not render her stateless as, by default, the United Kingdom also considered her a Bangladeshi citizen “by descent.” However, the Bangladeshi Ministry of Foreign Affairs stated that it did not consider her as a citizen of that country. A statement released by Begum’s British lawyers argued that she indeed had never visited Bangladesh, nor had she ever applied for dual nationality.

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      In the meantime, the press has chastised Begum, who remains a detainee in a camp operated by ethnic Kurdish militias in northern Syria, for making controversial statements such and saying that seeing her first severed head did not faze her “at all” and suggesting that people should “have sympathy” toward her for everything she has been through.

      Why Women?

      England’s Court of Appeal, in turn, unanimously agreed that Begum should be granted the right to have a fair and effective appeal of the decision to strip her of her citizenship, but only if she is permitted to come back to Britain. Of course, that does not guarantee the reinstatement of her citizenship rights, just that she has a right to present her case in person. Regardless of the legal wrangling and the debate about the legality that her case has sparked, this example sheds some light on the issue of contextualizing female IS supporters and terrorists and the legality of stripping Western-born suspects of their European or North American citizenship.

      There has been some academic discussion of why women, especially young women, who were born, raised and educated in the West, migrate to IS-held territory and join terrorist groups, leaving behind family, friends and a way of life while abandoning liberal values and opportunities that countries such as the UK offer them. It is difficult to ascertain whether a particular female, such as Shamima Begum, was a victim of IS, an active supporter or both. The widely circulated stories of “jihadi brides” have projected an image of confused and naïve girls and women traveling to join the Islamic State. While certain dynamics lured a number of females to IS-held territories, many went of their own free will. Yet it is highly debatable to what extent a 15-year-old understands the realities of this extremist group.

      Embed from Getty Images

      Muslim women have migrated to IS-held areas for a multitude of reasons, including the romantic ideal of marrying a “lion” — a supposedly brave and noble warrior — looking for an adventure and contributing to the establishment of an Islamic “caliphate” regulated by strict enforcement of Sharia law. The sense that joining the Islamic State empowers people to live meaningful lives draws many of the migrant women. One study suggests that besides issues of belonging and identity — and a skewed interpretation of Islam — it is, in the case of young women like Begum, online social networks that appeared to be the primary venue and driving factor for radicalization. It turns out that the vast majority of foreign women who traveled to Syria and Iraq served IS primarily as one of several housewives or sex slaves.

      It is only by understanding the motivations and experiences of those who have gone to fight abroad that governments can prevent the recruitment of another generation of terrorists and terrorist sympathizers. The enemies of the Islamic State have ostensibly defeated the group in the Middle East, yet unknown numbers of surviving IS fighters have found the means to relocate to Afghanistan. Permutations of IS and other extremist groups are also active in many African countries like Burkina Faso, Chad, Nigeria and  Somalia, among others. Aside from Afghanistan, other places in South Asia are not immune.

      Displaced Burden

      The UK, US and some other countries have chosen to prevent the return of foreign fighters by revoking their citizenship. Although such actions may prevent the return of foreign fighters in the short term, they do not solve the problem and may also be illegal under both national and international laws. In several instances, this will simply displace the burden and force weakened states such as Syria and Iraq to deal with the consequences of radicalization. It may also instill further grievances and act as a trigger for radicalization into surviving Western-born radicals who may plot terrorist attacks against Western targets.

      In certain cases, citizenship revocation has led to concerns over statelessness. Rendering an individual stateless runs against Western legal principles and is contrary to the Universal Declaration of Human Rights. In several legal systems, there is a lack of sufficient evidence to prosecute female returnees because of their domestic roles in Syria and Iraq. Another challenge associated with prosecutions of foreign fighters lies with demonstrating intent. This applies both to the intent of the actions committed while in the war zone and the intent of travel for aspiring foreign fighters. There is also an argument that many such individuals, especially the juveniles, were victims of human trafficking.

      A more fruitful approach would be to allow a panel of experts to determine whether an individual returning to the home country is dangerous or disillusioned. The prime example of this approach is Denmark, which has already implemented assessment protocols that allow authorities to determine the individual circumstances for each returnee. Based on the results of such screenings, Danish police, together with social services, develop a plan of action for each returnee. Together, they decide whether a returnee is imprisoned, placed in a rehabilitation program or is assigned a combination of both approaches. It is extremely difficult to separate a victim from a perpetrator, and the boundaries can be particularly murky for foreign fighters.

      *[Gulf State Analytics is a partner organization of Fair Observer.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The CO2 Border Adjustment for the EU

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      The heads of state and government of the European Union propose introducing a “carbon border adjustment mechanism” from 2023, to charge imported goods according to the CO2 emitted during their production. At their recent summit, they decided to use the ensuing revenues to boost the EU’s budget. This gives a fiscal twist to an instrument actually designed for climate policy.

      Ursula von der Leyen, the president of the European Commission, had already announced in 2019 that she would like to introduce a “carbon border tax” as part of her European Green Deal. In spring 2020, the commission launched a roadmap process to prepare concrete legislative proposals by 2021. Its proposal also responds to fears that higher European CO2 costs caused by EU emissions trading (EU ETS) could cause companies to relocate activities outside the union, causing carbon leakage.

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      Outsourcing would contribute to reducing European emissions, but not to tackling the global problem. To date, the European Union has addressed the risk of relocation by allocating free emission allowances to sectors at risk of carbon leakage. A CO2 border adjustment could create an alternative with a global impact.

      There is rising support for the idea, after years of resistance from many EU member states and business associations. And the pressure is set to grow, with an increase in the EU’s climate target for 2030 — and anticipated higher CO2 costs for EU businesses — expected this fall. Furthermore, a CO2 border adjustment for foreign products will be widely interpreted as a clear message, especially to Washington and Beijing, that the EU intends to implement the 2015 Paris Agreement. When designing the instrument, it will be important to comply with World Trade Organization (WTO) rules and to get important trading partners on board. 

      WTO-Compatible Design

      The European Commission proposes three ways in which a “carbon border adjustment mechanism” could be implemented: “a carbon tax on selected products, a new carbon customs duty or the extension of the EU ETS to imports.” From a trade law perspective, any of these options could be designed in accordance with WTO rules. The crucial aspect is the principle of non-discrimination: that a CO2 border adjustment must not differentiate among like products or between WTO members. If it were necessary to depart from the principle, for example, where a trading partner or individual company is able to demonstrate that it is already taking care of emissions reductions, the rules for exceptions would need to be observed.

      An EU-wide CO2 “product tax” and its implementation by the EU member states would be the most straightforward approach from a trade law perspective. To do this, the EU would first have to levy a CO2 tax on goods manufactured in the European Union. Then, it would be unproblematic to apply this tax to imports as well — the value-added tax, for example, follows this approach. Imported “like” products would be treated the same way as domestic products, which is WTO-compliant.

      Extending the EU ETS to industrial imports would be more complex. The task for the European. Commission would be to demonstrate that under trade law, the CO2 allowance price is ultimately equivalent to a “product tax.” Failing that, the commission could argue that it was acting to protect a global resource, i.e., that avoiding carbon leakage was the central aim of the EU legislation. The “conservation of exhaustible natural resources,” which includes the Earth’s atmosphere, is a valid ground for violating WTO principles, subject to certain conditions. Such an exemption would also have to be claimed for a new CO2 customs duty.

      However, the European Council decision has exacerbated the risk that WTO dispute settlement panels will regard the new instrument as a means of generating income, rather than a means to protect the climate. This would make a difference if trading partners challenged the new tool. The climate focus, which would be taken into account in WTO rulings, is currently slipping into the background.

      Don’t Underestimate the Diplomatic Effort

      A CO2 border adjustment mechanism will need extensive explanation given the many open details, and it can only promote international climate policy cooperation if trade partners are informed at an early stage and regularly consulted. For this, the European Union should use WTO forums and the climate regime as well as other international organizations. In 2012, the European Commission was made painfully aware of the difficulties involved in going it alone, after seeking to include international aviation in the EU ETS. Major partners put political pressure on the EU, even threatening sanctions, and the union decided to backtrack and reduce the coverage of the ETS to flights within the European Economic Area.

