The current Great Recession is a global one, with even the most buoyant economies struggling. Reports today suggest that Japan may follow Georgia, Ireland, Switzerland, and Spain in suffering from deflation. Economic woes  caused the collapse of the government of the Czech Republic. And dozens of other countries face similar specters. 

All of which means the IMF, the international lender of last resort, has become very, very, very important. In the past, the IMF provided loans to countries out of ways to solve their own economic problems. In return for the loan, the IMF imposed strict conditionalities, requiring governments to clean up their act, sell assets, change tax policies, etc.

But the realities of the global recession mean that even countries with responsible policies may need IMF loans -- and may not want to accept them, for fear of the conditionalities and the optics. (See: Brown, Gordon.)

And the IMF, with its new $1 trillion budget, figured that out quickly. So, they changed the rules:

The IMF’s intention is to do away with procedures that have hampered dialogue with some countries, and prevented other countries from seeking financial assistance because of the perceived stigma in some regions of the world of being involved with the Fund. 

To this end, the IMF announced the creation of a "flexible credit line" policy. 

[It is an] insurance policy for strong performers, mainly emerging market countries. Access to the FCL is restricted to countries that meet strict qualification criteria. But once a credit line has been approved, a country can draw on it without having to meet specified policy goals, as is normally the case for IMF loans. 

Mexico has already applied for the FCL loan, a $47 billion "precautionary credit line," last month. Question is, with new scary data emerging, which countries will be next to approach the IMF?

Indispensible financial blogger Felix Salmon, Liam Halligan for The Telegraph, and the New York Times have been parsing the fine print of the G-20 Communique, which promised $1 trillion in additional funding to help ease the financial crisis and get countries growing again. 

They note that countries, including the United States, are behind on their IMF funding -- the crux of the program -- and require various sorts of congressional approval; therefore, the funding push may be illusory. The NYT concludes: "Some of the money has yet to be pledged, some is double-counted and some would be counted in a 'synthetic currency' that is not actually real money."

In some sense, none of this should come as a surprise; the "$1 trillion" number hardly represented the sum of an ordered and pledged budget. The Communique included massive sums with little fine print. Member-states' contributions to international organizations always become backed-up. And the ink isn't dry on the page yet -- there's been little time to sort out which commitments will come to fruition first. 

The New York Times notices a specific potential problem:

In perhaps the most novel move, the Group of 20 authorized the monetary fund to issue $250 billion in Special Drawing Rights, known as S.D.R.’s — a “virtual currency” whose value is set by a basket of real currencies like the dollar, euro and British pound. The I.M.F. will issue the S.D.R.’s to all 185 of its members, and they in turn can lend them out to poor countries.

Special Drawing Rights are not cash but a form of credit, against which a country can borrow. The Obama administration, which conceived the idea and sold it to the Group of 20, figures it would create between $15 billion and $20 billion in additional credit for the poorest countries.

But there is a caveat here as well. For the program’s benefits to be felt globally, the United States and Europe will need to lend out their Special Drawing Rights. In the United States, that will require Congressional approval.

To say that the SDRs aren't a real currency is both true and false. They are a unit of exchange eventually backed with actual cash; the IMF collects money from the member-states to fund them.

And countries like Russia and China, as well as IMF representatives themselves, have called for massive revisions to the outmoded program, to make it useful for alleviating the recession. How that will work remains to be seen.

Plus, it seems early days to be sounding the death knell for the G-20 spending promises. Will the $1 trillion number prove correct? No. But that isn't to say the IMF won't massively expand to aid ailing countries -- ultimately the point of the summit. 

In today's G-20 communiqué (just a fact sheet, really) world leaders pledged an additional $1.1 trillion in loans and debt guarantees to aid trade and help shore up the worst-ailing economies.

The fact sheet (let's call it a fact sheet) notably included toothy regulatory measures and a lack of fiscal stimulus -- which Britain, the United States, and China have undertaken, to the cold shoulder of most of continental Europe.

