The Shots In Sarajevo, “The Arab Spring” And Unintended Consequences

Today, it is exactly 100 years since the event that triggered World War I, the shots in Sarajevo, where a young Serbian nationalist assassinated Crown Prince Ferdinand of Austria-Hungary, because he  wanted Bosnia-Herzegovina would belong to Serbia and not Austria-Hungary.

This event triggered the First World War, which in turn led temporarily (a rule that was first temporarily ended by the Nazi German occupation and then finally permanently in 1992 when Yugoslavia was dissolved) to the intended results as Serbia in the form of Yugoslavia took over Bosnia-Herzegovina and some other areas of former Austria-Hungary, but also that Germany was forced into a humiliating peace treaty, something that caused Hitler to enter politics and also contributed to many Germans sympathy for Hitler and his party, the NSDAP.

All in all, the event 100 years ago contributed to about 70-80 million deaths, a to say the least high price for the cause of  Bosnia-Herzegovina.becoming ruled by Serbia for 70 years.

Another example of how a man may inadvertently trigger a chain of events that lead to widespread death and suffering was when unemployed Mohammed Bouazizi January 4, 2011, in protest against his street carriage being confiscated by corrupt policemen, killed himself by publicly setting himself on fire.

Since very many recognized himself in his fate to have been harassed and robbed by corrupt police officers, bureaucrats and politicians, this led to widespread protests and the then Tunisian dictatorship was ended. It also led to similar uprisings in other Arab countries, something that came to be called the Arab Spring.

The outcome of these uprisings have been very mixed. In the country where it started, Tunisia, we have actually seen a slight improvement, but in other countries the results have at best the status quo, and in some cases a dramatic turn for the worse.. In Bahrain the dictatorship was able to quell the rebellion , partly with the help of troops from Saudi Arabia. In Egypt former general Mubarak was overthrown and replaced with a democratically elected Islamist who in turn then was replaced by another general. In Libya the Gadaffi regime was overthrown, largely with the help of a NATO-led foreign intervention, but instead Libya has seen chaotic conditions with a low-intensity civil war between government forces and various tribal-based militias.

The most tragic consequences of the “Arab Spring” have been in Iraq and Syria. Many of those who rebelled against the Assad regime have been motivated by opposition to its oppression and abuse of power, but resistance has been increasingly driven by Sunni Islamist sectarian antipathy against Assad’s secularism and his membership of the Alawite religious group, whose faith is a variant of Shia Islam .

The latter feature has been enhanced by the large amounts of Sunni jihadists, many from immigrant groups in Sweden and other European countries, coming to Syria to participate in the armed uprising against the Assad regime. Some of these have been organized in the now infamous ISIS, the Islamic State of Iraq and Syria.

ISIS has been growing ever stronger, particularly because they have been able to take over many of the weapons that misguided Western governments have sent to somewhat less fundamentalist Free Syrian Army. Using these weapons, and many Sunni tribes in Iraq, ISIS has now then plunged Iraq too in a civil war.

These civil wars have killed close to 150 000,  made millions refugees and subjected more and more to the Taliban-like Islamist oppression. And all because corrupt police officers’ abuse led one man to kill himself in a spectacular suicide that would have tragic unintended consequences.


So Now Rising Prices Are Bad?

As you may have heard, the Iraq war turns out to be a bigger and bigger disaster. Originally sold as a way to stop the threat from Sunni jihadists, it is now turning more and more of Iraq into the hands of….Sunni jihadists in the so-called Islamic State of Iraq and the Levant (ISIL).

In addition to subjecting millions of Iraqis to Taliban-style Islamist oppression and making the Sunni parts of Iraq another base and training ground for jihadists, it could potentially threaten oil production and exports in Iraq, which would of course raise global oil prices, something discussed by Ambrose Evans Pritchard today.

The funny thing is that he argues that higher oil prices are a threat to the global economy. That is funny because for the last few years, he has argued that deflation (and disinflation) is a big threat. But if oil prices rise, that is sure to eliminate deflation/increase inflation.

ECB Behind Low Spanish Yields

Spanish government bond yields, which previously had been 500-600 basis points (5-6 percentage points) higher than U.S. and U.K. bond yields are now slightly lower than them, with Italian yields (who used to be as high) also being only slightly higher.

What’s behind this dramatic drop? The ECB. First and foremost is of course the pledge of the ECB not to tolerate yields that would bankrupt the Spanish and Italian goverments with potentially unlimited asset purchases. The ECB didn’t have to actually buy any bonds, the pledge alone caused investors to start buying those bonds.

Secondly, the unjustified concerns about low inflation in the euro area have caused the ECB to pursue measures to raise inflation, including a negative deposit rate. This have pushed down all euro area interest rates, not just in the crisis countries but also in German. In the past, German bond yields were only slightly lower than British and American, now British and American yields are twice as high.

Fact You May Not Know

Sweden’s national day is today, to commemorate D-day.

No, just kidding. While Sweden’s national day is the same day as the anniversary of D-day, that’s not what it is supposed to commemorate. Instead it is supposed to commemorate the crowning of Gustav Vasa in 1523 as the king of Sweden. Gustav Vasa was like the George Washington of Sweden, as he liberated Sweden from Danish rule.

Except he was made absolute monarch, and not constitutionally limited President. On the other hand, he wasn’t a slave owner, like George Washington.

Is Euro Area Moving In The Wrong Direction?

Sorry about the lack of posting recently, but I have been busy. I will soon post an analysis of Thomas Piketty’s theories.

Meanwhile, I can see that there is increasing pressure on the ECB to ease because the euro area has seen a continued drop in inflation, to 0.5% in May.

Yet it doesn’t seem to do any harm as unemployment is also falling in the euro area.

Nor does it seem to harm debtor countries as nominal bond yields have dropped much more than inflation. And besides, inflation isn’t as good for debtors as is commonly assumed.

So what the recent upswing instead illustrates is that disinflation isn’t harmful.