      Trust can only arise if the EU adheres to multilateral climate and trade agreements — i.e., supports the Paris Agreement and the troubled WTO and expresses this clearly and often. This task has probably become much more difficult after the European Council decision because a fiscally-motivated border adjustment cannot be convincingly attributed to these multilateral concerns — especially as the revenues would flow to the EU rather than to funds supporting climate protection, for example, in poorer countries. If a CO2 border adjustment specifically targeted cement, steel and other energy-intensive industries, as has already been discussed, producers from emerging and industrialized countries would be especially affected.

      The union should start discussions with these countries without delay. A good opportunity will arise at the meeting of G20 finance ministers in Saudi Arabia toward the end of the year. In addition, the EU should insist to the US that this initiative is not intended as a provocation in the smoldering customs dispute. Ultimately, the climate policy success of a CO2 border adjustment will depend on how the world’s major economies react to it.

      *[This article was originally published by the German Institute for International and Security Affairs (SWP), which advises the German government and Bundestag on all questions relating to foreign and security policy.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      Russia Has Planted Seeds of the EU’s Demise in the Balkans

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      Earlier this year, Kosovo elected Albin Kurti as prime minister. Progressive, pro-American, pro-justice and anti-corruption, Kurti was precisely the kind of politician Americans would ordinarily wish to see in power in the region. And yet the US has orchestrated what Kurti has called “a parliamentary coup d’etat” to replace him with Avdullah Hoti, who, as soon as he was installed, reversed the measures Kurti had taken to promote reciprocal sovereign relations between Serbia and Kosovo.

      Emerging out of the protests in Kosovo against the failures by the EU and the UN to address the massive corruption and pro-Serbian bias undermining peace negotiations between Belgrade and Pristina, Kurti had staunchly refused American requests that Kosovo remove the import tariffs it had imposed on Serbia’s goods for its refusal to recognize Kosovo as an independent state. But if Kurti wanted to garner the same respect for Kosovo that Serbia was getting from the West, and the Trump administration in particular, his recalcitrance soon proved costly.

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      Congressional Republicans, with Trump’s blessing, threatened Kosovo with the loss of $49 million in US support, along with US peacekeepers still deployed in the country. And so, after less than two months in power, Kurti was labeled anti-American and swiftly ousted in a vote of no confidence. Unsurprisingly, Hoti, as Kosovo’s new prime minister, made immediate concessions to Serbia under the guise of aiding peace negotiations.

      Ad Hoc Border Redrawing

      A few weeks ago, an ad hoc White House summit between Serbia and Kosovo intended to promote the idea of land swaps within the region was abruptly canceled after a special prosecutor in The Hague hijacked the US plan with a surprising move by indicting, on June 24, Kosovo’s president, Hashim Thaci, for war crimes in the Kosovo Specialist Chambers and Specialist Prosecutor’s Office even before the pre-trial judge’s confirmation of the charges. This indictment may or may not prove legitimate according to due process, but it did achieve the immediate result of removing the one remaining obstacle to a rushed peace treaty from which Kosovo was unlikely to benefit.

      Thaci’s role as president is largely ceremonial, but his early leadership of Kosovo’s liberation from Serbia and his standing as one of the country’s most prominent politicians of the last 20 years would have made him a formidable peace negotiator.  

      Embed from Getty Images

      The conspicuous timing of this indictment, then, was entirely to the advantage of Serbia and, by extension, Russia. The peace negotiations will go on with Kosovo’s delegation being limited to Hoti, a bit player likely to agree to whatever is put on the table. Serbia, on the other hand, is led by a rising authoritarian, Aleksandar Vucic, whose party has just won a parliamentary majority in an election the integrity of which has been broadly questioned by the country’s opposition.

      Serbia’s minister of information in the late 1990s, Vucic, is credited with banning foreign media and any criticism of the government. Equally sacrosanct is his relationship with Russia. Vucic recently hosted Russian President Vladimir Putin in Belgrade, gifting him, perhaps symbolically, with yet another puppy. In return for this kind of clearly demonstrated loyalty, Putin has been good to Serbia, delivering anti-aircraft weapons but also actively arming Bosnian Serb police and training paramilitary units to strengthen the voices of separatists in the region.

      Putin has similarly turned Milorad Dodik, the current representative of Serbs in Bosnia and Herzegovina’s (Bosnia) tripartite presidency, into a political puppet. Emboldened by Trump’s deference to Putin, Dodik has undermined all of Bosnia’s efforts to join the NATO alliance. He has even promised to Bosnian Serbs that he would break up Bosnia and annex nearly half of its land to Serbia, which Serbia — along with Bosnian Serbs — has already ethnically cleansed of Bosniaks (Bosnian Muslims) during the 1990s genocide. Dodik’s continued destabilization of his own country reflects the extent to which Putin dominates the region. To bolster Dodik’s power, in April of this year, Putin stunned Bosnia and Herzegovina’s government by sending Russia’s military units into the country, uninvited.

      If it was not already clear enough, it is now: Putin has successfully enlisted Donald Trump as a pawn in Russia’s long-term geopolitical game in Europe. And with an unfettered Russia free to make such moves as Putin chooses, we may soon be witnessing another round of serious bloodshed in the Balkans. The threat has not gone unnoticed.

      European Concerns

      Europe saw Thaci’s indictment as an opening to inject itself into the peace talks between Kosovo and Serbia. Only a day later, the president of the European Council met with Kosovo’s prime minister; the “1st physical visit since coronavirus” by the president of the European Commission was also with Hoti. Having now been summoned by the EU and perhaps overwhelmed by the pressure brought to bear by his western neighbors, Hoti agreed to participate in new Europe-led peace talks with Vucic that would take the place of that canceled White House summit. 

      The EU was rightly concerned with the direction of the peace talks led by Trump’s envoy, Richard Grenell, and the consequent violence that might have ensued had the peace agreement legitimized the idea of land swaps, as Trump’s former national security adviser, John Bolton, has now confirmed were being discussed. As far as Bolton is concerned, “This happens in history, that’s just something you have to live with.”

      But Europe is far less indifferent to the kind of bloodshed such land swaps might trigger in the Balkans. The EU, after all, now includes Croatia, a country bordering Serbia, which, if drawn into a conflict, would undermine the long-term viability of the already weakened transnational organization. In short, a peace treaty endorsing the land swaps would open a Pandora’s Box of tensions reigniting Serbs’ old claims over territories in Croatia, Bosnia and Herzegovina, and beyond. Violence of this kind in the Balkans will assure Putin’s ultimate goal of destabilizing Europe. Once again, Russia will have a point of reentry into Eastern Europe, through its own backdoor — the Balkans.

      Under the malign neglect of Trump’s presidency, Vladimir Putin has crafted for himself a unique window of opportunity within which to instigate violence in the Balkans, capitalizing on likely Serb secession from the handful of nations born out of the fall of Yugoslavia. Serbs in Montenegro, Serbs in Bosnia and Herzegovina, Serbs in Croatia and Serbs in Kosovo have long hoped to join into a Greater Serbia, an ethnically cleansed and imagined nation void of religious diversity. It was this same Serb ambition of ethnic purity that led to several wars and the unforgettable genocide against Bosnian Muslims in the 1990s.

      The Bells of Hate

      Today, the bells of hate chime more widely yet, drawing upon white supremacy throughout the West. Aided by Russia and a half-witting Trump, an authoritarian-led Serbia is entirely capable of initiating bloodshed as relentlessly and dangerously as it did in the 1990s — perhaps even more so.

      Setting aside Trump’s own race and religion-based sympathies for Serbian nationalism, American national interests in no way align with Serbia’s agenda of redrawing borders in the Balkans. But with Putin pushing for it, Trump has been in a hurry to help out however he can. And why wouldn’t he be, just ahead of a November election in which his Russian friend may once more be able to play a critical role?

      So while Europe and the US continue to trip over each other, this is the perfect opportunity for Putin to legitimize the idea of redrawn borders. Serbia and Kosovo are one thing, after all, but validating the concept for implementation elsewhere? This would really be something, taking geopolitics back to a mode in which military conquest and ethnic cleansing, rather than aspirations to democracy, human rights and social justice, are what shape the fortunes of nations.

      Putin is a long-term strategist who, while no one was watching, has actively planted the seeds of the EU’s demise in the Balkans. And make no mistake: Neither a canceled meeting in the White House nor another summit hosted by Europeans this summer is going to stop him. In the wake of Richard Grenell’s White House summit debacle and the EU leaders’ evident panic for what comes next, the only thing meaningfully standing in Putin’s way is the tiny NATO-protected country of Montenegro. Last year, Russian military intelligence agents were convicted for their role in a 2016 coup d’état aimed at thwarting Montenegro’s attempt to join NATO. Though the attempt failed, Putin didn’t stop there.  

