Lula's Tehran Misadventure

In the last days of his tenure, the Brazilian president is reaching for his crowning foreign-policy glory. Will it go horribly, horribly wrong?

Brazil's President Luiz Inacio Lula da Silva heads to Tehran this week, a sort of victory lap for what he hopes will be a monumental piece of foreign policy: bringing Iran's leadership to the nuclear negotiating table. Last week, Tehran agreed "in principle" to Brazil and Turkey's offer to facilitate talks on an agreement proposed by the International Atomic Energy Agency (IAEA) last October. Should that initiative succeed, it will surely be remembered as Lula's crowning achievement.

But many are beginning to wonder if Lula can truly be the darling of the West while also wooing the East. Lula's administration has pitched the talks to Iran not as a way to come clean but as a way to prove that it is hiding nothing with its peaceful nuclear program -- and the United States and Europe are understandably skeptical. Back home, questions have arisen about the Brazilian leader's motivation for injecting himself and his country in such a daring initiative in the first place. It's certainly not about domestic politics; if anything, cozying up to Iran is losing Lula points at home. As his presidential term comes to an end, Lula's move might be more about building a legacy on the world stage than much of anything else. And it may well backfire.

Given Brazil's recent rise as a regional and a global player, it might come as a surprise that foreign policy and Iran policy in particular have been a source of criticism rather than praise for Lula's government back at home. Iranian President Mahmoud Ahmadinejad's visit to Brasilia last November was greeted with street protests and strong condemnation by the media and Lula's political opponents. José Serra, then São Paulo's governor and now a leading presidential candidate, criticized the president for embracing a dictator reminiscent of the military regime Lula and Serra -- themselves victims of political persecution -- fought to dislodge from power a quarter-century ago.

Subsequent Brazilian visits to Tehran had a similar effect. The image of a smiling Brazilian minister of commerce offering the national soccer team's revered yellow jersey to Ahmadinejad in Tehran last month caused discomfort even among Lula's allies. Clovis Rossi, a columnist and early supporter of Lula's foreign policy, wrote that the Brazilian soccer jersey is now "covered with blood" from Iranian dissidents killed by the Islamic government. A member of Lula's own Workers' Party spoke to me privately of his apprehension about Brazil's rapprochement with the Iranian regime, which he sees as a foreign-policy "exaggeration."

Leading names of Brazil's foreign-policy community have offered equally harsh assessments. In an interview with Brazil's UOL news, veteran diplomat Rubens Ricupero, a historian and former ambassador to Washington, described Brazil's self-initiated overture to Iran as symptomatic of a foreign policy driven by "the constant search for the spotlight."

Lula, however, remains undaunted by criticism, which he views as uninformed and undeserved attacks from those too blind to see that he is shepherding Brazil's emergence as a global power. On April 27, he dispatched Foreign Minister Celso Amorim to Tehran to prepare for his own visit on May 15. Before meeting with his Iranian counterparts, Amorim restated Brazil's opposition to a new round of sanctions sponsored by the U.N. Security Council, of which Brazil is a non permanent member.

"Call us naive, but I think those who believe in everything the U.S. intelligence service says are much more naive. Look at the case of Iraq," Amorim said in an interview with the AFP. After meeting Ahmadinejad, Brazil's foreign minister urged Tehran to come clean with the IAEA and prove to the world what it has apparently demonstrated to Brazil: that its nuclear program is strictly peaceful and consistent with its obligations under the Nuclear Non-Proliferation Treaty (NPT).

Iran might have liked that rhetoric, but it's far from clear that Tehran will do much more to deliver on its "in principle" agreement for talks. The country has rejected similar deals in the recent past after welcoming them "in principle." U.S. Secretary of State Hillary Clinton dismissed Brazil and Turkey's efforts, accusing Tehran of stalling and trying to gain time instead of addressing the central question about the nature of its nuclear program at the IAEA.

Against this backdrop, Lula's visit to Iran at the end of this week has become a highly risky venture. The rewards of a successful trip would be great. U.S. President Barack Obama and other world leaders would shower praise on Lula's peacemaking abilities. Obama in particular might note that Brazil's actions since the late 1980s, when it renounced nuclear weapons, have made the country a leader in the fight against nuclear proliferation. Surely, Lula's nomination for the Nobel Peace Prize would not be far behind.

It is at least equally likely, however, that Lula's trip to Tehran will be a flop after producing a few hopeful headlines. In this scenario, Brazil's Persian aspirations will be undone by the realities of Iranian politics, of which Brazilians have limited knowledge or understanding. Lula will be accused of lending his hard-earned reputation, and Brazil's good name, to undoing the Islamic Republic's growing international isolation, as it continues to resist calls to comply with its NPT obligations. He will be remembered as the Brazilian president who allowed well-deserved praise to go to his head -- inspiring him to gamble his country's interests and prestige on an ill-fated venture. Both Lula and his country would be diminished by the episode.

