Stratfor News Analysis
By Marko Papic and Peter Zeihan
The situation in Europe is dire.
After years of profligate spending, Greece is becoming overwhelmed. Barring some sort of large-scale bailout program, a Greek debt default at this point is highly likely. At this moment, European Central Bank liquidity efforts are probably the only thing holding back such a default. But these are a stopgap measure that can hold only until more important economies manage to find their feet. And Europe’s problems extend beyond Greece. Fundamentals are so poor across the board that any number of eurozone states quickly could follow Greece down. Also in an interview aired Feb. 7 on CNN, U.S. Secretary of State Hillary Clinton said she considers weapons of mass destruction (WMD) in the hands of an international terrorist group to be the largest threat faced by the United States today, even bigger than the threat posed by a nuclear-armed Iran. “The biggest nightmare that many of us have is that one of these terrorist member organizations within this syndicate of terror will get their hands on a weapon of mass destruction,” Clinton said. In referring to the al Qaeda network, Clinton noted that it is “unfortunately a very committed, clever, diabolical group of terrorists who are always looking for weaknesses and openings.”
And so the rest of the eurozone is watching and waiting nervously while casting occasional glances in the direction of Berlin in hopes the eurozone’s leader and economy-in-chief will do something to make it all go away. To truly understand the depth of the crisis the Europeans face, one must first understand Germany, the only country that can solve it.
The heart of Germany’s problem is that it is insecure and indefensible given its location in the middle of the North European Plain. No natural barriers separate Germany from the neighbors to its east and west, no mountains, deserts, oceans. Germany thus lacks strategic depth. The North European Plain is the Continent’s highway for commerce and conquest. Germany’s position in the center of the plain gives it plenty of commercial opportunities but also forces it to participate vigorously in conflict as both an instigator and victim.
Germany’s exposure and vulnerability thus make it an extremely active power. It is always under the gun, and so its policies reflect a certain desperate hyperactivity. In times of peace, Germany is competing with everyone economically, while in times of war it is fighting everyone. Its only hope for survival lies in brutal efficiencies, which it achieves in industry and warfare.
Pre-1945, Germany’s national goals were simple: Use diplomacy and economic heft to prevent multifront wars, and when those wars seem unavoidable, initiate them at a time and place of Berlin’s choosing.
“Success” for Germany proved hard to come by, because challenges to Germany’s security do not “simply” end with the conquest of both France and Poland. An overstretched Germany must then occupy countries with populations in excess of its own while searching for a way to deal with Russia on land and the United Kingdom on the sea. A secure position has always proved impossible, and no matter how efficient, Germany always has fallen ultimately.
During the early Cold War years, Germany’s neighbors tried a new approach. In part, the European Union and NATO are attempts by Germany’s neighbors to grant Germany security on the theory that if everyone in the immediate neighborhood is part of the same club, Germany won’t need a Wehrmacht.
There are catches, of course — most notably that even a demilitarized Germany still is Germany. Even after its disastrous defeats in the first half of the 20th century, Germany remains Europe’s largest state in terms of population and economic size; the frantic mindset that drove the Germans so hard before 1948 didn’t simply disappear. Instead of German energies being split between growth and defense, a demilitarized Germany could — indeed, it had to — focus all its power on economic development. The result was modern Germany — one of the richest, most technologically and industrially advanced states in human history.
Germany and Modern Europe
That gives Germany an entirely different sort of power from the kind it enjoyed via a potent Wehrmacht, and this was not a power that went unnoticed or unused.
France under Charles de Gaulle realized it could not play at the Great Power table with the United States and Soviet Union. Even without the damage from the war and occupation, France simply lacked the population, economy and geographic placement to compete. But a divided Germany offered France an opportunity. Much of the economic dynamism of France’s rival remained, but under postwar arrangements, Germany essentially saw itself stripped of any opinion on matters of foreign policy. So de Gaulle’s plan was a simple one: use German economic strength as sort of a booster seat to enhance France’s global stature.
