At least it's not debt relief!

At least it’s not debt relief!

This week the European Union was involved in two major deals that settled two outstanding issues. One involved a long-standing issue that posed a threat to global economic prosperity, with an intransigent and corrupt government that consistently refused to adhere to past agreements, was not transparent about its activities, consistently responded to criticism of its activities with aggressive and nationalist rhetoric, and was suffering serious economic problems that required it to rapidly come to a deal that the rest of the world could agree to. The other involved Greece.

The first of these two deals is, of course, the Iranian nuclear deal, which sees Iran keep its peaceful nuclear program and the vindication of its claim to a right to peaceful nuclear power, despite 10 years of obfuscation, secret development, and often dangerously inflammatory rhetoric. For much of that time Iran has been actively undermining US foreign policy interests in the region, including those of its allies, and any concessions to Iran are widely seen as both an insult and a threat to the US’s regional allies. But somehow the EU plus Russia and the USA managed to come up with a genuine compromise that respects Iranian sovereignty, allows it to continue to broadly control (and in many ways, expand) its nuclear science program, eases sanctions and gives security guarantees to the whole region. This deal is realistic about the realpolitik of the region, sensitive to the levers required to influence a sovereign nation’s domestic policy, and mindful of the long-term sustainability of the actions proposed. On a first reading it seems like a masterpiece of cooperative diplomacy.

In contrast, in the same week the EU managed to come up with a completely reprehensible deal that crushes Greek national sovereignty, removes all national control over the key levers of the economy, and doesn’t offer any promise that the problem will go away in 5, 10 or even 30 years. It is both ignorant of the underlying economics of the problem and completely unrealistic about what can be achieved with the policy levers available. On a first reading, it seems like a dog’s breakfast of coercion and wishful thinking.

How could the EU have come up with two such radically different deals in the same week? Ostensibly the former concerns a much greater threat – nuclear proliferation – from a much less tractable nation that shares no strong cultural, political or even geographic ties with any of the nations involved, while the latter involves an ultimately manageable debt crisis in an allied country with strong cultural, political and geographic ties. The latter problem could have been solved by unilateral EU fiat (debt relief) while the former required cooperation from the other power. Yet the deal on Greece has been forged as if that unilateral action were inconceivable, while the deal with Iran has taken a nuanced approach to the real challenges of securing cooperation from such a belligerent negotiating partner. I don’t believe that anyone negotiating with Iran really believed that Iran has a nuclear weapon, so they weren’t negotiating under such a threat, so it appears that they really, genuinely have just tried to come to good terms. It’s not even the case that oil diplomacy or regional military concerns could have been that influential – oil is losing its importance as a geostrategic asset (and will rapidly drop in value as global warming bites), and although Iran has something to offer the US in dealing with ISIS, it is effectively militarily contained.

So what drove this difference? My suspicion is that the economic ideologies underlying the politics of most developed nations are now so completely unhinged and divorced from reality that it is impossible for them to negotiate reasonably in a sovereign debt crisis. They don’t (or won’t) understand fiat currencies, and won’t act with the authority and power that proper understanding of fiat currencies gives, so their negotiations have to be conducted in such a way as to carefully skirt around the actual economic facts in evidence. Connected with this is the related problem of ideologies and moralities – about work ethics, deserving vs undeserving poor, leaners and lifters – that are really hangovers from 100 years ago, and have no place in modern economic discourse (whether sub-national or international). In comparison, the nations involved in negotiating with Iran remain very cognizant and accepting of the basic principles of realpolitik and so are able to incorporate them into decision making and policy development. Hence the apparently bipolar mind at work on these two deals.

An alternative explanation is that negotiations with Greece involved only the EU central powers, whereas negotiations with Iran involved Obama and Putin – who at the moment are looking waaaay saner than the European leadership …