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Ferocious, Weak and Crazy: The North Korean Strategy – Stratfor

Ferocious,  Weak and Crazy: The North Korean Strategy is republished with permission of  Stratfor.”

Read more:  Ferocious, Weak and Crazy: The North Korean Strategy | Stratfor

By George Friedman Founder  and Chairman, Stratfor

North Korea’s state-run media reported Sunday that North  Korean leader Kim Jong Un has ordered the country’s top security officials  to take “substantial and high-profile important state measures,” which has been  widely interpreted to mean that North  Korea is planning its third nuclear test. Kim said the orders were  retaliation for the U.S.-led push to tighten U.N. sanctions on Pyongyang  following North Korea’s missile test in October. A few days before Kim’s  statement emerged, the North Koreans said future tests would target the United  States, which North Korea regards as its key adversary along with Washington’s  tool, South Korea.

North Korea has been using the threat of tests and the tests themselves as  weapons against its neighbors and the United States for years. On the surface,  threatening to test weapons does not appear particularly sensible. If the test  fails, you look weak. If it succeeds, you look dangerous without  actually having a deliverable weapon. And the closer you come to having a  weapon, the more likely someone is to attack you so you don’t succeed in  actually getting one. Developing a weapon in absolute secret would seem to make  more sense. When the weapon is ready, you display it, and you have something  solid to threaten enemies with.

North Korea, of course, has been doing this for years and doing it  successfully, so what appears absurd on the surface quite obviously isn’t. On  the contrary, it has proved to be a very effective maneuver. North Korea is  estimated to have a gross domestic product of about $28 billion, about the same  as Latvia or Turkmenistan. Yet it has maneuvered itself into a situation where  the United States, Japan, China, Russia and South Korea have sat  down with it at the negotiating table in a bid to persuade it not to build  weapons. Sometimes, the great powers give North Korea money and food to persuade  it not to develop weapons. It sometimes agrees to a halt, but then resumes its  nuclear activities. It never completes a weapon, but it frequently threatens to  test one. And when it carries out such tests, it claims its tests are directed  at the United States and South Korea, as if the test itself were a threat.

There is brilliance in North Korea’s strategy. When the Soviet Union  collapsed, North Korea was left in dire economic straits. There were reasonable  expectations that its government would soon collapse, leading to the unification  of the Korean Peninsula. Naturally, the goal of the North Korean government was  regime survival, so it was terrified that outside powers would invade or support  an uprising against it. It needed a strategy that would dissuade anyone from  trying that. Being weak in every sense, this wasn’t going to be easy, but the  North Koreans developed a strategy that we  described more than 10 years ago as ferocious, weak and crazy. North Korea  has pursued this course since the 1990s, and the latest manifestation of this  strategy was on display last week. The strategy has worked marvelously and is  still working.

A Three-Part Strategy

First, the North Koreans positioned themselves as ferocious by appearing to  have, or to be on the verge of having, devastating power. Second, they  positioned themselves as being weak such that no matter how ferocious they are,  there would be no point in pushing them because they are going to collapse  anyway. And third, they positioned themselves as crazy, meaning pushing them  would be dangerous since they were liable to engage in the greatest risks  imaginable at the slightest provocation.

In the beginning, Pyongyang’s ability to appear ferocious was limited to the North Korean army’s  power to shell Seoul. It had massed artillery along the border and could  theoretically devastate the southern capital, assuming the North had enough  ammunition, its artillery worked and air power didn’t lay waste to its massed  artillery. The point was not that it was going to level Seoul but that it had  the ability to do so. There were benefits to outsiders in destabilizing the  northern regime, but Pyongyang’s ferocity — uncertain though its capabilities  were — was enough to dissuade South Korea and its allies from trying to  undermine the regime. Its later move to develop missiles and nuclear weapons  followed from the strategy of ferocity — since nothing was worth a nuclear war,  enraging the regime by trying to undermine it wasn’t worth the risk.

Many nations have tried to play the ferocity game, but the North Koreans  added a brilliant and subtle twist to it: being weak. The  North Koreans advertised the weakness of their economy, particularly its  food insecurity, by various means. This was not done overtly, but by allowing  glimpses of its weakness. Given the weakness of its economy and the difficulty  of life in North Korea, there was no need to risk trying to undermine the North.  It would collapse from its own defects.

This was a double inoculation. The North Koreans’ ferocity with weapons whose  effectiveness might be questionable, but still pose an unquantifiable threat,  caused its enemies to tread carefully. Why risk unleashing its ferocity when its  weakness would bring it down? Indeed, a constant debate among Western analysts  over the North’s power versus its weakness combines to paralyze  policymakers.

The North Koreans added a third layer to perfect all of this. They portrayed  themselves as crazy, working to appear unpredictable, given to extravagant  threats and seeming to welcome a war. Sometimes, they reaffirmed they were crazy  via steps like sinking South Korean ships for no apparent reason. As in poker,  so with the North: You can play against many sorts of players, from those who  truly understand the odds to those who are just playing for fun, but never, ever  play poker against a nut. He  is totally unpredictable, can’t be gamed, and if you play with his head you  don’t know what will happen.

So long as the North Koreans remained ferocious, weak and crazy, the best  thing to do was not irritate them too much and not to worry what kind of  government they had. But being weak and crazy was the easy part for the North;  maintaining its appearance of ferocity was more challenging. Not only did the  North Koreans have to keep increasing their ferocity, they had to avoid  increasing it so much that it overpowered the deterrent effect of their weakness  and craziness.

A Cautious Nuclear Program

Hence, we have North Korea’s eternal nuclear program. It never quite produces  a weapon, but no one can be sure whether a weapon might be produced. Due to  widespread perceptions that the North Koreans are crazy, it is widely believed  they might rush to complete their weapon and go to war at the slightest  provocation. The result is the United States, Russia, China, Japan and South  Korea holding meetings with North Korea to try to persuade it not to do  something crazy.

Interestingly, North Korea never does anything significant and dangerous, or  at least not dangerous enough to break the pattern. Since the Korean War, North  Korea has carefully calculated its actions, timing them to avoid any move that  could force a major reaction. We see this caution built into its nuclear  program. After more than a decade of very public ferocity, the North Koreans  have not come close to a deliverable weapon. But since if you upset them, they  just might, the best bet has been to tread lightly and see if you can gently  persuade them not to do something insane.

The North’s positioning is superb: Minimal risky action sufficient to lend  credibility to its ferocity and craziness plus endless rhetorical threats  maneuvers North Korea into being a major global threat in the eyes of the great  powers. Having won themselves this position, the North Koreans are not about to  risk it, even if a 20-something leader is hurling threats.

