The Case for Cyberwarfare

Why the electronic wars of the future will actually save lives.

According to an intriguing story in this week's New York Times, the Obama administration decided not to use cyberwarfare against Libya, opting instead for a conventional attack on Muammar al-Qaddafi's defense installations. Officials feared that it would set a precedent and invite other countries (think: China, Russia) to use similar means of attack in the future. As James Lewis, a cybersecurity expert at the Center for Strategic and International Studies, succinctly put it, "We don't want to be the ones who break the glass on this new kind of warfare."

Senior officials such as Secretary of Defense Leon Panetta warn that the "next Pearl Harbor we confront could very well be a cyber attack." But what if cyberwarfare is not such a bad thing after all, though? What if it saves lives? The evidence so far actually suggests that cyberwarfare costs fewer lives compared with traditional types of warfare.

The prevailing view, however, holds that cyberwar is a terrifying prospect. The influential 2010 book Cyberwar, for instance -- co-authored by Richard A. Clarke, who was responsible for cybersecurity at the White House until 2003 -- paints a gloomy picture of potential future cyberattacks that could involve cutting millions of people off the electrical grid or, worse, as in the case of an attack on aviation control or a nuclear power plant, cost thousands of lives.

Yet the evidence of cyberwarfare, so far, reveals a very different picture. The cyberattack on Estonia in 2007 was the first to make major international headlines. But its damage was limited: The Distributed Denial of Service (DDoS) attack overburdened servers in Estonia and brought down several websites. Something similar happened in Georgia during the war in 2008. Such attacks could theoretically cost lives if they shut down emergency hotlines, for example. But they're not the sort of thing that should keep us up at night.

The Stuxnet virus, on the other hand, was a very different animal. It infected computer systems and altered code in a way that made it too risky to run centrifuges used in Iran's nuclear facilities. Some experts estimate that Stuxnet pushed back Iran's nuclear development by several months, possibly years, and what's wrong with that? This particular cyberattack may have actually saved rather than cost lives. 

Consider similar situations in the past. Former Vice President Dick Cheney, for example, writes about one such incident in his new memoir. He describes the decision-making process that occurred as the United States considered whether or not to bomb a Syrian nuclear facility in 2007.  Despite Israeli requests to do so, President George W. Bush decided to pursue a diplomatic rather than military option. So Israel took matters into its own hands. Cheney writes, "Under cover of darkness on September 6, 2007, Israeli F-15s crossed into Syrian airspace and within minutes were over the target at al-Kibar. Satellite photos afterward showed that the Israeli pilots hit their target perfectly."

Clarke writes about the same incident in his book, speculating how "Many North Korean workers had left the construction site six hours earlier ... to the few Syrians and Koreans still on the site, there was a blinding flash, then a concussive sound wave, and then falling pieces of debris." Clarke's imaginative account is probably more fiction than based on intelligence information. Yet it highlights an important point: Despite the attack being a perfect hit, a few people were probably still killed.

So is cyberware a better alternative to traditional war? Not necessarily. Three conditions will determine whether cyberwarfare will actually reduce the human costs of war:

First, security improvements. If critical civilian infrastructures such as hospitals, nuclear power plants, and transportation control systems can be better protected -- for instance, by identifying and fixing vulnerabilities, isolating an attack, as well as creating back-up mechanisms to restore targeted systems -- it significantly reduces the probability of cyberwarfare being able to cause direct bodily harm.

Second, norms governing the use of cyberwarfare. Will states, for instance, retaliate against a cyberattack with kinetic warfare? If a country responds with conventional weapons to, say, an adversary taking down its electrical grid, then all bets are off. But if strategic planners are able to work out a model of deterrence for the digital age, than we may all be safer for it. An open question is whether the possibility of conducting a less violent cyberattack would actually decrease the inhibition to perpetrate an attack in the first place.

