A very interesting post from www.stratfor.com about the Cyprus banking crisis. This follows this post about disarming the political opposition such as in Colorado and New York.  In the meantime, you can read two very interesting books HERE.

Europe's Disturbing Precedent in the Cyprus Bailout

 

 

Stratfor

By George Friedman
Founder and Chairman
The European economic crisis has taken different forms in different places, and Cyprus is the latest country to face the prospect of financial ruin. Overextended banks in Cyprus are teetering on the brink of failure for issuing loans they cannot repay, which has prompted the tiny Mediterranean country, a member of the European Union, to turn to Brussels for help. Late Sunday, the European Union and Cypriot president announced new terms for a bailout that would provide the infusion of cash necessary to prevent bankruptcies in Cyprus' banking sector and, more important, prevent a banking panic from spreading to the rest of Europe.
What makes this crisis different from the previous bailouts for Greece, Ireland or elsewhere are the conditions Brussels has attached for its assistance. Due to circumstances unique to Cyprus, namely the questionable origin of a large chunk of the deposits in its now-stricken banking sector and that sector's small size relative to the overall European economy, the European Union, led by Germany, has taken a harder line with the country. Cyprus has few sources of capital besides its capacity as a banking shelter, so Brussels required that the country raise part of the necessary funds from its own banking sector -- possibly by seizing money from certain bank deposits and putting it toward the bailout fund. The proposal has not yet been approved, but if enacted it would undermine a formerly sacred principle of banking in most industrial nations -- the security of deposits -- setting a new and possibly destabilizing precedent in Europe.

Cyprus' Dilemma

For years before the crisis, Cyprus promoted itself as an offshore financial center by creating a tax structure and banking rules that made depositing money in the country attractive to foreigners. As a result, Cyprus' financial sector grew to dwarf the rest of the Cypriot economy, accounting for about eight times the country's annual gross domestic product and employing a substantial portion of the nation's work force. A side effect of this strategy, however, was that if the financial sector experienced problems, the rest of the domestic economy would not be big enough to stabilize the banks without outside help.
Europe's economic crisis spawned precisely those sorts of problems for the Cypriot banking sector. This was not just a concern for Cyprus, though. Even though Cyprus' banking sector is tiny relative to the rest of Europe's, one Cypriot bank defaulting on what it owed other banks could put the whole European banking system in question, and the last thing the European Union needs now is a crisis of confidence in its banks.
The Cypriots were facing chaos if their banks failed because the insurance system was insufficient to cover the claims of depositors. For its part, the European Union could not risk the financial contagion. But Brussels could not simply bail out the entire banking system, both because of the precedent it would set and because the political support for a total bailout wasn't there. This was particularly the case for Germany, which would carry much of the financial burden and is preparing for elections in September 2013 before an electorate that is increasingly hostile to bailouts.
Even though the German public may oppose the bailouts, it benefits immensely from what those bailouts preserve. As I have pointed out many times, Germany is heavily dependent on exports and the European Union is critical to those exports as a free trade zone. Although Germany also imports a great deal from the rest of the bloc, a break in the free trade zone would be catastrophic for the German economy. If all imports were cut along with exports, Germany would still be devastated because what it produces and exports and what it imports are very different things. Germany could not absorb all its production and would experience massive unemployment.
Currently, Germany's unemployment rate is below 6 percent while Spain's is above 25 percent. An exploding financial crisis would cut into consumption, which would particularly hurt an export-dependent country like Germany. Berlin's posture through much of the European economic crisis has been to pretend it is about to stop providing assistance to other countries, but the fact is that doing so would inflict pain on Germany, too. Germany will make its threats and its voters will be upset, but in the end, the country would not be enjoying high employment if the crisis got out of hand. So the German game is to constantly threaten to let someone sink, while in the end doing whatever has to be done.
Cyprus was a place where Germany could show its willingness to get tough but didn't carry any of the risks that would arise in pushing a country such as Spain too hard, for example. Cyprus' economy was small enough and its problems unique enough that the rest of Europe could dismiss any measures taken against the country as a one-off. Here was a case where the German position appears enormously more powerful than usual. And in isolation, this is true -- if we ignore the question of what conclusion the rest of Europe, and the world, draws from the treatment of Cyprus.