The China Angle and the Iranian Pupil

There is, however, a somewhat more interesting dimension emerging. Over the  years, the United States, Japan and South Korea have looked to the Chinese to  intercede and persuade the North Koreans not to do anything rash. This  diplomatic pattern has established itself so firmly that we wonder what the  actual Chinese role is in all this. China is currently engaged in territorial  disputes with U.S. allies in the South and East China seas. Whether anyone would  or could go to war over islands in these waters is dubious, but the situation is  still worth noting.

The Chinese and  the Japanese have been particularly hostile toward one another in recent  weeks in terms of rhetoric and moving their ships around. A crisis in North  Korea, particularly one in which the North tested a nuclear weapon, would  inevitably initiate the diplomatic dance whereby the Americans and Japanese ask  the Chinese to intercede with the North Koreans. The Chinese would oblige.  This is not a great effort for them, since having detonated a nuclear device,  the North isn’t interested in doing much more. In fact, Pyongyang will be  drawing on the test’s proverbial fallout for some time. The Chinese are calling  in no chits with the North Koreans, and the Americans and Japanese — terribly  afraid of what the ferocious, weak, crazy North Koreans will do next — will be  grateful to China for defusing the “crisis.” And who could be so churlish as to  raise issues on trade or minor islands when China has used its power to force  North Korea to step down?

It is impossible for us to know what the Chinese are thinking, and we have no  overt basis for assuming the Chinese and North Koreans are collaborating, but we  do note that China has taken an increasing interest in stabilizing North Korea.  For its part, North Korea has tended to stage these crises — and their  subsequent Chinese interventions — at quite useful times for Beijing.

It should also be noted that other countries have learned the ferocious,  weak, crazy maneuver from North Korea. Iran is the best pupil. It has  convincingly portrayed itself as ferocious via its nuclear program, endlessly  and quite publicly pursuing its program without ever quite succeeding. It is  also persistently seen as weak, perpetually facing  economic crises and wrathful mobs of iPod-wielding youths. Whether Iran can  play the weakness card as skillfully as North Korea remains unclear — Iran just  doesn’t have the famines North Korea has.

Additionally, Iran’s rhetoric at times can certainly be considered crazy:  Tehran has carefully cultivated perceptions that it would wage nuclear war even  if this meant the death of all Iranians. Like North Korea, Iran also has managed  to retain its form of government and its national sovereignty. Endless  predictions of the fall of the Islamic republic to a rising generation have  proved false.

I do not mean to appear to be criticizing the “ferocious, weak and crazy”  strategy. When you are playing a weak hand, such a strategy can yield  demonstrable benefits. It preserves regimes, centers one as a major  international player and can wring concessions out of major powers. It can be  pushed too far, however, when the fear of ferocity and craziness undermines the  solace your opponents find in your weakness.

Diplomacy is the art of nations achieving their ends without resorting to  war. It is particularly important for small, isolated nations to survive without  going to war. As in many things, the paradox of appearing willing to go to war  in spite of all rational calculations can be the foundation for avoiding war. It  is a sound strategy, and for North Korea and Iran, for the time being at least,  it has worked.

Read more:  Ferocious, Weak and Crazy: The North Korean Strategy | Stratfor

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Avoiding the Wars That Never End

Republished from Stratfor.

Avoiding the  Wars That Never End is republished with permission of Stratfor.”

Read more:  Avoiding the Wars That Never End | Stratfor

By George Friedman Founder  and Chief Executive Officer, Stratfor.

Last week, U.S. President Barack Obama announced that the United States would  transfer the primary responsibility for combat operations in Afghanistan to the  Afghan military in the coming months, a major step toward the withdrawal of U.S.  forces. Also last week, France began an  intervention in Mali designed to block jihadists from taking control of the  country and creating a base of operations in France’s former African  colonies.

The two events are linked in a way that transcends the issue of Islamist  insurgency and points to a larger geopolitical shift. The United States is not  just drawing down its combat commitments; it is moving  away from the view that it has the primary responsibility for trying to  manage the world on behalf of itself, the Europeans and its other allies.  Instead, that burden is shifting to those who have immediate interests  involved.

Insecurity in 9/11’s Wake

It is interesting to recall how the United States involved itself in  Afghanistan. After 9/11, the United States was in shock and lacked clear  intelligence on al Qaeda. It did not know what additional capabilities al Qaeda  had or what the group’s intentions were. Lacking intelligence, a political  leader has the obligation to act on worst-case scenarios after the enemy has  demonstrated hostile intentions and capabilities. The possible scenarios ranged  from additional sleeper cells operating and awaiting orders in the United States  to al Qaeda having obtained nuclear weapons to destroy cities. When you don’t  know, it is both prudent and psychologically inevitable to plan for the  worst.

The United States had sufficient information to act in Afghanistan. It knew  that al Qaeda was operating in Afghanistan and that disrupting the main cell was  a useful step in taking some action against the threat. However, the United  States did not immediately invade Afghanistan. It bombed the country extensively  and inserted limited forces on the ground, but the primary burden of fighting  the Taliban government was in the hands of anti-Taliban forces in Afghanistan  that had been resisting the Taliban and in the hands of other forces that could  be induced to act against the Taliban. The Taliban gave up the cities and  prepared for a long war. Al Qaeda’s command cell left Afghanistan and shifted to  Pakistan.

The United States achieved its primary goal early on. That goal was not to  deny al Qaeda the ability to operate in Afghanistan, an objective that would  achieve nothing. Rather, the goal was to engage al Qaeda and disrupt its  command-and-control structure as a way to degrade the group’s ability to plan  and execute additional attacks. The move  to Pakistan at the very least bought time, and given continued pressure on  the main cell, allowed the United States to gather more intelligence about al  Qaeda assets around the world.

This second mission — to identify al Qaeda assets around the world —  required a second effort. The primary means of identifying them was through  their electronic communications, and the United States proceeded to create a  vast technological mechanism designed to detect communications and use that  detection to identify and capture or kill al Qaeda operatives. The problem with  this technique — really the only one available — was that it was impossible to  monitor al Qaeda’s communications without monitoring everyone’s. If there was a  needle in the haystack, the entire haystack had to be examined. This was a  radical shift in the government’s relationship to the private communications of  citizens. The justification was that at a time of war, in which the threat to  the United States was uncertain and possibly massive, these measures were  necessary.

This action was not unique in American history. Abraham Lincoln violated the  Constitution in several ways during the Civil War, from suspending the right to  habeas corpus to blocking the Maryland Legislature from voting on a secession  measure. Franklin Roosevelt allowed the FBI to open citizens’ mail and put  Japanese-Americans into internment camps. The idea that civil liberties must be  protected in time of war is not historically how the United States, or most  countries, operate. In that sense there was nothing unique in the decision to  monitor communications in order to find al Qaeda and stop attacks. How else  could the needle be found in the haystack? Likewise, detention without trial was  not unique. Lincoln and Roosevelt both resorted to it.

