Is it premature to give Barack Obama the Nobel peace prize, less than a year into his presidency?


APBARACK OBAMA, who has been America's president for just nine months, has won the 2009 Nobel peace prize. Perhaps the Nordic judges felt it was a suitable consolation after Chicago lost out to Rio de Janeiro in its bid to host the 2016 Olympic games. Or the prizegivers might have felt moved by Mr Obama’s personal story: that a mixed-race man is president says much about the peaceful progress on race relations in America. Instead they emphasised Mr Obama’s aspirations and his commitment to diplomacy, even if, so far, he has achieved little that is concrete.

Most broadly, he has sought to engage with opponents, saying that America would “extend a hand, if you unclench your fist”, for example to those who were earlier dismissed as an “axis of evil”. Somewhat to the discomfort of Iran’s president, Mahmoud Ahmadinejad, who had bolstered his domestic support by vilifying America as an aggressor, Mr Obama has proposed holding talks about nuclear affairs, removing a precondition that Iran first abandon enrichment of uranium. Mr Obama made withdrawal of American forces from Iraq one of the main pledges of his election campaign and has since overseen a slightly quicker run down of troops than was envisaged by Mr Bush. Towards North Korea, too, Mr Obama has dangled the prospect of bilateral talks and closer engagement.

Regarding Russia Mr Obama has developed a policy of notably warmer ties, dubbed “hitting the reset button”. Relations had become especially frosty towards the end of Mr Bush’s presidency when war broke out between Georgia, an ally of America, and Russia. Since coming to office Mr Obama has also overseen talks aimed at reducing the nuclear arsenals of Russia and America, while speaking of his ultimate wish to “get to zero”—somehow ridding the world of all nuclear weapons. Most substantially (and to the dismay of the Polish and Czech governments), he has scrapped an earlier plan to deploy a missile-defence shield on land in eastern Europe, which had been seen as a provocation by Russia.

Yet Mr Obama’s main achievement is a change of tone in foreign policy. A speech given in Egypt in June was an eloquent call for a new understanding between America and Islam. It was designed both to assure Muslims, now thought to number 1.6 billion around the world, that America is not set on a crusade. Similarly it was intended to convey to any Americans (and others) who believe in the notion of a “clash of civilisations” that friendly ties between religions is eminently possible.

Similarly, American policy towards small and repressive regimes, ranging from Myanmar to Cuba, has shifted in mood, if not yet substance, by offering the prospect of engagement if governments demonstrate progress towards democracy. Some may also see Mr Obama’s push for more action to tackle climate change as a factor—he is urging Congress to pass a cap-and-trade bill and has said that his administration would decree new environmental rules if Congress fails to do so. (Al Gore, another Democratic figure, also won the Nobel prize, for his campaigns against climate change.)

Yet critics will have plenty to complain about. The prize-giving committee was at pains to emphasise Mr Obama’s “extraordinary efforts to strengthen international diplomacy and co-operation between peoples”. In the citation, the committee argued that his “diplomacy is founded in the concept that those who are to lead the world must do so on the basis of values and attitudes that are shared by the majority of the world's population.” But is the award premature? Although the prize may be given in the spirit of encouraging Mr Obama’s government, it might have been better to wait for more solid achievements. With so many good intentions, and so many initiatives scattered around the world (and an immensely busy domestic agenda, including health-care reform and averting economic collapse), Mr Obama appears to be racing around trying everything without yet achieving much.

One might point to Mr Obama’s lauded decision to close the military prison for terrorist suspects in Guantánamo Bay, and his explicit rejection of the use of torture by American spies and interrogators. Both are welcome, but for now Guantánamo Bay remains open. Carrying through on promises is proving far harder than making them. Similarly Mr Obama made progress in encouraging Israeli and Palestinian leaders to hold talks about peace earlier this year, but as he is distracted by other concerns both parties have since drifted away from negotiations. And so far North Korea, Iran, Cuba and Russia—among others—have offered nothing of substance to demonstrate that a policy of engagement will bring more results than Mr Bush’s tough line.

More troubling is Afghanistan. Although the Nobel committee has now rewarded Mr Obama with a title of peacemaker (plus $1.4m or so), he remains a war president. He must shortly decide whether to deploy an additional 40,000 soldiers to fight against Taliban and other insurgents in a conflict that has lasted for eight years. With no obvious means of ending that war, there is a serious possibility that Mr Obama's presidency will become dominated by worsening conditions there.

Mr Obama’s aspirations may be laudable, but he has several tough years ahead. The Nobel committee evidently wants to encourage him but it might have been wiser to hold judgment until he has achieved more. In America itself, the decision has already infuriated conservative commentators, ensuring there will be no peace on the home front, at least.

In a guest article, Beatrice Weder di Mauro, a member of the German Council of Economic Experts, argues that financial regulators need better incentives


APTHE summitry never stops. After the G20’s meeting in Pittsburgh on September 24th and 25th, the jawboning now moves to Istanbul, for the annual meetings of the International Monetary Fund and World Bank. Policymakers seldom tire of talking about distorted incentives in the private sector—pay packages that encouraged bankers to think only about the short term, for example. But they should look in the mirror, too. The public sector is also affected by huge incentive problems, which help explain why regulators were unable to clamp down on finance during the bubble and why it is so difficult to withdraw the implicit promise of state guarantees.

Perhaps the biggest problem is something that economists call “time inconsistency”. Monetary policy is the best-known example of this phenomenon. Central banks try to anchor inflationary expectations by sounding tough. But if the private sector raises wages anyway, central banks are reluctant to tighten policy and cause unemployment. The knowledge that monetary policy suffers from this inconsistency over time undermines the credibility of the initial, hawkish announcement. The same sort of problem affects financial regulators and supervisors. They have incentives to announce a no-bail-out policy in order to encourage their charges to behave prudently. But as soon as crisis strikes, the optimal choice for policymakers differs from the pre-announced policy: the authorities will usually offer support. The banks anticipate this behaviour and run even more risks as a result.

