Current
Events
Troubled
Countries
Lee Kuan
Yew,
07.01.10,
08:20 AM EDT
Forbes
Magazine dated July 19, 2010
Korean
Peninsula. Despite the extreme provocation of North
Korea's torpedoing and sinking a South Korean warship, the South's
response--responsible and restrained--has been to refer the matter
to the UN Security Council. Speaking in Singapore at the Shangri-La
Dialogue on June 4, President Lee Myung-bak of the Republic of
Korea (ROK) used measured language to strongly caution Kim Jong-il,
the North's leader, against further acts of provocation, stating
that the ROK and the U.S. were ready to respond to any use of
force.
It's not clear what North Korea
hoped to gain by this wanton act of state terrorism. But
cross-border tensions tend to rally North Koreans around their
leader, and Kim Jong-il is well aware that similar destructive acts
of terror have not escalated into war.
Where does
China stand in this? China will have to declare its position once
the issue reaches the UN Security Council. To use its veto would be
to condone state terrorism. Analysts therefore believe China will
go along with the Security Council's judgment.
Thailand.
Strife and
turmoil have beset this Southeast Asian nation. Thousands of red
shirt demonstrators, joined by farmers from the north and
northeast, took to the streets and occupied key areas of Bangkok
for weeks on end. Adding to the tensions was the fact that many red
shirts possessed deadly weapons. Once the leaders surrendered to
the Thai army, however, the rest dispersed.
Seth Mydans,
the International Herald Tribune's longtime correspondent
in Thailand, wrote: "The country's divisions and enmities have only
deepened. Nothing has been resolved. The battle for power in
Thailand--between social classes and between the politicians who
manipulate them--continues." And in a later report: "Antigovernment
sentiment has hardened in the northeast and north of the country,
to where many of the protesters were returning Thursday. ... The
frightened protesters, who had cowered in the temple amid gunfire
and explosions, were heading home with new grievances and
hatreds."
What began
as a fight between former prime minister Thaksin Shinawatra and the
Bangkok establishment, which detests his populist, opportunistic
policies, morphed into a movement. The farmers seek redress,
wanting their share of the economic growth that has been
concentrated in Bangkok. The establishment will have to address
this push for equity.
Despite the massive
demonstrations the Thai economy has shown signs of rebounding, and
it won't be long before the attractiveness of the economy draws
foreign investors back. Tourists have already returned in large
numbers. Thailand's people, its society and its economy have strong
foundations.
Economists have suggested that
East Asia should have a monetary union similar to that of the EU.
The euro has made for ease in trading among its 16 member
countries, but I am skeptical that such a currency union could work
in East Asia. Its countries have different fiscal policies and are
in varying stages of economic growth and development, so
maintaining the fixed exchange rates necessary for a monetary union
would be impossible.
Eleven trouble-free years of the
euro led many to believe that the currency was enduring, but the
economic crisis in Greece has raised doubts about its
sustainability. A currency union removes the ability of members
individually to use monetary policy and interest rates to be more
competitive or reduce inflation.
For a monetary union to work
there needs to be a central authority that can transfer payments to
help out those members experiencing higher unemployment and slower
growth. For example, in the U.S. the federal government, in effect,
makes substantial transfer payments to states that have more
unemployment and lower incomes.
Without a political union a
monetary union like the EU cannot balance the budgetary and
financial situations of its member countries. The weaker economies
in the euro zone experienced a decade of higher living standards
before it became necessary for the wealthier members, such as
Germany and France, to step in and bail out Greece, a less vibrant
Mediterranean country. Germany's chancellor, Angela Merkel, was not
in favor of doing this, but after talks with President Nicolas
Sarkozy of France she agreed. That has cost her the German people's
approval because they have no desire for Germany to be the
paymaster for the weak members.
Former Deutsche Bundesbank
chairman Karl Otto Pöhl opined that Greece should be allowed to go
into default and that the losses be borne by the French and German
banks. Doing that would have put the euro in less
jeopardy.
There are no
easy solutions. Dropping the euro to go back to the drachma would
be disastrous for Greece. Besides, the Europeans won't allow the
euro zone to disintegrate. British financial analysts have
suggested a two-tiered EU: Germany, France and Benelux as the inner
core countries, with the remainder making up the second tier. EU
countries must find the political will to enact the structural
reforms needed to save the euro.
Lee Kuan
Yew, minister
mentor of Singapore; David Malpass, global
economist, president of Encima Global LLC; Amity
Shlaes, senior fellow in economic history at the Council
on Foreign Relations; and Paul Johnson, eminent
British historian and author, rotate in writing this column. To see
past Current Events columns, visit our Web site at www.forbes.com/currentevents.