Argument

Remembering Basra

Nine years ago, I drove into Iraq one spring morning. As we leave it's worth recalling: After all the angry commissions and self-serving memoirs, the war was always more complicated than it seemed.

So much has happened since that it's a shock to go back and remember. The smell of confusion on that first day of the ground war, when we rose in the middle of the night and drove our rental cars from the Kuwait City airport through the blowing sands until we found an obliging British unit that didn't mind letting a pack of anxious, unauthorized reporters into Iraq. When we found ourselves facing gunfire -- not parades -- and little boys throwing stones, and mines placed along the side of Highway 8, the main road to Baghdad, the one that U.S. troops were even then pounding north on.

This was during the period that President George W. Bush so memorably, and incorrectly, referred to as "major combat operations" in his ill-advised victory speech a few months later. Of course, with nine years of hindsight, it's fair to say it was most likely the safest time for an American to be driving around southern Iraq in a rental car, Motown music blaring, accompanied only by a few friends and a single shared interpreter whose Beirut dialect of Arabic was hardly any help at all in Basra as it turned out.

We did not see what we expected. But then again, who did? Could anyone have imagined where we would be nine years later, as another president and another era finally bring to a close the chaos unleashed that night in the warm air of southern Iraq?

We drove into Basra, the downtrodden center of what Shiite resistance there had been to Saddam Hussein's regime, soon after the British seized it, on an April morning in 2003. Angry crowds on street corners demanded water and electricity. There was no food and little celebration. All the stores were closed -- except for those still being looted. Later, as we toured the city in our rented four-wheel-drives, we ran right into a mob of looters at the central bank; I was on the Thuraya satellite phone at the time, talking to NPR while my friend Ed cursed robustly.

On the way into the city we made two stops. The first was to investigate a crowd by the side of the road. It turned out to be a jail, known bitterly by its former occupants as the Jail for Adult Re-Education because it occupied the facility of a former school for adults. Saddam's jailers had fled two days earlier, and the raucous crowd was composed mostly of bewildered, frantic prisoners, newly liberated and not quite sure what to do. Astonished to find Western journalists in their midst, they grabbed our hands and dragged us into a room they said had been used as a torture chamber.

Here is how I described it that day in the Washington Post:

Adnan Shaker pulled up his shirt to reveal dozens of scars crisscrossing his chest. He turned to show the marks of cigarette burns on his back. He waved his misshapen right hand, two fingers twisted and useless. He grabbed the electric wire attached to the ceiling in the cell where he lived until a few days ago, and demonstrated how his jailers had tied his hands behind his back when they administered the shocks.…

Two days after the southern city of Basra was seized by the British military, Shaker and other former prisoners returned to their jail on the outskirts of the city. They came to celebrate and to tell their stories to anyone who would listen. They brandished identification cards and color mug shots of those they claimed died here. Shaker pointed to a Ministry of Defense identification card for an army officer named Hilal Abbas.

"This one said 'Death to Saddam,' " Shaker said. "They hanged him."

Around him, the crowd chanted their defiance of Hussein. "Yes! Yes! Bush! Yes! Yes! Bush!" they screamed. "Saddam! No! No! No!" One man grabbed a picture of Hussein and started eating it, ripping violently with his teeth. Another man took a newspaper with a photo of Hussein and slowly tore off the head.

Our second stop was at the massive summer palace kept by Saddam Hussein in Basra, now occupied by exhausted British troops, some of whom we found lounging by the Shatt al-Arab waterway in their underwear, playing Scrabble. We spoke to a kindly major who offered us a safe bunk for the night there until he was overruled by American superiors who had decreed no help for unauthorized reporters like us. As far as they were concerned, the only way to cover the Iraq war was by following the Pentagon's rules and embedding with their troops.

And so we found ourselves that night at the Basra Teaching Hospital, the only major facility in the city still open and functioning, though its director had abruptly left a few days earlier, when more than a dozen members of his family were mistakenly killed in an allied airstrike. We slept on the roof, alongside a British sniper team stationed there. They paid no heed to the Pentagon decree and seemed happy when we offered them cold beers we had managed to buy, though they politely turned down the Johnnie Walker scotch we offered, purchased from the same Iraqi bootlegger.

This was as much of a British presence as we were destined to see over the next few days and weeks. An occasional British tank drove by on the shabby streets as we made our rounds; once, the British came to rescue us when we were surrounded by a group of Shiite political activists who turned violent in the midst of a meeting in a Basra suburb. I often thought angrily about the American official I had spoken with before the invasion back in Kuwait, at the luxury hotel on the beach where he and the others in charge of planning the after-war had been staying. The biggest problem, he had told me, was what to do about garbage pickups in Baghdad for the few days while the situation sorted itself out. I thought about this while sitting on the Basra rooftop, listening to the crackle of gunfire from our sniper friends and wondering whether we would find food and the smugglers who would sell us gas for our cars the next day.