      In 2018, only three days after the infamous off-the-record meeting between Trump and Putin in Helsinki that shocked the world, President Trump stunned us all yet again when he proclaimed that NATO’s insistence on protecting this newly admitted member, Montenegro, would trigger a war of global proportions. Few were inclined to take this seriously at the time, but watching Trump’s hastened interest in appeasing Russia with the peace treaty between Kosovo and Serbia, America’s indifference toward the rise of Putin’s control over Bosnia and Herzegovina, and the recently announced costly withdrawal of American troops from Germany in the midst of America’s own national crisis shines a light not only on Washington’s shifting alliances but also new dangers on the horizon.

      While the US president insists on enabling serious mischief in the Balkans, Europe can only watch in fear, too weak to stop what may be coming next. Bearing in mind the fact that it was Franz Ferdinand’s assassination by a secret Serb military organization that triggered the First World War, we would do well right now not to look the other way.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      Is Europe More United Than the US?

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      During the Trump era, America increasingly seems like a motley collection of states brought together for reasons of territorial contiguity and little else. The conservative South is ravaged by a pandemic. The liberal Northeast waits patiently for elections in November to oust a tyrant. A rebellious Pacific Northwest faces off against federal troops sent to “restore order.” The Farm Belt, the Rust Belt and the Sun Belt are like three nations divided by a common language.

      The European Union, on the other hand, really does consist of separate countries: 27 of them. The economic gap between Luxembourg and Latvia is huge, the difference in median household income even larger than that between America’s richest and poorest states (Maryland and West Virginia).

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      European countries have gone to war with each other more recently than the American states (a mere 25 years ago in the case of former Yugoslavia). All EU members are democracies, but the practice of politics varies wildly from perpetually fragmented Italy to stolid Germany to ever-more illiberal Hungary.

      Despite these economic and political differences, the EU recently managed to perform a miracle of consensus. After 90 hours of discussion, EU leaders hammered out a unified approach to rebuilding the region’s post-pandemic economy.

      The EU is looking at an 8.7% economic contraction for 2020. But the coronavirus pandemic clearly hit some parts of the EU worse than others, with Italy and Spain suffering disproportionately. Greece remains heavily indebted from the 2008-09 financial crisis. Most of Eastern Europe has yet to catch up to the rest of the EU. If left to themselves, EU members would recover from the current pandemic at very different rates and several might not recover at all.

      Embed from Getty Images

      That’s why the deal is so important. The EU could have helped out its struggling members by extending more loans, which was basically the approach after 2009. This time around, however, the EU is providing almost half of the money in the new recovery fund — $446 billion — in grants, not loans. The $1.3-trillion budget that European leaders negotiated for the next seven years will keep all critical EU programs afloat (like the European structural and investment funds that help bridge the gap between the wealthier and the less wealthy members).

      Sure, there were plenty of disagreements. The “frugal four” of the Netherlands, Denmark, Austria and Sweden argued down the amount of money allocated to the grant program and the budget numbers overall. Germany has often sided with the frugal faction in the past, but this time Chancellor Angela Merkel played a key role in negotiating the compromise. She also managed to bribe Hungary and Poland to support the deal by taking “rule-of-law” conditionality off the table. Both countries have run afoul of the EU by violating various rule-of-law norms with respect to media, judiciary and immigration. Yet both countries will still be able to access billions of dollars from the recovery fund and the overall budget.

      Until recently, the EU seemed to be on the brink of dissolution. The United Kingdom had bailed, Eastern Europe was increasingly authoritarian, the southern tier remained heavily in debt, and the pandemic was accelerating these centrifugal forces. But now it looks as the EU will spin together, not spin apart.

      The United States, on the other hand, looks ever more in disarray. As Lucrezia Reichlin, professor of economics at the London Business School, put it, “Despite being one country, the U.S. is coming out much more fragmented than Europe.”

      The Coming Storm

      The Trump administration has been all about restarting the US economy. President Donald Trump was reluctant to encourage states to lock down in the first place. He supported governors and even armed protesters demanding that states reopen prematurely.

      And now that the pandemic has returned even more dramatically than the first time around, the president is pretending as though the country isn’t registering over 60,000 new infections and over a thousand deaths every day. Trump was willing to cancel the Florida portion of the Republican Party convention for fear of infection, but he has no problem insisting that children hold the equivalent of thousands of mini-conventions when they return to school.

      Europe, which was much more stringent about prioritizing health over the economy, is now pretty much open for business.

      The challenge has been summer tourism. Vacationers hanging out on beaches and in bars are at heightened risk of catching the COVID-19 disease — which is caused by the novel coronavirus — and bringing it home with them. There have been some new outbreaks of the disease in Catalonia, an uptick in cases in Belgium and the Netherlands, and a significant increase in infections in Romania. Belgium is already re-instituting restrictions on social contacts. Sensibly, a number of European governments are setting up testing sites for returning tourists.

      The EU is determined not to repeat what’s going on in Florida, Texas and California. It is responding in a more deliberate and unified way to outbreaks leading to an average of 81 deaths a day than the United States is responding as a whole to a very nearly out-of-control situation producing more than 900 deaths a day.

      The US isn’t just facing a deadly resurgence of the pandemic. Various economic signals indicate that the so-called “V-shaped recovery” — much hyped by the Trump administration — is just not happening. More people are again filing for unemployment benefits. People are reluctant to go back to restaurants and hang out in hotels. The business sector in general is faring poorly.

      “The sugar rush from re-openings has now faded and a resurgence of domestic coronavirus cases, alongside very weak demand, supply chain disruptions, historically low oil prices, and high levels of uncertainty will weigh heavily on business investment,” according to Oren Klachkin, lead US economist at Oxford Economics in New York.

      The Organization of Economic Cooperation and Development (OECD) released a report in July that offered two potential scenarios for the US economy through the end of the year. Neither looks good. The “optimistic scenario” puts the unemployment rate at the end of 2020 at 11.3% (more or less what it is right now) and an overall economic contraction of 7.3%. According to the pessimistic scenario, the unemployment rate would be nearer to 13% and the economic contraction at 8.5%.

      Much depends on what Congress does. The package that Senate Republicans unveiled last week is $2 trillion less than what the Democrats have proposed. It offers more individual stimulus checks, but nothing for states and municipalities and no hazard pay for essential workers.

      Unemployment benefits expired a few weeks ago, and Republicans would only extend them at a much-decreased level. Although Congress will likely renew the eviction moratorium, some landlords are already trying to kick out renters during the gap. The student loan moratorium affecting 40 million Americans runs out at the end of September.

      The only sign of economic resurgence is the stock market, which seems to be running entirely on hope (of a vaccine or a tech-led economic revival). At some point, this irrational exuberance will meet its evil twin, grim reality. On the other side of the Atlantic, the Europeans are preparing the foundation for precisely the V-shaped recovery that the United States, at the moment, can only dream about.

      The Transatlantic Future

      What does a world with a stronger Europe and a weaker America look like? A stronger Europe will no longer have to kowtow to America’s mercurial foreign policy. Take the example of the Iran nuclear deal, which the Obama administration took the lead in negotiating. Trump not only canceled US participation, but he also threatened to sanction any actors that continued to do business with Iran. Europe protested and even set up its own mechanisms to maintain economic ties with Tehran. But it wasn’t enough. Soon enough, however, the United States won’t have the economic muscle to blackmail its allies.

      Embed from Getty Images

      The EU has certainly taken a tougher stance toward China over the last couple years, particularly on economic issues. But in its negotiations with Beijing, the EU has also put far greater emphasis on cooperation around common interests. As such, expect the European Union to take full advantage of the US decline to solidify its position in an East Asian regional economy that recovers far more quickly from the pandemic than pretty much anywhere in the world.

      Europe is also well-positioned to take the lead on climate change issues, which the United States has forfeited in its four years of catastrophic backsliding under Trump. As part of its new climate pact, the EU has pledged to become carbon-neutral by 2050. The European Commission is also considering a radical new idea: a carbon tax on imports. In the future, if you want to be competitive in selling your products in the European market, you’ll have to consider the carbon footprint of your operation.

      Of course, the EU could do better. But compared to the US, Russia or China, it’s way out in front. The European Union is not a demilitarized space. It has a very mixed record on human rights conditionality. And its attitudes toward immigration range from half-welcoming to downright xenophobic.