The Civil War and World War II were different from the current conflict,  however, because their conclusions were clear and decisive. The wars would end,  one way or another, and so would the suspension of rights. Unlike those wars,  the war in Afghanistan was extended indefinitely by the shift in strategy from  disrupting al Qaeda’s command cell to fighting  the Taliban to building a democratic society in Afghanistan. With the second  step, the U.S. military mission changed its focus and increased its presence  massively, and with the third, the terminal date of the war became very far  away.

But there was a broader issue. The war in Afghanistan was not the main war.  Afghanistan happened to be the place where al Qaeda was headquartered on Sept.  11, 2001. The country was not essential to al Qaeda, and creating a democratic  society there — if it were even possible — would not necessarily weaken al  Qaeda. Even destroying al Qaeda would not prevent new  Islamist organizations or individuals from rising up.

A New Kind of War

The main war was not against one specific terrorist group, but rather against  an idea: the radical tendency in Islamism. Most Muslims are not radicals, but  any religion with 1 billion adherents will have its share of extremists. The  tendency is there, and it is deeply rooted. If the goal of the war were the  destruction of this radical tendency, then it was not going to happen. While the  risk of attacks could be reduced — and indeed there were no further 9/11s  despite repeated attempts in the United States — there was no way to eliminate  the threat. No matter how many divisions were deployed, no matter how many  systems for electronic detection were created, they could only mitigate the  threat, not eliminate it. Therefore, what some  called the Long War really became permanent war.

The means by which the war was pursued could not result in victory. They  could, however, completely unbalance U.S. strategy by committing massive  resources to missions not clearly connected with preventing Islamist terrorism.  It also created a situation where emergency intrusions on critical portions of  the Bill of Rights — such as the need to obtain a warrant for certain actions  — became a permanent feature. Permanent war makes for permanent temporary  measures.

The break point came, in my opinion, in about 2004. Around that time, al  Qaeda was unable to mount attacks on the United States despite multiple efforts.  The war in Afghanistan had dislodged al Qaeda and created the Karzai government.  The invasion of Iraq — whatever the rationale might have been — clearly  produced a level of resistance that the United States could not contain or could  contain only by making agreements with its enemies in Iraq. At that point, a  radical rethinking of the war had to take place. It did not.

The radical rethinking had to do not with Iraq or Afghanistan, but rather  with what to do about a permanent threat to the United States, and indeed to  many other countries, posed by the global networks of radical Islamists prepared  to carry out terrorist attacks. The threat would not go away, and it could not  be eliminated. At the same time, it did  not threaten the existence of the republic. The 9/11 attacks were atrocious,  but they did not threaten the survival of the United States in spite of the  human cost. Combating the threat required a degree of proportionality so the  fight could be maintained on an ongoing basis, without becoming the only goal of  U.S. foreign policy or domestic life. Mitigation was the only possibility; the  threat would have to be endured.

Washington found a way to achieve this balance in the past, albeit against  very different sorts of threats. The United States emerged as a great power in  the early 20th century. During that time, it fought three wars: World War I,  World War II and the Cold War, which included Korea, Vietnam and other, smaller  engagements. In World War I and World War II, the United States waited for  events to unfold, and in Europe in particular it waited until the European  powers reached a point where they could not deal with the threat of German  hegemony without American intervention. In both instances, it intervened heavily  only late in the war, at the point where the Germans had been exhausted by other  European powers. It should be remembered that the main American push in World  War II did not take place until the summer of 1944. The American strategy was to  wait and see whether the Europeans could stabilize the situation themselves,  using distance to mobilize as late as possible and intervene decisively only at  the critical moment.

The critics of this approach, particularly prior to World War II, called it  isolationism. But the United States was not isolationist; it was involved in  Asia throughout this period. Rather, it saw itself as being the actor of last  resort, capable of acting at the decisive moment with overwhelming force because  geography had given the United States the option of time and resources.

During the Cold War, the United States modified this strategy. It still  depended on allies, but it now saw itself as the first responder. Partly this  could be seen in U.S. nuclear strategy. This could also be seen in Korea and  Vietnam, where allies played subsidiary roles, but the primary effort was  American. The Cold War was fought on a different set of principles than the two  world wars.

The Cold War strategy was applied to the war against radical Islamism, in  which the United States — because of 9/11 but also because of a mindset that  could be seen in other interventions — was the first responder. Other allies  followed the United States’ lead and provided support to the degree to which  they felt comfortable. The allies could withdraw without fundamentally  undermining the war effort. The United States could not.

The approach in the U.S.-jihadist war was a complete reversal from the  approach taken in the two world wars. This was understandable given that it was  triggered by an unexpected and catastrophic event, the reponse to which flowed  from a lack of intelligence. When Japan struck Pearl Harbor, emotions were  at least as intense, but U.S. strategy in the Pacific was measured and cautious.  And the enemy’s capabilities were much better understood.

Stepping Back as Global Policeman

The United States cannot fight a war against radical Islamism and win, and it  certainly cannot be the sole actor in a war waged primarily in the Eastern  Hemisphere. This is why the French  intervention in Mali is particularly interesting. France retains interests  in its former colonial empire in Africa, and Mali is at the geographic center of  these interests. To the north of Mali is Algeria, where France has significant  energy investments; to the east of Mali is Niger, where France has a significant  stake in the mining of mineral resources, particularly uranium; and to the south  of Mali is Ivory Coast, where France plays a major role in cocoa production. The  future of Mali matters to France far more than it matters to the United  States.

What is most interesting is the absence of the United States in the fight,  even if it is providing intelligence and other support, such as mobilizing  ground forces from other African countries. The United States is not acting as  if this is its fight; it is acting as if this is the fight of an ally, whom it  might help in extremis, but not in a time when U.S. assistance is  unnecessary. And if the French can’t mount an effective operation in Mali,  then little help can be given.

This changing approach is also evident in Syria, where the United States has  systematically avoided anything beyond limited  and covert assistance, and Libya, where the United States intervened after  the French and British launched an attack they could not sustain. That was, I  believe, a turning point, given the unsatisfactory outcome there. Rather than  accepting a broad commitment against radical Islamism everywhere, the United  States is allowing the burden to shift to powers that have direct interests in  these areas.