It also dramatically increased the budget of the IMF. The New York Times summarizes:

The most concrete measures relate to support for the International Monetary Fund, which has emerged as a “first responder” in this global crisis, making emergency loans to dozens of countries.

The Group of 20 pledged to triple the resources of the Fund to $750 billion — through a mix of $500 billion in loans from countries, and a one-time issuance of $250 billion in Special Drawing Rights, the synthetic currency of the Fund, which will be parceled out to all its 185 members.

So what on earth is a Special Drawing Right (SDR) anyway?

Basically: it's a currency.

Back in 1969, the world economy was still suffering from the effects of the Great Depression and the world wars. At the Bretton Woods conference at the end of World War II, the heads of state attending decided against creating a global reserve currency, instead instituting a fixed-rate exchange system. 

Twenty-five years later, there weren't enough key exchange assets -- units of gold bullion and dollars -- to keep up with the growing global economy. So, the IMF's member states decided to create the SDR system.

A basket of stable major currencies -- like the dollar, pound, and yen -- determined its value. Some countries, like Latvia, pegged their currencies to the value of the SDR. But most just used their allocated portion in various international transactions.

But, just a few years after the IMF bothered to make the SDRs, the Bretton Woods fixed-rate system collapsed and the modern world currency market, where exchange rates float freely, emerged. This rendered the SDRs pretty much useless.

Indeed, the current market for SDRs, until the I.M.F. injection, was just $32 billion. The value of current oustanding U.S. currency? Just over $1 trillion.

In the upcoming issue of The Atlantic, Simon Johnson -- M.I.T. professor, awesome financial-collapse blogger, and former chief economist for the I.M.F. -- has a must-read. The nutgraf(s):

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Johnson shows how financial firms became more and more profitable, and a bigger and bigger part of the U.S. economy. More capital meant more political capital, he argues, which eventually meant nobody prevented the melt-down. The same political entrenchment makes fixing the banks difficult. 

The obvious solution to the financial crisis, Johnson says -- informed by his time at the I.M.F. -- is simple. The United States should determine which banks can't survive and temporarily nationalize them, instead of simply recapitalizing them, he says. But the relationship between top financiers and the government means this won't happen -- at least not unless things get much worse.

Still, his article includes a list of the policies (or lack thereof) which most contributed to the bubble and burst. It's a great crib sheet of what Capitol Hill and the G-20 Summit will tackle, piece by piece, to reform the system. 

• insistence on free movement of capital across borders;

• the repeal of Depression-era regulations separating commercial and investment banking;

• a congressional ban on the regulation of credit-default swaps;

• major increases in the amount of leverage allowed to investment banks;

• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;

• an international agreement to allow banks to measure their own riskiness;

• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.

It's fascinating, scary reading. 

The New York Times reports that embattled Czech Prime Minister and E.U. President Mirek Topolanek, addressing the European Parliament, described Obama's fiscal package as the "road to hell," saying the bailout would "undermine the stability of the global financial market."

Yesterday, Topolanek was defeated in a no-confidence vote by the Czech parliament -- largely due to criticism of his handling of the financial crisis.

Photo: Dominique Faget/AFP/Getty Images

 

Don Kraus at the Global Solutions Blog and Mark Leon Goldberg at U.N. Dispatch report that Rep. Nita Lowey and Sen. Patrick Leahy managed to cut the Nethercutt Amendment out of the omnibus appropriations bill that Congress passed this week.

The Nethercutt Amendment -- named for former Rep. George Nethercutt and bundled in a 2004 appropriations bill -- cut economic support funds to nations that ratified the International Criminal Court without signing a Bilateral Immunity Agreement with the Bush administration.

Global Solutions says the law affected funding to more than 20 countries, including:

Latin American allies in the war on drugs, including Peru, Ecuador, Paraguay, Brazil, Venezuela, Costa Rica, and Uruguay.