On our second day there, we decided to go looking for the Baathists who had been ruling the city. They had not disappeared. We found one, in air-conditioned comfort at a private hospital suddenly emptied of its paying customers. "What's going on right now is not an ending of the Baath Party," he lamented. "It is an ending of Iraq itself."

Later, we went to the home of Ali Ahmad Majid Alghanim, who told us, "Saddam Hussein is not finished; the Baath Party is not finished." Across from him sat his brother Adnan, one of Saddam's main Basra henchmen until a few days earlier. Asked where Saddam was now, he placed his hand over his chest. "In my heart," he told us. This family of Baathist stalwarts seemed to be under no threat of arrest or any other bother by the new British occupiers; I often wondered what had happened there later. Were they planning the insurgency in the backroom after sipping tea with the Western reporters by the front door?

And yet Saddam had been just as cruel as we had imagined him to be. In the Basra Teaching Hospital that was our safe haven, we sat down one afternoon with one of the doctors. He wept as he told us about cutting off the ears of Army deserters, part of a campaign ordered up a few years earlier. We saw crowds of men crawling like ants over the rubble at what had been the city's main prison, looking for the rumored secret cells where they hoped to find their missing family members. At the mosque nearby, a paper was pinned to the wall: a list of 147 names that someone had dug up, names of men who had been executed years before, but whose families were only finding out now what had happened to them.

In one story, I wrote about interviews with more than two dozen men in Basra who had been tortured. I found two of them at what had been the Mother of All Battles branch office of the Baath Party, now occupied by squatters. "There's no one who wasn't tortured in some way in Iraq," one of them, a man named Daud Khalaf, told me.

We saw much that only made sense later, after Fallujah and second Fallujah, after the rise of al Qaeda in Mesopotamia and the capture of Saddam, after all the recriminations in Washington and London, the commissions and the self-serving memoirs. But I had almost forgotten, and it is worth remembering.

Argument

Keeping Markets Happy

It's not public-sector deficits that are at fault for the euro crisis -- it's the policies that have enabled the financial sector to wield so much power.

The new fiscal pact agreed to by the majority of EU countries (save Britain) on Dec. 9 in Brussels will do little to avoid a pending catastrophe. It neither addresses the main causes of the current eurozone crisis nor calls for the economic policies urgently needed to restore stability and increase employment and growth.

The dominant discourse of the pact places the blame for the crisis squarely on public-sector profligacy, yet the crisis did not begin in the public sector. It began in the private finance sector, where it was triggered by risky overleveraging by the unregulated shadow banking system of non-bank financial institutions, many of which were exploiting a dangerous housing bubble in the United States and Europe that went neglected by authorities. It quickly became a public-sector deficit crisis, however, as lavish bank bailouts were put together and tax revenues fell because of the economic recession. Yet the initial problems of the unregulated nature of the financial sector and its reckless use of derivatives and commodity market speculation, not to mention the "too big to fail" moral dilemma, have not been resolved at all, leaving the door open for the possibility of more financial crises in the future.

Another root cause of the eurozone crisis lies in the unwillingness of the European Central Bank (ECB) to modify its current rules so that it can act more like a proper central bank. Although the ECB's recent moves to cut interest rates for the second straight month and expand emergency financing for cash-starved banks are steps in the right direction, its continued unwillingness to buy the bonds of troubled eurozone countries will only deepen the crisis. True, there is a technical ECB rule prohibiting unlimited bond purchases, yet one would think staring into the abyss of a global depression might be a good enough reason to break this rule.

This fundamental failure to act with bond purchases reflects the eurozone's neoliberal architecture, which overtly seeks to diminish the role of the state and enhance the power of the market. This thinking is also reflected in the ECB's monetary policy, which is narrowly focused on maintaining low inflation over other goals such as promoting higher employment and growth. Because eurozone governments do not control their own national currencies and thus cannot devalue their way out of the crisis, the only other option for increasing their export competitiveness is to drive wages down and further weaken labor rights, a process referred to as an "internal devaluation" through the adoption of "labor flexibility" reforms.

In fact, the new EU plan to restrict deficit spending to 3 percent of GDP and have EU countries cut and starve their way out of this recession smacks of the misguided fiscal and monetary policy of 1937 and the same anti-growth, anti-worker, and anti–public investment toxic cocktails that have long characterized the IMF's approach in developing countries. These policies to drive wages lower and adopt budget austerity in the current context of a recession will surely fail as consumer demand falls further, unemployment worsens, tax receipts continue to decline, and public deficits rise anyway.

Also at fault in the crisis is Germany's long-standing beggar-thy-neighbor approach of using low inflation and low wages to out-compete its EU trading partners, which eventually created destabilizing imbalances within the eurozone. The approach worked so well over the last decade that it earned Germany a massive trade surplus while saddling the country's less competitive EU partners with large trade deficits. In so doing, however, it wiped out the purchasing power in these markets, which can no longer afford to buy German goods, thus killing the goose that laid the golden eggs.

