The Economist 20010901 SEARCH RESEARCH TOOLS Economist.com Choose a research tool... advanced search » Subscribe Activate Help Sunday October 8th 2006 Welcome = requires subscription My Account » Manage my newsletters LOG OUT » » PRINT EDITION Print Edition September 1st 2001 Previous print editions Subscribe Can Russia handle a changed world? Missile-defence talks and NATO enlargement will test Russia’s Aug 25th 2001 Subscribe to the print edition new pragmatism … More on this week's lead article Aug 18th 2001 Or buy a Web subscription for Aug 11th 2001 full access online Aug 4th 2001 The world this week Jul 28th 2001 RSS feeds Receive this page by RSS feed Politics this week More print editions and covers » Business this week Leaders Full contents Russia’s foreign policy Enlarge current cover Can Russia handle a changed world? Past issues/regional covers Subscribe Business George Bush and the budget Of numbers and a man GLOBAL AGENDA Japanese electronics companies Hedge funds Lay-offs with no sign of revival POLITICS THIS WEEK Fool’s gold Auction houses BUSINESS THIS WEEK Racism Affairs of the art OPINION Don’t discriminate French auctioneers Leaders S urnames Prised open Letters As easy as ZYX Time-sharing WORLD Japan They share horses, don’t they? United States The shadow of joblessness Mobile phones in China The Americas Asia A billion voices calling? Middle East & Africa Letters Europe Alcohol in Sweden Britain Loosening up On bioethics, Soviet-era debt, Iowa, Brazil, Brussels Country Briefings Cities Guide Cisco A kid no more SURVEYS Special Report Juniper Networks BUSINESS Spot the difference The Baltic states Management Reading Knocking at the clubhouse door Business Education Face value Executive Dialogue India's fermentation queen United States FINANCE & ECONOMICS Finance & Economics Economics Focus The growth of private communities Economics A-Z America’s new Utopias Hedge funds The latest bubble? SCIENCE & TECHNOLOGY The economy Home is where the wealth is Technology Quarterly Hedge funds with listings Martyrs to transparency United Nations dues PEOPLE Tremble, Holland, tremble Measuring hedge funds Obituary The benchmarking bane In the wild BOOKS & ARTS The trouble is, people get there Monetary policy in the euro area Style Guide The ECB decides Lexington Captain Yawn to the rescue MARKETS & DATA Euro notes Unveiled Weekly Indicators Currencies The Americas Poland’s changing capital markets Big Mac Index Patriotic pensions Mexican politics DIVERSIONS Fox’s moment of truth South-East Asia’s economies RESEARCH TOOLS Stable but sickly Reform in Argentina CLASSIFIEDS Culling the politicians Economics focus On target? DELIVERY OPTIONS Misgovernment in Paraguay Despair and anger E-mail Newsletters Science & Technology Mobile Edition Canadian lumber RSS Feeds Stump war Car design ONLINE FEATURES The old new thing Politics in Peru Cleaning up Cities Guide Ageing Only a matter of time Country Briefings Asia Viral diseases Good vibrations Audio interviews East Timor’s election On the road to independence Mimicry Classifieds On the other seven hands Mobility in China Off to the city Books & Arts Economist Intelligence Unit AIDS in China Economist Conferences Confession time Showing video art The World In The glasshouse effect Intelligent Life Taiwan and China CFO Not so strait The Spanish civil war Roll Call Filling in the blanks European Voice Fiji’s future EuroFinance Conferences Instead of rebellion Economist Diaries and Algeria then and now Business Gifts Was de Gaulle pushed? Pressures on South Korea Advertisement A president in a hurry Sustainable development Sri Lankan politics Energetic visionaries No reconciliation Sir Christopher Wren Monumental International Film feuds Israeli-Palestinian fighting Everyone says I sue you The tanks of August Cities and writers The world’s food Sunny side up Feast or famine? Obituary Nigeria Never apologise, never explain Sir Fred Hoyle Race in South Africa When dogs don’t bark Economic and Financial Indicators Overview Output, demand and jobs Europe Prices and wages Germany Employment growth Will the economy—and Gerhard Schröder—bounce Money and interest rates back? Dutch politics Commodity price index Wim Kok bows (almost) out Stockmarkets Scandinavia’s republicans On the rise Trade, exchange rates and budgets Italy’s new government Trade-weighted exchange rates Flying some daring kites Emerging-Market Indicators Spanish scandal Who’s next? Overview Turkey’s poor Their lot gets worse External-debt-to-export ratio Charlemagne Economy Boris Trajkovski Financial markets Britain Health Medicine sans frontières Schools Those who can, won’t Men’s magazines Drooping Exams D-graded Salmon fishing Back a-leaping Church of England Counting the doomsday option Concorde Fly the icon Bagehot The best show in town Articles flagged with this icon