      But let’s say that Europe emerges from this pandemic with greater global authority, much as the US did after World War II. A lot of Americans, and most American politicians, will bemoan this loss of status. But a world led by a unified Europe would be a significantly better place than one mismanaged by a fragmented United States.

      *[This article was originally published by FPIF.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The Bologna Attack of 1980: Italy’s Unhealed Wound

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      The clock struck 10:25 am on August 2, 1980, when a bomb exploded at Bologna’s Central Train Station. The attack plunged the city, known at the time for its left-wing politics and home to one of the oldest universities on the continent, into chaos. One of the deadliest terrorist attacks in Europe, the explosion had a devastating effect, killing 85 people and injuring over 200. After years of investigations, trials and false leads, Francesca Mambro and Giuseppe Fioravanti, members of the right-wing terrorist organization Armed Revolutionary Nuclei (NAR), were sentenced to life imprisonment in November 1995. Both, however, have always maintained their innocence.

      Many others were also put on trial, some of whom eventually received prison sentences for supporting the terrorists or for obstruction of justice. Among them were Licio Gelli, head of the infamous Propaganda Due lodge, and Pietro Musumeci, an officer in the Italian military secret service.

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      Despite these convictions, the Strage di Bologna, or the Bologna massacre, as the attack is now known, continues to be a source of heated debate in Italy, and serious doubts remain as to whether the masterminds behind the attack have really been caught. Every now and then, for example, the Italian judiciary issues new sentences in connection with the attack. Moreover, as recently as January this year, nearly 40 years after the incident, Gilberto Cavalli was found guilty of aiding and abetting Mambro and Fioravanti.

      The ongoing sentencing seems to confirm the widespread belief that we still do not know the whole story and that Italy has struggled to come to terms with this horrible act of terrorism. This state of seeming paralysis is symbolized by the fact that the main station’s clock has not been replaced and, as a reminder for future generations, still shows the exact time of the attack.

      A New Lead? The Palestinian Theory

      Former politicians, judges and magistrates, as well as investigative journalists and academics, have often added to the confusion and uncertainty surrounding the attack. Manifold theories about the true masterminds exist, alternately accusing left-wing terrorists, the Mafia or Gladio of having orchestrated the attack. In 2008, Francesco Cossiga, member of the former Christian Democratic Party (DC) who served as minister of interior between 1976-78 and held the title of prime minister between 1979-80 and president of Italy from 1985 to 1992, cast doubt on the culpability of the neo-fascists.

      In an interview with an Israeli newspaper, he argued that the Bologna attack was an act of retaliation by Palestinian terrorists because the government in Rome had violated the so-called Lodo Moro — a decades-old secret agreement between Rome and the Palestinian Liberation Organizations (PLO), in which the Palestinians offered to spare Italy from PLO orchestrated terrorist attacks in return for Rome’s diplomatic support and for allowing the PLO to roam freely in Italy. In July 2016, Rosario Priore, who has investigated right-wing terrorism in Italy for years, propagated Cossiga’s thesis in his book, “I segreti di Bologna: La verità sull’atto terroristico più grave della storia italiana” (“The Secrets of Bologna: The Truth About the Most Serious Attack in Italy’s History”).

      According to Priore, everything started in November 1979 when the Carabinieri arrested three left-wing extremists — Daniele Pifano, Giuseppe Nieri and Giorgio Baumgartner — and a Palestinian man, Abu Anzeh Saleh, for arms smuggling. When the Italian government declined to release Saleh, the Popular Front for the Liberation of Palestine (PFLP) under George Habash contacted Libyan leaders Muammar Gaddafi, who in turn asked the Venezuelan militant Ilich Ramirez Sanchez — better known as Carlos the Jackal — to retaliate against the Italians. The German Thomas Kram, a member of Carlos’ group, was duly dispatched to Bologna to carry out the bombing. However, Kram and Carlos denied any involvement, arguing that Kram was under constant surveillance by the Italian police as soon as he entered Italy and therefore could not have carried out the attack undetected.

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      Nevertheless, the question remains: Were the Palestinians really responsible, in one form or another, for the terrorist attack in Bologna? As time goes by and more and more archives declassify their documents and make them available for researchers, we may be able to get closer to the truth. In the meantime, however, as historians, we can try to sort myth from reality by contextualizing the events and critically examining the arguments presented. This approach reveals that the Palestinian theory is not as cut and dried as Priore and others claim.

      We do not currently have any evidence that the PFLP and its main leaders, Habash and Bassam Abu Sharif, or any other Palestinian group actually demanded the release of Saleh. Furthermore, bombings were not typically the first weapon of choice for Palestinian terrorists, who preferred kidnappings and taking hostages at the time. In addition, the Palestinians usually claimed responsibility for terrorist attacks they committed. Even Carlos, who worked for the PFLP until 1975, usually claimed responsibility for his actions.

      Moreover, neither the Palestinians nor the Italian government would have gained anything from a stand-off caused by the arrest of one person and the confiscation of weapons. Given the vulnerability of the Italian economy and its dependence on Arab oil, Rome continued to negotiate with rather than confront the PLO. In June 1980, for example, the European Council under Italian leadership issued a statement in favor of the PLO. In addition, in 1980, the various factions within the PLO — including Habash’s PFLP — supported Yasser Arafat’s more cautious and diplomatic approach toward the European countries.

      Why would the PFLP, whose leadership had been weakened when Habash suffered a stroke in 1980, go through all this trouble when there was really nothing to gain? Only when Arafat’s leadership role was challenged in 1982 did Palestinian attacks in Europe resume, with the Achille Lauro affair of 1985 serving as a prime example.

      Going back to Francesco Cossiga’s testimony, it seems that he used the 2008 interview primarily to present himself in a favorable light for the newspaper’s Israeli readership by rejecting any involvement in the pact between Rome and the PLO. He claimed that the secret service did not tell him any details about the agreement between Rome and the Palestinians, which, considering his positions at the highest level of government, is hardly convincing. In addition, by blaming foreign terrorists for the deadliest attack in Italy’s history, he avoided taking responsibility for neglecting and underestimating homegrown terrorism.

      Moreover, we should not forget the tensions between the leadership of what was formerly known as the Christian Democratic Party and the Italian judiciary. Cossiga’s interview shows his distrust toward the judiciary and might have also been an attempt to undermine their authority, by implying that they were unable to find and prosecute the real perpetrators of the attack despite all these years that have passed since.

      A Familiar Pattern: Right-Wing Terrorism

      Considering these points, it seems unlikely that the Bologna attack was an act of retaliation against Italy orchestrated by the PFLP. The extent of Gaddafi’s involvement might tell a different story, but only further investigation and declassification of documents will clarify that case. As it stands, all the concrete evidence and indications we do have point to Italy’s extreme radical right.

      The Bologna attack mirrored how right-wing terrorists have previously operated in Italy, particularly during the strategy of tension period between 1969 and 1974. Though skeptics may claim that the attack was designed to mimic the tactics of the extreme radical right and thus shift blame, it was not just the attack itself — the indiscriminate bombing without anyone claiming responsibility — but also the target that reminded many contemporaries of the chaos right-wing terrorists inflicted on Italy a decade earlier: placing bombs in or close to trains in the summertime, thus causing maximum civilian casualties.

      On August 4, 1974, for instance, right-wing terrorists of the group Black Order carried out an attack on the Italicus express, killing 12 people and injuring 48. The Italian singer and songwriter Claudio Lolli commemorated the attack in his famous song “Agosto”— August — which experienced a revival after the Bologna attack.

      One important aspect of the strategy of tension, however, was missing in 1980, thus implying that it was not just a copycat attack. In contrast to the early 1970s, the attempts to blame the Italian left for the attack were marginal and had not been picked up by Italy’s major newspapers. It shows that the perpetrators were able to adapt to a new socio-political situation. Blaming the Italian left, which had established itself as an integral part of the Italian political landscape in 1980, for the Bologna attack would have been a lost cause.

      That does not mean, however, that the right-wing terrorists did not attempt to influence Italian politics. Bombings, bloodshed and chaos on the streets usually favor conservative groups who claim to be the protectors of law and order. Why right-wing terrorists thought 1980 would be a good year to launch another campaign to push Italy further to the right can only be fully understood when we contextualize Bologna within Italian and European history of the time.

