Europe and Eurasia

Italy

  • Italy
    Italian Vote Showcases European Discontent
    The defeat of Italian Prime Minister Matteo Renzi’s constitutional reforms is another sign that voter anger over poor economic performance is driving anti-establishment politics across Europe, says CFR’s Sebastian Mallaby.
    Interview with Sebastian Mallaby and James McBride December 6, 2016 Greenberg Center for Geoeconomic Studies
  • Global
    The World Next Week: December 1, 2016
    Podcast
    Syria's humanitarian crisis escalates, Italy holds a constitutional referendum, and Cuba mourns Fidel Castro.
    Podcast with James M. Lindsay and Robert McMahon December 2, 2016 The World Next Week
  • Italy
    Europe Braces For Italy’s Referendum
    Italy’s vote on constitutional reforms, which may determine whether the country can escape its economic doldrums and rescue its ailing banking system, could have consequences for all of Europe, says CFR’s Robert Kahn.
    Interview with Robert Kahn and James McBride December 1, 2016 Greenberg Center for Geoeconomic Studies
  • Italy
    A Conversation With Matteo Renzi
    Play
    Matteo Renzi discusses the political and economic issues facing Italy and the European Union.
    Event with Matteo Renzi and Blair W. Effron September 20, 2016
  • France
    Shouting at Americans: A Peek Into French Signals Intelligence
    Alex Grigsby is the assistant director for the Digital and Cyberspace Policy program at the Council on Foreign Relations.  Something remarkable happened a few months ago. Bernard Barbier, the former head of signals intelligence (SIGINT) between 2006 and 2014 at France’s foreign intelligence agency (DGSE), gave a speech at one of France’s top engineering schools in which he reflected on his career and imparted some of his wisdom to students. He also said some things that he probably shouldn’t have, like confirming that France was behind the Animal Farm advanced persistent threat, commenting on the SIGINT capabilities of European allies, and reacting to the revelation that the U.S. National Security Agency (NSA) had compromised the networks of the French presidency. Last week, Barbier’s speech surfaced on YouTube but was quickly taken down (UPDATE: A new version of the video is up here. H/T Boing Boing). However, it was up long enough for French daily Le Monde to transcribe some of the highlights. Here they are, paraphrased and translated from the original French. 1. "I got the order from Mr. Sarkozy’s successor [current President Hollande] to shout at the Americans ... it was a great moment in my professional career" Barbier recalls that he was first informed of a possible compromise at the Élysée palace in 2012, when a former colleague working IT security at the palace reached out for analysis on a piece of malware. With the help of a new metadata capability the French obtained in 2012 and Edward Snowden’s revelation of the NSA’s QUANTUM capability in 2013, Barbier’s staff concluded that the attack on the Élysée was the work of the United States. Barbier recalls:   I received the order from Mr. Sarkozy’s successor to go to shout at the Americans. It was on April 12, 2013 and it was really a great moment in my professional career. We were convinced it was them. At the end of the meeting, Keith Alexander [director of the NSA from 2005 to 2014] was not happy. While we were in the bus, he told me he was disappointed because he never thought they would have been caught. He added: "You are pretty good." As allies, we didn’t spy on them. The fact that the Americans broke this rule took us by surprise.   2. "And yes, it was a Frenchman"  In 2014, Le Monde published documents from the Snowden archive revealing that Canada’s SIGINT agency, the Communications Security Establishment (CSE), suspected that Paris was behind a cyber espionage campaign that began in 2009 targeting Iran’s nuclear program but also targeting computers in Canada. CSE was able to attribute the campaign to the French based on some reverse engineering revealing that the malware developer used references to a French children’s cartoon character, Babar the Elephant. That reference also led Kaspersky to baptise the malware Animal Farm. Barbier recalls that CSE "concluded that he [the malware author] was French. And yes, it was a Frenchman." 3. The pipe dream of united European intelligence agency and the possibility of merging French and German intelligence.  In one of the more surprising aspects of Barbier’s speech, he mused about the possibility of creating a European intelligence agency but quickly dismissed the notion, noting that only a fusion of French and German intelligence agencies would be feasible.   