Two other incentive distortions reinforce this bias towards bail-outs. The first is that most supervisors—with the notable exception of America’s Federal Deposit Insurance Corporation (FDIC), which both regulates deposit-taking banks and administers their insurance fund—do not put the capital of their own institution at risk. The second is that a policy of regulatory forbearance may save the supervisor as well as the bank: hiding losses in financial institutions from public scrutiny may also help conceal regulatory and supervisory failure.

Stockholm syndrome
Incentives also help explain why regulators resist the delegation of powers to supranational institutions. Supervisors may wish to protect the local industry or secure a competitive edge over other financial centres. Even without a protectionist agenda, supervisors are prone to capture: because they talk to local institutions on a daily basis, they are likely to empathise with the competitive pressures that those banks face. Pay is also a problem. In most countries compensation structures for national supervisors will involve low salaries, no bonuses and small rewards for doing a good job. Supervisors get into trouble if they go out on a limb and make a technical mistake (and a bank sues), but face fewer problems if everybody makes the same material mistake and the system goes down. It does not help that officials are repeatedly told that the smartest people go where the money is—into the banks, in other words, not the agencies that regulate them.

That means any programme to fix finance should address the problem of flawed incentives in the public sector, in particular in supervision. But how can this be done? A good starting-point is to go back to the mechanisms designed to solve the misaligned incentives of central banks. Independence helps reduce both capture and time inconsistency. Clear targets, a powerful governor with a strong, hawkish reputation and sanctions for failure are also elements of successful monetary regimes. Some central-bank governors’ wages are dependent on reaching targets. Others have to write embarrassing public explanations when they fail to reach them. All of these techniques should be applied to the realm of financial supervision.

Central banking may hold lessons for compensation, too. In many countries, central bankers earn more than the average civil servant. Almost everywhere they enjoy better career prospects and higher public esteem than bank supervisors. It is impossible to raise public-sector salaries to the levels of the private sector (even if bankers’ wages fall). But higher pay and a more prominent public profile may help regulators do a better job.

Applying the lessons of monetary policy to financial supervision would be easier if central banks had responsibility for regulating financial institutions. It would also serve to align incentives better when responding to crises, since it is largely central banks’ balance-sheets that are put at risk. It may complicate the conduct of monetary policy in more tranquil times, but the case for mandating central banks to maintain both price and financial stability is now seen as necessary for other reasons, too.

A higher power
The solution to the problem of local regulatory capture would be to rely more on supranational authorities. But despite the fanfare at the G20 meetings over the enlarged role of the Financial Stability Board, and the unveiling on September 23rd of plans for new European supervisory bodies, national authorities have to date resisted any real delegation of power to supranational bodies.

The usual argument in defence of the status quo is that bail-outs have to be paid for by the taxpayer, so all responsibility needs to sit with parliaments. But this line of reasoning fails to recognise that direct capital injections have been only one of the tools used during the crisis—and in most countries not even the most important one. A substantial part of the bail-out has come in the form of regulatory forbearance, enabling banks to make higher profits because of reduced competition, and implicit support from central banks. What’s more, the temptation to resolve future crises using these “off-balance-sheet” methods has only got bigger. It is unlikely that any parliament will be prepared to hand over 10-20% of GDP to prop up failing banks again (at least in the medium term).

The need for a strong mandate to control systemic financial institutions at the supranational level is particularly important for Europe’s integrated market. Imagine for a moment that Europe’s competition policy were run only by national authorities. The fact that the European Union has largely removed competition policy from the national domain is arguably the only reason why a degree of consistency in dealing with bank bail-outs across EU countries has been maintained. Without a watchdog of this kind the bail-outs could easily have escalated into a wave of tit-for-tat subsidies for national champions. European banking oversight, at least of systemic institutions, should be entrusted to a Europe-wide supervisor modelled on America’s FDIC. At the very least, the euro area should have its own body. And beyond Europe, too, policymakers ought to match their new-found focus on incentives in the private sector with more attention to their own.

Not yet. But China will soon look dangerously frothy unless policymakers allow the yuan to rise

HAS the world got a new bubble economy? A rising chorus of foam-spotters believes so. Their argument is simple: to support demand, China’s government has created huge quantities of credit. That lending is leading to unsustainable asset-price inflation, while wasteful investment is producing oodles of excess capacity. As a result, China’s stimulus will inevitably be followed by a bust down the road (see article).

Few things matter more for the global economy than whether this argument is right. With America and other economies in the English-speaking world weakened by their own asset busts, the pace of global growth over the next couple of years will depend heavily on China. A painful asset slump or banking collapse there would further slow the pace of global growth. No one doubts that credit has been growing dramatically in the Middle Kingdom. Lending grew by 34% in the year to August, around four times faster than nominal GDP. Nonetheless, today’s fears are exaggerated—for four main reasons.

First, neither China’s stock nor property markets looks dangerously overvalued. The average price/earnings multiple, at 24, is well below China’s long-run average. Property prices are rising smartly in Shanghai and other cities, but nationally house-price growth has only just turned positive. Next, even if China’s asset prices surge and then slump, the damage will be less grave than elsewhere, because China’s house and share prices have not led to too much debt-driven borrowing. Only around a quarter of middle-class homeowners have mortgages and the average loan-to-value is less than 50%.

Third, although there is much scope to improve the efficiency of capital allocation in China, the lending boost may not be as inefficient as some fear. Much has gone into infrastructure, which ought to improve the rate of productivity growth. Lastly, Chinese officials have long been more worried about excess credit growth and asset-price bubbles than many of their Western counterparts. Even now, regulators are tightening the rules—demanding bigger down-payments on second homes and higher provisioning from banks—even as Beijing’s politicians promise that monetary conditions will stay loose.