A Firmer Line

Under German guidance, the European Union made an extraordinary demand on the Cypriots. It demanded that a tax be placed on deposits in the country's two largest banks. The tax would be about 10 percent and would, under the initial terms, be applied to all accounts, regardless of their size. This was an unprecedented solution. Since the global financial crisis of the 1920s, all advanced industrial countries -- and many others -- had been operating on a fundamental principle that deposits in banks were utterly secure. They were not regarded as bonds paying certain interest, whose value would disappear if the bank failed. Deposits were regarded as riskless placements of money, with the risk covered by deposit insurance for smaller deposits, but in practical terms, guaranteed by the national wealth.
This guarantee meant that individual savings would be safe and that working capital parked by corporations in a bank was safe as well. The alternative was not only uncertainty, but also people hoarding cash and preventing it from entering the financial system. It was necessary to have a secure place to put money so that it was available for lending. The runs on banks in the 1920s and 1930s drove home the need for total security for deposits.
Brussels demanded that the bailout for Cypriot banks be partly paid for by depositors in those banks. That demand essentially violated the social contract on the sanctity of bank deposits and did so in a country that was a member of the European Union -- one of the world's major economic blocs. Proponents of the measure pointed out that many of the depositors were not Cypriot nationals but rather foreigners, many of whom were Russian. Moreover, it was suggested that the only reason for a Russian to be putting money in a Cypriot bank was to get it out of Russia, and the only motive for that had to be nefarious. It followed that the confiscation was not targeted against ordinary people but against shady Russians.
There is no question that there are shady Russians putting money into Cyprus. But ordinary Cypriots had their money in the same banks and so did many Cypriot and foreign companies, including European companies, who were doing business in Cyprus and need money for payroll and so on. The proposal might look like an attempt to seize Russian money, but it would pinch the bank accounts of all Cypriots as well as a sizable amount of legitimate Russian money. Confiscating 10 percent of all deposits could devastate individuals and the overall economy and likely would prompt companies operating in Cyprus to move their cash elsewhere. The measure would have been devastating and the Cypriot parliament rejected it.
Another deal, the one currently up for approval, tried to mitigate the problem but still broke the social contract. Accounts smaller than 100,000 euros (about $128,000) would not be touched. However, accounts larger than 100,000 euros would be taxed at an uncertain rate, currently estimated at 20 percent, while bondholders would lose up to 40 percent. These numbers will likely shift again, but assuming they are close to the final figures, depositors putting money into banks beyond this amount are at risk depending on the financial condition of the bank.
The impact on Cyprus is more than Russian mafia money being taxed. All corporations doing business in Cyprus could have 20 percent of their operating cash seized. Regardless of precisely how the Cypriot banking system is restructured, the fact is that the European Union demanded that Cyprus seize portions of bank accounts from large depositors. From a business' perspective, 100,000 euros is not all that much when you are running a supermarket or a car dealership or a construction company, but this arbitrary level could easily be raised in the future and the mere existence of the measure will make attracting investment more difficult.