Third, nonstate actors. My argument focuses only on interstate war excluding violent conflict with non-state actors such as terrorists. At present, though, this threat is considered to be minimal because of the resources and expertise needed to mount a sophisticated cyber attack like Stuxnet.

Cyberwarfare might be how we will fight the battles of the future. The evidence so far suggests, however, that a digital Pearl Harbor would cost fewer lives than the attack 70 years ago. It might not be pretty, but from a humanitarian point of view, that's good news.

Koichi Kamoshida/Getty Images


Bad Romance

Greece should never have been a member of the eurozone -- and at this point the best way to save both of them from economic catastrophe is to end the relationship.

The economic medicine being applied in Europe is not working. In fact, the patient is getting worse: Greece's economy is collapsing and its debt is rising exponentially, prompting harsher austerity proposals and increasingly violent protests, such as the one on Oct. 19 in front of Athens's parliament. The doctors have responded by prescribing ever-larger doses of the same: ever-larger funds to lend Greece ever-larger amounts and force ever-larger austerity measures upon the country -- a course that can only lead to an ever-larger failure.

And yet the underlying problem is both familiar and resolvable: several governments in Europe have borrowed more than they can possibly repay. Such over-borrowing by governments is not unusual. It has happened repeatedly over the years and has one effective solution: the debt needs to be reduced. This is hardly impossible -- Mexico, Brazil, and seven other Latin American governments did it two decades ago following the prolonged debt crisis of the 1980s, reducing their respective debts by 50 to 70 percent by issuing tradable dollar-denominated "Brady bonds" in exchange for their outstanding debt. Banks took large losses, long foreseen by the markets, and proceeded to rebuild their capital. Prosperity was quickly restored to the over-indebted countries.

Tragically, the eurozone leadership has for three years refused even to consider this most obvious of solutions. Instead, the leadership has been determined to raise ever-larger "bailout" funds to lend ever more to the stressed governments. These new European Financial Stability Facility (EFSF) loans do forestall default in the short term, but they add to the debt total of Greece and other stressed countries and so make the long-term problem far worse. If a borrower has too much debt, one does not help him out by lending more -- that only digs him in further. This is not a "bailout" at all. The defaults, when they come, will only be larger. The markets clearly see this: Sovereign bond rates and credit-default swap spreads, which are closely related to the probability of default, keep climbing ever higher.

Why has the euro leadership been acting in this perverse and dysfunctional way? It is because they desperately fear contagion. If the gift of Latin America-style debt relief is offered to Greece, surely Portugal will be next in line, asking for the same favor. Then comes Ireland -- where government officials have already said their country should be included in any resolution of Greece's problems -- likely followed by others. How could one say no to them after saying yes to Greece? Where would the cascade of losses end? Contagion is the central problem that needs to be addressed.

The way out of this bind is to create a downside to debt relief: It should be available, but must come with sobering consequences. I propose a simple tradeoff: Any country that accepts a wholesale debt reduction must agree to leave the euro.

At first, this prescription sounds harsh and extreme, which may explain why it has received the endorsement of some economists but few politicians or policymakers. In reality, however, the tradeoff offered is benevolent and appropriate. Greece is too unlike the other eurozone countries, and in fact, it owes many of its current problems to the decision to join in the first place. Leaving the euro will unshackle it from the terrible position in which it finds itself. The short-term costs would be considerable, but they are greatly exceeded by the short-term costs of endless, wasted bailouts.

Why? Look at the fundamentals. Greece is less productive economically, and has less productivity growth, than the nations of northern Europe. Productivity growth has enabled Germany to keep inflation low for decades; Greece has had no such luck. Before Greece joined the euro in 2001, its drachma steadily devalued relative to the currencies of northern Europe, an expression of this difference. The ratio of Greek currency value to German currency value dropped by 93 percent between 1976 and 2001. This steady change in relative currency value enabled trade between Greece and northern Europe to expand without significant payment imbalances, to both sides' benefit.