The Balkan countries of Croatia and Serbia and Montenegro, which rely on U.S. military assistance to maintain stability and reform their armies.

Caribbean countries, whose hurricane disaster assistance is tied to the affected programs: Trinidad and Tobago, Barbados, and St. Vincent and the Grenadines.

African allies with which the U.S. partners to help maintain regional security, including South Africa, Kenya, Mali and Tanzania.

 

Photo: Paul Vreeker/AFP/Getty Images

Don't worry Oktoberfest devotees, those Roquefort-munching geeks in Brussels are not trying to ban your pretzels. What's that you say? You didn't know the EU wanted to ban pretzels? Neither did the EU apparently.

At the heart of the issue are new rules on nutritional information to be placed on food products.

Bakers would be free to make no health claims for their bread. If however they specify that it is 'high in fibre' then they would also be obliged to tell consumers that it is also 'high in salt'.

The rule was adopted in 2006 but discussions are still under way -- with input from the food industry -- on how they are going to be introduced and what levels would constitute a product being deemed 'low' or 'high' in anything.

A bit of a nanny state annoyance perhaps, but the German media went a bit overboard after the Association of German bakers claimed that German pretzel culture would be "hemmed in" by the sodium labelling rules since "there is more salt in bread in Germany compared with elsewhere in the EU." 

"EU Wants to Spoil Our Pretzels!" screamed the tabloid Bild. An EU spokeswoman quickly reassured worried Germans that there was no intention of banning or regulating salty bread. 

To be fair, given the EU's infamous fatwa on bendy cucumbers, the bakers' concerns are somewhat understandable.

  JOE KLAMAR/AFP/Getty Images

Should we count Euroskepticism among the victims of the financial crisis?

The Czech Republic's lower house of parliament approved the EU's controversial Lisbon Treaty today in a major victory for the plan to streamline the body's decision-making process. Assuming the upper house passes the measure, that will leave Germany, Poland and Ireland as the only countries yet to ratify Lisbon.

Ireland, the only country to require a public referendum for ratification, is the biggest stumbling block. Irish voters rejected the treaty last June, but the political landscape seems to have changed in the post-crisis world:

Czech approval came as new polls showed public opinion swinging behind the treaty in Ireland, raising the prospect that Irish voters will reverse last year’s 53.4 percent to 46.6 percent veto. A second vote -- if held now -- would yield a majority of 58 percent in favor of the accord, a poll for the Sunday Business Post found on Feb. 1.

The pressing need for unified European action to address the crisis seems to have trumped fears about national sovereignty. The Irish government is now looking to hold a new referendum as soon as possible.

In retrospect, however, country's stubbornness seems to have paid off. The EU has been forced to make a number of concessions to placate Irish voters:

The Irish government agreed to put the Lisbon Treaty to a second referendum by November 2009, in return for a set of EU "legal guarantees" aimed at addressing various concerns raised by voters. The EU pledges not to impose rules on Ireland concerning taxation, "family" issues - such as abortion, euthanasia and gay marriage - and the traditional Irish state neutrality.

Announcing the new Lisbon deal, French President Nicolas Sarkozy also said that under Lisbon "every member state will have a commissioner" - another concession to Ireland.That promise might prove difficult to reconcile with the original plan under Lisbon to have fewer commissioners than member states, as from 2014.

Through sheer obstinateness, the Irish seem to have made themselves the most powerful constituency in the EU. Sometimes it pays to be difficult.

MICHAL CIZEK/AFP/Getty Images

The Czech Republic, having only taken over the rotating European Union presidency in January, has already managed to offend its EU peers with a sculpture it installed in the atrium of the European Council headquarters in Brussels. Titled "Entropa," the sculpture makes light of European national stereotypes:

[C]ountries digested depictions of their national character as a Dracula-inspired theme park (Romania), a rudimentary toilet (Bulgaria) or a flooded land with minarets poking through (the Netherlands)...