A New Precedent

The more significant development was the fact that the European Union has now made it official policy, under certain circumstances, to encourage member states to seize depositors' assets to pay for the stabilization of financial institutions. To put it simply, if you are a business, the safety of your money in a bank depends on the bank's financial condition and the political considerations of the European Union. What had been a haven -- no risk and minimal returns -- now has minimal returns and unknown risks. Brussels' emphasis that this was mostly Russian money is not assuring, either. More than just Russian money stands to be taken for the bailout fund if the new policy is approved. Moreover, the point of the global banking system is that money is safe wherever it is deposited. Europe has other money centers, like Luxembourg, where the financial system outstrips gross domestic product. There are no problems there right now, but as we have learned, the European Union is an uncertain place. If Russian deposits can be seized in Nicosia, why not American deposits in Luxembourg?
This was why it was so important to emphasize the potentially criminal nature of the Russian deposits and to downplay the effect on ordinary law-abiding Cypriots. Brussels has worked very hard to make the Cyprus case seem unique and non-replicable: Cyprus is small and its banking system attracted criminals, so the principle that deposits in banks are secure doesn't necessarily apply there. Another way to look at it is that an EU member, like some other members of the bloc, could not guarantee the solvency of its banks so Brussels forced the country to seize deposits in order to receive help stabilizing the system. Viewed that way, the European Union has established a new option for itself in dealing with depositors in troubled banks, and that principle now applies to all of Europe, particularly to those countries with financial institutions potentially facing similar problems.
The question, of course, is whether foreign depositors in European banks will accept that Cyprus was one of a kind. If they decide that it isn't obvious, then foreign corporations -- and even European corporations -- could start pulling at least part of their cash out of European banks and putting it elsewhere. They can minimize the amount of cash on hand in Europe by shifting to non-European banks and transferring as needed. Those withdrawals, if they occur, could create a massive liquidity crisis in Europe. At the very least, every reasonable CFO will now assume that the risk in Europe has risen and that an eye needs to be kept on the financial health of institutions where they have deposits. In Europe, depositing money in a bank is no longer a no-brainer.
Now we must ask ourselves why the Germans would have created this risk. One answer is that they were confident they could convince depositors that Cyprus was one of a kind and not to be repeated. The other answer was that they had no choice. The first explanation was undermined March 25, when Eurogroup President Jeroen Dijsselbloem said that the model used in Cyprus could be used in future bank bailouts. Locked in by an electorate that does not fully understand Germany's vulnerability, the German government decided it had to take a hard line on Cyprus regardless of risk. Or Germany may be preparing a new strategy for the management of the European financial crisis. The banking system in Europe is too big to salvage if it comes to a serious crisis. Any solution will involve the loss of depositors' money. Contemplating that concept could lead to a run on banks that would trigger the crisis Europe fears. Solving a crisis and guaranteeing depositors may be seen as having impossible consequences. Setting the precedent in Cyprus has the advantage of not appearing to be a precedent.
It's not clear what the Germans or the EU negotiators are thinking, and all these theories are speculative. What is certain is that an EU country, facing a crisis in its financial system, is now weighing whether to pay for that crisis by seizing depositors' money. And with that, the Europeans have broken a barrier that has been in place since the 1930s. They didn't do that casually and they didn't do that because they wanted to. But they did it.

Read more: Europe's Disturbing Precedent in the Cyprus Bailout | Stratfor

The Looming Tower author Lawrence Wright on the state of al Qaeda

A very interesting post from www.HughHewitt.com about al-Qaeda on the anniversary of the Madrid bombings. This follows this post about Japan two years after it got hit by the tsunami. This follows this post about the state of Latin America after the death of Hugo Chavez. In the meantime, you can read two very interesting books HERE.