It is impossible to build a single European intelligence agency with twenty-eight countries that don’t have the same capabilities or the same culture. The best, by population size, are the Swedes. The Italians are bad. The Spanish are a bit better, but don’t have the capabilities. And the Brits, with 6,500 staff at GCHQ [Government Communications Headquarters, the UK SIGINT agency] are very good, but are they European? And France has the strongest technical capabilities for intelligence collection in continental Europe.   That leaves the Germans, who are solid partners. I’ve worked a lot with them, sometimes transmitting our knowhow and bringing them some technical capability. German and French engineers work very well together. In contrast, a British engineer with a French engineer is complicated. To be more effective, I told French politicians that we had to merge the BND [the German foreign intelligence agency] and the DGSE. It’s the only solution. It would be a an agency with 15,000 staff. The NSA has 60,000 people, and the SIGINT section of the DGSE is 3,000 agents. But the French politicians never followed up.   Merging the BND and the DGSE would have made for some awkward conversations given that last year, news reports revealed that the BND had been spying on France. 4. Snowden is a traitor that "rather helped us" Finally, Barbier gives his opinion on Edward Snowden, presumably in response to a question from the audience.   For me, Snowden is a traitor to his country, but he has nothing to do with Julian Assange. The Americans made Snowden, who was an external contractor, a systems administrator. Those who do that job in the DGSE are bureaucrats that have between fifteen and twenty years of seniority. The possibility of having a Snowden in France is very low. Snowden showed that espionage between allies existed and that Americans compromised hardware, such as that sold by Cisco and poses a problem for technological independence. In that sense, Snowden rather helped us.  
    Blog Post by Guest Blogger for Net Politics September 15, 2016 Net Politics
  • Europe and Eurasia
    Greece Fallout: Italy and Spain Have Funded a Massive Backdoor Bailout of French Banks
    In March 2010, two months before the announcement of the first Greek bailout, European banks had €134 billion worth of claims on Greece.  French banks, as shown in the right-hand figure above, had by far the largest exposure: €52 billion – this was 1.6 times that of Germany, eleven times that of Italy, and sixty-two times that of Spain. The €110 billion of loans provided to Greece by the IMF and Eurozone in May 2010 enabled Greece to avoid default on its obligations to these banks.  In the absence of such loans, France would have been forced into a massive bailout of its banking system.  Instead, French banks were able virtually to eliminate their exposure to Greece by selling bonds, allowing bonds to mature, and taking partial write-offs in 2012.  The bailout effectively mutualized much of their exposure within the Eurozone. The impact of this backdoor bailout of French banks is being felt now, with Greece on the precipice of an historic default.  Whereas in March 2010 about 40% of total European lending to Greece was via French banks, today only 0.6% is.  Governments have filled the breach, but not in proportion to their banks’ exposure in 2010.  Rather, it is in proportion to their paid-up capital at the ECB – which in France’s case is only 20%. In consequence, France has actually managed to reduce its total Greek exposure – sovereign and bank – by €8 billion, as seen in the main figure above.  In contrast, Italy, which had virtually no exposure to Greece in 2010 now has a massive one: €39 billion.  Total German exposure is up by a similar amount – €35 billion.  Spain has also seen its exposure rocket from nearly nothing in 2009 to €25 billion today. In short, France has managed to use the Greek bailout to offload €8 billion in junk debt onto its neighbors and burden them with tens of billions more in debt they could have avoided had Greece simply been allowed to default in 2010.  The upshot is that Italy and Spain are much closer to financial crisis today than they should be.   Follow Benn on Twitter: @BennSteil Follow Geo-Graphics on Twitter: @CFR_GeoGraphics Read about Benn’s latest award-winning book, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, which the Financial Times has called “a triumph of economic and diplomatic history.”