Other national depictions in ”Entropa” include Luxembourg as a lump of gold on sale to the highest bidder, France emblazoned with the word ”Greve” (”strike”), Denmark made of Lego, and Sweden lying within an Ikea flatpack. Britain is simply missing – supposedly a reference to its deep Euroscepticism.

Worse still, the piece turns out to be an eleaborate prank. It was not the work of artists from all 27 EU member states, as had been claimed, but was created by a single Czech artist, David Cerny. (You probably want to make sure your speakers are turned off if you click on that link at work.) The Czech government has been forced to make a public apology.

Arguably, the Eurocrats should have known what they were getting into. As anyone who's read Kafka or seen a Jan Svankmajer movie can attest, Czech culture has always had a somewhat dark, surrealist edge to it. This is, after all, a country that elected an absurdist playwright as its first post-communist president. I reported on the country's strange obsession with Frank Zappa for Radio Prague in 2004. The documentary, Czech Dream, a feature-length prank in which hundreds of real Prague residents were tricked into attending a fake supermarket opening in an empty field, is another good example.

So while Cerny's sculpture might not be great diplomacy, I like that a bit of classic Czech weirdness has been injected into one of the world's stuffier organizations.

(Hat tip: Passport reader Aaron Lovell)

Update: Cerny responds to the controversy:

Grotesque hyperbole and mystification belongs among the trademarks of Czech culture and creating false identities is one of the strategies of contemporary art.  The images of individual parts of Entropa use artistic techniques often characterised by provocation. The piece thus also lampoons the socially activist art that balances on  the verge between would-be controversial attacks on national character and undisturbing decoration of an official space. We believe that the environment of Brussels is capable of  ironic self-reflection, we believe in the sense of humour of European nations and their representatives.

That belief was clearly mistaken.

Photo: DOMINIQUE FAGET/AFP/Getty Images

Over at Slate, CFR's Michael Levi explains one big reason why the UN climate talks currently under way in Poznan, Poland have hit the skids. The UN climate change regime apportions different levels of responsibility to rich and poor countries, but the way it makes that distinction if very odd:

The United Nations first divvied up the developed and developing world for climate talks in 1992, with the goal of using that split to apportion responsibilities for cutting emissions. But distinctions that once made sense are no longer tenable. Ukraine, for example, is considered rich. In 1992, it was reflexively lumped together with the countries that once comprised the powerful Soviet Union; by 2007, its citizens had fallen to 97^th richest in the world by GDP per person. (All wealth figures cited here are from The CIA World Factbook.) At the same time, Singapore (now the sixth-richest nation in the world) was designated as poor. Unless the climate regime overhauls its wealth labels, a country like Singapore could reap the benefits of financial aid, while Ukraine would be burdened with emissions caps. Needless to say, that kind of nonsensical setup won't get you very far in international talks. [...]

The resulting deal had its flaws then. It makes absolutely no sense today. Belarus, for example, is lumped together with the rich countries, despite a GDP per person of about $10,000. As a result, it has an emissions cap like those in place for Europe and Japan. Kuwait, meanwhile, is considered poor. That means the oil-rich emirate is spared any obligations, despite the fact that its residents are about five times wealthier than the Belarussia.

Not surprisingly, the "poor" countries aren't in much of a hurry to change this set-up. Any regulatory system that has Singapore crying poverty is probably in need of reform.

Via Andreas Persbo, some art for arms control geeks. At last:

More:

The artist is Lisa Ruyter. Timothy Hartley Smith has photos of the exhibit.

Is this what we really need right now? The world economy fell off the fence, and just as finance ministers, the World Bank, and the International Monetary Fund (IMF) start trying to put it back together again... a sex scandal threatens to debilitate the managing director of the IMF.