The Looming Tower author Lawrence Wright on the state of al Qaeda

HH: Special hour of the program today with Lawrence Wright, author of The Looming Tower, and correspondent for the New Yorker magazine. Lawrence, welcome back, always a pleasure to talk to you.
LW: Thank you, Hugh, good to talk to you again.
HH: I’m going to New York tonight. I’m sorry, I guess you’re not playing. Your blues band is not going to be playing this weekend at the Hill or any place?
LW: Look, that was the most fun I’ve had in a long time. It made me wonder how I ever got into this writing gig.
HH: Well, it is about the writing gig I’m calling. Every, at least once a year, I like to check in with you. And you wrote on 9/11 over at your New Yorker blog that eight years after 9/11, many analysts are saying that al Qaeda is finished. That’s not true. What is the status of al Qaeda as we round into the end of 2009, Lawrence Wright?
LW: Well, the core of al Qaeda is very much reduced. The Egyptian intelligence told me they thought it was about 200 guys. And the CIA says three to five hundred. But whichever figure you take, it’s still a lot less than it was before 9/11. And you know, they’re under siege. There’s no doubt about it. But on the other hand, they’ve developed these affiliates in North Africa, Yemen, Iraq, Saudi Arabia. You know, some of those places, Somalia, Mali, that they really weren’t present before 9/11. So the banner has spread. And then there are a lot of al Qaeda wannabes who are like pirates. They just run up the al Qaeda flag, although they might not have very much real connection to them. So you can say that the idea has spread, the affiliates have spread, but the mother ship itself is in hiding. And that’s good. I mean, I think that the war on al Qaeda is going pretty well, except that we haven’t gotten bin Laden, and we haven’t gotten, really, any member of the inner council since Abu Hafs al Masri in December of 2001.
HH: How do you understand our efforts to cut off their financing to be going?
LW: You know, they are under financial pressure. There’s no doubt about it. But Hugh, the truth is that terrorism is a really cheap enterprise. It doesn’t cost a lot of money to be a terrorist. And if you look at, say, the first, big operation was the Embassy bombings in 1998 in East Africa. And that was financed by a couple of guys with a fishing boat. You know, I mean, they just didn’t have very much money. And they’ve been pretty scrupulous about accounting for that money. For instance, the 9/11 hijackers, 9/11 cost about a half a million dollars, but at the end, the hijackers were sending money back, because they had more than they needed. So the concept that you need suitcases of cash or vast resources to operate al Qaeda, I think, is mistaken.
HH: Before we walk through the practical situation in these various countries, Lawrence Wright, since you read what they write, has their ideological fervor diminished? I know about 18 months ago, you wrote in the New Yorker about a split that was developing with one of the ideological godfathers of al Qaeda in an Egyptian prison. Has that chasm widened? Or does the fever remain at high pitch?
LW: No, actually, I think this is the most hopeful development in what I see as the final game, the end game of al Qaeda, is that their ideology is fracturing. The guy you’re referring to is Dr. Fadl, Sayyed Imam al-Sharif is his real name. And he was the chief ideologue of al Qaeda. He was also the emir, the leader of the group that Ayman al-Zawahiri had in Egypt. But he’s the guy who wrote the books that al Qaeda gives to its recruits. And they are, they’re the books that say that every Muslim must be at war with non-believers, and that all the leaders of the Arab countries are infidels and must be killed, and so must everybody that follows them, and so must everybody who votes, and works for the government and other police. That’s the kind of takfiri ideology that al Qaeda raises its recruits on. Now Fadl was captured in Yemen after 9/11 and sent to Egypt, where he’s in prison now. And he wrote a renunciation of his views. It’s very strident, very fascinating. And yes, of course, he’s in prison, so you have to discount that. But it is closely reads, and very much a threat to Zawahiri, who wrote an entire book in response. And since then, there have been a number of other developments, for instance, the Libyan fighting force, which was an affiliate of al Qaeda, about ten days ago renounced al Qaeda’s violence. And the most prominent cleric in the Sunni portion of the Islamic world, Yusuf Qaradawi, just recently contributed his thoughts in declaring, saying that al Qaeda was a mad declaration of war on the world. And this is just, these are just a series of developments that have been going on for a while that show that within radical Islam, there is a tremendous controversy, and al Qaeda’s not very well defended to take care of that kind of controversy.
HH: Within radical Islam, of which al Qaeda’s a variant within that…
LW: Yeah.
HH: Has there been any kind of, outside of al Qaeda, a rethinking of how to achieve its goals through proselytizing as opposed to conquest? Is that underway?