But even if immediate worries about a bubble are overdone, there are medium-term risks. Ample liquidity, low inflation and strong growth are the perfect ingredients for sustained asset-price inflation. And China lacks one essential anti-bubble instrument: the ability to raise interest rates.

Yuan to do what?
To support its exporters China has kept the yuan stable against the dollar over the past year, in effect tying China’s monetary conditions to America’s. So far that has mattered little. Domestic deflation means China’s real interest rates are the highest of any big economy. But this monetary coupling will become increasingly dangerous. America’s weak economy means its monetary conditions are likely to stay ultra-loose for far longer than makes sense for China. Left in place too long, the currency alignment could swell an asset bubble.

Just as the rebalancing of China’s economy calls for a stronger yuan, so the ability to avert bubbles requires a more flexible one. The transition will not be easy. The spectre of a stronger yuan will, temporarily at least, worsen China’s asset-price bubbliness, as foreign capital floods into the country in anticipation of a stronger currency. But this argues for acting quickly and carefully, rather than doing nothing. The longer China shadows the dollar, the bigger the distortions and the risks from any currency adjustment. Without an independent monetary policy China will eventually become a bubble economy. To avoid that fate, Beijing must let go of the yuan.

IN MARCH 1915, Archibald Reiss, a chemist at the University of Lausanne and one of the founders of modern forensic science, produced a report on atrocities committed by Austro-Hungarian troops in Serbia. Mr Reiss interviewed survivors and examined bodies, including those of sexually-mutilated women and of entire families massacred together, and concluded that atrocities had taken place in the locations he visited. He also obtained photographs he said were taken by Austro-Hungarian soldiers of the bodies of victims of atrocities.

In response, as the New York Times reported on March 27th, 1915, the Austro-Hungarian ambassador to America, one Konstantin Dumba, attacked Mr Reiss's credibility: "Fully aware that [Serbia's] own statement would find but little credence, [Serbia] secured the services of outsiders, whose personalities, she thought, would win more credit for these mendacious reports. A dummy of that description was found in the person of Professor Reiss of Lausanne." Mr Dumba claimed that the bodies Mr Reiss had examined were actually Austro-Hungarian victims of Serbian atrocities, dressed up to look like Serbs. While denying that Austro-Hungarian soldiers had massacred Serbian civilians, he went on to argue that if they had, it was the civilians' own fault:

The reports of the Austro-Hungarian southern army headquarters enlarge upon the utter disregard of international law shown not only by the Serbian troops but also by the civilian population of Serbia. The peasants have continuously harassed our advancing troops by treacherous attacks and by unparalleled cruelties. Two women in the neighborhood of Dobritsch shot at our troops recently and then begged for mercy for the sake of their baby children, which they wrapped up in their arms. No sooner had mercy been granted than they threw the "children" on the ground. They were not children, but bombs, one of which exploded.

Uh huh, that sounds plausible.

In May 1915, Mr Reiss's report was followed by the Bryce Report on German atrocities in Belgium. That report did, in fact, exaggerate; it included uncorroborated reports by Belgian soldiers of unlikely rapes and massacres, and lots of tendentious anti-German language. But it also included substantiated accounts of German massacres, hostage-taking, and the bombardment and arson of towns which German soldiers believed to have supported partisan fighters. The Germans, too, put out a defence of their actions, the "German White Book" of July 1915. The "White Book" didn't do much to salvage Germany's image abroad, mainly because it acknowledged, in the testimony of the responsible German officers themselves, that mass executions, hostage-taking, and bombardment and arson of towns had in fact been carried out. It blamed the Belgian civilians for engaging in partisan warfare against German troops, in contravention of the Hague Conventions. (It's not clear to what extent this ever really happened.)

Such are the denials that ambassadors make when international reports find that their countries have committed war crimes. They rarely convince anyone.

Israel is not Austria-Hungary, nor is it Germany circa 1915. But this week, Michael Oren, Israel's Ambassador to America, published an article in the New Republic attacking the credibility of Richard Goldstone, the South African judge who chaired the recent UN commission that reported that both Israel and Hamas likely committed war crimes during the Israeli attack on Gaza last winter. The Israeli Defense Forces says it killed 1,166 Palestinians during Operation Cast Lead, 295 of them "not involved" in the fighting; the Israeli human-rights organisation B'Tselem puts the numbers at 1,387 and 773, including 320 minors. For the civilian casualties, Mr Oren pins some of the blame on the other side—"Hamas's deliberate effort to maximise Israeli civilian casualties and its doctrine of hiding behind Palestinian human shields." And, as Austria-Hungary's Mr Dumba did of Mr Reiss, he accuses Mr Goldstone of being a useful idiot:

...the judges interviewed handpicked Hamas witnesses, several of them senior commanders disguised as civilians, and uncritically accepted their testimony. Inexorably, the report, which presumed Israel's guilt, condemned the Jewish state for crimes against humanity and for mounting a premeditated campaign against Gaza civilians.

Mr Oren produces no evidence for his colourful claim that civilian witnesses were actually Hamas "senior commanders" in disguise. He then accuses the report's authors of being like Holocaust deniers, only worse.

The Goldstone Report goes further than Ahmadinejad and the Holocaust deniers by stripping the Jews not only of the ability and the need but of the right to defend themselves. If a country can be pummeled by thousands of rockets and still not be justified in protecting its inhabitants, then at issue is not the methods by which that country survives but whether it can survive at all. But more insidiously, the report does not only hamstring Israel; it portrays the Jews as the deliberate murderers of innocents—as Nazis. And a Nazi state not only lacks the need and right to defend itself; it must rather be destroyed.

Somebody here is comparing Israelis to Nazis, but it is not Richard Goldstone. The UN report simply says that there is credible evidence that Israel committed war crimes during Operation Cast Lead. Most countries that fight wars commit war crimes. American soldiers committed war crimes in Vietnam, Iraq and Afghanistan; that doesn't make America a Nazi state that must be destroyed. And you can believe that Israel has a right to defend itself, yet still argue that the measures it took were disproportionate and cruel, and ultimately did little to improve Israel's own security.