are printed only in the British edition of The Economist Advertisement Classifieds Sponsors' feature About sponsorship » Jobs Business / Tenders Jobs Tenders Jobs Consumer ADVISER: Expression of Interest Two vacancies Invitation for Advisor, Private DECENTRALISATION WSI Internet - Start - Management Audit Office of Science and Prequalification Sector Operations RESEARCH Your Own Business Expression of Interest Innovation Hashemite Kingdom Department; 2 (PNGASF 58/2-107) Business Opportunity Management Audit Appointments to the of Jordan Ministry of positions National Research - WSI Internet Start Consultation Economic and Social Finance for Supply The OPEC Fund for Institute Port Your Own Busines.... Company The Tim.... Research Council.... and International Moresby, Papua New Implementation .... Development The .... Guinea .... About Economist.com | About The Economist | About Global Agenda | Media Directory | Staff Books | Advertising info | Career opportunities | Contact us Copyright © The Economist Newspaper Limited 2006. All rights reserved. Advertising Info | Legal disclaimer | Accessibility | Privacy policy | Terms & Conditions | Help Produced by = ECO PDF TEAM = Thanks xxmama About sponsorship Politics this week Aug 30th 2001 From The Economist print edition Mustafa Zibri, the 64-year-old leader of the Popular Front for the Liberation of Palestine and one of the founders of the Palestinian Liberation Organisation, was assassinated by Israeli forces. Mr Zibri is the most prominent Palestinian to be killed by Israel for more than a decade. Israeli troops seized Beit Jala, a town in the West Bank, in a bid to curb attacks by Palestinian gunmen on Gilo, a Jewish settlement in East Jerusalem. Two days later, both sides agreed to a ceasefire and to withdraw at the same time after pressure from the EU. See article: The tanks of August A report by the International Food Policy Research Institute predicted that the number of malnourished children around the world would decline slowly over the next 20 years, but would increase by as much as 18% in sub-Saharan Africa. See article: Feast or famine? A tax too far Lionel Jospin, France’s prime minister, suggested that the EU take the lead in calling for a global “Tobin tax” on cross-border flows of capital, to reduce currency speculation and volatility. His finance minister, Laurent Fabius, was not amused. Wim Kok, prime minister of the Netherlands since 1994, announced that he would stand down as leader of the Labour Party, and named his chosen successor to lead it into next May’s election: Ad Melkert, now its parliamentary floor leader. See article: Wim Kok bows (almost) out In Macedonia, a NATO force began collecting weapons surrendered by ethnic-Albanian guerrillas. It said it expected a few thousand; expressing widespread Slav-Macedonian anger, the government said the rebels held vastly more. Germany’s Bundestag, with dissent from more than 70 deputies, agreed to back the sending of German troops to join the NATO operation. See article: Boris Trajkovski In Spain, police struck another big blow against ETA terrorism, arresting most of a “commando unit” in and around Barcelona. ETA hit back with a bomb in the car park of Madrid airport. With a general election less than a month away, Poland’s prime minister, Jerzy Buzek, sacked his finance minister, Jaroslaw Bauc, who had recently embarrassed colleagues by predicting that next year’s budget deficit could be as big as 11% of GDP. No asylum A Norwegian freighter carrying 434 asylum seekers rescued from a sinking Indonesian ferry was refused permission to land them in Australia. The Australian army seized the ship and threatened to sail it out of territorial waters. With the Australian government facing an election soon, it said it was determined to protect the country’s “territorial integrity” from would-be immigrants who try to land illegally. Australia takes more than 10,000 refugees a year under a UN scheme. Afghanistan’s ruling Taliban allowed Red Cross officials to visit eight imprisoned western aid workers, who will be put on trial accused of the promotion of Christianity in the strictly Muslim country. The aid workers were said to be in good health. There was a big turnout for East Timor’s first democratic election after centuries of foreign domination. The Timorese voted for a constituent assembly in a ballot run by the UN. Independence is expected to follow next year. See article: On the road to independence China admitted for the first time that it was facing a “very serious” AIDS epidemic. The use of unsterilised needles in obtaining blood from donors is believed to have spread the disease. See article: Confession time A proposal by Taiwan to increase its trade with China to make up for the fall in its exports to the United States was dismissed by the Chinese. Taiwan would first