Monday, January 31, 2011

Too Big To Flail - January 31, 2011 - The Streets of Cairo

I was bruised and battered and I couldn’t tell what I felt, I was unrecognizable to myself, I saw my reflection in a window, I didn't know my own face, Oh brother are you gonna leave me, Wasting away, On the streets of Philadelphia’ (Bruce Springsteen – 1993)

‘The Streets of Philadelphia’, it really should have been ‘The Streets of Cairo’ or maybe I should’ve gone with ‘Winds of Change by The Scorpions. What’s transpiring in Egypt or Northern Africa for that matter is extraordinary. Regimes that have been in place for 25+ years are all of a sudden being challenged by the people on a large scale. Not only in Tunisia and Egypt, but also in Syria, Yemen and even in Libya, on a smaller scale, people are taking to the streets, demanding their freedom, their dignity and above all affordable food. It’s extraordinary because no one could have predicted the swiftness or tenacity with which it all takes place, but it is by no means unprecedented. Rewind 20 odd years and here in Europe we experienced the same with the break-up of Russia and the demise of the dictators of Eastern Europe.

It took the Tunisians a couple of weeks to get rid of their once fearless leader and see him fly off in his private airplane, filled with gold (if he had ridden into the sunset through the desert on a horse with a couple of gold-bars it would have been a scene straight out of a medieval Hollywood blockbuster, but, this is, regrettably, fact and not fiction). The Egyptian protests have gone into day 7 now and even though thousands are defying the curfew, they have far from succeeded in chasing away President Mubarak. It shows that it’s really helpful to be backed by the U.S. Government. The biggest question is whether the protests will actually work and if so, what will be the implications for the region.

Let’s assume the ‘million man march’ scheduled for tomorrow is the final straw that breaks Mubarak’s proverbial back then a new government will have to be formed. Mohammed El-Baradei, the former International Atomic Agency chief and a prominent political opposition figure in Egypt, has already announced that he is willing to form a new government with the other opposition parties such as the Muslim Brotherhood. As good as it may sound that a new structured government will be formed (or at least an attempt will be made) within the weeks following Mubarak’s dismissal, the chances for a lasting new government are actually not that big. As history has taught us, the transition from a dictatorial form of government to one of democracy has often been met with violence. It’s just that, a transitional government. If we look at the analogy with Eastern Europe and the former U.S.S.R., most former republics are now ruled by a dictator, there’s a decade long war raging in Chechnya, the economic turn-around in most of Eastern Europe never took place and the former Republic of Yugoslavia went through a major civil war.

My girlfriend, who studied Political Science, told me on Saturday: ‘With Democracy comes responsibility’ and that is more than true. For us living in the West democracy is something so obvious, we often forget we have responsibilities, instead we rely on the government to take care of us. So how can we expect people that have been living in poverty, in fear, people who have been suppressed all their lives, who have never known democracy, how can we expect them to start to take responsibility out of the blue?  For all their good intentions, it just doesn’t work that way. It will get better, but they have to take baby steps, they have to restrain themselves and not think they will achieve tomorrow all that they have been denied for so long, that, in itself, will be the biggest task ahead.

The fall of Mubarak will have implications for the entire region. Seeing as he has been a prominent moderate voice in the Arabic community (the main reason why he is backed by the U.S.) for over 30 years, his resignation will no doubt have a big impact.
It will instill fear in other regimes, and most countries in the Middle East are just that: non-democratic governments, and fill the hearts of the people with courage and belief that they too can make a change. Already Moammar al-Qadhafi in Libya (wedged between Tunisia and Egypt) has announced emergency measures in the hope he will keep the people off the streets. Protest demonstrations, albeit really small, were held in Yemen and Syria and so it seems to be spreading to the east bit by bit.

The crucial question is: will the unrest reach Saudi Arabia? Besides their vast oil reserves, Saudi Arabia plays an important geo-political role in the region as they are the biggest U.S. allies, the U.S. has a large military presence there and the Saudis are an opposing voice to Iran. There already have been protests in the past, but so far the security forces of the Kingdom have been able to control them. It’s my understanding that the people are comparatively wealthy (compared to the rest of the region) so their impetus to revolt is much lower. That being said, I don’t believe Saudi Arabia will become a problem anytime soon.

Although Egypt has already been marked by some in the financial markets as a ‘Black Swan’ event, they seem to be ignoring it for the most part. Last Friday there was a mild sell off on the European and U.S. markets (1% - 2% down) but there is little to no spillover effect today. It seems strange on the surface, since there could be some major geo-political shifts as a consequence of what’s happening right now, it could affect the price of Oil in a structural way, but for now people seem unwilling to gamble on such an extreme outcome. Apparently the inflow of ‘cheap -FED-money’ is still more important than tens of thousands of protestors on the streets of Cairo, than regimes being toppled. Obviously the FED can keep printing money longer than the protestors can stay in Taharir-Square. Business as usual. There has to be a POMO somewhere we can front-run.

Happy Hunting & Let’s Be Careful out there!!!

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