The record of investigations into war crimes over the decades is pretty clear: they are sometimes exaggerated, but rarely entirely fabricated. Yes, there are flaws in the Goldstone report, and questions about the credibility of some of the testimony, but the right response to this is not to try to undermine the report itself with absurd claims, bordering on the paranoid. What Israel needs to do is conduct or cooperate with a credible independent investigation into its own conduct in Operation Cast Lead. Instead, it refused to cooperate with the Goldstone commission, and the IDF's own investigations have so far resulted in exactly one conviction of a soldier, for stealing a credit card. What Israel doesn't need to be doing is trying frantically to discredit the Goldstone report and claim that anyway, if Palestinian women and children get killed, it's the Palestinians' fault.

China does not have dangerous bubbles in shares and housing—yet


APEARLY this year, many China-watchers warned that the government’s stimulus was not enough to save the economy from a deep downturn. With indecent haste, they have now switched to worrying that overly lax policies have created a gigantic bubble in shares and house prices.

Figures due later this month are likely to show that China’s real GDP grew by around 9% in the year to the third quarter—a period over which output in most other economies probably fell. A recent flurry of bearish reports has warned that sooner or later the markets will crash, excessive borrowing and investment will cause banks’ bad loans to surge, and China’s growth will collapse.

If the government does not act soon to tighten liquidity, share and house prices will become seriously overvalued. But it is much too early to use the “B” word. Start with China’s stockmarket, described by Andy Xie, an independent economist, as a “giant Ponzi scheme”. Despite a recent slide, Shanghai’s A-share index is still up by over 60% since its trough last November. Yet this is only a fraction of the gain during China’s previous bubble in 2006-07, when the price/earnings ratio jumped to an eye-popping 70. Today the p/e ratio stands at 24. That is high compared with developed markets but well below China’s long-term average of 37 (see left-hand chart). China’s faster trend pace of growth also means that the outlook for corporate profits is rosier than elsewhere. They are already bouncing back: in the three months to August industrial profits were 7% higher than a year ago, after falling by 37% in the year to February.

Bubble suspect number two is the housing market. Average Chinese home prices are nine times average annual household income. In the rich world a ratio of more than four would sound alarm bells; in other Asian countries prices are typically 5-7 times income. The volume of property sales has surged by 85% over the past year and prices of new apartments in Shanghai have risen by nearly 30%. Some conclude that prices have been pumped up by imprudent bank lending and that the market is at risk of crashing.

However, average nationwide house prices have risen by only 2% over the past year, after falling in 2008. The official price index may understate the true average gain but figures for central Shanghai will overstate it. Either way, house prices are rising nowhere near as fast as they did during the previous boom in 2004-07 (see right-hand chart). And in relation to income, average house prices in China have fallen slightly over the past decade (although they have risen in some big cities).

Arthur Kroeber, an economist at Dragonomics, a research firm in Beijing, argues that the high level of prices relative to income is partly explained by hidden subsidies. A high proportion of households live in apartments purchased at a fraction of their value from the government a decade ago (when the housing market was privatised) or have upgraded to apartments financed by the sale of such properties.

The leap in property sales follows a deep slump last year after the government deliberately cooled the market. The level of transactions in August was less than half its level in 2005 or 2006. More important, China’s housing market is much less dependent on credit than those in places like America, so its economy would be less vulnerable to any sharp fall in prices. Andy Rothman, an economist at CLSA, a broker, estimates that only one-quarter of middle-class homeowners have a mortgage and their average loan is only 46% of the property’s value, compared with 76% in America. Homeowners have to put down a minimum deposit of 20%. Speculators buying property as an investment have to put down 40%.

Rising home prices are not an accidental consequence of government easing but one of its goals. The government needs a lively housing market to support the economy when its fiscal stimulus fades. It creates a lot of jobs, spurs private-sector investment in construction and encourages new homebuyers to spend more on furniture and electrical goods. Until recently China’s recovery was driven largely by state spending but thanks to a rebound in construction, private-sector investment rose by 30% in the year to August, double its growth rate in December.

But even if China’s stockmarkets and housing markets do not look particularly overvalued now, there is a clear risk that they could become so. Mingchun Sun, an economist at Nomura, points to some big differences between the recent sell-off in shares and the previous one in November 2007. Inflation was then 6.9% and rising, so policymakers were forced to slam on the monetary brakes. Today consumer prices are falling. In 2007 liquidity was tight, with the M2 measure of money supply growing more slowly than nominal GDP. Today excess liquidity (money growth minus GDP growth) is growing at its fastest pace on record. Low inflation, lashings of liquidity and strong growth are the ideal environment for asset-price inflation. Mr Sun concludes that equity and housing bubbles are inevitable and may grow even bigger than those in 2007.

The third alleged threat to China’s recovery is overinvestment. It is widely argued that the recent investment boom has simply exacerbated China’s overcapacity, which will reduce the return on capital and eventually drag down its growth rate. Yet analysis by BCA Research, a Canadian research firm, finds surprisingly little evidence of wasteful overinvestment to date.

One yardstick of the efficiency of capital is the incremental capital-output ratio (ICOR)—the investment needed to generate an additional unit of output (ie, annual investment divided by the annual increase in GDP). The higher the ICOR, the less efficient the investment. China’s ICOR has been fairly stable over the past three decades. This year it will shoot up because investment surged and growth slowed, but the ICOR is meaningless in a recession. America’s ICOR, for example, will be infinite because GDP fell. In general, BCA finds that China’s ICOR is lower than that in many other places, suggesting that its capital spending is more, not less, efficient.