Reversing a strategy is difficult. It is uncomfortable for any power to  acknowledge that it has overreached, which the United States did both in Iraq  and Afghanistan. It is even more difficult to acknowledge that the goals set by  President George W. Bush in Iraq and Obama in Afghanistan lacked coherence. But  clearly the war has run its course, and what is difficult is also obvious. We  are not going to eliminate the threat of radical Islamism. The commitment of  force to an unattainable goal twists national strategy out of shape and changes  the fabric of domestic life. Obviously, overwatch must be in place against the  emergence of an organization like al Qaeda, with global reach, sophisticated  operatives and operational discipline. But this is very different from  responding to jihadists in Mali, where the United States has limited interests  and fewer resources.

Accepting an ongoing  threat is also difficult. Mitigating the threat of an enemy rather than  defeating the enemy outright goes against an impulse. But it is not  something alien to American strategy. The United States is involved in the  world, and it can’t follow the founders’ dictum of staying out of European  struggles. But the United States has the option of following U.S. strategy in  the two world wars. The United States was patient, accepted risks and  shifted the burden to others, and when it acted, it acted out of necessity, with  clearly defined goals matched by capabilities. Waiting until there is no  choice but to go to war is not isolationism. Allowing others to carry the  primary risk is not disengagement. Waging wars that are finite is not  irresponsible.

The greatest danger of war is what it can do to one’s own society, changing  the obligations of citizens and reshaping their rights. The United States has  always done this during wars, but those wars would always end. Fighting a war  that cannot end reshapes domestic life permanently. A strategy that compels  engagement everywhere will exhaust a country. No empire can survive the  imperative of permanent, unwinnable warfare. It is fascinating to watch the  French deal with Mali. It is even more fascinating to watch the United States  wishing them well and mostly staying out of it. It has taken about 10 years, but  here we can see the American system stabilize itself by mitigating the threats  that can’t be eliminated and refusing to be drawn into fights it can let others  handle.

Read more:  Avoiding the Wars That Never End | Stratfor

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The Crisis of the Middle Class and American Power – Stratfor

This article from George Friedman of Stratfor is a follow up to his recent one on Europe’s current problems, especially unemployment.

The  Crisis of the Middle Class and American Power is republished with permission  of Stratfor.”

Read more:  The Crisis of the Middle Class and American Power | Stratfor

By George Friedman Founder  and Chief Executive Officer, Stratfor,

Last week I wrote about the crisis of unemployment in Europe. I  received a great deal of feedback, with Europeans agreeing that this is the core  problem and Americans arguing that the United States has the same problem,  asserting that U.S. unemployment is twice as high as the government’s  official unemployment rate. My counterargument is that unemployment in the  United States is not a problem in the same sense that it is in  Europe because it does not pose a geopolitical threat. The United States  does not face political disintegration from unemployment, whatever the number  is. Europe might.

At the same time, I would agree that the United  States faces a potentially significant but longer-term geopolitical problem  deriving from economic trends. The threat to the United States is the persistent  decline in the middle class’ standard of living, a problem that is reshaping the  social order that has been in place since World War II and that, if it  continues, poses a threat to American power.

The Crisis of the American Middle Class

The median household income of Americans in 2011 was $49,103. Adjusted for  inflation, the median income is just below what it was in 1989 and is $4,000  less than it was in 2000. Take-home income is a bit less than $40,000 when  Social Security and state and federal taxes are included. That means a monthly  income, per household, of about $3,300. It is urgent to bear in mind that half  of all American households earn less than this. It is also vital to consider not  the difference between 1990 and 2011, but the difference between the 1950s and  1960s and the 21st century. This is where the difference in the meaning of  middle class becomes most apparent.

In the 1950s and 1960s, the median income allowed you to live with a single  earner — normally the husband, with the wife typically working as  homemaker — and roughly three children. It permitted the purchase of modest  tract housing, one late model car and an older one. It allowed a driving  vacation somewhere and, with care, some savings as well. I know this because my  family was lower-middle class, and this is how we lived, and I know many others  in my generation who had the same background. It was not an easy life and many  luxuries were denied us, but it wasn’t a bad life at all.

Someone earning the median income today might just pull this off,  but it wouldn’t be easy. Assuming that he did not have college loans to pay off  but did have two car loans to pay totaling $700 a month, and that he could buy  food, clothing and cover his utilities for $1,200 a month, he would have $1,400  a month for mortgage, real estate taxes and insurance, plus some funds for  fixing the air conditioner and dishwasher. At a 5 percent mortgage rate, that  would allow him to buy a house in the $200,000 range. He would get a refund back  on his taxes from deductions but that would go to pay credit card bills he had  from Christmas presents and emergencies. It could be done, but not  easily and with great difficulty in major metropolitan areas. And if his  employer didn’t cover health insurance, that $4,000-5,000 for three or four  people would severely limit his expenses. And of course, he would have to have  $20,000-40,000 for a down payment and closing costs on his home. There would be  little else left over for a week at the seashore with the kids.

And this is for the median. Those below him — half of all households —  would be shut out of what is considered middle-class life, with the house, the  car and the other associated amenities. Those amenities shift upward on the  scale for people with at least $70,000 in income. The basics might be available  at the median level, given favorable individual circumstance, but below that  life becomes surprisingly meager, even in the range of the middle class and  certainly what used to be called the lower-middle class.

The Expectation of Upward Mobility

I should pause and mention that this was one of the fundamental causes of the 2007-2008 subprime lending  crisis. People below the median took out loans with deferred interest with  the expectation that their incomes would continue the rise that was traditional  since World War II. The caricature of the borrower as irresponsible misses the  point. The expectation of rising real incomes was built into the American  culture, and many assumed based on that that the rise would resume in five  years. When it didn’t they were trapped, but given history, they were not making  an irresponsible assumption.

American  history was always filled with the assumption that upward mobility was  possible. The Midwest and West opened land that could be exploited, and the  massive industrialization in the late 19th and early 20th centuries opened  opportunities. There was a systemic expectation of upward mobility built into  American culture and reality.

The Great Depression was a shock to the system, and it wasn’t solved by the  New Deal, nor even by World War II alone. The next drive for upward mobility  came from post-war programs for veterans, of whom there were more than 10  million. These programs were instrumental in creating post-industrial America,  by creating a class of suburban professionals. There were three programs that  were critical:

  1. The GI Bill, which allowed veterans to go to college after the war, becoming  professionals frequently several notches above their parents.
  2. The part of the GI Bill that provided federally guaranteed mortgages to  veterans, allowing low and no down payment mortgages and low interest rates to  graduates of publicly funded universities.
  3. The federally funded Interstate Highway System, which made access to land  close to but outside of cities easier, enabling both the dispersal of  populations on inexpensive land (which made single-family houses possible) and,  later, the dispersal of business to the suburbs.