have to accept the principle of “one China”, the government said. See article: Not so strait China indicated that it plans to relax its mobility laws, ending the bureaucracy that bars rural people from moving to the cities. See article: Off to the city Mexico’s energy crisis The head of Mexico’s state oil monopoly gave warning that the country’s oil exports could drop by two- thirds by 2006 without private investment. The country’s president, Vicente Fox, is pushing for tax and energy reforms in a new session of Congress that opens this weekend. See article: Fox's moment of truth Seeking to implement an austerity plan aimed at avoiding a debt default, Argentina’s government said that it plans reforms to health and welfare agencies, as well as a consultative referendum on streamlining the political system. See article: Culling the politicians Peru’s Congress voted to approve a report accusing Alberto Fujimori, a former president who fled to Japan last year, of crimes against humanity during the war against Maoist terrorists in the early 1990s. See article: Cleaning up Colombia’s army said that it had killed at least 50 FARC guerrillas and dismantled rebel bases during fighting over the past three weeks. The Congressional Budget Office announced that America’s budget, excluding Social Security, will be in deficit by $9 billion in the current financial year. President George Bush’s administration had earlier predicted a tiny positive balance. The battle over next year’s budget intensified with Mr Bush demanding more money for the armed forces. See article: Of numbers and a man Gary Condit appeared on television to half-answer questions about the disappearance of a young intern, Chandra Levy. The beleaguered congressman could be served legal papers contesting his denial of an affair with a flight attendant. Copyright © 2006 The Economist Newspaper and The Economist Group. All rights reserved. About sponsorship Business this week Aug 30th 2001 From The Economist print edition Plummeting demand for chips claimed yet more victims. Toshiba, Japan’s biggest chip maker, announced that 19,000 jobs would go, 10% of its worldwide workforce, and that it would drastically cut investment. It also began talks with Infineon, a German chip firm, about a merger of their memory-chip operations. Kyocera, another chip firm, said it would cut 10,000 jobs, 20% of its workforce. See article: Lay-offs with no sign of revival Gateway, an American computer maker, announced that it would shed around 5,000 workers, some 25% of the total, on top of 3,000 job losses announced earlier this year. The job losses follow the company’s price war with Dell and declining technology spending as the world economy droops. Sam Wyly, a wealthy Texan, failed to grab control of the board of Computer AP Associates, the world’s fourth-largest software company, after shareholders re-elected all ten incumbents. Mr Wyly had accused the company’s management of “chronic abuse of customers and employees” and of letting the share price languish. AES, a large American power company, made an unsolicited bid worth $1.4 billion to raise its 7% stake and take a controlling interest in Compania Anonima Nacional Telefonos de Venezuela, the country’s largest telecoms company. A rival bid may come from Spain’s Telefonica, which also owns 7% of CANTV. Lucent Technologies announced the closure of Chromatis Networks, an Israeli optical-network equipment maker. The foundering telecoms- equipment giant acquired Chromatis only a year ago for shares valued at $4.5 billion. The same shares are now worth just $590m. Tyre failure Firestone was reported to have paid $7.9m to settle a lawsuit for injuries sustained after tyres that it supplied failed on Ford Explorers. Ford had settled before the trial for $6m. The verdict seemed to support Firestone’s contention that Ford was partly to blame for the accidents. Firestone may yet face a thousand similar lawsuits. Poor prospects for the world economy prompted ThyssenKrupp to issue a profit warning, its second this year. The German steel firm said third-quarter results had not met expectations and that conditions were unlikely to improve before the end of the year. The European Commission agreed to allow Italenergia, a consortium dominated by Fiat, to take over Montedison, Italy’s largest private power company. However, the commission said that it would investigate again if Italenergia’s junior partner, Electricité de France, an acquisitive French power company, were to gain control of Montedison. The commission is also considering the legality of an Italian law that gave EDF, which owns 18% of Italenergia, just 2% of the voting rights. Volkswagen won agreement from a powerful German trade union, IG AP Metall, to employ 5,000 extra workers for less pay and with more flexible working arrangements than current