But what about this year’s state-directed investment boom? The good news is that little new investment has gone into industries which already had excess supply, such as steel. Three-fifths of new lending this year went into infrastructure projects. Some of this money will inevitably be wasted and banks’ non-performing loans will rise in future years as payments come due. But much of the new infrastructure, especially railways and roads, should help improve future productivity.

As for bank lending, which grew by a thumping 34% in the year to August, the government has repeatedly signalled that it will maintain its easy monetary policy because it is still concerned about the sustainability of the recovery. But it is also trying to curb speculative excesses and to tighten bank supervision. The banking regulator strengthened the rules on mortgages for investment properties this summer, and has told banks to raise their capital ratios to 10% and to hold provisions equal to 150% of projected loan losses by the end of the year.

China does not yet have dangerous bubbles in housing and shares that could threaten its recovery. Indeed, rising asset prices will help boost consumer spending over the next year, which will in turn help broaden China’s recovery. But to minimise the risk that China is starting to inflate its biggest bubble ever, the government does need to curb excessive liquidity. That means allowing the yuan to appreciate. With interest rates likely to remain close to zero in America for some time, China cannot significantly tighten its own rates unless it allows its currency to rise. If China’s growth has decoupled from America, then so must its monetary policy.

After calculated tantrums come the Dear Leader’s calculated charms


AFPFOR spending three full days as a guest of China’s small but infuriating ally, Prime Minister Wen Jiabao presumably expected at least to be given some face in North Korea. He got that in spades. Kim Jong Il came out to the Pyongyang airport to greet him, a rare sortie for North Korea’s dictator even when he was less frail. So, soon after China’s National Day celebrations, Mr Wen (on the left in the picture) and China’s foreign minister, Yang Jiechi (right), endured another spectacle of mass robotic exuberance, this one to mark 60 years of fraternal relations between the two Communist neighbours. Promises of economic co-operation were made, keeping alive China’s old hopes of exploiting North Korea’s mineral wealth.

More important, Mr Wen returned to Beijing on October 6th with Mr Kim’s assurance that North Korea may be willing to return to the six-party talks on nuclear disarmament (which also involve Japan, Russia, South Korea and the United States). In the spring North Korea, angry at foreign condemnation of its firing of a long-range missile, declared these talks dead. It then exploded a nuclear device, its second. Now, after months of bolshiness, North Korea is flashing what counts for charm.

China, host to the six-party talks, is claiming this as a victory. But in concrete terms, Mr Wen came away with little more (for public consumption at least) than had been offered to Dai Bingguo, a senior Chinese diplomat who visited Pyongyang in September. Mr Kim told Mr Dai that North Korea was willing to resolve the nuclear issue “through bilateral and multilateral talks”. Now Mr Kim appears to be hinting even more strongly that a return to six-party negotiations depends on undefined “progress” in bilateral talks with America. North Korea has long sought such talks as a way of winning official recognition and security guarantees from America, still beyond reach 56 years after the end of the Korean war. For China, bilateral talks have the considerable attraction of dumping the North Korean problem in American laps.

Barack Obama’s administration appears minded to try a bilateral approach to engaging North Korea. Stephen Bosworth, Mr Obama’s special envoy, wants to visit Pyongyang. America has tried to reassure friends about such an approach. In the past Japan has disliked the idea, thinking North Korea would drive a wedge between America and Japan, which has long insisted that the fate of Japanese abducted by North Korea in the 1970s and 1980s be part of the six-party agenda. But Japan’s new government seems more relaxed. This week Katsuya Okada, the foreign minister, said that he would be happy with bilateral talks so long as the outcomes were approved in the six-party format. South Korea may also go along on that basis, though this week it insisted sanctions should stay in place even if dialogue resumes.

The question is what a bilateral approach might achieve. North Korea insists that recognition and guarantees be the precondition for disarmament; the United States that they be the reward. This month America again called for North Korea’s “complete and verifiable denuclearisation”. In response, North Korea now says that dismantling its weapons is “unthinkable even in a dream”, at least without America giving up its own arsenal.

In effect, little can have changed in Mr Kim’s calculations. The awful despot’s chances of survival lie with his deterrent power. To give that up, indeed even to embrace Chinese-style economic modernisation, would bring on the regime’s collapse. Stringing along the international community while shaking it down for aid has worked brilliantly to date, and may work again. Bilateral talks can be dragged out. Meanwhile, in September North Korea admitted for the first time that it was developing a uranium-based route to the bomb. As for its first (plutonium) route, South Korea says that the Yongbyon reactor, which had been shut down and partly dismantled, is now nearly up and running again.

Japan and South Korea will be eager to learn more about Mr Wen’s visit at a three-way summit with China in Beijing on October 10th. The summit, only the second of its kind, is likely to touch on Japan’s vague idea for an East Asia Community, based on closer economic co-operation. North Korea is unlikely to be a founder member.

After Ireland’s voters endorsed the European Union’s Lisbon treaty by 67% to 33%, the focus switched to the Czech president, Vaclav Klaus, who is refusing to sign the document until a court ruling on it. This did not stop Brussels gossips from discussing who might be the first permanent president of the European Council, with Britain’s Tony Blair an early favourite. See article

Italy’s constitutional court threw out a law giving Silvio Berlusconi immunity from prosecution. At least two cases against the Italian prime minister will now resume, including one in which a British lawyer, David Mills, has already been convicted of accepting a bribe. See article

At the Conservative Party conference in Manchester the shadow chancellor, George Osborne, set out plans for swingeing cuts in government spending, reduced middle-class benefits and public-sector pay freezes. The Tories are expected to win next year’s British election. See article

AFPAn election in Greece was convincingly won by the Socialist party, Pasok, which had been in opposition. The new prime minister will be George Papandreou, a former foreign minister whose father and grandfather also served as prime ministers. See article

After shocks
A week after an earthquake devastated the city of Padang and surrounding areas on the Indonesian island of Sumatra, some remote villages had still to receive help. More than 1,000 people were confirmed dead, with thousands more still missing.