LW: You know, they can’t achieve their goals that way. The…al Qaeda is essentially built on action. It gets its recruits from dramatic strikes against the West, and as it turns out, against other Muslims. And it’s failed in that regard. I mean, if you look back at the Embassy bombings, and the Cole bombing, and 9/11, there were three years where you had major attacks one after another each year, and then eight years and no attacks against America. The only real attacks that you can attribute to al Qaeda in the West, London and Madrid, and Madrid is pretty, you know, tangential. So al Qaeda’s really been marginalized, as far as its actions go. And other people are acting in its name, and where it’s been able to strike, it’s been against Muslims.
HH: Now Lawrence Wright, we’re talking the day after the arrest in Massachusetts of a would-be jihadi…
LW: Yeah.
HH: And a month after the arrest of at least one jihadi who drove the bus at Denver. What did you make of those two incidents?
LW :Well, the question is, you know, what occurred to me when these things began to happen, there are other incidents as well that happened prior to this, are we becoming more like the situation in Europe where you have home grown jihadis turning against the country? And that could be true. We have a population of about two and a half million Muslims in this country. But the truth is, our Muslims in this country, we’re so blessed by this community, it’s so much better off than, it’s the wealthiest Muslim community in the entire world, Saudi Arabia included. They make about as much money as the average American, they’re just as likely to go to college or graduate school as the average American, far less likely to go to prison. And those kinds of things are, I can’t tell how…like France, let’s take France for a minute. 12% of the French population is Muslim, about. 60% of the prisoners are. Now that shows you what a tremendous difference there is…
HH: Wow.
LW: …in the kind of alienation and marginality those people feel in that society as compared to this one. So yes, we have bad actors. And I remember a few years ago, I was having iftar in Birmingham, England with some radical Muslims. And iftar is the meal you take to break the fast at the end of the day in the month of Ramadan. And one of the companions said that he supported the kidnapping and beheading of aid workers in Iraq, which was taking place at that time. And I thought to myself, you know, this guy is really dangerous. And we have people like him in this country. But I looked around the table, and I saw all these nodding heads, you know, these guys agreeing with him. And I thought well, you know what’s really dangerous are those nodding heads, because they surround him with a community of approval. And they allow him to think those thoughts out loud, and maybe recruit others to his thinking, and actually act out the consequences of those thoughts.
HH: Yeah, I’ve had a number of law students who are Muslim over the years, and so I know what you speak about the fact that the American Muslim community is simply not radicalized in the way the European Muslim community is.
LW: Right.
HH: But I was wondering about the command and control structure of al Qaeda. There are some reports that both of these recent characters had connections back to the mother ship, as you called it. Do you credit those?
LW: Well, the Afghan, he went to Pakistan, and actually met Abu Yazid al Masri, who’s the head of al Qaeda in Afghanistan. That’s pretty impressive. So the other guy wasn’t able to hook up with jihad at all. So I am concerned that he can get to al Qaeda that quickly.
- – - –
HH: Lawrence Wright, I taught the terrorism cases this week to my Con Law students. And of course, the Supreme Court took certiorari again in another terrorism case this week. But I asked the 60-65 students I’ve got how many of them anticipate an attack on America in the next year. Not one. And I generally believe that America has now discounted the threat from Islamist extremism in the United States to the point where very few people expect it anytime soon. Do you concur with that assessment?
LW: Yes, in general, I think that the chances of an attack are low, but not zero. And so if you ask me if there was an attack tomorrow in the U.S., would I be surprised, no I would not be surprised, but I don’t expect it. I know that they are relentlessly attempting to make another strike.
HH: That’s what I was going to ask you next. Have they abandoned the attack on America because of its tactical futility, or because they simply lack the ability to do so?
LW: Well, I think that they are, first of all, the sanctuaries have been pretty much taken care of, and that was a key thing, because it’s one thing to have the internet and so on, but you really, you know, if you look at all the successful attacks that have taken place since 9/11, and well, go back to 9/11 and the Embassy bombings, they all had training. They all had on the ground training. And so al Qaeda’s handicapped in that way. It doesn’t mean that there might not be some cell somewhere secretly getting some training right now, but the other thing is I noticed, and I don’t know if this is still in effect, but five or six years ago, maybe it wasn’t that long ago, Zawahiri wrote a note to his followers, and essentially said go forth and do whatever you want. You know, kill Americans, strike at the embassies, the oil facilities, whatever you can do. But if you’re going to hit America, you have to clear it with us. And I thought that was an interesting clause, and it suggested to me that he didn’t want to follow up 9/11 with some strip mall bombing or something like that. He wanted to make an effect, because America is Broadway for them. And you know, if they’re going to have an attack, they want it to reverberate. So if you look at how diminished their news value is now, a lot of times they make statements that don’t even get into the newspapers or on television. They…in order to recover some of that, they’re going to have to make a big strike, and I think they’re going to be very hard-pressed to follow up with something like 9/11.