There were undoubtedly many other things that contributed to this, but these  three not only reshaped America but also created a new dimension to the upward  mobility that was built into American life from the beginning. Moreover, these  programs were all directed toward veterans, to whom it was acknowledged a debt  was due, or were created for military reasons (the Interstate Highway System was  funded to enable the rapid movement of troops from coast to coast, which during  World War II was found to be impossible). As a result, there was consensus  around the moral propriety of the programs.

The subprime fiasco was rooted in the failure to understand that the  foundations of middle class life were not under temporary pressure but something  more fundamental. Where a single earner could support a middle class family in  the generation after World War II, it now took at least two earners.  That meant that the rise of the double-income family corresponded with the  decline of the middle class. The lower you go on the income scale, the more  likely you are to be a single mother. That shift away from social pressure for  two parent homes was certainly part of the problem.

Re-engineering the Corporation

But there was, I think, the crisis of the modern corporation. Corporations  provided long-term employment to the middle class. It was not unusual to spend  your entire life working for one. Working for a corporation, you received yearly  pay increases, either as a union or non-union worker. The middle class had both  job security and rising income, along with retirement and other benefits. Over  the course of time, the culture of the corporation diverged from the realities,  as corporate productivity lagged behind costs and the corporations became more  and more dysfunctional and ultimately unsupportable. In addition, the  corporations ceased focusing on doing one thing well and instead became  conglomerates, with a management frequently unable to keep up with the  complexity of multiple lines of business.

For these and many other reasons, the corporation became increasingly  inefficient, and in the terms of the 1980s, they had to be re-engineered —  which meant taken apart, pared down, refined and refocused. And the  re-engineering of the corporation, designed to make them agile, meant that there  was a permanent revolution in business. Everything was being reinvented. Huge  amounts of money, managed by people whose specialty was re-engineering  companies, were deployed. The choice was between total failure and radical  change. From the point of view of the individual worker, this frequently meant  the same thing: unemployment. From the view of the economy, it meant the  creation of value whether through breaking up companies, closing some of them or  sending jobs overseas. It was designed to increase the total efficiency, and it  worked for the most part.

This is where the disjuncture occurred. From the point of view of the  investor, they had saved the corporation from total meltdown by redesigning it.  From the point of view of the workers, some retained the jobs that they would  have lost, while others lost the jobs they would have lost anyway. But the  important thing is not the subjective bitterness of those who lost their jobs,  but something more complex.

As the permanent corporate jobs declined, more people were starting over.  Some of them were starting over every few years as the agile corporation grew  more efficient and needed fewer employees. That meant that if they got new jobs  it would not be at the munificent corporate pay rate but at near entry-level  rates in the small companies that were now the growth engine. As these companies  failed, were bought or shifted direction, they would lose their jobs and start  over again. Wages didn’t rise for them and for long periods they might be  unemployed, never to get a job again in their now obsolete fields, and certainly  not working at a company for the next 20 years.

The restructuring of inefficient companies did create substantial value, but  that value did not flow to the now laid-off workers. Some might flow to the  remaining workers, but much of it went to the engineers who restructured the  companies and the investors they represented. Statistics reveal that, since 1947  (when the data was first compiled), corporate profits as a percentage of gross  domestic product are now at their highest level, while wages as a percentage of  GDP are now at their lowest level. It was not a question of making the economy  more efficient — it did do that — it was a question of where the value  accumulated. The upper segment of the wage curve and the investors continued to  make money. The middle class divided into a segment that entered the  upper-middle class, while another faction sank into the lower-middle class.

American society on the whole was never egalitarian. It always accepted that  there would be substantial differences in wages and wealth. Indeed, progress was  in some ways driven by a desire to emulate the wealthy. There was also the  expectation that while others received far more, the entire wealth structure  would rise in tandem. It was also understood that, because of skill or luck,  others would lose.

What we are facing now is a structural shift, in which the middle class’  center, not because of laziness or stupidity, is shifting downward in terms of  standard of living. It is a structural shift that is rooted in social change  (the breakdown of the conventional family) and economic change (the decline of  traditional corporations and the creation of corporate agility that places  individual workers at a massive disadvantage).

The inherent crisis rests in an increasingly efficient economy and a  population that can’t consume what is produced because it can’t afford the  products. This has happened numerous times in history, but the United States,  excepting the Great Depression, was the counterexample.

Obviously, this is a massive political debate, save that political debates  identify problems without clarifying them. In political debates, someone must be  blamed. In reality, these processes are beyond even the government’s ability to  control. On one hand, the traditional corporation was beneficial to the workers  until it collapsed under the burden of its costs. On the other hand, the  efficiencies created threaten to undermine consumption by weakening the  effective demand among half of society.

The Long-Term Threat

The greatest danger is one that will not be faced for decades but that is  lurking out there. The United States was built on the assumption that a rising  tide lifts all ships. That has not been the case for the past generation, and  there is no indication that this socio-economic reality will change any time  soon. That means that a core assumption is at risk. The problem is that social  stability has been built around this assumption — not on the assumption that  everyone is owed a living, but the assumption that on the whole, all benefit  from growing productivity and efficiency.

If we move to a system where half of the country is either stagnant or  losing ground while the other half is surging, the social fabric of the United  States is at risk, and with it the massive global power the United States has  accumulated. Other superpowers such as Britain or Rome did not have  the idea of a perpetually improving condition of the middle class as a core  value. The United States does. If it loses that, it loses one of the pillars of  its geopolitical power.

The left would argue that the solution is for laws to transfer wealth from  the rich to the middle class. That would increase consumption but, depending on  the scope, would threaten the amount of capital available to investment by the  transfer itself and by eliminating incentives to invest. You can’t invest what  you don’t have, and you won’t accept the risk of investment if the payoff is  transferred away from you.

The agility of the American corporation is critical. The right will argue  that allowing the free  market to function will fix the problem. The free market doesn’t  guarantee social outcomes, merely economic ones. In other words, it may give  more efficiency on the whole and grow the economy as a whole, but by itself it  doesn’t guarantee how wealth is distributed. The left cannot be indifferent to  the historical consequences of extreme redistribution of wealth. The right  cannot be indifferent to the political consequences of a middle-class life  undermined, nor can it be indifferent to half the population’s inability to buy  the products and services that businesses sell.

The most significant actions made by governments tend to be unintentional.  The GI Bill was designed to limit unemployment among returning serviceman; it  inadvertently created a professional class of college graduates. The VA loan was  designed to stimulate the construction industry; it created the basis for  suburban home ownership. The Interstate Highway System was meant to move troops  rapidly in the event of war; it created a new pattern of land use that was  suburbia.