In the Philippines hundreds of thousands of people remained stranded by floods caused by Typhoon Ketsana. By mid-week, about 500,000 people were still living in emergency shelters.

APNorth Korea said it was prepared to rejoin the six-party talks aimed at ending its nuclear programme. It made the announcement during a visit by Wen Jiabao, China’s prime minister, during which he met Kim Jong Il, the country’s dictator. But North Korea again insisted on first holding bilateral talks with America. See article

Aung San Suu Kyi, the detained leader of the opposition in Myanmar, met a minister from the ruling junta for the first time in two years. This followed a letter from Miss Suu Kyi to General Than Shwe, the junta’s leader, offering her co-operation in helping to get international sanctions against Myanmar lifted.

Shoichi Nakagawa, a former Japanese finance minister, forced to resign in February after seeming to be drunk at a G7 meeting in Rome, was found dead at his home. The police said suicide was unlikely to be the cause of death. See article

A bombing in Kabul near the Indian embassy killed at least 12 people. The Taliban have stepped up their attacks in the Afghan capital over the past month. Meanwhile, the former deputy-head of the UN mission in Afghanistan accused his former boss of suppressing evidence of fraud in the presidential election in August.

Vietnam, Iraq, Afghanistan?
The debate in America about the war in Afghanistan became increasingly politicised. Robert Gates, America’s defence secretary, said that the army should submit its advice in private after General Stanley McChrystal, America’s commander in Afghanistan, gave a speech in which he said a proposal to scale back America’s troop commitments was “short-sighted”. Barack Obama is reviewing policy.

In Britain, meanwhile, a row broke out when General Sir Richard Dannatt, a former army chief who has said troop levels in Afghanistan are inadequate, became an adviser to the Conservatives. Some in the Labour government accused him of breaching a “sacred trust” that the armed forces should remain impartial. See article

The non-partisan Congressional Budget Office produced its assessment of the Senate Finance Committee’s health-care bill. It found the legislation would extend insurance coverage to 29m people at a cost of $829 billion over ten years, but, crucially, would not add to the budget deficit.

Kofi-flavoured reforms
Kofi Annan, a former UN secretary-general, went to Kenya to urge the coalition government to “accelerate” its reform programme, agreed on with Mr Annan when he brokered a deal between the government and opposition after the post-election violence in early 2008. Electoral, judicial, constitutional and land reforms have all stalled, and there are fears that the chaos at the last poll will be repeated at the next election, due in 2012. See article

There were clashes between the Israeli police and Palestinians around the religious site known as Haram al-Sharif to Muslims and Temple Mount to Jews in Jerusalem. The Palestinian Authority (PA) accused the Israelis of trying to “take over Jerusalem and Judaise it”; the Israelis briefly arrested the head of Israel’s Islamic movement for inciting violence.

Palestinians were vehement in their criticism of Mahmoud Abbas, who presides over the PA, for a decision to postpone an endorsement of the UN Goldstone report, which is highly critical of Israel’s attack on Gaza this year. To assuage his critics, Mr Abbas ordered an internal inquiry into why the PA did not endorse the report, and backed a Libyan attempt to discuss the document at the Security Council. See article

Obama out of The Loop
AFPRio de Janeiro was awarded the 2016 Olympics, the first time the games will be held in South America. Despite a last-minute lobbying visit to the International Olympic Committee by Barack Obama, Chicago was the first of the finalists, which also included Madrid and Tokyo, to be eliminated. President Luiz Inácio Lula da Silva, who lobbied longer, said the result signalled that Brazil was no longer a “second-class country”. See article

The de facto government in Honduras lifted a state of siege imposed after the return of Manuel Zelaya, the ousted president. It also held talks on a proposed settlement with a delegation for the Organisation of American States.

Rafael Calderón, the president of Costa Rica from 1990-94, was sentenced to five years in prison for embezzling a Finnish loan for medical equipment for hospitals in 2004.

In Chile two army generals and two colonels were jailed for the murder in 1992, when General Augusto Pinochet headed the army, of another colonel who had testified about an illegal arms deal with Croatia.

The man who can is suddenly looking unsure of himself


Illustration by Peter SchrankBARACK OBAMA ran an impressively disciplined presidential campaign. He has presided over a notably cohesive White House. But in the past fortnight things have started to go wrong. His latest review of strategy in the Afghan war has prompted charges that this president dithers while American soldiers die, and has provoked a rare public quarrel between the politicians and the military men. The timetable for reforming health care slips and slips, as does the effort to get a climate-change bill through Congress. And in the middle of all this Mr Obama and his wife Michelle found time last week to make a quixotic overnight dash to Copenhagen in the hope of winning the 2016 Olympics for his adopted city of Chicago.

What was intended to be another display of star power on a world stage ended in a flop. The International Olympic Committee (IOC) eliminated Chicago in the first round, for some reason rating the delights of Rio over those of the Windy City. Tall and athletic he may be, but in Copenhagen America’s president won nothing and the Olympic gold went to the portlier president of Brazil, Luiz Inácio Lula da Silva.

The Olympics, admittedly, are just games; the point, said the White House (afterwards), is that Mr Obama took the time to give Chicago’s bid his best shot. That has not stopped gleeful critics from depicting the failure as a symptom of bigger defects, notably Mr Obama’s overweening self-belief, and the naive trust they say he invests in unreliable foreigners, be they the bureaucrats of the IOC or the nuclear-arming ayatollahs of Iran. Rush Limbaugh, a conservative radio broadcaster, gloated that Mr Obama’s bad day in Copenhagen was the worst of his presidency, at least so far. “So much for improving America’s standing in the world, Barry O” sneered Erick Erickson, a blogger who runs the Red State website.