U.S. and European officials have already signaled to their Brazilian counterparts that a Lula visit to Tehran that fails to produce results could cause major damage to Brazil's relations with its traditional allies. Fearful of this outcome, which he sees as inevitable, former Foreign Minister Luis Felipe Lampreia warned in an op-ed for O Globo that the upcoming visit "will cause incalculable material and political losses" and could raise suspicions about Brazil's own nuclear program -- all in pursuit of a "completely unnecessary" initiative. Added Lampreia, "It is like the person who crosses the street on purpose to step on a banana peel on the opposite sidewalk." Lula is about to test out the wisdom of that approach.



Europe Bought Time and Not Much Else

The bailout may soothe markets, but it won't fix the fundamental problems that have pushed Greece, Spain, Portugal, and Italy to the brink.

Stock markets reacted euphorically Monday to the massive rescue package announced the night before to prop up crashing European economies. Passions cooled slightly on Tuesday as the market rally halted, but still, it seemed, all was as it should be: The package agreed upon in Brussels provides Europe's embattled economies with a much needed respite and may even save the European integration project from the disaster of several countries being forced to shed the euro. It is all good news -- that is, if it works.

Unfortunately for Brussels, however, whether or not the package works is not a decision that will or can be decided there. The real decisions needed to deal with Europe's crisis will have to be taken in Portugal, Spain, and Rome. It won't be easy; belt-tightening and tough choices are needed. This is something last week's rioters in Athens seemed to understand all too well. Therefore, as the different countries attempt to reform their economies, expect street demonstrations in Lisbon, Madrid, and Rome.

Before raining on the parade, however, we should mention an upside to the Brussels package. The measures taken are important not just because of the unprecedented amount of money involved (the size of the financial package is larger than the economies of Finland and the Netherlands combined) but also because they mark the end of two dangerous ideas -- and their promotion by European leaders.

First, the bailout requires Europe to admit that the Eurozone setup is defective at its very foundation. The measures mark the end of the misguided hope that centralized monetary policy can co-exist with decentralized fiscal behavior. Since the single currency's inception, interest rates and the money supply for the whole of Europe have been decided by a single entity, the European Central Bank (ECB), while taxes and public expenditures remain under the control of each national government. The recent decisions explicitly recognize that a monetary union is as weak as its weakest link and, as such, requires strong fiscal coordination. Inevitably, this means that countries will have to cede some of the autonomy that they have thus far used to (mis)manage their fiscal affairs. On the other side, the ECB's decision to buy government bonds is also a landmark, eliminating the pretense that the central bank will not help governments in difficulty under any circumstance.

Second, the measures also mark the end of the pretense that the Eurozone can and will take care of its problems without anyone else's help. For this emergency, help was marshaled not only from other EU countries that are not members of the Eurozone but also from the U.S. Federal Reserve and the International Monetary Fund (IMF). The IMF will carry an unprecedented financial burden in support of Europe's rescue, and its help never comes without stringent conditions: The IMF will play a central role in dictating how Europe has to behave in order to access the funds it needs.

Shedding these illusions is good news. But that's where the good news ends. For a start, 750 billion euros represents only about 18 months of the financing requirements for Europe's most obviously vulnerable countries, which, contrary to pretense, also include Italy, whose debt burden and labor cost disadvantage is as high as that of Greece. The solution to their problems -- a loss of competitiveness, inflated government payrolls, and rigid labor markets -- obviously won't be come with a new borrowing facility.  These measures only buy time, and not very much time at that.

Indeed, the time available to bring these countries back from the brink is very limited. This is not about governments bailing out insolvent banks, as was the case with the financial rescues at the end of 2009; this is about unsound governments trying to bail out other unsound governments. Greece, Portugal, Spain, and Italy, for example, are on the hook for more than 6 percent of their GDP in support of the agreed facilities, not counting any money that the European Central Bank might lose on the government bonds it has agreed to buy. That's money that these countries simply do not have. And with the average debt to GDP ratio of advanced G20 countries on pace to hit 120 percent by 2015, the financial ability of Germany, France, and others to backstop Europe's errant countries is also in doubt.

The real problem is that Europeans are not ready for the reforms they need, and politicians have not clearly explained the severity of the situation to their citizens. Europeans must realize that, unless Europe moves forward with the necessary and deeply unpopular reforms still required, the newly available money will do little to save them. Rather than postponing reforms again, leaders must use the time they just bought to build the political coalitions needed to implement the necessary changes.

What will that look like exactly? The medicine for these sick countries is well known. Spain, Portugal, and Italy must cut their budget deficits, freeze or reduce government wages, and reform labor markets in a quest to boost productivity and claw back some of their lost competitiveness vis-à-vis Germany. Meanwhile, Germany and other healthier economies must take more aggressive measures to boost domestic demand in order to keep Europe from spiraling into deflation.

And yes, under this scenario, European leaders must come clean soon on cases in which debts simply cannot be repaid (which is obviously the case in Greece) and insist that -- instead of the European and Greek taxpayers carrying the entire burden -- the private creditors also take a hit.

The way to gauge the economic measures decided by the European leaders on Sunday is not by watching the gyrations of the stock markets. The real mark of success will be the determination and speed with which Europe's individual economies pursue tough reforms at home. And, tragically, that is why street demonstrations in Lisbon, Madrid, or Rome would be a better indicator of the seriousness with which governments are pursuing the reforms.