It is unclear how the private sector can deal with the problem of pressure on  the middle class. Government programs frequently fail to fulfill even minimal  intentions while squandering scarce resources. The United States has been a  fortunate country, with solutions frequently emerging in unexpected ways.

It would seem to me that unless the United States gets lucky again, its  global dominance is in jeopardy. Considering its history, the United States can  expect to get lucky again, but it usually gets lucky when it is frightened. And  at this point it isn’t frightened but angry, believing that if only its own  solutions were employed, this problem and all others would go away. I am arguing  that the conventional solutions offered by all sides do not yet grasp the  magnitude of the problem — that the foundation of American society is at risk  — and therefore all sides are content to repeat what has been said before.

People who are smarter and luckier than I am will have to craft the solution.  I am simply pointing out the potential consequences of the problem and the  inadequacy of all the ideas I have seen so far.

Read more:  The Crisis of the Middle Class and American Power | Stratfor

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Europe in 2013: A Year of Decision – Stratfor

 

By George Friedman Founder  and Chief Executive Officer Stratfor

The end of the year always prompts questions about what the most important  issue of the next year may be. It’s a simplistic question, since every year sees  many things happen and for each of us a different one might be important. But it  is still worth considering what single issue could cause the world to change  course. In my view, the most important place to watch in 2013 is Europe.

Taken as a single geographic entity, Europe has the largest economy in the  world. Should it choose to do so, it could become a military  rival to the United States. Europe is one of the pillars of the global  system, and what happens to Europe is going to define how the world works. I  would argue that in 2013 we will begin to get clarity on the future of  Europe.

The question is whether the European Union will stabilize itself, stop  its fragmentation and begin preparing for more integration and expansion.  Alternatively, the tensions could intensify within the European Union, the  institutions could further lose legitimacy and its component  states could increase the pace with which they pursue their own policies,  both domestic and foreign.

The Embattled European Project

It has been more than four years since the crisis of 2008 and about two years  since the problems spawned by 2008 generated a sovereign debt crisis and a  banking crisis in Europe. Since that time, the crisis has turned from a  financial to an economic crisis, with Europe moving into recession and  unemployment across the Continent rising above 10 percent. More important, it  has been a period in which the decision-making apparatus created at the founding  of the European Union has been unable to create policy solutions that were both  widely acceptable and able to be implemented. EU countries have faced each other  less as members of a single political entity than as individual  nation-states pursuing their own national interests in what has become  something of a zero-sum game, where the success of one has to come at the  expense of another.

This can be seen in two ways. The first dimension has centered on which  countries should bear the financial burden of stabilizing the eurozone. The  financially healthier countries wanted the weaker countries to bear the burden  through austerity. The weaker countries wanted the stronger countries to bear  the burden through continued lending despite the rising risk that the loans  will not be fully repaid. The result has been constant attempts to  compromise that have never quite worked out. The second dimension has been  class. Should the burden be borne by the middle and lower classes by reducing  government expenditures that benefit them? Or by the elites through increased  taxation and regulation?

When you speak with Europeans who support the idea that Europe is in the  process of solving its problems, the question becomes: What problem are they  solving? Is it the problem of the banks? The problem of unemployment? Or the  problem of countries’ inability to find common solutions? More to the point,  European officials have been working on this problem for years now, and they are  among the best and brightest in the world. Their inability to craft a solution  is not rooted in a lack of good ideas or the need to think about the problem  more. It is rooted in the fact that there is no political agreement on who will  pay the price geographically and socially. The national tensions and the class  tensions have prevented the crafting of a solution that can be both agreed upon  and honored.

If the Europeans do not generate that sort of solution in 2013, it is time to  seriously doubt whether a solution is possible and therefore to think about the  future of Europe without the European Union or with a very weakened one. If,  however, Europe does emerge with a plan that has general support and momentum  behind it, then we might say that Europe is beginning to emerge from its crisis,  and that, in turn, would be the single most important thing that happens in  2013.

At this point, a reasonable person will argue that I am ignoring the United  States, which has different but equally significant economic problems and is  also unable to generate consensus on how to solve them, as we have seen during  the recent “fiscal cliff” affair, which will have many more iterations. But as  valid as the comparison is on the financial level, it is not valid on the  political level. The  United States does not face the dissolution of the republic if it follows  contradictory policies. The United States is more than two centuries old and has  weathered far worse problems, including the Civil War and the Great Depression.  The European Union is only about 20 years old in its current form, and this is  its first significant crisis. The consequences of mismanaging the U.S. financial  system are significant to say the least. But unlike Europe, the consequences are  not an immediate existential threat.

The Other Costs of the Crisis

It is the political dimension that has become the most important, not the  financial. It may well be that the European Union is in the process of dealing  with its banking problems and might avoid other sovereign debt issues, but the  price it has paid is both a recession and, much more serious, unemployment at a  higher rate than in the United States overall, and enormously higher in some  countries.

We can divide the European Union into three categories by measuring it  against the U.S. unemployment rate, which stands at about 7.7 percent. There are  five EU countries significantly below that rate (Austria, Luxembourg,  Germany, Netherlands and Malta). There are seven countries with unemployment  around the U.S. rate (Romania, Czech Republic, Belgium, Denmark, Finland, the  United Kingdom and Sweden). The remaining 15 countries  are above U.S. unemployment levels; 11 have unemployment rates between  10 and 17 percent, including France at 10.7 percent, Italy at 11.1 percent,  Ireland at 14.7 percent and Portugal at 16.3 percent. Two others are  staggeringly higher — Greece at 25.4 percent and Spain at 26.2 percent. These  levels are close to the unemployment rate in the United States at the height of  the Great Depression.

For advanced industrialized countries — some of the most  powerful in Europe, for that matter — these are stunning numbers. It is  important to consider what these numbers mean socially. Bear in mind that the  unemployment rate goes up for younger workers. In Italy, Portugal, Spain  and Greece, more than a third of the workforce under 25 is reportedly  unemployed. It will take a generation to bring the rate down to an  acceptable level in Spain and Greece. Even for countries that remain at about 10  percent for an extended period of time, the length of time will be substantial,  and Europe is still in a recession.

Consider someone unemployed in his 20s, perhaps with a university degree. The  numbers mean that there is an excellent chance that he will never have the  opportunity to pursue his chosen career and quite possibly will never get a job  at the social level he anticipated. In Spain and Greece, the young — and the  old as well — are facing personal catastrophe. In the others, the percentage  facing personal catastrophe is lower, but still very real. Also remember  that unemployment does not affect just one person. It affects the immediate  family, parents and possibly other relatives. The effect is not only financial  but also psychological. It creates a pall, a sense of failure and dread.