This arrangement lasted for the next 60 years. The Germans paid for EU social stability throughout the Cold War, providing the bulk of payments into the EU system and never once being a net beneficiary of EU largesse. When the Cold War ended, Germany shouldered the entire cost of German reunification while maintaining its payments to the European Union. When the time came for the monetary union to form, the deutschemark formed the euro’s bedrock. Many a deutschmark was spent defending the weaker European currencies during the early days of European exchange-rate mechanisms in the early 1990s. Berlin was repaid for its efforts by many soon-to-be eurozone states that purposely enacted policies devaluing their currencies on the eve of admission so as to lock in a competitive advantage vis-à-vis Germany.
But Germany is no longer a passive observer with an open checkbook.
In 2003, the 10-year process of post-Cold War German reunification was completed, and in 2005 Angela Merkel became the first postwar German leader to run a Germany free from the burden of its past sins. Another election in 2009 ended an awkward left-right coalition, and now Germany has a foreign policy neither shackled by internal compromise nor imposed by Germany’s European “partners.”
The Current Crisis
Simply put, Europe faces a financial meltdown.
The crisis is rooted in Europe’s greatest success: the Maastricht Treaty and the monetary union the treaty spawned epitomized by the euro. Everyone participating in the euro won by merging their currencies. Germany received full, direct and currency-risk-free access to the markets of all its euro partners. In the years since, Germany’s brutal efficiency has permitted its exports to increase steadily both as a share of total European consumption and as a share of European exports to the wider world. Conversely, the eurozone’s smaller and/or poorer members gained access to Germany’s low interest rates and high credit rating.
And the last bit is what spawned the current problem.
Most investors assumed that all eurozone economies had the blessing — and if need be, the pocketbook — of the Bundesrepublik. It isn’t difficult to see why. Germany had written large checks for Europe repeatedly in recent memory, including directly intervening in currency markets to prop up its neighbors’ currencies before the euro’s adoption ended the need to coordinate exchange rates. Moreover, an economic union without Germany at its core would have been a pointless exercise.
Investors took a look at the government bonds of Club Med states (a colloquialism for the four European states with a history of relatively spendthrift policies, namely, Portugal, Spain, Italy and Greece), and decided that they liked what they saw so long as those bonds enjoyed the implicit guarantees of the euro. The term in vogue with investors to discuss European states under stress is PIIGS, short for Portugal, Italy, Ireland, Greece and Spain. While Ireland does have a high budget deficit this year, STRATFOR prefers the term Club Med, as we do not see Ireland as part of the problem group. Unlike the other four states, Ireland repeatedly has demonstrated an ability to tame spending, rationalize its budget and grow its economy without financial skullduggery. In fact, the spread between Irish and German bonds narrowed in the early 1980s before Maastricht was even a gleam in the collective European eye, unlike Club Med, whose spreads did not narrow until Maastricht’s negotiation and ratification.
Even though Europe’s troubled economies never actually obeyed Maastricht’s fiscal rules — Athens was even found out to have falsified statistics to qualify for euro membership — the price to these states of borrowing kept dropping. In fact, one could well argue that the reason Club Med never got its fiscal politics in order was precisely because issuing debt under the euro became cheaper. By 2002 the borrowing costs for Club Med had dropped to within a whisker of those of rock-solid Germany. Years of unmitigated credit binging followed.
The 2008-2009 global recession tightened credit and made investors much more sensitive to national macroeconomic indicators, first in emerging markets of Europe and then in the eurozone. Some investors decided actually to read the EU treaty, where they learned that there is in fact no German bailout at the end of the rainbow, and that Article 104 of the Maastricht Treaty (and Article 21 of the Statute establishing the European Central Bank) actually forbids one explicitly. They further discovered that Greece now boasts a budget deficit and national debt that compares unfavorably with other defaulted states of the past such as Argentina.
Investors now are (belatedly) applying due diligence to investment decisions, and the spread on European bonds — the difference between what German borrowers have to pay versus other borrowers — is widening for the first time since Maastricht’s ratification and doing so with a lethal rapidity. Meanwhile, the European Commission is working to reassure investors that panic is unwarranted, but Athens’ efforts to rein in spending do not inspire confidence. Strikes and other forms of political instability already are providing ample evidence that what weak austerity plans are in place may not be implemented, making additional credit downgrades a foregone conclusion.