The problems began when Greece, anticipating eurozone entry, tried to stabilize the drachma. Payment imbalances appeared and grew rapidly (see the chart on pages 9 and 10 here). A decade later, Greece's current account deficit has exploded to between $30 billion and $50 billion annually, deficits that represent growing debt from Greece to other countries. These deficits signal that Greece is exporting too little and, more importantly, importing too much. Cheap imports are rising and crushing local businesses. The country's notoriously bloated government budget, a reliable scapegoat for its economic woes, in fact is not the root cause of the country's economic ills -- even if the budget were perfectly balanced, the external debt of Greek banks and firms would have been out of control, an unintended consequence of joining the euro.

With currencies fixed, the only way to cure this payment imbalance is to lower Greek wages and prices, in an attempt to make the country more competitive. Devaluation lowers them in an instant; without that tool, they must be lowered slowly and painfully in local terms. This is what "austerity" tries to do -- and what Greeks are so angry about. If Greece had never joined the euro it would not have ended up in this dreadful position.

The pattern closely resembles that of Argentina in the 1990s. Like Greece, Argentina is a peripheral, relatively inefficient economy without large exports. In 1991, the country adopted a "currency board" that locked its currency to the dollar. Its current account soon deteriorated and payment imbalances grew; Argentina became a major borrower in global capital markets to cover its growing deficits. By 1996, growth had turned negative; by 2000, the country was in a deep, intractable recession with rising unemployment, fleeing capital, and popular discontent. In late 2001, there was a run on the banks, the government seized deposits, riots broke out, and the government collapsed. In 2002, the new government defaulted on its debt, abandoned the currency board, and reestablished the peso. After falling 11.7 percent in 2002, Argentine gross domestic product then grew an average of 7.8 percent per year for the next five years.

A euro exit for Greece would have to be consensual and orderly, under terms agreed upon by both sides, and would require an amendment to the Maastricht Treaty (which paved the way for the creation of the euro), the subsequent Lisbon Treaty, or both. Debt relief would impose losses on euro banks -- including the European Central Bank (ECB) system itself -- which would need more capital to absorb the losses. Greek banks in particular would need to be recapitalized as part of the process. But this is a far better use of scarce bailout funds than simply lending ever-larger amounts to a government that cannot possibly repay them.

It is worth heeding the lessons of the Troubled Asset Relief Fund (TARP), the $700 billion fund created by the U.S. government to manage the subprime crisis in 2008. Its original mission, as its name implied, was to buy up toxic subprime assets in the marketplace, much as the EFSF and ECB have been acquiring bonds of troubled European governments. But the United States soon realized that buying bad assets was a poor use of scarce resources, and TARP quickly shifted to investing capital in troubled banks so that they could work out their own balance sheet problems. European central bankers need to take a similar tack: Stop lending to chronically troubled governments and invest capital in banks instead.

Leaving the euro does not mean that Greece would have to leave the European Union -- it could simply rejoin highly respectable countries such as Britain, Denmark, and Poland that enjoy EU membership while retaining their own currencies. Nor are the nightmare predictions of bank runs and panic in the streets following a euro exit at all inevitable; rather, such worst-case scenarios underscore the absolute necessity of arranging an orderly exit before a disorderly one ensues. If the Greek parliament votes no confidence in the present government, for instance, and opposition parties increasingly adopt pro-default, anti-International Monetary Fund, anti-euro platforms, Greece could see a chaotic descent similar to Argentina's in 2001. In fact, we may be closer to a disorderly breakdown of this kind that we realize -- all the more so given the anti-bank, anti-establishment demonstrations that have recently broken out throughout Europe and the rest of the world.

Breaking with the euro is an undeniably huge step, even for a country in crisis -- and therein lies part of the strength of this solution. Short-term transition problems would be complex and costly -- which should impress countries such as Portugal and Ireland that accepting this tradeoff is painful and to be avoided if possible, limiting contagion. But in the cases where such drastic action makes economic sense, as it does in the case of Greece, all of Europe will have been put onto a far stronger footing.