It also creates unrooted young people full of energy and anger. Unemployment  is a root of anti-state movements on the left and the right. The extended and  hopelessly unemployed have little to lose and think they have something to gain  by destabilizing the state. It is hard to quantify what level of unemployment  breeds that sort of unrest, but there is no doubt that Spain and Greece are in  that zone and that others might be.

It is interesting that while Greece has already developed a radical right  movement of some size, Spain’s political system, while experiencing stress  between the center and its autonomous regions, remains  relatively stable. I would argue that that stability is based on a belief  that there will be some solution to the unemployment situation. Its full  enormity has not yet sunk in, nor the fact that this kind of unemployment  problem is not fixed quickly. It is deeply structural. The U.S.  unemployment rate during the Great Depression was mitigated to a limited degree  by the New Deal but required the restructuring of World War II to really  address.

This is why 2013 is a critical year for Europe. It has gone far to solve the  banking crisis and put off a sovereign debt crisis. In order to do so, it has  caused a serious weakening of the economy and created massive unemployment in  some countries. The unequal distribution of the cost, both nationally and  socially, is the threat facing the European Union. It isn’t merely a question of  nations pulling in different directions, but of political movements emerging,  particularly from the most economically affected sectors of society, that will  be both nationalist and distrustful of its own elites. What else can happen in  those countries that are undergoing social catastrophes? Even if the  disaster is mitigated to some degree by the shadow economy and  emigration reducing unemployment, the numbers range from the painful to the  miserable in 14 of Europe’s economies.

Europe’s Crossroads

The European Union has been so focused on the financial crisis that it is not  clear to me that the unemployment reality has reached Europe’s officials and  bureaucrats, partly because of a growing split in the worldview of the European  elites and those whose experience of Europe has turned bitter. Partly, it has  been caused by the fact of geography. The countries with low unemployment tend  to be in Northern Europe, which is the heart of the European Union, while those  with catastrophically high unemployment are on the periphery. It is easy to  ignore things far away.

But 2013 is the year in which the definition of the European problem must  move beyond the financial crisis to the social consequences of that crisis.  Progress, if not a solution, must become visible. It is difficult to see how  continued stagnation and unemployment at these levels can last another year  without starting to generate significant political opposition that will create  governments, or force existing governments, to tear at the fabric of Europe.

That fabric is not old enough, worn enough or tough enough to face the  challenges. People are not being asked to die on a battlefield for the European  Union but to live lives of misery and disappointment. In many ways that is  harder than being brave. And since the core promise of the European Union was  prosperity, the failure to deliver that prosperity — and the delivery of  poverty instead, unevenly distributed — is not sustainable. If Europe is in  crisis, the world’s largest economy is in crisis, political as well as  financial. And that matters to the world perhaps more than anything else.

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Egypt and the Strategic Balance from Stratfor

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“<a href=”http://www.stratfor.com/weekly/egypt-and-strategic-balance”>Egypt and the Strategic Balance</a> is republished with permission of Stratfor.”

By George Friedman Founder  and Chief Executive Officer

Immediately following the declaration of a cease-fire  in Gaza, Egypt was plunged into a massive domestic crisis. Mohammed Morsi,  elected in the first presidential election after the fall of Hosni  Mubarak, passed a decree that would essentially neuter  the independent judiciary by placing his executive powers above the high  court and proposed changes to the constitution that would institutionalize the  Muslim Brotherhood’s power. Following the decree, Morsi’s political opponents  launched massive demonstrations that threw Egypt into domestic instability and  uncertainty.

In the case of most countries, this would not be a matter of international  note. But Egypt  is not just another country. It is the largest Arab country and one that has  been the traditional center of the Arab world. Equally important, if Egypt’s  domestic changes translate into shifts in its foreign policy, it could affect  the regional balance of power for decades to come.

Morsi’s Challenge to the Nasserite Model

The Arab Spring was seen by some observers to be a largely secular movement  aimed at establishing constitutional democracy. The problem with this theory was  that while the demonstrators might have had the strength to force an election,  it was not certain that the secular constitutionalists would win it. They  didn’t. Morsi is a member of the Muslim Brotherhood, and while there were  numerous claims that he was a moderate member, it was simply not understood that  he was a man of conviction and honor and that his membership in the Brotherhood  was not casual or frivolous. His intention was to strengthen the role of Islam  in Egypt and the control of the Muslim Brotherhood over the various arms of  state. His rhetoric, speed and degree of Islamism might have been less extreme  than others, but his intent was clear.

The move on the judiciary signaled his intent to begin consolidating power.  It galvanized opponents of the Muslim Brotherhood, which included secular  constitutionalists, Copts and other groups who formed a coalition that was  prepared to take to the streets to oppose his move. What it did not include, or  at least did not visibly include through this point, was the Egyptian military,  which refused to  be drawn in on either side.

The Egyptian military, led by a young army officer named Gamal Abdel Nasser, founded the  modern Egyptian state when it overthrew the British-supported monarchy in  the 1950s. It created a state that was then secular, authoritarian and  socialist. It aligned Egypt with the Soviet Union and against the United States  through the 1970s. After the 1973 Arab-Israeli war, Egyptian President Anwar  Sadat, who was later assassinated by Islamists, shifted Egypt into an alliance  with the United States and signed a peace treaty with Israel.

This treaty was the foundation of the regional balance of power until now.  The decision to end the state of war with Israel and use Sinai as a  demilitarized buffer between the two countries eliminated the threat of  nation-to-nation war between Arabs and Israel. Egypt was the most powerful Arab  country and its hostility to Israel represented Israel’s greatest threat. By  withdrawing from confrontation, the threat to Israel declined dramatically.  Jordan, Syria and Lebanon did not represent a significant threat to Israel and  could not launch a war that threatened Israel’s survival.

Egypt’s decision to align with the United States and make peace with Israel  shaped the regional balance of power in other ways. Syria could no longer depend  on Egypt, and ultimately turned to Iran for support. The Arab monarchies that  had been under political and at times military pressure from Egypt were relieved  of the threat, and the Soviets lost the Egyptian bases that had given them  a foothold in the Mediterranean.

The fundamental question in Egypt is whether the election of Morsi  represented the end of the regime founded by Nasser or was simply a passing  event, with power still in the hands of the military. Morsi has made a move  designed to demonstrate his power and to change the way the Egyptian judiciary  works. The uprising against this move, while significant, did not seem to have  the weight needed either to force Morsi to do more than modify his tactics a bit  or to threaten his government. Therefore, it all hangs on whether the military  is capable of or interested in intervening.