This debacle may not inflict lasting damage on Mr Obama. The delight some Republicans have shown in a setback for an American city could hurt them more than him. But the dash to Copenhagen was plainly under-prepared. It has bashed his reputation for a sure touch in public relations and added to the suspicion that he expects to achieve too much merely by deploying his celebrity power. Valerie Jarrett, a family friend from Chicago and one of the president’s very closest advisers in the White House, gushed before the Copenhagen trip that the Obamas would be a “dynamic duo” in Denmark. David Axelrod, another, complained afterwards of the IOC’s decision that there were “politics inside that room”. Isn’t the president of the United States supposed to know a thing or two about politics?

Nobody, however, can accuse Mr Obama of under-preparing for the far weightier decision he is pondering in Afghanistan. The administration has now spent several weeks conducting a methodical new review of its strategy, prompted by two deeply unwelcome developments: the crude rigging in favour of President Hamid Karzai in August’s flawed election and the leaked report from General Stanley McChrystal, concluding that the West faces certain defeat unless it adopts an ambitious new strategy, backed by a greater commitment of men (said to be 40,000, though the number has not yet been confirmed) and resources.

That General McChrystal’s report has divided the administration is no surprise: the war is now very unpopular among Democrats who have been encouraged by their success in imposing a rigid timetable for a full withdrawal from Iraq. The surprise is that it has prompted an unusually public quarrel. Vice-President Joe Biden rejects the call for an enlarged counter-insurgency campaign against the Taliban. His is said to be one of several voices inside the White House arguing for a smaller war directed mainly against al-Qaeda. But the merits of the case have now become ensnared in a debate about whether General McChrystal was insubordinate when he appeared to disparage the Biden idea in public. “You have to navigate from where you are, not where you wish to be,” the general told a questioner at the International Institute for Strategic Studies, a think-tank in London. “A strategy that does not leave Afghanistan in a stable position is probably a short-sighted strategy.”

The charge of insubordination sizzled rapidly through the media and up the chain of command. Writing in the Washington Post, Bruce Ackerman, a professor of law at Yale University, went so far as to invoke the spectre of Douglas MacArthur facing off against Harry Truman over the Korean war. He accused General McChrystal of “a plain violation of the principle of civilian control”. Jim Jones, the National Security Adviser (and a former general), said a president should be given a range of options, not a fait accompli. Robert Gates, the defence secretary, expressed continuing confidence in General McChrystal, but added that everyone involved in the review of strategy should provide their advice “candidly but privately”.

Mr Obama acted this week to fend off Republican claims that fear of his own wavering allies on Capitol Hill is weakening his commitment to a fight that he has always called vital to America’s security, both during the election campaign and since assuming office. On October 6th he invited 30 congressional leaders from both parties to the White House and told them that although he had not decided whether to send extra troops he was contemplating no “dramatic” reduction. The next day his security team convened again to continue their review, focusing this time on conditions in Pakistan. A final decision, says Harry Reid, the Senate’s majority leader, would probably come in “weeks, not months”.

Whether the right description of this timetable is “leisurely” (Senator John McCain) or “thorough” (the administration), the process has certainly been messy. The spat with General McChrystal, Mr Obama’s own recent choice to command in Afghanistan, invites the charge that he is not giving his generals the resources they need. If he does not send the general his extra troops, senior Republicans who have so far restrained their criticism will charge that the president is appeasing his party by endangering America’s fighting men overseas. Mr McCain has already called on Mr Obama to give “great weight” to his commanders’ views. But wading deeper into a war that this week entered its ninth miserable year will stoke the fears of the Democratic leadership in Congress that Mr Obama is sinking into a new Vietnam.

It is a fateful choice, and history is likelier to remember the decision itself, not the circumstances in which it was made. But Mr Obama’s failure to keep General McChrystal in line has made the politics of it very much harder. From Kandahar and Copenhagen (where Mr Obama faces a second ordeal in December at the climate-change summit) a cold wind is blowing through the White House.

A UN mission concludes that war crimes were committed in Gaza


AFPISRAEL is reeling from the accusations of a UN fact-finding mission that it deliberately sowed death and destruction among civilians in the Gaza Strip during a three-week military operation ending in January.

The mission was chaired by a respected South African judge, Richard Goldstone and published its report on Tuesday September 15th. It concludes that “While the Israeli government has sought to portray its operation as essentially a response to rocket attacks in exercise of its right to self-defence, the Mission considers the plan to have been directed, at least in part, at a different target: the people of Gaza as a whole.”

The purpose, the mission added, was “punishing the Gaza population for its resilience and for its apparent support for Hamas”. It held that Israel’s partial blockade of the Gaza Strip since Hamas took power there three-and-a-half years ago amounted to collective punishment and violated the Geneva Conventions.

The mission recommends international legal action not only against Israel, but also against Hamas, for war crimes and possible crimes against humanity. It has recommended that the findings are handed to the prosecutor of the International Criminal Court (ICC) in The Hague and also urged the UN Security Council and, separately, the General Assembly, to ensure that those responsible for the crimes are brought to justice. In particular the mission would like to see the Security Council set up a committee of experts to monitor whether Israel and Hamas conducts domestic investigations and, if so, to see how thorough these are. It also urges that, if the experts are not satisfied, the Security Council should refer the matter to the ICC prosecutor.

The death toll in Israel’s “Operation Cast Lead”, between December 27th and January 18th, is put at around 1,400 by Palestinian sources and non-governmental aid agencies. Israel estimates the toll at 1,166. Three Israeli civilians were killed by rocket fire into Israel, and ten soldiers were killed during the fighting, four of them by “friendly fire”.

“The data provided by non-governmental sources with regard to the percentage of civilians among those killed are generally consistent and raise very serious concerns with regard to the way Israel conducted the military operations,” the Goldstone mission concludes. It accuses Israel of “indiscriminate attacks” that resulted in civilian deaths and injuries, and also, on several occasions, of deliberately targeting civilians.

