Posted 11:15 AM by Robert

For The Holidays, Send A Gift With A Wish Attached II: Germany And France Aren't Naughty, This Time

I don't generally read Michael Elliott's column in TIME because I don't generally read TIME. But I was traveling over the weekend (Wilmington, Delaware, bankruptcy court, for the curious - but neither I nor any affiliate of mine is either a creditor or the bankrupt debtor) and TIME managed to put it's cover issue with the captured Saddam Hussein in the airport shops even before the dailies, so I made an exception. Mr. Elliott's column on the interaction of Paul Wolfowitz's memo of Dec. 5 that fleshed out for the public who is eligible to win prime contracts, funded by $18.6 billion of U.S. tax money, to rebuild Iraq's infrastructure and supply its new army with James Baker's debt relief efforts was a fascinating tour de force of current crippled, liberal thinking:

Even if you accept the memo's argument that "limiting competition for prime contracts will encourage the expansion of international cooperation in Iraq" (in other words, war naysayers have to join the occupation if they hope to fully cash in) "and in future efforts" (what future efforts, by the way?), its timing was idiotic. Wolfowitz's findings were posted on a Pentagon website just as President Bush was phoning other heads of state to ask them to give a fair hearing to former Secretary of State James Baker III, whom Bush has just deputed to help renegotiate Iraq's hefty debt. Of the $21 billion (excluding interest) that Baghdad owes to non-Arab states, more than $9.3 billion is due to Germany, Russia, Canada and France. (The U.S. is owed an additional $2.2 billion.) Political leaders in debtor countries left off the list yelped at the bizarre conjunction of events, while U.S. allies like the British sighed at the plan's unhelpful diplomacy. In the best case, Baker will have to spend time on his travels smoothing ruffled feathers ?— one reason the White House, which had initially signed off on the Pentagon policy, later suggested that it was less than thrilled by the way and time it was announced.

As I have explained in my prior post on this topic, Mr. Elliott's image of James Baker traveling hat-in-hand to European creditors smoothing ruffled feathers and begging for debt relief is risible. Even without the Wolfowitz memo, Mr. Baker held most of the cards: Iraq could just repudiate the debt. Mr. Baker was benefited substantially by Paul Wolfowitz's memo because the main issue Mr. Baker has to confront in his negotiations is European skepticism that the US really had the temerity to cause and support Iraq's repudiating the portion of its debt that constitutes credit extended by those countries to Saddam's regime. The US is very careful about endorsing debt repudiation - as has been clearly displayed in the endless rounds of third-world debt workouts that have clogged the international finance system since the early 1980's (Brazil Argentina, etc.). Mr. Wolfowitz's memo made credible the point that the US was perfectly prepared to make an exception for Iraq - while the White House "protests" that they really, really wished that the timing and tone of the memo had been better (even after Mr. Bush approved the policy and then frankly backed up the contents of the memo) just provided the appropriate diplomatic fig leaf. In other words, every aspect of the Wolfowitz/Baker approach is fully consistent with it having been worked out down to the last detail - which, in turn, is fully consistent with the reputations of Messrs. Wolfowitz and, especially, Baker, for working out everything they do down to the last detail. Mr. Elliott's silly political agenda seems to leave him little room for acknowledging such merits in Messrs. Wolfowitz and Baker - but those merits are there for all to see.

For a bungled and "idiotic" handling of the matter, the Wolfowitz/Baker approach certainly seems to have produced rapid, positive results:

"Germany and the United States, like France, are ready not only for debt restructuring but also for substantial debt forgiveness toward Iraq (news - web sites)," German Chancellor Gerhard Schroeder's spokesman Bela Anda said in a statement. ... Despite responding to Washington's call for debt relief, Schroeder expressed misgivings about the Pentagon (news - web sites)'s exclusion of German companies from Iraqi reconstruction contracts.

Would it have been possible for Mr. Baker to have achieved his results more promptly? How much time does this allow for "smoothing feathers."

The large portion of the Iraq debt that is "involuntary" debt (essentially, war reparations) from Iraq's assaults on other countries is in a different category. But it would be morally difficult (although practically straightforward) for the US to ask Kuwait, say, to waive a slug of its war reparations if France and Germany are not made to waive a good portion of the debt owed to them. The European debt was extended to Saddam Hussein's government to finance the very infrastructure that enabled him to invade Kuwait in the first place and neither of these countries has agreed to extend substantial reconstruction funds. It's preposterous that the Europeans do not contribute more if Kuwait is asked to contribute. That, in turn, gives Mr. Baker yet another argument against the Europeans: You Europeans must forgive so that Kuwait will forgive. That's another reason you Europeans should take seriously the threat of naked Iraqi debt repudiation and US support for such repudiation.

It all seems to be working nicely so far. But, then, that's true of most things to which James Baker turns his hand.

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UPDATE:

Astute reader Avinash Singh asks by e-mail: "I wonder why James Baker is doing Colin Powell's job."

I think one reason is that Baker's not on a true diplomatic mission - it's fundamentally a cramdown negotiation, and Mr. Baker's positioned to play the "bad cop."

Maybe Powell will resurface as the "good cop" after Mr. Baker does his shorter-term, harsher work. That's pretty standard debt negotiation strategy: First the nasty debt negotiations are handled by hard nosed work-out counsel who aren't afraid to be dislaiked or to deliver the harsh realities, then the corporate types come in for the longer haul.

There's another possibility. It's still early - but I wonder if Mr. Powell is setting himself up for a graceful exit? He hasn't messed his position up, at least not in a big way, and he's done some very good - even brilliant - work (his UN talk, for example).

It is my opinion that the Baker/Powell dyad should be - and may be - the institutionalization of an approach to Old Europe that clearly denies them the ability to obtain their larger ends through essentially costless manipulation of "international law" and international institutions ("free riding") unless and until they start doing the things needed to be taken as fully serious players in the international theater (real economic reform, real military committment).

FURTHER UPDATE:

Unlike most of the American media, some German media get the Baker/Wolfowitz connection right:

The Berlin newspaper Der Tagesspiegel said Germany must decide whether it wants to play a constructive role.

"Amid the warranted irritation, the government must decide what is more important: continuing skirmishes with hard-liners in the Pentagon like Paul Wolfowitz or making progress with the reconstruction of Iraq," the paper commented today.

"If the talks with the United States about debt relief bring German firms a few contracts, so much the better. The French and Russians won't do otherwise."