It is ironic that the demands of the liberals in Egypt should depend on  military intervention, and it is unlikely that they will get what they want from  the military if it does intervene. But what is clear is that the Muslim  Brotherhood is the dominant force in Egypt, that Morsi is very much a member of  the Brotherhood and while his tactics might be more deliberate and circumspect  than more radical members might want, it is still headed in the same  direction.

For the moment, the protesters in the streets do not appear able to force  Morsi’s hand, and the military doesn’t seem likely to intervene. If that is  true, then Egypt has entered a new domestic era with a range of open foreign  policy issues. The first is the future of the treaty with Israel. The issue is  not the treaty per se, but the maintenance of Sinai as a buffer. One of the  consequences of Mubarak’s ouster has been the partial  remilitarization of Sinai by Egypt, with Israel’s uneasy support. Sinai has  become a zone in which Islamist radicals are active and launch  operations against Israel. The Egyptian military has moved into Sinai to  suppress them, which Israel obviously supports. But the Egyptians have also  established the principle that while Sinai may be a notional buffer zone, in  practice the Egyptian military can be present in and responsible for it. The  intent might be one that Israel supports but the outcome could be a Sinai  remilitarized by the Egyptians.

A remilitarized Sinai would change the strategic balance, but it would only  be the beginning. The Egyptian army uses American equipment and depends on the  United States for spare parts, maintenance and training. Its equipment is  relatively old and it has not been tested in combat for nearly 40 years. Even if  the Egyptian military was in Sinai, it would not pose a significant conventional  military threat to Israel in its current form. These things can change, however.  The transformation of the Egyptian army between 1967 and 1973 was impressive.  The difference is that Egypt had a patron in the Soviet Union then that was  prepared to underwrite the cost of the transformation. Today, there is no global  power, except the United States, that would be capable of dramatically and  systematically upgrading the Egyptian military and financially supporting the  country overall. Still, if the Morsi government succeeds in institutionalizing  its power and uses that power to change the dynamic of the Sinai buffer, Israel  will lose several layers of security.

A New Regional Alignment?

A look at the rest of the region shows that Egypt is by no means the only  country of concern for Israel. Syria, for example, has an uprising that, in  simple terms, largely consists of Sunnis, many of which are Islamists.  That in itself represents a threat to Israel, particularly if the relationship  between Syria and Egypt were revived. There is an ideological kinship, and just  as Nasserism had an evangelical dimension, wanting to spread pan-Arab ideology  throughout the region, the Muslim Brotherhood has one too. The Syrian Muslim  Brotherhood is also the most organized and coherent opposition group in  Syria. As Morsi consolidates his power in Egypt, his willingness to engage  in foreign adventures, or at least covert support, for like-minded insurgents  and regimes could very well increase. At a minimum Israel would have to take  this seriously. Similarly, where Gaza  was contained not only by Israel but also by pre-Morsi Egypt, Morsi might  choose to dramatically change Egypt’s Gaza policy.

Morsi’s rise opens other possibilities as well. Turkey’s Islamic-rooted  Justice and Development Party is also engaged in a careful process of  reintroducing Islam into a state that was militantly secular. There are fundamental  differences between Egypt and Turkey, but there is also much in common.  Turkey and Egypt are now engaged in parallel processes designed to create modern  countries that recognize their Islamic roots. A Turkish-Egyptian relationship  would both undergird the Egyptian regime and create a regional force that could  shape the Eastern Mediterranean.

This would, of course, affect American strategy, which as  we have said in the past, is now rapidly moving away from excessive  involvement in the Middle East. It is not clear how far Morsi would go in  breaking with the United States or whether the military would or could draw a  line at that point. Egypt is barely  skirting economic disaster at the moment because it is receiving a broad  range of financial aid from the West. Moving away from the United States would  presumably go well beyond military aid and affect these other types of economic  assistance.

The fact is that as Egypt gradually evolves, its relationship with the United  States might also change. The United States’ relationship  with Turkey has changed but has not broken since the Justice and Development  Party came to power, with Turkey following a more independent direction. If a  similar process occurred in Egypt, the United States would find itself in a very  different position in the Eastern Mediterranean, one in which its only ally was  Israel, and its relationship with Israel might alienate the critical  Turkey-Egypt bloc.

Prior to 1967, the United States was careful not be become overly involved in  protecting Israel, leaving that to France. Assuming that this speculation about  a shift in Egypt’s strategic posture came to pass, Israel would not be in  serious military danger for quite a while, and the United States could view its  support to Israel as flexible. The United States could conceivably choose to  distance itself from Israel in order to maintain its relationships with Egypt  and Turkey. A strategy of selective disengagement and  redefined engagement, which appears to be under way in the United States now,  could alter relations with Israel.

From an Israeli point of view — it should be remembered that Israel is the  dominant power in the region — a shift in Egypt would create significant  uncertainty on its frontier. It would now face  uncertainty in Egypt, Syria and Lebanon, and while unlikely, the possibility  of uncertainty in Jordan. Where previously it faced hostile powers with  substantial military capabilities, it would now face weaker powers that are  less predictable. However, in an age when Israel’s primary concern is with  terrorist actions and uprisings in Gaza and the West Bank, this band of  uncertainty would be an incubator of such actions.

The worst-case scenario is the re-emergence of confrontational states on its  border, armed with conventional weapons and capable of challenging the Israeli  military. That is not an inconceivable evolution but it is not a threat in the  near term. The next-worst-case scenario would be the creation of multiple states  on Israel’s border prepared to sponsor or at least tolerate Islamist attacks on  Israel from their territory and to underwrite uprisings among the Palestinians.  The effect would be an extended, wearying test of Israel’s ability to deal with  unremitting low-intensity threats from multiple directions.

Conventional war is hard to imagine. It is less difficult to imagine a shift  in Egyptian policy that creates a sustained low-intensity conflict not only  south of Israel, but also along the entire Israeli periphery as Egypt’s  influence is felt. It is fairly clear that Israel has not absorbed the  significance of this change or how it will respond. It may well not have a  response. But if that were the case, then Israel’s conventional dominance would  no longer define the balance of power. And the United States is entering a  period of unpredictability in its foreign policy. The entire region becomes  unpredictable.

It is not clear that any of this will come to pass. Morsi might not be able  to impose his will in the country. He may not survive politically. The Egyptian  military might intervene directly or indirectly. There are several hurdles for  Morsi to overcome before he controls the country, and his timeline might be  extended for implementing changes. But for the moment, Morsi appears in charge,  he seems to be weathering the challenges and the army has not moved. Therefore,  considering the strategic consequences is appropriate, and those strategic  consequences appear substantial.

Read more:  Egypt and the Strategic Balance | Stratfor

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