It also concluded, among other findings, that 240 Palestinian policemen were killed unlawfully, 99 of them in bombings on the first day of the operation, even though some of them may have been Hamas fighters. The bombing of public buildings, including the parliament and the main prison, was found to be unlawful. Israel’s warnings to civilians to flee targeted areas were described as inadequate. The report notes that the mission found no evidence of the Palestinians firing from mosques, hospitals or UN facilities, although “this might have occurred”. The mission also concludes that “It may be that the Palestinian combatants did not at all times adequately distinguish themselves from the civilian population.” In addition it concluded that repression within Israel fosters “a political climate in which dissent with the government and its actions in the Occupied Territories is not tolerated.”

Israeli officials argue that the last two points are so patently biased that they ought to reflect on the credibility of the whole 575-page report. Israel refused to co-operate with the mission (although individual Israelis did testify), noting that the UN Human Rights Council, which established it, has a long record of egregious bias against the Jewish state. In correspondence with Justice Goldstone, Israel noted pointedly that other eminent jurists had declined to serve on the mission because of its provenance.

Israel’s government argues, too, that one of the mission’s four members, Professor Christine Chinkin of the London School of Economics, had expressed “prejudgmental assertions, including that ‘the rocket attacks on Israel by Hamas do not amount to an armed attack entitling Israel to rely on self-defence’.” The other two mission members are Hina Jilani, a Pakistani jurist and Desmond Travers, a retired Irish army officer.

Justice Goldstone, who was a prosecutor at the international criminal tribunals for Yugoslavia and Rwanda, insists that his mission had “unbiased and even-handed terms of reference” and functioned as a “completely independent body.” Israeli officials wondered privately yesterday whether he had set the tone of the report, or was swept along by other mission members and staffers.

In its formal reaction, Israel declares itself “appalled” at the report. Officials say privately they had expected a tough document accusing the army of a disproportionate response to the years of incessant but largely ineffective firing of rockets and mortars from Gaza into Israel. They were shocked, they said, that the mission accused Israel of deliberately targeting the Palestinian civilian population. The prime minister, Binyamin Netanyahu, has given orders for a diplomatic campaign to discredit the report and counter the mission’s effort to have Israelis charged with war crimes.

The Israelis dismiss the mission’s ostensible evenhandedness in recommending that the Palestinians, too, be held to account for firing rockets at Israeli civilians and for acts of brutality and repression against their own people. In the prevailing atmosphere at the UN, they say, this will remain a dead letter while the recommendations against Israel will be assiduously followed up.

China’s prime minister, Wen Jiabao, persuades Kim Jong Il to return to nuclear-arms talks


ReutersNORTH KOREA'S ailing dictator, Kim Jong Il, rarely ventures to the airport to greet visiting foreign dignitaries. But China’s prime minister, Wen Jiabao, who departed from North Korea on Tuesday October 6th after a three-day visit, is no run-of-the-mill VIP. China has been North Korea’s staunchest ally through war and uneasy peace. Fraternal protocol demanded that Mr Kim greet Mr Wen on the tarmac not only with a vigorous handshake but also a prolonged hug.

Officially Mr Wen was in Pyongyang to celebrate the 60th year of diplomatic relations between China and North Korea. But since 1978 the two countries have pursued very different economic policies. China's markets are open to the world; North Korea remains in isolation and its economy is in terrible shape. As winter looms many North Koreans cannot feed or warm themselves. United Nations sanctions and a maritime blockade have squeezed the impoverished country further by cutting off North Korea’s most profitable export, weapons.

Mr Kim desperately needs Chinese aid and Mr Wen obliged the North Korean, according to Chinese news reports. China’s prime minister signed a broad economic-assistance package with North Korea which has pledged to transform itself by 2012 into KanGsong Taeguk, a strong, prosperous and powerful country.

The package is perhaps in defiance of UN sanctions aimed at halting North Korea’s nuclear-weapons programme and missile development. But it may be a carrot intended to draw Mr Kim back into talks aimed at dismantling his nuclear arsenal. In this Mr Wen seems to have succeeded, albeit with a caveat.

North Korea’s official news agency says that Mr Kim expressed readiness to hold multilateral talks depending on the outcome of talks between North Korea and America. Mr Kim doubtless wants some of the same things from the Americans that he has got from China: economic assistance, a peace treaty on the Korean peninsula to replace the current armistice and diplomatic relations with Washington. The North Korean leader may want to bequeath to his successor, perhaps his third son, Kim Jong Un, an international environment that is less hostile to North Korea.

James Steinberg, America’s deputy secretary of state, says his government is “prepared to have direct engagement with North Korea” if the regime returns to six-party talks with China, Russia, Japan, South Korea and America aimed at getting rid of North Korea’s nuclear weapons. These discussions are crucial to Barack Obama’s efforts to halt the proliferation of nuclear weapons. America wants to bring North Korea back into the nuclear non-proliferation treaty, which it left in January 2003. America’s president plans a nuclear-arms summit in March next year and he desperately needs a diplomatic breakthrough on North Korea. For several months his administration has been trying to convince Japan and South Korea to give their blessing to negotiations between America and North Korea.

North Korea’s pledge to recommit itself to “denuclearising the [Korean] peninsula” has failed to impress the South Koreans. Hyun In-taek, South Korea ’s minister in charge of relations with North Korea, says “North Korea’s recent conciliatory gestures can be regarded as only minor shifts in attitude.” Another complication is that North Korea’s leader hinted that he may want Japan excluded from multilateral talks. Mr Kim is angry that Japan continued to raise the issue of the kidnapping of its citizens by his regime at the six-party talks.

Mr Wen’s success in eliciting a commitment from North Korea to return to the six-party talks is evidence of its diplomatic muscle. North Korea had, just two months ago, described the talks as “dead”. China has long been criticised for not using its considerable influence to bring North Korea to heel for its nuclear weapons and intercontinental-missile tests. Mr Wen has apparently convinced North Korea to give some ground.