As the EU’s largest economy and main architect of the European Central Bank, Germany is where the proverbial buck stops. Germany has a choice to make.
The first option, letting the chips fall where they may, must be tempting to Berlin. After being treated as Europe’s slush fund for 60 years, the Germans must be itching simply to let Greece and others fail. Should the markets truly believe that Germany is not going to ride to the rescue, the spread on Greek debt would expand massively. Remember that despite all the problems in recent weeks, Greek debt currently trades at a spread that is only one-eighth the gap of what it was pre-Maastricht — meaning there is a lot of room for things to get worse. With Greece now facing a budget deficit of at least 9.1 percent in 2010 — and given Greek proclivity to fudge statistics the real figure is probably much worse — any sharp increase in debt servicing costs could push Athens over the brink.
From the perspective of German finances, letting Greece fail would be the financially prudent thing to do. The shock of a Greek default undoubtedly would motivate other European states to get their acts together, budget for steeper borrowing costs and ultimately take their futures into their own hands. But Greece would not be the only default. The rest of Club Med is not all that far behind Greece, and budget deficits have exploded across the European Union. Macroeconomic indicators for France and especially Belgium are in only marginally better shape than those of Spain and Italy.
At this point, one could very well say that by some measures the United States is not far behind the eurozone. The difference is the insatiable global appetite for the U.S. dollar, which despite all the conspiracy theories and conventional wisdom of recent years actually increased during the 2008-2009 global recession. Taken with the dollar’s status as the world’s reserve currency and the fact that the United States controls its own monetary policy, Washington has much more room to maneuver than Europe.
Berlin could at this point very well ask why it should care if Greece and Portugal go under. Greece accounts for just 2.6 percent of eurozone gross domestic product. Furthermore, the crisis is not of Berlin’s making. These states all have been coasting on German largesse for years, if not decades, and isn’t it high time that they were forced to sink or swim?
The problem with that logic is that this crisis also is about the future of Europe and Germany’s place in it. Germany knows that the geopolitical writing is on the wall: As powerful as it is, as an individual country (or even partnered with France), Germany does not approach the power of the United States or China and even that of Brazil or Russia further down the line. Berlin feels its relevance on the world stage slipping, something encapsulated by U.S. President Barack Obama’s recent refusal to meet for the traditional EU-U.S. summit. And it feels its economic weight burdened by the incoherence of the eurozone’s political unity and deepening demographic problems.
The only way for Germany to matter is if Europe as a whole matters. If Germany does the economically prudent (and emotionally satisfying) thing and lets Greece fail, it could force some of the rest of the eurozone to shape up and maybe even make the eurozone better off economically in the long run. But this would come at a cost: It would scuttle the euro as a global currency and the European Union as a global player.
Every state to date that has defaulted on its debt and eventually recovered has done so because it controlled its own monetary policy. These states could engage in various (often unorthodox) methods of stimulating their own recovery. Popular methods include, but are hardly limited to, currency devaluations in an attempt to boost exports and printing currency either to pay off debt or fund spending directly. But Greece and the others in the eurozone surrendered their monetary policy to the European Central Bank when they adopted the euro. Unless these states somehow can change decades of bad behavior in a day, the only way out of economic destitution would be for them to leave the eurozone. In essence, letting Greece fail risks hiving off EU states from the euro. Even if the euro — not to mention the EU — survived the shock and humiliation of monetary partition, the concept of a powerful Europe with a political center would vanish. This is especially so given that the strength of the European Union thus far has been measured by the successes of its rehabilitations — most notably of Portugal, Italy, Greece and Spain in the 1980s — where economic-basket case dictatorships and pseudo-democracies transitioned into modern economies.
And this leaves option two: Berlin bails out Athens.
There is no doubt Germany could afford such a bailout, as the Greek economy is only one-tenth of the size of the Germany’s. But the days of no-strings-attached financial assistance from Germany are over. If Germany is going to do this, there will no longer be anything “implied” or “assumed” about German control of the European Central Bank and the eurozone. The control will become reality, and that control will have consequences. For all intents and purposes, Germany will run the fiscal policies of peripheral member states that have proved they are not up to the task of doing so on their own. To accept anything less intrusive would end with Germany becoming responsible for bailing out everyone. After all, who wouldn’t want a condition-free bailout paid for by Germany? And since a euro-wide bailout is beyond Germany’s means, this scenario would end with Germany leading the EU hat-in-hand to the International Monetary Fund for an American/Chinese-funded assistance package. It is possible that the Germans could be gentle and risk such abject humiliation, but it is not likely.
