The Only Hope Left?

Why a unilaterally declared state might be the only one that Palestine can get.

Mahmoud Abbas is in a bind. Faced with a seemingly insurmountable impasse to negotiations with Israel, the Palestinian Authority president can either resign from his PLO chairmanship or come up with some serious, unilateral action to break the deadlock. With hopes that Barack Obama would stand up to the right-wing Israeli leadership dashed, an unwillingness to return to violent resistance, and the inability to resign his presidency of the PA in protest, the Palestinian leader has no alternative but to declare a Palestinian state unilaterally.


The first question one might ask of the leader who has yet been unable to deliver a solution for his people is simply: Why not resign? Indeed fresh leadership, some argue, is just what the situation needs. But the Basic Law of the Palestinian Authority stipulates that such a resignation would prompt presidential elections within 60 days. With the recently released pro-Hamas Speaker of the Palestinian Legislative Council, Abdel Aziz Duwaik, poised to become that leader should a vote proceed, resignation is not an option for the secular Palestine Liberation Organization (PLO) leader.
So Abbas is left with unilateral action. The idea to declare independence is not new; a similar Declaration of Independence was made in Algiers in1988, setting forth Palestinians’ historic compromise by accepting the two-state solution: An independent and free state of Palestine alongside a safe and secure state of Israel. The declaration came at the height of the relatively nonviolent Palestinian uprising in the occupied territories, dubbed the intifada, and forced the PLO to accept the two-state solution as a means to end the occupation of the West Bank (including East Jerusalem) and Gaza Strip. The declaration was welcomed by more than 100 countries.
Then what happened? The unilateral declaration failed to significantly alter the reality on the ground. In the ensuing years, the Oslo peace process failed to produce an end to the occupation, and Palestinians began searching for an alternative to the talks. The process’s five-year interim period expired in May 1999, leaving many Palestinians worried that the status quo of occupation would become a permanent reality. After the failed Camp David II talks, the violence of the second intifada, and finally, the tragedy of September 11, there was little remaining chance that a unilateral action would succeed. Washington had no stomach for any Palestinian action that was opposed by Israel, and the staunchly pro-Israel U.S. Congress issued a number of sharply worded resolutions against such declarations of Palestinian statehood.
But today is not then. A decade has elapsed since the end of the interim period, and for the last five years, the Palestinian Authority has been led by the moderate Abbas. He deeply believes in negotiations and has delivered near total security in cooperation with Israel and the United States. So while unilateralism does not provide any guarantee of success, it does offer the potential to help a frustrated leader, whose every effort has yet to yield a firm solution, sort out some of the dilemmas facing Palestinians now.
A declaration of independence would allow the Palestinians to demarcate a state covering territory that best reflects minimal Palestinian requirements -- without having to negotiate those red lines. This is particularly important because the building of Israeli settlements has continued in Palestinian territories, encroaching on the lines drawn in the Road Map. These settlements were the very reason that Mahmoud Abbas decided to give up on what appears to be a useless peace process – one that gives more and more of the Palestinians’ land away. Unilaterally declaring his own lines may be the only choice remaining.

Any such unilateral Palestinian action will also  push the ball not only into the Israeli court, but into the court of Western countries, especially the United States and members of the European Union. These countries will be hard pressed to oppose a Palestinian declaration following years of failed negotiations by a moderate leader such as Abbas, who is so clearly committed to a nonviolent resolution to the conflict. Western powers would also find it difficult to refuse recognition of a state declared within the internationally recognized borders of June 4, 1967.
Israel can be expected to move quickly to nip this unilateral eventuality in the bud.  Israeli leaders know that if the idea sees the light of day, it may develop a dynamic of its own. But the Palestinian leadership, the Israelis, and to a lesser degree the Americans, have only themselves to blame for allowing a conflict as volatile as that of today’s Middle East to unravel. If reaching an independent Palestinian state is in the national interest of the United States, as President Obama has said, then it would be ill advised to deny that inevitability to Palestinians -- whether they achieve it through negotiations or unilateral action.



We Three Kings

Grappling with a global recession, the world's top central bankers discover that all political economy is local.

As the global economy has headed into what may be its worst crisis in several decades, only one of the world's three most powerful central bankers has responded decisively to try to stop the bleeding. U.S. Federal Reserve Chairman Alan Greenspan swung into action at the first indications of weakness in the U.S. economy, slashing short-term interest rates in January 2001 and following up with an unprecedented series of rate cuts during the rest of the year. Across the Atlantic, however, European Central Bank (ECB) President Wim Duisenberg was slow to cut rates and cautious when he did so, despite growing evidence of economic malaise in the euro zone. Finally, even Duisenberg's moves seemed sprightly next to Bank of Japan (BOJ) Governor Masaru Hayami's glacial approach to monetary easing.