    Blog Post by Benn Steil and Dinah Walker July 2, 2015 Geo-Graphics
  • Europe and Eurasia
    A Full Greek IMF-Debt Default Would Be Four Times All Previous Defaults Combined
    Since the IMF’s launch in 1946, 27 countries have had overdue financial obligations of 6 months or more.*  But the amounts involved have always been small, never exceeding SDR 1bn ($1.4bn). This could all change dramatically with Greece, which will default on the SDR 1.2bn ($1.7bn) it owes the Fund next week unless its troika creditors agree to extend further financial assistance before then.  Greece owes the IMF SDR 4.4bn ($6.2bn) through the end of this year and SDR 18.5bn ($26bn) over the coming ten years.  As shown in the graphic above, this is nearly four times the cumulative total of overdue funds in the IMF’s history. Although Greek prime minister Alexis Tsipras has blasted the Fund for “pillaging” Greece, the conditions it has imposed on the country have been mild by historical standards – particularly considering the size of the loans involved.  Non-payment by a European state will surely undermine the IMF’s credibility in the eyes of developing countries, and likely accelerate efforts to build alternative institutions. Next up: Ukraine . . . * “Defaults” in the post title are defined as financial obligations overdue by six months of more, or what the IMF refers to as “protracted arrears.”   Follow Benn on Twitter: @BennSteil Follow Geo-Graphics on Twitter: @CFR_GeoGraphics Read about Benn’s latest award-winning book, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, which the Financial Times has called “a triumph of economic and diplomatic history.”
    Blog Post by Benn Steil and Dinah Walker June 24, 2015 Geo-Graphics
  • Europe and Eurasia
    Greece-Troika Gap Over Primary Surpluses Has Shrunk Dramatically
    Greece has announced that it will not pay the IMF the €300 million due to the Fund on June 5.  Instead, it will “bundle” the payments due to the Fund over the course of June into one payment of about €1.7 billion that it will make at the end of the month.  This contradicts earlier pledges that it would not resort to bundling.  The only country ever to have done so is Zambia, three decades ago. While the dramatic move suggests that Athens is seriously contemplating outright default, we think such a move, at this point, borders on insanity.  This is because the gap between the parties over the main issue between them, the size of the primary budget surplus (the excess of revenues over expenditures, excluding interest payments) Greece will have to achieve in the coming years is now very small relative to what it was a year ago - as shown in the figure above.  In contrast, the cost of a Greek default is likely to be a complete cut-off in ECB liquidity support that will crush the Greek banking system and, also likely, force the country out of the Eurozone. Then again, Greece has always had an affinity for tragedies.   Follow Benn on Twitter: @BennSteil Follow Geo-Graphics on Twitter: @CFR_GeoGraphics Read about Benn’s latest award-winning book, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, which the Financial Times has called “a triumph of economic and diplomatic history.”
    Blog Post by Benn Steil and Dinah Walker June 5, 2015 Geo-Graphics
  • Europe and Eurasia
    The ECB Fails to Stress Banks Over the One Critical Variable It Controls: Inflation
    Relentlessly falling inflation is bad news for Eurozone banks.  It increases the real (inflation-adjusted) value of borrower debt and the real cost of servicing that debt.  It causes loan defaults, and therefore bank loan losses, to rise. So with Eurozone inflation, currently at a near-record low of 0.4%, clearly at risk of heading into deflationary territory, what did the ECB say was the “adverse scenario” for this year?  Inflation of 1% – more than twice its current level.  This is indefensible; the ECB’s dire scenario for this year is actually much cheerier than the IMF’s baseline forecast, which pegs inflation at 0.5%.  The country-by-country comparison is shown in the graphic above. Disturbingly, at no point through the end of 2016 is the ECB even willing to contemplate the possibility of inflation being less than it already was in September: 0.3%.  This is a serious failure on the part of the central bank, which this month assumes supervisory responsibility for Eurozone banks.  It suggests that the ECB is more concerned with the reputational costs of acknowledging the possibility of deflation than with testing accurately the ability of banks to withstand it.  As the private sector is not privy to the proprietary bank data that would allow such a proper test, the ECB’s failure to address deflation risks raises the critical unanswerable question of how many of the seven banks that barely passed should actually have failed. Buiter: Four Rescue Measures for Stagnant Eurozone Evans-Pritchard: ECB Stress Tests Vastly Understate Risk of Deflation and Leverage Legrain: Yet Another Eurozone Bank Whitewash Financial Times: Bank Stress Tests Fail to Tackle Deflation Spectre Steil and Walker: Restoring Financial Stability in the Eurozone   Follow Benn on Twitter: @BennSteil Follow Geo-Graphics on Twitter: @CFR_GeoGraphics Read about Benn’s latest award-winning book, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, which the Financial Times has called “a triumph of economic and diplomatic history.”
    Blog Post by Benn Steil and Dinah Walker November 3, 2014 Geo-Graphics