Macedonia Daily Dose and Interviews (June 2009- )

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By: Dr. Sam Vaknin

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Written June 3, 2009

The Republic of North Macedonia and Palestine: Obama Loses Patience with Bush Allies

I. "The Republic of North Macedonia" and Greece

On August 26, 2008, I published an article titled Greek-American Plan to Resolve Macedonia's Name Issue?. In it, I described an American plan to resolve the name dispute between Macedonia and Greece (see note at the bottom of the first section of this article).

The Plan included five elements: (1) Macedonia will change its constitutional name to Northern Macedonia ("The Republic of North Macedonia"); (2) Macedonia will be granted a transition period to amend its constitution and to alter its registered name with various international and multilateral institutions; (3) Macedonia will be issued an invitation to join NATO; (4) Both countries will be allowed to use the adjective "Macedonian" (both commercially and non-commercially); (5) The parties will renounce any and all claims to each other's territory.

Sure enough, weeks later, Matthew Nimetz, the UN mediator in the name issue published essentially the very same plan. It was promptly rejected by both parties.

Macedonia has hitherto been literally invisible on the Obama's Administration's list of priorities. But this is fast changing. Obama and Clinton still regard the Balkans as essentially a European problem. But, as they tackle the Middle-East head-on, the last thing they need is a "second front" with restive minorities in Bosnia-Herzegovina, or Macedonia. Additionally, countries like Macedonia and Israel are now bound to pay the price for having been staunch supporters of Republican administrations in general, and George Bush in particular.

The Obama Administration will shortly appoint a Balkans Envoy, a person well-known and little-liked in Macedonia for his coarse interference in its internal affairs. His job will be twofold: to calm passions down in Bosnia, if necessary through well-timed and much-publicized arrests and to force both Macedonia and Greece to accept the above-mentioned five-points plan. The USA will not take "no" for an answer and will set a strict timetable for the resolution of the name issue and a NATO invitation by yearend.

Macedonia doesn't stand a chance of resisting such an onslaught. It will be forced into a humiliating retreat. Prime Minister Gruevski can use the country's new President, Gjorge Ivanov, as a scapegoat and "blame" him for any painful compromises Macedonia may be forced to make. But this gimmick won't work: Macedonians widely (and wrongly) perceive Ivanov to be Gruevski's puppet.

Gruevski will go to a referendum on any compromise struck with Greece. It would be an unwise move, though: If the citizenry rejects the suggested deal, Gruevski will be faced with two stark alternatives: (1) To be the Prime Minister of a disintegrating country (as the Albanians will surely seek to secede from Macedonia or to federalize it, one way or the other); or (2) To lose his job altogether (as the Americans will surely seek to change the regime and depose him, as they have done in 2001-2 when it actively and successfully sought to unseat Ljupco Georgievski).

Following the country's ill-advised early elections in June, 2008, the right-wing VMRO-DPMNE was coerced by the international community (read: the EU and the USA) into joining forces with DUI, the political incarnation of erstwhile Albanian insurgents in the northwest of Macedonia, hitherto an anathema as far as Gruevski was concerned.

Hopping to bed with DUI will likely restrain the government's freedom of action. Every concession to Greece will be portrayed by jingoistic nationalists in Macedonia as capitulation and the consequence of blackmail by the Albanian parties. To the great consternation of the Macedonians, Albania, Macedonia's neighbor, has been invited to join NATO and its economy is growing even in the face of the global crisis. The restive Albanians of Macedonia would like to accede to the Alliance as soon as practicable and at all costs. Understandably, they are less attached to the country's constitutional name than the non-Albanian (Macedonian) majority.

Note: The "Name Issue" between Greece and Macedonia

The "name issue" involves a protracted dispute over the last 17 years between the two Balkan polities over Macedonia's right to use its constitutional name, "The Republic of Macedonia". The Greeks claim that Macedonia is a region in Greece and that, therefore, the country Macedonia has no right to monopolize the name and its derivatives ("Macedonian").

The Greeks feel that Macedonians have designs on the part of Greece that borders the tiny, landlocked country and that the use of Macedonia's constitutional name internationally will only serve to enhance irredentist and secessionist tendencies, thus adversely affecting the entire region's stability.