The easy conclusion is that Greenspan is a more skilled policymaker than either his European or Japanese counterpart. But their differing approaches underscore a more complicated fact: For all the apparent power and undoubted global economic impact of the world's largest central banks, their policies are homegrown and inevitably constrained by local politics and institutions. Different individuals at the helms of the ECB and BOJ might be more willing to pursue aggressive monetary policy, but they could not do away altogether with the real constraints facing Duisenberg and, to a lesser extent, Hayami.

The 66-year-old Duisenberg, former president of the central bank of the Netherlands, has faced the daunting task of launching a new regional currency and running a new central bank with membership drawn from 12 disparate nation-states. Building internal consensus and winning the political backing necessary for effective policymaking was never going to be easy. It was made even harder when the economic environment began to worsen rapidly in 2001 with the euro barely two years old. The weaker economy suggested a need for easier monetary policy precisely when the still fledgling ECB wanted to shore up its credibility as an inflation fighter. The European monetary authority was also blindsided by the foreign exchange market's persistent vote against the euro, which slid by about 25 percent against the dollar in its first 18 months of existence and has not come close to dollar parity since.

Duisenberg's efforts to forge consensus on interest-rate policy have been further complicated by European finance ministers calling for looser monetary policy. U.S. politicians, however, have learned that Fed-bashing doesn't pay. As former U.S. Treasury Secretary Lawrence Summers liked to remark, calling for the Fed to lower short-term rates is worse than useless: It has no impact on the Fed's decisions and risks unsettling bond markets and pushing up long-term interest rates. European politicians have taken their time to learn this lesson. 

With an explicit focus on fighting inflation, the ECB tends to interpret its mandate more narrowly than does the Federal Reserve, which conducts monetary policy "in pursuit of full employment and stable prices." But in the pre-ECB days, central bank chiefs in Europe often issued pronouncements about curbing fiscal deficits and restraining wage demands, implicitly linking such policies to their own willingness to adjust monetary policy. Similarly, the ECB has tried to pressure governments to help strengthen the regional economy, calling for structural reforms addressing fiscal policy, labor markets, and pension systems. But the impact of such calls has been inevitably diffused when aimed at 12 different countries and governments. Until the ECB establishes a more convincing track record of its own, it will have difficulty persuading national-level economic policymakers to follow its advice.

The troubling story in Japan is less explicable. Established in 1882, the BOJ is hardly a new institution, and the 76-year-old Hayami is a longtime BOJ staffer. However, the institution only recently gained full, formal independence from the previously all-powerful Japanese Ministry of Finance (MOF). Hayami's desire to safeguard that independence partly explains his zeal in opposing a return to one of the most visible signs of central bank subservience -- direct financing of the government deficit. He has also rejected political pressure to adopt a (positive) inflation target and undermined MOF attempts to drive down the value of the yen to support export growth. The BOJ regularly mops up the extra cash created by the MOF's currency interventions, thereby keeping its own monetary strategy intact.

Certainly, establishing a central bank's bona fides as an independent institution is important, and being a credible inflation fighter is part of that. But Japan's far-from-normal circumstances -- falling prices, continued economic slump, and a perilously weak financial system -- call for imaginative rather than traditional policymaking. With interest rates already close to zero, monetary easing must involve extraordinary measures, such as buying more government debt, selling yen to put money into the economy, and making a clear commitment to turn deflation into (low) inflation. In this context, Hayami's warning in the fall of 2001 about potential inflationary dangers struck a particularly bizarre note. Ironically, the failure of monetary policy to address Japan's debilitating deflation has undermined the case for much-needed structural reforms. Politicians are reluctant to implement new policies that, while essential for long-term health, could strike a dangerous short-term blow to an already tottering economy.

So is the global economy hostage to local constraints that fetter the actions of national and regional monetary powers? In Europe, it may take time for the ECB to build the confidence and leadership needed to make decisive monetary policy. It is bad luck that the global slowdown has coincided with (and been exacerbated by) the institution's growing pains. But no one doubts that the European economy will eventually pick up. In Japan, by contrast, the consequences of policy failures are dire. Bold, concerted action by political and monetary leaders is needed for an economy already trapped in a decade-long slump, but the prospects for change seem worryingly dim.