HH: That brings us then, Lawrence Wright, to Afghanistan, and the question of if we reduce pressure there, and if the President declines General McChrystal’s request for troops, or if over the next two years we draw down or retreat closer to Kabul, does al Qaeda reconstitute itself? Would the Taliban, in your estimate, treat them now as they did prior to 9/11?
LW: Honestly, Hugh, I’m going through kind of soul searching with myself about both Afghanistan and Pakistan right now. And I haven’t clearly decided what I think. But here is some of the elements of my thinking. Our presence there is very destabilizing. And if, it seems to me that there are only two possible outcomes that are realistic for Afghanistan. One is that we succeed in creating a semi-stable narco-state that’s run by warlords. And that’s the good scenario. The bad one is that the Taliban takes over, and it becomes a massive sanctuary for al Qaeda. That’s a pretty disheartening set of alternatives. And so I don’t think we ought to fool ourselves that we’re going to create a really successful democratic state that has anything like a prosperous economy. It’s a long way from our ability to do that. And yet we went in, we capsized Afghanistan. We do owe the Afghan people the effort to try to create some safety for them. Maybe the best way of doing that is by making our footprint a little smaller, and trying to operate less conspicuously, and stick to areas that are populated cities and things like that.
HH: Is a semi-stable narco-state such a bad thing for us? And second question, is it better for the average Afghan than the return of the Taliban?
LW: I think anything’s better for them than the return of the Taliban. The Taliban was a catastrophe when they were in government, and I don’t, even though there’s some talk about how they’ve wised up, if you look at their action, you know, just see what the Taliban in Pakistan has done with the burning of girls schools and so on. I don’t think they really learned their lesson. My feeling about the Taliban, and this is what I believe of all radical Islamists, they’re not really interested in government. They’re interested in purification. And they want to bring, make people become pure Muslims. And they leave the business of government sort of aside. I mean, when Mullah Omar was running the thing, he kept the treasury in a silver box under his bed. He really had no interest in government at all. And I don’t, you know, I look at where radical Islam has come to power. And you can say Afghanistan under the Taliban, Sudan when Hassan Turabi initiated the revolution, Somalia in part, and now you can see what’s happening in Iran, the first of the radical Islamic regimes. In every case, it’s a disaster. And I tell my radical Islamist friends, it’s like the crash test. You know, some of the dummies survive, but the car is always wrecked.
HH: Now in terms of, then, the choice before America, even though a semi-stable narco-state is horrible…
LW: Yeah.
HH: It’s a lot less horrible. Is that what you’re saying, Lawrence, Wright, than a Taliban state, and especially in that al Qaeda would be issuing forth again?
LW: I think that’s true. But you know, it’s still unappetizing. I mean, look at how disheartening it is to see the fraud underway in this recent election, and to think that we are so critical, for instance, of Ahmadinejad for stealing the election in Iran. But he’s not our ally. He’s not our guy. Karzai is. And we’ll be kind of stuck with him, and to some extent, we have to live with that. I don’t know how long the American people can take the complexity and the messiness of being deeply engaged in that part of the world.
- – - –
HH: Lawrence, I try and keep up with the books that are well-reported on this subject. And whether it’s Robin Wright’s Dreams And Shadows, or Amir Taheri’s The Persian Night, nobody quite gets the relationship, in my opinion, between Khomeinist Iran and al Qaeda, and Sunni Islamists, which hate each other, but appear to me to be operating at least sometimes in coalition as is now the case, I think, in Afghanistan and some regions of Pakistan. What’s your assessment of that operational compatibility?
LW: I think it’s fascinating, frankly. I agree with you. First of all, after we went into Afghanistan, a lot of al Qaeda guys took refuge in Iran, including bin Laden’s son, and the, Saif al-Adil, the al Qaeda security chief who’s still there, and according to a Saudi paper, there were at least five hundred al Qaeda guys that took refuge in Iran. I don’t know what’s happened to all of them, but some of them are still there. You go back to when Khomeini first took over in 1979, it was a tremendous shock to a lot of Sunni Muslims who had been talking about how they wanted to do this, and suddenly, in the Shia world, a major country becomes an Islamist institution. So it showed them it was possible. It game them hope, even though they felt that it was a heretical regime. Zawahiri, this was particularly true of him. He was very inspired, and yet, when we were in Iraq, remember deep in Iraq, when Zarqawi was murdering all the Shiites, and in the name of al Qaeda, still, Iran did not throw out the al Qaeda guys. They continued to cause mischief in Iraq. They, for instance, help out Hamas, which is also a Sunni group. So…in the eyes of radical Sunni Muslims, Shiites are heretical. And so why do they help them? The only answer I’ve come up with so far, Hugh, is it’s the Middle East.