Taking a firmer tack would allow Germany to achieve via the pocketbook what it couldn’t achieve by the sword. But this policy has its own costs. The eurozone as a whole needs to borrow around 2.2 trillion euros in 2010, with Greece needing 53 billion euros simply to make it through the year. Not far behind Greece is Italy, which needs 393 billion euros, Belgium with needs of 89 billion euros and France with needs of yet another 454 billion euros. As such, the premium on Germany is to act — if it is going to act — fast. It needs to get Greece and most likely Portugal wrapped up before crisis of confidence spreads to the really serious countries, where even mighty German’s resources would be overwhelmed.
That is the cost of making Europe “work.” It is also the cost to Germany of leadership that doesn’t come at the end of a gun. So if Germany wants its leadership to mean something outside of Western Europe, it will be forced to pay for that leadership — deeply, repeatedly and very, very soon. But unlike in years past, this time Berlin will want to hold the reins.
The Jihadist CBRN Threat
By Scott Stewart
In an interview aired Feb. 7 on CNN, U.S. Secretary of State Hillary Clinton said she considers weapons of mass destruction (WMD) in the hands of an international terrorist group to be the largest threat faced by the United States today, even bigger than the threat posed by a nuclear-armed Iran. “The biggest nightmare that many of us have is that one of these terrorist member organizations within this syndicate of terror will get their hands on a weapon of mass destruction,” Clinton said. In referring to the al Qaeda network, Clinton noted that it is “unfortunately a very committed, clever, diabolical group of terrorists who are always looking for weaknesses and openings.”
Clinton’s comments came on the heels of a presentation by U.S. Director of National Intelligence Dennis Blair to the Senate Select Committee on Intelligence. In his Annual Threat Assessment of the U.S. Intelligence Community on Feb. 2, Blair noted that, although counterterrorism actions have dealt a significant blow to al Qaeda’s near-term efforts to develop a sophisticated chemical, biological, radiological and nuclear (CBRN) attack capability, the U.S. intelligence community judges that the group is still intent on acquiring the capability. Blair also stated the obvious when he said that if al Qaeda were able to develop CBRN weapons and had the operatives to use them it would do so.
All this talk about al Qaeda and WMD has caused a number of STRATFOR clients, readers and even friends and family members to ask for our assessment of this very worrisome issue. So, we thought it would be an opportune time to update our readers on the topic.
Realities Shaping the Playing Field
To begin a discussion of jihadists and WMD, it is first important to briefly re-cap STRATFOR’s assessment of al Qaeda and the broader jihadist movement. It is our assessment that the first layer of the jihadist movement, the al Qaeda core group, has been hit heavily by the efforts of the United States and its allies in the aftermath of 9/11. Due to the military, financial, diplomatic, intelligence and law enforcement operations conducted against the core group, it is now a far smaller and more insular organization than it once was and is largely confined geographically to the Afghan-Pakistani border. Having lost much of its operational ability, the al Qaeda core is now involved primarily in the ideological struggle (which it seems to be losing at the present time).
The second layer in the jihadist realm consists of regional terrorist or insurgent groups that have adopted the jihadist ideology. Some of these have taken up the al Qaeda banner, such as al Qaeda in the Islamic Maghreb (AQIM) and al Qaeda in the Arabian Peninsula (AQAP), and we refer to them as al Qaeda franchise groups. Other groups may adopt some or all of al Qaeda’s jihadist ideology and cooperate with the core group, but they will maintain their independence for a variety of reasons. In recent years, these groups have assumed the mantle of leadership for the jihadist movement on the physical battlefield.
The third (and broadest) component of the jihadist movement is composed of grassroots jihadists. These are individuals or small groups of people located across the globe who are inspired by the al Qaeda core and the franchise groups but who may have little or no actual connection to these groups. By their very nature, the grassroots jihadists are the hardest of these three components to identify and target and, as a result, are able to move with more freedom than members of the al Qaeda core or the regional franchises.