employees. The deal came after much wrangling; representatives of both capital and labour claimed it as a victory. Cinven, a British venture-capital firm, has reportedly agreed to pay euro2 billion ($1.8 billion) to Vivendi, a French media group, for a roster of specialist publications and medical magazines. Big banks get smaller Credit Suisse Group, owners of Switzerland’s second-biggest bank, announced that profits were down by 23% in the second quarter compared with a year ago, to SFr1.3 billion ($743m). Further cost-cutting at CSFB, its investment- banking arm, was promised; more jobs will probably go on top of the 3,000 departures announced in the past year. J.P. Morgan Chase joined the list of investment banks feeling the pinch. It said that it planned to cut costs by up to 20%; expect both jobs and bonuses to be cut. Down at last The European Central Bank cut interest rates by a quarter of a percentage point to 4.25%. Despite widespread and repeated calls to reduce rates, this latest move is only the second cut this year. See article: The ECB decides Growth in America’s GDP for the second quarter was revised down from 0.7% to a paltry 0.2% compared with the previous quarter at an annual rate, the worst performance for eight years. The economy was saved from contracting only by a sharp upward revision of consumer spending, as Americans shopped even though the rest of the economy is sluggish. See article: Home is where the wealth is Japan’s government reacted to its weakening labour market—its official unemployment rate hit 5% in July—by preparing to unveil measures costing ¥1.7 trillion ($14.2 billion) to assist the jobless. Adding to the gloom, industrial production fell by 2.8% in July, leaving it 8.5% down on a year earlier. See article: The shadow of joblessness Copyright © 2006 The Economist Newspaper and The Economist Group. All rights reserved. About sponsorship Russia’s foreign policy Can Russia handle a changed world? Aug 30th 2001 From The Economist print edition Missile-defence talks and NATO enlargement will test Russia’s new pragmatism EVER since the cold war ended, Russia has been searching in vain for a foreign policy worthy of the great power it thinks it still ought to be. From the mutual disappointments of their early bear-hugging “strategic partnership”, through Russia’s deep sulk over its loss of empire and influence, to the outright hostility that greeted NATO’s intervention in Kosovo, western governments too have puzzled over how to manage relations with a country that is too large and well-armed to be overlooked, but all too prickly and unpredictable to be counted on. Vladimir Putin has sensibly tried to counter Russia’s drift to the margins of world affairs by presenting himself as a more of a pragmatist to do business with. This autumn, the search for a new strategic understanding with America about nuclear weapons and missile defences, as well as the start of discussions in NATO about further enlargement, will test this new pragmatism to the limit. If a new rift is to be avoided, by the time Mr Putin meets America’s president, George Bush, in November, the two will need to have in their minds, if not yet in detail on paper, the outline of a new strategic bargain that will both dramatically cut their nuclear arsenals and resolve their differences over the future of the Anti-Ballistic Missile (ABM) treaty. Yet success is still far from certain. Part of the difficulty is that it is hard to over-estimate what is at stake in such a deal for Russia. Mr Putin has been more honest than most in acknowledging that it is not dastardly western plots, but Russia’s own economic and political weakness, that has so greatly reduced its standing in the world. By contrast, nuclear weapons and the raft of cold-war-era treaties with America, including the ABM treaty, represent the one flattering measure of Russia’s old worth that endures. That is why, although cash- strapped and badly in need of a deal that will cut the numbers of nuclear missiles he needs to maintain, at first Mr Putin simply refused to contemplate tampering with the ABM treaty, which for 30 years has prevented either side from building the sorts of anti-missile defences Mr Bush is now keen to have. Instead Mr Putin joined China in a chorus of disapproval, and tried to drive an ABM-sharpened wedge between America and its European allies. But the Europeans refused to play along, and common interests with China—which unlike Russia opposes all missile defences, including non-ABM-offending ones, because it worries these may be used someday to protect Taiwan from China—extend only so far. So in June, at his first face-to-face meeting with Mr Bush, Mr Putin at last agreed to explore a new set of strategic understandings with America to replace those of the cold-war years. Another difficulty, it has to be