      Given the rising tensions between the West and the Eastern Bloc since 1979, anti-communism became a powerful recruitment tool for the radical right in Europe and again offered an opportunity to form alliances with the conservative milieu, including elements of the state secret services. Thus, it comes as no surprise that everywhere in Europe, extreme parts of the radical right started a new campaign of terror to influence the politics of their respective countries and push them further to the right. The campaign started in February 1980 and lasted, with pauses, at least until 1984-85, when the regime in Moscow began to noticeably decline.

      France and Spain experienced a series of right-wing attacks, and after Bologna, a bomb exploded at the Oktoberfest in Munich on September 26, 1980, killing 13 people. Given the latter’s proximity to the Bologna attack, rumors quickly circulated that some kind of connection must have existed between the Italian terrorists and the German perpetrator, Gundolf Köhler. In 2014, the German federal prosecutor general decided to reopen the case due to inconsistencies and omissions in the original investigations. Until July 2020, when the case was closed again, over 300,000 pages of evidence were examined and over 1,000 witnesses interviewed. In the end, however, the prosecutor could not find additional co-conspirators or backers as possible evidence was carelessly — some would argue deliberately — destroyed early on.

      He did, however, establish that Köhler indeed committed a right-wing terrorist attack to shape West Germany’s politics and was more than just a disgruntled youth. Köhler wanted to influence the political landscape in his country in favor of conservative change — after all, parliamentary elections in West Germany occurred only a couple of days after the bombing, and Franz-Josef Strauß, the candidate of the conservative CDU, was known for his anti-communist stance.

      Fluid Politics

      In Italy, the political situation in 1980 was also fluid, even though no general election was on the horizon. Francesco Cossiga formed a fragile coalition government in April 1980 between his Christian Democratic Party, the Republican Party and the Socialist Party under Bettino Craxi. In the regional election in June 1980, the Christian Democrats gained new seats, and right-wing terrorists might have thought that by destabilizing public order this trend could be pushed even further, maybe resulting in an end to the Socialist’s government involvement.

      Also, the city of Bologna as a target can be taken as a clear sign that it was the extreme radical-right milieu that sought to benefit from public turmoil: Bologna was a, if not the symbol in Italy for a successful, leftist local government: Since 1970, Renato Zangheri, a member of the communist party, has served as the mayor of the city.

      Last but not least, we should also consider the Italian extreme right-wing terrorist scene at the time. Internal rivalry between different factions within a terrorist milieu is often an important factor to explain a process of radicalization. While the strategy of tension of the early 1970s was dominated by a form of reactionary right-wing terrorism, the second half of the decade saw the emergence of a heterogenous right-wing “armed spontaneity” that showed similarities to the American idea of leaderless resistance of the 1970s and 1980s.

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      During the second half of the 1970s, former heroes of the strategy of tension like Stefano Delle Chiaie were sidelined. When the security apparatus was able to arrest exponents of the armed spontaneity faction, and when the Cold War tensions once again increased, the old guard of Italian right-wing terrorism might have seen an opportunity to regain control over the country’s radical-right extremist milieu.

      One last question remains, however: Why do the arrested right-wing terrorists deny all the charges? Should we believe them? Despite the fact that nearly everyone who was accused of having committed the terrorist bombing in Bologna has denied their involvement, the right-wing terrorists have another motif: Spreading terror and fear is a core aspect of every terrorist group. So, when they deny their involvement in the attack, which remained shrouded in mystery for decades, they increase a sense of unease, fear and terror — a feeling that something similar can happen anywhere and at any time because the true puppet masters are still out there, giving even those who have been accused of or arrested for a crime the opportunity to advance the group’s agenda.

      On this 40th anniversary of the Bologna attack, the citizens of Bologna will observe a minute of silence as they have done every year since 1980, commemorating the 85 victims whose names are enshrined on a plaque with the title “Victims of Fascist Terrorism.” Like each year before, the anniversary will be accompanied by newspaper articles and commentaries, continuing the controversial debates surrounding the attack. These discussions, however, should not distract from the fact that currently the judicial and the historical evidence point only to one group of perpetrators: right-wing terrorists.

      However, as long as theories and rumors circulate and documents remain classified, the victims and their families still await closure. Even if the terrorists might have not succeeded in their ultimate goal, the fear and terror they unleashed on August 2, 1980, still haunts Italy’s public memory — and Bologna’s main station, with its stricken clock — to this day.

      *[The Centre for Analysis of the Radical Right is a partner institution of Fair Observer.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The Latest Version of Russiagate

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      The New York Times keeps slogging away at a four-year-old theme that it refuses to allow to die a natural death. Should we call it Russiagate 2.0 or 3.0 or 7.0? Whatever we call it, Russiagate has made its way back into The NYT’s headlines. Perhaps we should adopt the same convention as the health authorities who called the disease caused by the novel coronavirus COVID-19 because it first appeared in 2019. So, this could be Russiagate-20, although the number of minor versions that have appeared since the beginning of the year might make it Russiagate-20.3.

      The latest article’s title is “Russian Intelligence Agencies Push Disinformation on Pandemic,” followed by the subtitle, “Declassified U.S. intelligence accuses Moscow of pushing propaganda through alternative websites as Russia refines techniques used in 2016.”

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      The logic of the crime perpetrated by the recidivist known as Russia is well-known. The scenario is as familiar as any Hollywood remake. The authors of the article, Julian E. Barnes and David E. Sanger, want to make sure that the new variation on a story about Russian interference with American democracy does not suffer from the criticism leveled at anticlimactic events such as the Mueller report. Some will remember that in August 2019, The Times’ executive editor, Dean Baquet, embarrassingly admitted that the paper was “a little flat-footed” when it doggedly followed an editorial line that consisted of hyping Russiagate on the pretext that it looked “a certain way for two years.” It was the look that kept the story alive even though the narrative contained no substance.

      To make their point about the seriousness of this story, Barnes and Sanger take the trouble to cite, though not to name, “outside experts” who can confirm its reality. “The fake social media accounts and bots used by the Internet Research Agency and other Russia-backed groups to amplify false articles have proved relatively easy to stamp out,” The Times reports. “But it is far more difficult to stop the dissemination of such articles that appear on websites that seem legitimate, according to outside experts.”

      Here is today’s 3D definition:

      Dissemination:

      A synonym for publication that subtly suggests something underhanded, implying that the content of what is being broadcast consists of lies or disinformation

      Contextual Note

      What all these stories boil down to is a pair of simple facts with which readers should now be familiar. The first is the revelation that Russians and, more particularly, Russian intelligence agencies lie, just in case readers weren’t aware of that. The second is that the Russians are clever enough to get at least some of their lies published on the internet.

      For these well-known and oft-repeated “truths” to become newsworthy, the reader must believe something exceptional has occurred, following the man-bites-dog principle. The exceptional fact The Times wants its readers to understand is that, unlike the stories that looked “a certain way” for two years with reference to the 2016 US presidential election, this one is no remake. It is undeniably news because it is about the COVID-19 pandemic, which only became an issue this year.

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      To the discerning reader, the message is exactly the same as the idea behind the “flat-footed” campaign Baquet mentioned. But the content has changed. In both cases, processing the message requires that readers accept the implicit premise that Russians have a monopoly on lying or, alternatively, that that’s the only thing Russians know how to do. They are the only people on earth who invest in inventing contestable takes on the news and getting their lies published on the internet. There can be no legitimate reason to suspect any other nation, especially the United States, of telling lies about other nations and even managing to get them published on the web. How does The Times know that? Because its anonymous sources hailing from the very reliable US intelligence agencies have dutifully provided it with the data.

      If the story had focused only on COVID-19, it probably would not have justified a full-length article. Understanding this, the journalists sought evidence of Russian interference on “a variety of topics,” including a major one: NATO. “The government’s accusations came as Mandiant Threat Intelligence, part of the FireEye cybersecurity firm, reported that it had detected a parallel influence campaign in Eastern Europe intended to discredit the North Atlantic Treaty Organization,” Barnes and Sanger write.

      How extraordinary, Times readers must be thinking, that Russia might be trying to discredit NATO. That really is news, at least for anyone who has failed to pay attention to everything that has happened in Eastern Europe since the fall of the Berlin Wall in 1991. Do readers of The New York Times belong to that category of the deeply (or simply willfully) ignorant readers of the news? The Times has, after all, published a few articles at least since 1994 alluding to what historians now understand was a persistent act of betrayal by Western powers of the promises made to Russian leaders Mikhail Gorbachev and Boris Yeltsin not to expand NATO… before aggressively doing the contrary over decades.