Late last week, the Wall Street Journal began looking into an affair that has rocked the (usually dry) halls of one of the world's most important financial institutions. IMF chief Dominique Strauss-Kahn is being accused of abusing his power as director of the fund in a sexual relationship with colleague Piroska Nagy, the wife of a former Argentinian central banker, Mario Blejer. According to Bloomberg news, an official IMF inquiry "will seek to determine whether the relationship involved any conflict of interest, harassment or favoritism."

Strauss-Kahn denies misusing his position. His wife, Anne Sinclair, writes on her blog, "Everyone knows these are things that can happen in the lives of any couple. To me, this one-night stand is behind us. We have turned the page" (my translation from the French).

Unfortunately for Ms. Sinclair, journalists around the world are just starting to write the page.

That's particularly true in France, where some commentators have worried that the public disclosure of the IMF's investigation is a move to discredit French-led efforts to stem the financial crisis. President Nicolas Sarkozy seems to be among the angry, irked that his frantic efforts to organize an economic rescue might be discredited. 

Quel dommage! At least among some French commentators, the mood is forgiving. Asked by Le Figaro newspaper if such an affair would produce a media scandal in France, Christophe Deloire (author of Sexus Politicus) responded (my translation): 

Certainly not. There are things that one can do in Paris but not in Washington... in France, such an affair... would never have seen the light of day...

I hope that the purely private affaire will not become an incident for Dominique Strauss-Kahn... [Politicians] always feel obligated to make the public believe that they have a stable private life... the last presidential compaign is a very good example: the difficulties between the couple of Nicolas Sarkozy on the one hand and Ségolène Royal on the other hand stayed secret. It wasn't until after the scrutiny that the two couples separated..."

The greatest sin, it seems, wasn't the affair, but the fact that Strauss-Kahn got caught, and French credibility will go down in the fallout. Alors, c'est la vie!

Without taking anything away from former Finnish President Martti Ahtisaari, who was awarded the Nobel Peace Prize today for his work as an “outstanding international mediator” in conflicts from Indonesia to Northern Ireland, the entire institution of the Nobel Committee has grown so self-important that this is a worthwhile opportunity to question its judgment and ultimately its usefulness.

The 1973 Peace Prize, awarded to then-Secretary of State Henry Kissinger and Vietnamese negotiator Le Duc Tho for their role in the Paris Peace Accords, remains a head-scratcher. Kissinger played a major role in expanding the U.S. bombing campaign across Vietnam, Cambodia and Laos, while Tho’s government would soon violate the Accords by launching a military invasion of South Vietnam that culminated in the 1975 fall of Saigon.

The Nobel Prize in Literature also has been guilty of sins of omission. Many of the last century’s most celebrated writers, such as Leo Tolstoy, Graham Greene, Vladimir Nabokov, Mario Vargas Llosa and Philip Roth, have been ignored by the Committee. Greene and Nabokov were considered in 1974, but eventually lost out to Swedes Eyvind Johnson and Harry Martinson -- who just happened to be Nobel judges themselves.

The Literature Prize is awarded by a committee selected by the Academy, founded by the Swedish King Gustav III in 1786, while the Peace Prize is awarded by a committee appointed by the Norwegian parliament. In any other context, the idiosyncratic tastes and political beliefs of these elite Scandinavians don't exactly make headlines. Why the entire world pauses to honor the selections of an otherwise unknown group of people remains a mystery.

In the end, the Nobel Prize reveals more about society's collective obsession with honorifics than it does about the world's great leaders and writers.

The Wall Street Journal's Monical Langley reports:

Republican vice presidential candidate Sarah Palin will meet with foreign leaders next week at the United Nations, a move to boost her foreign-policy credentials, a Republican strategist said.

Republican candidate John McCain plans to introduce the Alaska governor to heads of state at the opening of the U.N. General Assembly, although specific names weren’t yet firmed up. “The meetings will give her some exposure and experience with foreign leaders,” the strategist said. “It’s a great idea.”

Hope she was reading up over the weekend.

Hat tip: Mark Halperin