So if these are the problems at the heart of the debt crisis, what are the solutions? European leaders could avoid eurozone imbalances in the first place by adopting sanctions against both deficit and surplus countries. Surplus countries could be required to provide countercyclical long-term financing to deficit countries during crises through a system of regional transfers, and adopt stimulus or even mildly inflationary policies at home to help boost the exports of deficit countries. But such steps to avoid imbalances in the future will require abandoning the current laissez-faire architecture of the eurozone.

Europe must also turn its attention to meaningful regulation. In the 1970s, the finance sector famously complained that too much regulation was constraining its animal spirits and amounted to "financial repression," prompting U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher to set finance free with financial liberalization. But how free is too free, and at what point does a reckless and oversized finance sector become a problem? These are the questions that voices ranging from the Occupy Wall Street movement to Adair Turner, chairman of Britain's Financial Services Authority, are now raising, yet they are questions policymakers are still ignoring. Economic historians such as Hyman Minsky and Joan Robinson have noted that over the last 300 years, periodic financial crises have been preceded by exuberant speculative bubbles enabled by periods of financial liberalization, triggered by a crescendo of risky overleveraging, and followed by a period of re-regulation. Notably, however, there was no period of re-regulation following either the collapse of the dot-com bubble in the late 1990s or the more recent housing bubble in 2008. Finance may have avoided re-regulation after these recent bubbles because of the political power it has amassed over the years, as suggested by former IMF chief economist Simon Johnson in his Atlantic article, "The Quiet Coup."

The pathologies associated with the financial sector's dominance over the rest of the economy were on full display in recent days as European policymakers found themselves in impossible positions to please financial markets. Investors seem to be happy when governments impose harsh austerity to shore up confidence that bond issues will be repaid in full, and then unhappy when that austerity produces worsening economic projections. This whiplashing of elected officials and near-total surrender of economic policy to the whims of the financial markets suggests that things have gone too far. It also suggests that any steps toward restoring both financial stability and higher economic growth will necessarily involve reinstituting some of the constraints that conservatives used to deride as financial repression. It is increasingly apparent that after 30 years of financial liberalization, we are today in desperate need of restoring policies that can again incentivize investment capital to move away from the casino economy and back into the real economy that produces jobs and growth. But this, too, will require jettisoning neoliberal policies.

Given the recent replacements of the Italian and Greek governments with others more to the market's liking, it is easy to get swept up in the notion that the bond markets have somehow seized control. As Wall Street investment banker Roger Altman has stated, financial markets have become "a global supra-government. They oust entrenched regimes where normal political processes could not do so. They force austerity, banking bail-outs and other major policy changes.… Leaving aside unusable nuclear weapons, they have become the most powerful force on earth.'"

But citizens must resist this characterization of financial markets as a mysterious, uncontrollable force of nature and the driving force in this drama. In fact, these developments are merely the result of a particular set of policy choices. The circumstances under which financial markets brought about a run first on the debt of Greece, Ireland, and Portugal, and more recently on the debt of Italy and Spain, were created by the ECB's neoliberal policies. Chief among these is the priority of keeping inflation at low levels at all costs. The ECB has also enshrined "central bank independence" in its architecture, which in theory enables the bank to fight inflation without citizens, parliaments, or finance ministries seeking to increase deficits and print money during economic recessions (thus jeopardizing the priority of low inflation). While the bond markets very much like low inflation (it keeps the value of their bond issues from deteriorating before they get repaid), neoliberal policies have effectively subordinated fiscal policy -- even in times of crisis -- to the goal of keeping these markets happy.

Other monetary policy choices and ECB architectural designs exist, and these alternatives deserve consideration today more than ever. The ECB, for example, could have pursued a different policy that focused on promoting growth and employment, and it could have acted to buy troubled eurozone bonds to diffuse the immediate crisis. New thinking in macroeconomics, on display at a remarkable IMF conference this March, has increasingly questioned the single-minded focus on inflation-targeting in central bank policy. There is a growing appreciation for context and complexity and the use of more targets and instruments in monetary policy, but none of this seems to have been absorbed yet by eurozone policymakers. Sadly, the ECB has opted for a deliberate neoliberal policy of lessening the role of the state, and it appears to be using this crisis to underfund governments with a fiscal straitjacket and compel them to drive wages lower and weaken labor generally, thereby guaranteeing a deeper, longer, and harsher recession yet to come.

The policies that today give so much power to the whims of the bond markets are not etched in stone, and history shows that reasonable people can decide to make new arrangements at any time -- if citizens would only mobilize to demand such policy changes. For now, under the current policies, it looks like everybody is going to lose.

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