      In an article in The Nation from 2018, the distinguished Russia expert Stephen Cohen highlighted the role of Western media — and The New York Times, in particular — in failing (or refusing) to cover that ongoing drama. It should surprise no one that even today, The Times not only neglects that vital bit of context, but it also uses its feigned ignorance to express its shock at the idea that the Russians might feel impelled to discredit NATO in Eastern Europe. This is not a case of Russian meddling in US elections. It’s an attempt to limit the damage the Russian government feels has resulted from Western perfidy.

      The latest Times article doesn’t stop there. It offers us this insight: “While the Mandiant report did not specifically name Russia and its intelligence agencies, it noted that the campaign was ‘aligned with Russian security interests’ in an effort to undermine NATO activities.” In other words, the reporters admit there is no direct evidence of Russian involvement. They simply expect Times readers to conclude that because there appears to be an “alignment,” Russia is to blame. This is a perfect encapsulation of everything that took place around Russiagate. Alignment is proof of collusion.

      Historical note

      During the Cold War, Americans were thrilled to find their vocabulary enriched when the word “propaganda,” derived from Latin, was imported from their enemy, the Soviet Union. The term literally means “what is to be propagated.” The Soviets used it as the official term to describe their communications operations modeled on the same logic as the “voice of America.” In both cases, it was all about teaching third parties why their system was better than their opponent’s.

      Americans sneered at the dastardly evil concept of propaganda. They clearly preferred the idea of PR (public relations). This was about the time that Vance Packard’s best-seller, “The Hidden Persuaders,” revealed how — as The New Yorker described it at the time — “manufacturers, fundraisers and politicians are attempting to turn the American mind into a kind of catatonic dough that will buy, give or vote at their command.”

      The monumental effort of Madison Avenue stepping in to dominate a rapidly expanding economy conveniently distracted most people’s attention from the magnificent work the CIA was undertaking across the globe in the scientific (or pseudo-scientific) dissemination of misinformation. The more Americans suspected advertising was lying to them, the less concerned they were by the skullduggery of the military-industrial complex and its intelligence agencies. It clearly went well under their radar as they focused on consumer pleasures.

      That gave the US a double advantage over the Soviet Union. It had two powerful industries working in parallel to feed a regular diet of lies to the American people, whereas the Soviet Union had only the government to supply them with glaringly obvious lies. The Russians were already beginning to receive its messages with growing skepticism. The US enjoyed another advantage to the extent that the fun of advertising and the pleasures of the consumer society took the sting out of their growing awareness that they too were being constantly lied to.

      Can there be any doubt today that The New York Times is committed to propaganda? Like most of the media sympathetic to the Democratic Party, it not only accepts uncritically the “assessments” of the intelligence community, but it also amplifies its messages. It even extrapolates to draw conclusions they dare not affirm.

      If the notion of dissemination has a negative connotation linked to the idea of propaganda, The New York Times is a master disseminator.

      *[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce, produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news. Click here to read more of The Daily Devil’s Dictionary on Fair Observer.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      What Has COVID-19 Done to Small Businesses?

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      Small and medium-sized enterprises (SMEs) are businesses with revenues, assets or employees below a certain threshold. SMEs are important to the health of any country as they tend to form the backbone of the economy. When compared to large enterprises, SMEs are generally greater in number, employ far more people, are often situated in clusters and typically entrepreneurial in nature. They drive local economic development, propel job creation and foster growth and innovation.

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      According to the World Bank, SMEs represent about 90% of businesses and 50% of employment worldwide. In the United States, 30 million small businesses make up 44% of GDP, 99% of the total businesses and 48% of the workforce, amounting to 57 million jobs. In India, the SME sector consists of about 63 million enterprises, contributing to 45% of manufacturing output and over 28% of GDP while employing 111 million people. SMEs in China form the engine of the economy comprising 30 million entities, constituting 99.6% of enterprises and 80% of national employment. They also hold more than 70% of the country’s patents and account for more than 60% of GDP, contributing more than 50% of tax collections.

      Different Countries Define SMEs Differently

      Though most experts agree on the crucial role SMEs play in any economy, the definition of an SME varies by country. In the US, the Small Business Administration (SBA) defines SMEs broadly as those with fewer than 500 employees and $7 million in annual receipts, although specific definitions exist by business and sector. Annual receipts can range from $1 million for farms to $40 million for hospitals. Services businesses such as retail and construction are generally classified by annual receipts, while manufacturing and utilities are measured by headcount. In June, the Indian government revised its SME definitions, expanding the revenue caps on medium and small enterprises from $7 million and $1.5 million to $35 million and $7 million respectively. In the United Kingdom, a small business is defined as having less than 50 employees and turnover under £10 million ($12.7 million), whereas a medium business has less than 250 employees and turnover under £50 million. 

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      Proper definitions matter. If SMEs are classified well, their access to capital and other resources can improve. They can apply for grants, get tax exemptions, collaborate on research with governments or universities or access other schemes. This gives SMEs better opportunities to survive and thrive.

      Since SMEs tend to be the biggest employers in most economies, a good policy to promote them creates jobs and develops worker skills. Furthermore, proper definitions enable governments to focus their efforts regarding SMEs and level the playing field for them vis-a-vis large corporations.

      Given the scale and nature of their business models, SMEs operate at the mercy of vagaries of the economy, geopolitical events and local policies. They battle competition from multinational giants, volatile cash flows, fickle customers, demanding suppliers and constantly churning employees. But the COVID-19 pandemic has crossed all boundaries. While the 2000 crisis was a dot-com bust and 2008 was a collapse of the financial systems, 2020 is clearly the SME crisis. It is Murphy’s Law at its extreme — anything that can go wrong has indeed gone wrong.

      The coronavirus crisis started off in early 2020 as a supply shock, which has now turned into a demand shock, impacting customers, employees, markets and suppliers alike. The consequences can be potentially catastrophic with the International Monetary Fund estimating that SME shutdowns in G20 countries could surge from 4% pre-COVID to 12% post-COVID, with bankruptcy rates in the services sector increasing by more than 20%.

      SMEs are bearing the brunt of the economic and financial fallout from the COVID-19 pandemic, not least because many were already in duress before the crisis. This could have a domino effect on the economy, given the pivotal role played by SMEs. Therefore, it comes as no surprise that most governments have sought to intercede legislatively with their fiscal might to ameliorate the predicament of SMEs.

      Indian and American Response

      It is instructive to note how different countries have responded to the economic crisis. India is a good country to start with. In early May, the government announced a 20-trillion-rupee ($250 billion) stimulus package called Atmanirbhar, equivalent to 10% of India’s GDP. It was a mixture of fiscal and monetary support, packed as credit guarantees and a slew of other measures. The centerpiece was an ambitious 3-trillion-rupee ($40 billion) initiative for SMEs, including instant collateral-free loans, subordinate debt of 200 billion rupees ($2.5 billion) for stressed micro, small and medium enterprises (MSMEs), and a 500-billion-rupee ($6.5 billion) equity infusion. Perhaps the largest component of the stimulus was the Emergency Credit Line Guarantee Scheme (ECLGS) that provides additional working capital and term loans of up to 20% of outstanding credit. 

      Although the scheme received positive feedback, the initial uptake was slow. On the supply front, bankers fretted about future delinquencies arising out of such accounts as the credit guarantees only covered incremental debt. On the demand side, SMEs were worried about taking on additional leverage when there is uncertainty about economic revival. Moreover, a 20% incremental loan may not suffice to service payrolls and operating expenses and keep business alive.

      Also, while this scheme addressed existing borrowers, the fate of those who are not current borrowers is unclear. While initial traction for the scheme was low, the recent momentum has been encouraging. The finance ministry reports that as of July 15, banks have sanctioned 1.2 trillion rupees ($16 billion), of which 700 billion rupees ($9 billion) have been disbursed largely by public sector banks, although private sector banks have joined in lately.

      Meanwhile, even the largest global economy has struggled with its SME relief program. In mid-March, US President Donald Trump approved a $2.2-trillion package under the Coronavirus Aid, Relief and Economic Security (CARES) Act to help Americans struggling amid the pandemic. One of the signature initiatives under the act was the $660-billion Paycheck Protection Program (PPP) aimed at helping small businesses with their payroll and operating expenses. This program was distinct from its peers in its loan forgiveness part, in which the repayment of the loan portion used to cover the first eight weeks of payroll, rent, utilities and mortgage would be waived. 