As long as the ideology of jihadism exists, and jihadists at any of these three layers embrace the philosophy of attacking the “far enemy,” there will be a threat of attacks by jihadists against the United States. The types of attacks they are capable of conducting, however, depend on their intent and capability. Generally speaking, the capability of the operatives associated with the al Qaeda core is the highest and the capability of grassroots operatives is the lowest. Certainly, many grassroots operatives think big and would love to conduct a large, devastating attack, but their grandiose plans often come to naught for lack of experience and terrorist tradecraft.
Although the American public has long anticipated a follow-on attack to 9/11, most of the attacks directed against the United States since 9/11 have failed. In addition to incompetence and poor tradecraft, one of the contributing factors to these failures is the nature of the targets. Many strategic targets are large and well-constructed, and therefore hard to destroy. In other words, just because a strategic target is attacked does not mean the attack has succeeded. Indeed, many such attacks have failed. Even when a plot against a strategic target is successfully executed, it might not produce the desired results and would therefore be considered a failure. For example, the detonation of a massive truck bomb in a parking garage of the World Trade Center in 1993 failed to achieve the jihadists’ aims of toppling the two towers and producing mass casualties, or of causing a major U.S. foreign policy shift.
Many strategic targets, such as embassies, are well protected against conventional attacks. Their large standoff distances and physical security measures (like substantial perimeter walls) protect them from vehicle-borne improvised explosive devices (VBIEDs), while these and other security measures make it difficult to cause significant damage to them using smaller IEDs or small arms.
To overcome these obstacles, jihadists have been forced to look at alternate means of attack. Al Qaeda’s use of large, fully fueled passenger aircraft as guided missiles is a great example of this, though it must be noted that once that tactic became known, it ceased to be viable (as United Airlines Flight 93 demonstrated). Today, there is little chance that a flight crew and passengers of an aircraft would allow it to be seized by a small group of hijackers.
Al Qaeda has long plotted ways to overcome security measures and launch strategic strikes with CBRN weapons. In addition to the many public pronouncements the group has made about its desire to obtain and use such weapons, we know al Qaeda has developed crude methods for producing chemical and biological weapons and included such tactics in its encyclopedia of jihad and terrorist training courses.
However, as STRATFOR has repeatedly pointed out, chemical and biological weapons are expensive and difficult to use and have proved to be largely ineffective in real-world applications. A comparison of the Aum Shinrikyo chemical and biological attacks in Tokyo with the March 2004 jihadist attacks in Madrid clearly demonstrates that explosives are far cheaper, easier to use and more effective in killing people. The failure by jihadists in Iraq to use chlorine effectively in their attacks also underscores the problem of using improvised chemical weapons. These problems were also apparent to the al Qaeda leadership, which scrapped a plot to use improvised chemical weapons in the New York subway system due to concerns that the weapons would be ineffective. The pressure jihadist groups are under would also make it very difficult for them to develop a chemical or biological weapons facility, even if they possessed the financial and human resources required to launch such a program.
Of course, it is not unimaginable for al Qaeda or other jihadists to think outside the box and attack a chemical storage site or tanker car, or use such bulk chemicals to attack another target — much as the 9/11 hijackers used passenger- and fuel-laden aircraft to attack their targets. However, while an attack using deadly bulk chemicals could kill many people, most would be evacuated before they could receive a lethal dose, as past industrial accidents have demonstrated. Therefore, such an attack would be messy but would be more likely to cause mass panic and evacuations than mass casualties. Still, it would be a far more substantial attack than the previous subway plot using improvised chemical weapons.
A similar case can be made against the effectiveness of an attack involving a radiological dispersion device (RDD), sometimes called a “dirty bomb.” While RDDs are easy to deploy — so simple that we are surprised one has not already been used within the United States — it is very difficult to immediately administer a lethal dose of radiation to victims. Therefore, the “bomb” part of a dirty bomb would likely kill more people than the device’s “dirty,” or radiological, component. However, use of an RDD would result in mass panic and evacuations and could require a lengthy and expensive decontamination process. Because of this, we refer to RDDs as “weapons of mass disruption” rather than weapons of mass destruction.