HH: Now what about in Pakistan, where we have so many different players…I try and keep track. I really do, but it’s almost impossible to figure out who is fighting whom in the border regions, and in the Swat Valley, et cetera. What’s your assessment of radical Islam inside of Pakistan?
LW: This is another area where I’m, you know, re-jiggering my thoughts. I had, there was a conference, I’m in Washington right now, and there was a conference about al Qaeda the other day, and a retired Pakistani general and ambassador to the U.S. was talking about the current campaign that the Pakistani army is engaged in, in Waziristan, in the tribal areas. And he was saying frankly, the hardware that we’ve been given, in other words, by the Americans, is peanuts. And I said well, General, we’ve given you $11 billion peanuts over the years since 9/11, and is it really our fault that you don’t have the right equipment if you used all that money to build up your forces against India, and developed your nuclear arms, and by the same token, swell the Pakistani military into this outsized presence into Pakistani society, and make it one of the major investors. For instance, the Pakistan military owns banks and real estate and insurance companies. Where did all that money come from? I don’t mean to demonize Pakistan, because it’s suffered terribly since the war on terror. But I don’t think it’s America’s fault that the Pakistani military doesn’t have the right kind of equipment to go into Waziristan.
HH: Does anyone have a path forward there, though? Is there a strategic thinker in the whole country?
LW: I can’t answer that, but I can say that there’s a lot of conflict, yet probably we are closer together now in our strategic goals than we have been since the beginning of the war on terror, because the Taliban is waging war on the military itself. They killed a brigadier general just yesterday. They attacked the headquarters of the military a couple of weeks ago. It’s outright bloody war.
- – - –
HH: Lawrence, at the beginning of the hour, you mentioned al Qaeda in North Africa, in Yemen, in Iraq, in Somalia, in Mali. And I’ve got to go back there, because we only have two segments left. This is only an eight minute segment. So while progress has been made in Iraq, certainly, in other places, they’re back in Somalia again. And I don’t know that they’ve ever been crushed in Algeria, and I’ve read some very alarming things about the tribes of Yemen. Just take us on a tour of al Qaeda or radical Islamist ideology around the globe.
LW: Well, I think the first thing is, al Qaeda started by taking what were very disparate groups like the ones we’re talking about and putting them all under one umbrella. That was al Qaeda. It was a coalition. And it still is. But these were mostly nationalist groups. They had national aims. They didn’t have international aims. And what bin Laden was able to do was focus them on the idea that their problems are really international problems. In jihadi language, the terms are the near enemy and the far enemy. For instance, the Egyptian groups like Zawahiri were focused on the Egyptian regime, the near enemy. And the al Qaeda discourse says you know what? The far enemy is actually the near enemy. Look at America. It’s everywhere. It’s in the skies. It’s in the seas. It’s all around us. Our regimes would not be able to operate if it weren’t for America. And so the idea that there is a distant enemy is wrong. And that was a very persuasive argument for a lot of these groups. But the trouble is, from al Qaeda’s point of view, is they still are mainly interested in their own countries. The Libyan fighting forces, they’ve been now negotiating with Gaddafi’s regime, and they’re kind of pulling out. There are other places where it’s a little dicier. I think that Yemen is in a pretty rocky spot right now, because it’s a fairly new country. I mean, it had been two countries, and then North and South Yemen, and they tried to put them together, and they may break apart again. So it’s a very fractious country. And in a chaotic situation, al Qaeda does really well. In Somalia, historically, al Qaeda hasn’t done very well. But the Somalis are getting assistance from al Qaeda, and al Qaeda’s really trying very hard to make a presence there. I look at the geography of the Red Sea, and how Somalia and Yemen form a kind of Pincer at the opening of the Red Sea, and I wonder if in the minds of al Qaeda strategists they’re not thinking if we could control Yemen and Somalia, we’d be able to control the entire access to the Red Sea and the route through the Suez Canal. And of course, if they get Somalia, they’ll have a navy, too, of all those pirates.
HH: Yeah.
LW: So I guess I have more concern about that area of the world. bin Laden has been directing energy right now to the front line states against Israel – Jordan and Lebanon in particular.