said, is that America’s plans for new defences have barely taken shape. Mr Bush says his aim is to help defend America and its allies against limited new threats from rogue states armed with a few long-range missiles, not from Russia or China. China’s deterrent is smaller and therefore potentially more easily undermined by even limited defences, but Russia knows that the sort of defences Mr Bush has talked about, though they would still offend against the ABM treaty as it currently stands, would not threaten Russia. Still, some of Mr Bush’s officials talk airily of defences on land, at sea, in the air, even in space. Without some eventual limits on technology, or on numbers of interceptors and how they can be deployed (ruling out weapons in space would help), Mr Putin could have little confidence that the “understandings” with which America says it wants to replace the ABM treaty will protect Russia’s interests too. The best way for Russia to proceed, however, is to negotiate with America in good faith. A Russia ready to think creatively about the elements of a new strategic bargain would also help those on Mr Bush’s team who would prefer to have such a stability-preserving deal; there are others, frankly, who would rather press on regardless of Russia. And if the two sides still fail to agree? Russia has no veto over America’s defences. America has said it will go ahead unilaterally if no deal is done, and it may yet do just that. But Russia would earn a lot of diplomatic credit for seeking a genuine accord. Unfortunately, the instinct of Russia’s diplomats and generals is still to see the world as a zero-sum game: anything that America wants, or is seen to benefit from, must be bad for Russia. But traditional Russian tactics—turning any negotiation into an endurance test (some of those old arms-control treaties took years to pull off)—will not work with Mr Bush. If Mr Putin really wants talks now under way to get results, he will need to bang heads together on his own side. It does not help Russia’s case that some of its own companies have been doing a lot (alongside China and North Korea) to help would-be proliferators, including Iran, Iraq and Syria, build the bigger missiles that America now sees as a potential new threat. With official approval, Russia’s scientists help Iran’s nuclear industry, despite the country’s barely disguised bid to build a bomb; Russia is also selling nuclear fuel to India, despite that country’s refusal of full international safeguards. Rather than opportunistically pocketing the cash from such deals, Mr Putin would do better to stem this flow of technology, which could some day pose a direct threat to Russia too. Putin-the-pragmatic Old diplomatic habits die harder in Russia, but when it comes to NATO’s further enlargement, Mr Putin may have learned something from past mistakes. When NATO first offered to open its doors to new recruits from Eastern Europe—Poland, Hungary and the Czech Republic—Russia loudly threatened dire consequences, only to discover it had no veto over NATO decisions and had to back down. All its thundering achieved was a lengthening queue of countries mustard-keen to join. At its summit in Prague next year, NATO says it will issue more invitations—how many and for when is yet to be decided. Russia is no keener to see NATO grow, especially as this time the hopefuls include Lithuania, Latvia and Estonia, once part of the old Soviet Union (see article). But so far Mr Putin has kept his cool. There have been dark mutterings that Russia might move its short-range nuclear weapons provocatively closer to NATO territory. But a more pragmatic Russia would instead take a hard look at the damage such cold-war reflexes are already doing to its interests in Europe. Mr Putin wants Russia to be an accepted European power, but his is still an old-style Europe of spheres of influence and thus he still demands Russia’s due in its ex-Soviet parts. Yet the more Russia banks on trouble in places like Georgia in the hope of keeping a grip there, or coddles repressive Belarus, or supports anti-reform elements in Ukraine so as to keep that country economically dependent, the more those countries that can will keep shuffling nervously away from Russia and towards organisations like NATO and the European Union. Whether Mr Putin likes it or not, Russia has no more of a veto over other Europeans’ futures than it does over America’s defence. With luck, Putin-the-pragmatist has started to understand that. If he can apply that insight to managing relations with America and with NATO, however tricky, without all the bad- tempered fist-banging of the past, Russia would have the makings of a pragmatic new foreign policy— and show itself to be a worthy power to do business with. Copyright © 2006 The Economist Newspaper and The Economist Group. All rights reserved.