The bottom line is that a nuclear device is the only element of the CBRN threat that can be relied upon to create mass casualties and guarantee the success of a strategic strike. However, a nuclear device is also by far the hardest of the CBRN weapons to obtain or manufacture and therefore the least likely to be used. Given the pressure that al Qaeda and its regional franchise groups are under in the post-9/11 world, it is simply not possible for them to begin a weapons program intended to design and build a nuclear device. Unlike countries such as North Korea and Iran, jihadists simply do not have the resources or the secure territory on which to build such facilities. Even with money and secure facilities, it is still a long and difficult endeavor to create a nuclear weapons program — as is evident in the efforts of North Korea and Iran. This means that jihadists would be forced to obtain an entire nuclear device from a country that did have a nuclear weapons program, or fissile material such as highly enriched uranium (enriched to 80 percent or higher of the fissile isotope U-235) that they could use to build a crude, gun-type nuclear weapon.
Indeed, we know from al Qaeda defectors like Jamal al-Fadl that al Qaeda attempted to obtain fissile material as long ago as 1994. The organization was duped by some of the scammers who were roaming the globe attempting to sell bogus material following the collapse of the Soviet Union. Several U.S. government agencies were duped in similar scams.
Black-market sales of military-grade radioactive materials spiked following the collapse of the Soviet Union as criminal elements descended on abandoned Russian nuclear facilities in search of a quick buck. In subsequent years the Russian government, in conjunction with various international agencies and the U.S. government, clamped down on the sale of Soviet-era radioactive materials. U.S. aid to Russia in the form of so-called “nonproliferation assistance” — money paid to destroy or adequately secure such nuclear and radiological material — increased dramatically following 9/11. In 2009, the U.S. Congress authorized around $1.2 billion for U.S. programs that provide nonproliferation and threat reduction assistance to the former Soviet Union. Such programs have resulted in a considerable amount of fissile material being taken off the market and removed from vulnerable storage sites, and have made it far harder to obtain fissile material today than it was in 1990 or even 2000.
Another complication to consider is that jihadists are not the only parties who are in the market for nuclear weapons or fissile material. In addition to counterproliferation programs that offer to pay money for fissile materials, countries like Iran and North Korea would likely be quick to purchase such items, and they have the resources to do so, unlike jihadist groups, which are financially strapped.
Some commentators have said they believe al Qaeda has had nuclear weapons for years but has been waiting to activate them at the “right time.” Others claim these weapons are pre-positioned inside U.S. cities. STRATFOR’s position is that if al Qaeda had such weapons prior to 9/11, it would have used them instead of conducting the airline attack. Even if the group had succeeded in obtaining a nuclear weapon after 9/11, it would have used it by now rather than simply sitting on it and running the risk of it being seized.
There is also the question of state assistance to terrorist groups, but the actions of the jihadist movement since 9/11 have served to steadily turn once quietly supportive (or ambivalent) states against the movement. Saudi Arabia declared war on jihadists in 2003 and countries such as Yemen, Pakistan and Indonesia have recently gone on the offensive. Indeed, in his Feb. 2 presentation to the Senate committee, Blair said: “We do not know of any states deliberately providing CBRN assistance to terrorist groups. Although terrorist groups and individuals have sought out scientists with applicable expertise, we have no corroborated reporting that indicates such experts have advanced terrorist CBRN capability.” Blair also noted that, “We and many in the international community are especially concerned about the potential for terrorists to gain access to WMD-related materials or technology.”
Clearly, any state that considered providing WMD to jihadists would have to worry about blow-back from countries that would be targeted by that material (such as the United States and Russia). With jihadists having declared war on the governments of countries in which they operate, officials in a position to provide CBRN to those jihadists would also have ample reason to be concerned about the materials being used against their own governments.
Efforts to counter the proliferation of nuclear materials and technology will certainly continue for the foreseeable future, especially efforts to ensure that governments with nuclear weapons programs do not provide weapons or fissile material to jihadist groups. While the chance of such a terrorist attack is remote, the devastation one could cause means that it must be carefully guarded against.