HH: They have traditionally tried to topple the Egyptian government.
LW: Yeah.
HH: They have traditionally tried to attack the Kingdom and the monarchy. Have they given up the ghost? And do you see any progress there by these tottering, very dictatorial regimes to try and reform themselves to make al Qaeda a less, or radical Islam a less appealing alternative?
LW: Not a lot. I mean, I think that Mubarak’s reign is going to be over in the coming year, and his son will probably take over. And that’s, you know, he’ll be younger, but he’ll still be Mubarak. And I don’t know that that’s going to make any Egyptian feel any better about the state of democracy in that country. Saudi Arabia is a different situation, a different culture. I frankly think that King Abdullah’s done quite a lot to try to create civil society in a place where there’s practically none. But it doesn’t mean that there have been real gains. I have some Saudi friends, the last time I was there, that were showing me their voting cards, which were beautiful. They’re like passports. They have the official stamp of the Kingdom, and their photos inside, and it’s a real work of art. And with that voting card, they could vote for 49% of the city council. The King gets to vote for 51%, and the mayor. And with my crummy, little cardboard stub of a voting card, I can overthrow the government.
HH: Right.
LW: So you know, there’s a long, long way between what they have on their plate, and what will make them into a more moderate, stable country. But I actually think that King Abdullah wants to move in that direction. Whether his successor, who is right now Prince Nayef, has those same inclinations, I don’t really believe that.
HH: Now last question this segment, the young people of Europe about which we have heard so many alarms raised…
LW: Yeah.
HH: …especially the young Muslim population, does it continue to be radicalized? We’ve all seen the pictures of the cell phones playing the beheading videos, and things like that. Is that still moving as virulently through that population as it was, say, five years ago?
LW: Maybe not as virulently, but it’s still present. And the kind of socioeconomic situation that gave rise to that movement hasn’t changed. I think that there have been more moderate Muslim voices raised that have kind of helped to blunt that. But it’s, you know, I think the future of Islam, to some extent, is going to be found in Europe and America, which is where it comes face to face with forces of progress and modernity and democracy. And when Muslims learn well how to negotiate in those kinds of environments, they’ll be able to take those lessons back to their own, their previous cultures. And I think that that will make a change. But it’s going to be a while.
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HH: Thank you, Lawrence Wright, for joining us again. I wanted to ask, you’re not meeting your demand curve. A lot of people are waiting for the next book after The Looming Tower, or another New Yorker article. I mean, you’ve got this…
LW: Well, the only thing I can say, I’m desperately looking for a new book. I just finished an article about Gaza that will be out in a couple of weeks in the New Yorker. So…but I’m, the shop doors are open. So I’m eager to find a new idea that would mean as much to me as my book on al Qaeda did.
HH: Give us a preview of what you found in Gaza.
LW: The place has been crushed, and there’s been no…well, first of all, just so people understand, Gaza Strip is 25 miles long, and 7 miles wide at its widest point. There are a million and a half people there. And for the last two years, they’ve been under a strict blockade that the Israelis have controlled whatever goes in there, have calculated more or less the calories needed to sustain life. And that’s how many truckloads of supplies they let in. Most people, half the population is under 18. And most people under 25 have never been out of there. So they’re really in this kind of open-air prison. And in December of last year, through January of this year, there was, one can’t really call it a war, because it was such a mismatch. But the Israelis just crushed the place. And most of the buildings are lying in rubble. All the buildings of government, many houses and so on, and because of this, there’s no supplies coming in, they’re just lying there. It’s really shocking and disheartening to see. I mean, whatever Hamas has done, and should be held to account for, a million and a half people in Gaza didn’t do those things.
HH: Does Hamas show any sign of moderating, to your view, Lawrence Wright?
LW: Yeah, I was interested in that. I got some signals, you know, for instance, they’re embarrassed about their charter, which is a ridiculous document, and even quotes the protocols on the elders of Zion, that famous forgery. They are actually engaged in talks that would try to…so they could release this prisoner of war that they captured, this Israeli, the young man named Gilad Shalit. Of course, they want hundreds, they want thousands, more than a thousand prisoners in return. So there is some movement that honestly, it’s a stalemate.
HH: We will look for that article in the New Yorker, and perhaps we can get you on to talk about it specifically. I appreciate, Lawrence Wright, the time always. Thanks for joining us.
End of interview.