      The program, though well-intentioned, has struggled with execution issues exacerbated by labyrinthian rules. Matters came to a head when the initial tranche of $349 billion ran out in April. The program had to be refinanced but, by June, it was closed down with $130 billion of unused funds in its coffers. The program was restarted again and extended to August by Congress.

      Worse, the program saw refunds from borrowers who were unclear about the utilization rules. Loan forgiveness would be valid only if the amount was utilized within eight weeks. This stipulation made SMEs wary because their goal was to use cash judiciously and optimize the use of the borrowed amount to last as long as possible. These rules have since been amended by the Small Business Administration. It now gives SMEs 24 weeks to use the borrowed funds and allows them more flexibility on the use of funds. In any case, questions have been raised about capital not reaching targeted businesses and unintended parties benefiting instead. 

      Despite the changes in SBA rules, the jury is still out on whether more SMEs will take out PPP loans. Some are lobbying for full loan forgiveness. However, dispensing of repayment requirements essentially creates handouts that could lead to the lowering of fiscal discipline and increasing incentive for fraud. A recent proposal by two professors, one from Princeton and the other from Stanford, suggests “evergreening” of existing debt, a practice that involves providing new loans to pay off previous ones. Though innovative, it is not quite clear how such a policy would provide better benefits compared to a loan repayment moratorium, especially when it comes to influencing future credit behavior. 

      In addition to the PPP program, the SBA has announced the Economic Injury Disaster Loans (EIDL) program. This offers SMEs working capital loans up to $2 million to help overcome their loss of revenue. The program was closed down on July 13 after granting $20 billion to 6 million SMEs. Maintaining equitability and efficacy in the distribution process has been a challenge, though.

      European Responses

      Europe’s largest economy, on the other hand, has fared relatively better. In early April, German Chancellor Angela Merkel announced a €1.1-trillion ($1.3 trillion) stimulus termed the “bazooka.” This constituted a €600-billion rescue program, including €500 billion worth of guarantees for loans to companies. The German state-owned bank KfW is taking care of the lending. The program also includes a cash injection of €50 billion for micro-enterprises and €2 billion in venture capital financing for startups, which no major economy has successfully managed to execute. Notably, the centerpiece of the German program is the announcement of unlimited government guarantees covering SME loans up to €800,000. These loans are instantly approved for profitable companies.

      Berlin’s relief measures were specifically targeted at supporting Germany’s pride, the Mittelstand. This term refers to the 440,000 SMEs that form the backbone of the German economy. They employ 13 million people and account for 34% of GDP. Many of these firms manufacture highly-specialized products for niche markets, such as high-tech parts for health care and auto sectors, making them crucial to Germany’s success as an export giant. Not surprisingly, these companies have seen a contraction in revenues, especially the ones that depend on global supply chains. 

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      The swift implementation of these initiatives, coupled with the resilience of the Mittelstand, is demonstrating that SMEs can survive and thrive in this environment. The Germans have also been preaching and practicing fiscal prudence in normal times, which has now worked in their favor. Germany can afford to inject capital and do whatever it takes to save its SMEs.

      Since its first stimulus, Berlin has followed up with an additional €130-billion package consisting of tax, SME loans and spending measures aimed at stimulating demand. This included a €46-billion green stimulus focused on innovation and sustainable projects such as e-mobility and battery technology. In keeping with the German tradition, the SMEs who make the Mittelstand have stayed agile as well. They are diversifying their customer base and pivoting their business models to more recession-proof sectors. 

      The UK, another major world economy, also launched an array of relief measures, including the Coronavirus Business Interruption Loan Scheme (CBILS) worth £330 billion ($420 billion). This was designed to support British SMEs with cash for their payroll and operating expenditure. It also announced the Bounce Back Loan Scheme (BBLS) focused on smaller businesses. This enjoyed a better launch than CBILS because the latter, with its larger loan quantum, required more vetting and paperwork.

      Loans from the CBILS initiative, although interest-free for a year, are only 80% guaranteed by the government. This makes banks less willing to lend during these troubled times because they are afraid of losing 20% of the loan amount. This slows credit outflow and starves SMEs of much-needed capital. As of July 15, less than 10% of the allotted capital had been utilized, which banks blame on an inadequately designed scheme. By mid-July, only £11.9 billion had been disbursed to 54,500 companies through the CBILS and £31.7 billion to 1 million smaller firms through the BBLS.

      Businesses have sought modifications from policymakers to existing schemes. These include hiking government guarantees for loans to 100% and waiving personal guarantees for small loans. The Treasury has agreed to some of these demands. Critics also point to structural deficiencies in the system. They believe the administrative authority for SME loans should be a proper small business bank instead of the British Business Bank, which was not designed for SMEs. Already, the UK government has warned that £36 billion in COVID loans may default. More drastic measures seem to be on the way, including a COVID bad bank to house toxic SME assets.

      Responses Elsewhere

      Economies around the world have been responding to disruption by COVID-19. It is impossible to examine every response in this article, but Japan’s case deserves examination. The world’s third-largest economy had been battling a recession even before the pandemic. Declining consumption, falling tourism and plunging exports were increasing the pressure on an aging society with a spiraling debt of over $12.2 trillion. The pandemic has strained Japan’s fiscal health further.

      In response to the pandemic, the Bank of Japan announced a 75-trillion-yen ($700 billion) package for financing SMEs, which included zero-interest unsecured loans. Additionally, the National Diet, Japan’s parliament, enacted a second supplementary budget, which featured rent payment support and expanded employment maintenance subsidies for SMEs.

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      The execution of these programs has been tardy. The government’s 2015 digitalization drive is still incomplete, impacting the distribution of subsidies and the implementation of other relief measures. Of the more than 400,000 applications for employment adjustment subsidies, only 80,000 companies received aid by mid-June. Application procedures are unnecessarily complex, adding to the woes of SMEs.

      Any discussion on SMEs in the global economy would be incomplete without examining China, which was the first country to deal with the COVID-19 disease. In February,  the government announced a 1.2-trillion-renminbi ($174 billion) monetary stimulus. Large state-owned banks were ordered to increase lending to SMEs by at least 30% in the first half of 2020. Three of these banks alone were supposed to lend 350 billion renminbi ($49.7 million) to small businesses at preferential rates. In addition, Beijing encouraged local policymakers to provide fiscal support to keep SMEs afloat.

      China’s stimulus seems more understated compared to other major economies and their own 2008 bailout package. After controlling the first COVID-19 wave in March, the Chinese have focused on restarting the economy and reopening businesses instead of relief measures and bailouts.

      In February, surveys in China showed that 30% of SMEs had experienced a 50% decline in revenue. Surveys also found that 60% of SMEs had only three months of cash left. At the end of March, almost half a million small businesses across China had closed and new business registrations fell by more than 30% compared to last year. The resumption of work has been an uphill struggle. In April, the production rate of SMEs had crossed 82% of capacity, but the sentiment had remained pessimistic. Notably, the Small and Medium Enterprise Index (SMEI) had risen from 51.7 in May to 53.3 in June, indicating that SMEs are slowly reviving.

      With the easing of lockdown measures, domestic demand in China has picked up, driving SME sales. In turn, greater demand is increasing production activity and accelerating capacity utilization, causing a mild rise in hiring. The green shoots of recovery of Chinese SMEs should encourage authorities worldwide. 

      Policy Lessons for the Future

      Governing nation-states is an arduous task at the best of times and especially so in a nightmarish year of dystopian proportions. No wonder governments worldwide have appeared underprepared to combat the COVID-19 crisis. Whilst predicting a global pandemic of this scale would be next to impossible, there were early warning signs that severe disruptions to global health care, supply chains and business models were imminent. Yet scenario planning and stress testing of economic models has been flawed, impacting the swift rollout of relief measures.

      The crisis has also underlined the importance of fiscal discipline when economies are doing well. Countries that do so can build a robust balance sheet to leverage during troubled times. This crisis also brings home the importance of evaluating and reevaluating the efficacy of the entities that deal with SMEs. Policymaking is an iterative process, especially when it comes to SMEs and bodies that oversee them must be overhauled periodically.

      Importantly, policies pertaining to SMEs must have inputs from those with domain expertise. Structures must take into account execution capabilities and speed of delivery. Instant loan approvals with suboptimal due diligence have to be constantly balanced against longer vetting but slower turnarounds. Similarly, policymakers have to analyze the various types of instruments, fiscal and monetary, that can be used for SMEs. What works in one country may not work for another. 

      It is important to remember the nuances of different policy measures, such as guarantees, forgiveness, monitoring and moratoriums. Guarantees are a sound instrument for relief but are potential claims on the government’s balance sheet and contingent liabilities. They also have little economic value if capital is not promptly delivered to SMEs. Forgiveness provisions have their own issues. They may be important in a crisis but could incentivize subpar credit behavior in the future. Similarly, monitoring is important but is impractical when millions of SMEs are involved. There is no way any authority can keep a tab on the intended usage of funds. Finally, moratoriums have their own problems. Businesses could misuse moratoriums, putting pressure on banks and making accounting difficult. They were cheered at the onset of the crisis but further extensions could be costly to the ecosystem. 

      Going forward, governments need to prepare for the long haul. The consequences of the COVID-19 pandemic will stay with us for the foreseeable future. What began as a liquidity crisis might well become a solvency crisis for SMEs despite the best attempts to avoid that eventuality. If that does happen, governments will need to plan for efficient debt restructuring. They will have to institute insolvency management processes while figuring out how to handle bad asset pools. In simple language, governments will have to make tough decisions as to distributing gains and losses not only among those living but also future generations.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      in World Politics

      Only Losers Pay Taxes: Apple and the Ingenuity of Tax Avoidance

      by

      July 15 was a very good day for Apple. Not so much for the European Commission, nor for the Organisation for Economic Co-operation and Development (OECD). What happened? In 2016, the European Commission (EC), following a lengthy investigation, ruled that Ireland had granted Apple “illegal tax benefits” that “substantially and artificially lowered the tax paid by Apple in Ireland since 1991.” The taxes “saved” Apple some €13 billion ($15 billion). The Irish government set up and escrow account at the cost of €3.9 million in consultancy and other fees as Apple appealed to courts in Luxembourg.

      On July 15, the EU General Court rendered its landmark verdict. In a stinging rebuke of the European Commission, the court charged that the EC had failed to demonstrate “’to the requisite legal standard’ that Ireland’s tax deal broke state-aid law by giving Apple an unfair advantage.” The Apple case was supposed to be a hallmark for the EU Competition Commissioner Margrethe Vestager’s “crackdown on preferential fiscal deals for companies” by member states. In the words of a tax lawyer quoted in the Irish Times, the decision marked a “comprehensive defeat for the Commission.”

      Apple Tax Case and Investment in Europe

      READ MORE

      At the same time, it was a significant setback for the OECD’s initiative on “base erosion and profit shifting” or, put in less arcane terms, tax avoidance. Engaging top law firms, the new tech giants such as Apple, Amazon and Google have mastered the fine art of avoiding as much of the tax burden as possible. There are numerous reasons for this development, greed probably topping the list. On a more structural level, however, it is to a large extent the result of the process of financialization, which has been the dominant game worldwide over the past several decades.

      Part of the Package

      Financialization fundamentally changed corporate rationale, with shareholder value becoming the new doctrine. Shareholder value holds that the primary metric of success lies in the ability of managers to increase shareholder return. Forget about corporate responsibility, forget about corporate outreach to the community: The only thing that counts is raising a company’s stock value no matter what.

      Tax avoidance is part of the package. Over the past few decades, Fortune 500 companies have devised a range of ingenious strategies that allow them to legitimately avoid paying taxes. Many are so opaque that even specialists have a hard time figuring out what is happening, how and where. One of the more exotic strategies is the “double Irish with a Dutch sandwich.” Investopedia defines it as a tax avoidance scheme that “involves sending profits first through one Irish company, then to a Dutch company and finally to a second Irish company headquartered in a tax haven.”

      A second scheme that was popular in the United States a few years ago is corporate inversion. This “occurs when a U.S.-based multinational corporation restructures itself so that the U.S. parent is replaced by a foreign parent and the original U.S. company becomes a subsidiary of the foreign parent.” Ireland, Bermuda, England and the Netherlands were among the popular destinations.

      The case of Apple provides a perfect illustration of the ingenuity behind tax avoidance. The scheme hinges on Ireland’s sweetheart deal with Apple, which allowed the US-based company to avoid Ireland’s corporate tax of 12.5%. Instead, Apple paid as little as 0.005% in taxes. The profits Apple made in Europe were transferred to Apple subsidiaries located in Ireland — perfectly legally —  and the taxes were paid on the basis of Ireland’s rate instead of the country where Apple products were actually purchased. This saved Apple billions of euros.

      It needs mentioning that Ireland joined the Apple lawsuit. After the verdict, the Irish government hailed the outcome as a victory for Ireland, which, in the process, lost €13 billion in tax revenue — a rather perverse sense of accomplishment, given the dramatic impact COVID-19 has had on the country’s economy and public life. Like elsewhere in Europe, the measures introduced by the Irish government caused a dramatic surge in unemployment and drove the economy into a recession. It is likely to take years to recover from the pandemic. Under the circumstances, the money would have been quite welcome.

      The Curious Case of the Netherlands

      Over the past several decades, avoiding taxes has become big business. Estimates from 2017 suggest that tax avoidance and profit shifting by multinational corporations amounted to a global loss of somewhere around $500 billion. Not surprisingly, tax havens have multiplied throughout the world. To be sure, there are exotic offshore locations that have specialized in sheltering money, such as the Cayman Islands, Samoa, Mauritius or the British Virgin Islands.

      This, however, is only half of the story. The case of Ireland shows that advanced capitalist countries are hardly innocent. In fact, Europe — and even the European Union — abounds in tax havens, from the British island of Jersey to Luxembourg, Liechtenstein and Malta to the Netherlands.

      Recently, the Dutch have provoked much resentment among the EU’s southern members. At the height of the pandemic in Italy and Spain, both countries called on the member states to show solidarity with its southern neighbors. One of the ideas was to issue so-called corona bonds, which would have combined securities from different countries and “mutualized” debt. The idea was vigorously promoted by Italy but equally vigorously rejected by Germany and the Netherlands, alongside Finland and Austria, collectively known as the “Frugal Four.”

      The connotation was obvious. The fiscally responsible members were loath to subsidize countries they considered frivolous spenders — even in a situation that brought Italy to its knees. The Germans are accustomed to suspicion and hostility from other EU members. But the Dutch? After all, the Netherlands is a small country, known for their openness and liberal attitudes on sex and drugs. COVID-19, however, has changed these perceptions, at least in the southern parts of the EU.

      Embed from Getty Images

      And for good reasons. Not for nothing, one of the most egregious tax avoidance schemes has “Dutch” in its title. It turns out that the Netherlands is an important tax haven right in the heart of the EU — a tax haven that has done considerable harm to other member states. Earlier this year, the Tax Justice Network claimed that the Netherlands “cost EU countries $10bn in lost corporate tax a year.” Analysis revealed that US firms in Europe, instead of declaring profits in the EU countries where they were generated, “shifted billions in profits into the Dutch tax haven each year ($44 billion in 2017) where corporate tax rates in practice can be under 5 per cent.” In fact, “the Netherlands’ low effective tax rate and its frequent use as a conduit for profit shifting to other corporate tax havens like Bermuda, results in a huge transfer of wealth out of Europe and into the offshore bank accounts of the world’s richest corporations and individuals.”

      Estimates for Italy alone were that the country had lost €1.5 billion in revenue a year, “equivalent to more than twice the annual cost of running San Raffaele Hospital, one of the largest hospitals in Italy with approximately 1350 beds.” Under the circumstances, Italian ire and disenchantment with the EU at the height of the pandemic, which cost the lives of thousands of Italians and paralyzed life in the country, are more than understandable. In this sense, the Apple verdict is nothing more than a Pyrrhic victory for Ireland and like-minded members of the European Union.

      The pandemic has drastically illustrated the importance of solidarity. Strategies that cater to the narrow interests of shareholders systematically subvert solidarity. Under “normal” circumstances, that might be fine. These days, it is disastrous, not least because the notion of shareholder value (aka individual egoism) has penetrated every aspect of social life. Margaret Thatcher once remarked that society did not exist — there were only individuals and families. The disastrous current state of the US and Britain is a blatant indictment of this kind of thinking.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More