Macedonia retorts that it has publicly renounced any claims to any territory of any of its neighbors. Greece is Macedonia's second largest foreign investor. The disparities in size, military power and geopolitical and economic prowess between the two countries make Greek "fears" appear to be ridiculous. Macedonians have a right to decide how they are to be called, say exasperated Macedonian officials.

The Greek demands are without precedent either in history or in international law. Many countries bear variants of the same name (Yemen, Korea, Germany until 1990, Russia and Byelorussia, Mongolia). Others share their name with a region in another country (Brittany in France and Great Britain across the channel, for instance).

In the alliance's Bucharest Summit, in April 2008, Macedonia was not invited to join NATO. Macedonia was rejected because it would not succumb to Greek intransigence: Greece insisted that Macedonia should change its constitutional name to cater to Greek domestic political sensitivities.

II. Palestine and Israel

Israel will face similar realities. Obama intends to promulgate the resuscitation of the Road Map, but with a twist. The USA will publish a set of demands to be met by Israel prior to the commencement of negotiations between the Israelis and the Palestinians: (1) to immediately freeze all settlements (2) to establish free movement of people and goods between the Gaza Strip and the West Bank; (3) To accept the "two states solution" (the formation of a Palestinian state alongside Israel).

The State Department is drawing up detailed lists of escalating sanctions against "intransigent parties": (1) Public chastising and criticism by high-level officials, including President Obama himself; (2) Suspension of intelligence sharing; (3) Suspension of weapons-related export licenses, permits, and research and development efforts; (4) Freezing of military aid; (5) Freezing of economic aid.

The United State is no longer reluctant to impose a settlement on the Israelis, even as the specter of sanctions against the Jewish state has re-emerged in the Old Continent's corridors of power. A committee of the European Parliament is said to be laboring away at various scenarios of escalating sanctions against Israel. The European Commission may be readying its own proposals.

The views of Conservative Americans are summed up by David Pryce-Jones, Senior Editor of National Review:

"Israelis and Palestinians face each other across the new ideological divide in a dilemma that bears comparison to Germany's in the Cold War ... Israel must share territory with Palestinians, a growing number of whom are proven Islamic terrorists, and who identify with bin Laden's cause, as he identifies with theirs ... The Oslo peace process is to the Middle East what Ostpolitik was to Germany and central Europe. Proposals to separate the two peoples physically on the ground spookily evoke the Berlin Wall."

Still, such sentiments aside, in the long-run, Muslims are the natural allies of the United States in its role as a budding Asian power, largely supplanting the former Soviet Union. Thus, the threat of militant Islam is unlikely to cement a long term American-Israeli confluence of interests.

Rather, it may yet create a new geopolitical formation of the USA and moderate Muslim countries, equally threatened by virulent religious fundamentalism. Later, Russia, China and India - all destabilized by growing and vociferous Muslim minorities - may join in. Israel will be sacrificed to this New World Order.

The writing is on the wall, though obscured by the fog of war and, as The Guardian revealed in April 2003, by American reliance during the conflict in Iraq on Israeli intelligence, advanced armaments and lessons in urban warfare. The "road map" announced by President George Bush as a sop to his politically besieged ally, Tony Blair, and much contested at the time by the extreme right-wing government of Ariel Sharon, called for the establishment of a Palestinian state by 2005.

Sanctions and embargoes are nothing new to Israelis.

In a symbolic gesture, the British government decided to crack down on food products imported from Jewish settlements in the West Bank and Gaza and mislabeled "Made in Israel" or "Produce of Israel". The European Union pegs the total value of such goods at $22 million.

Partly to prevent further Israeli provocations of an extremely agitated and radicalized anti-Western Arab street, European leaders revived the idea of economic sanctions, floated - and flouted - in 2002. The EU accounts for one third of Israel's exports and two fifths of its imports. It accords Israeli goods preferential treatment.

In April 2002, in the thick of the bloody intifada, Germany and Belgium suspended military sales to Israel. Norway boycotted some Israeli agricultural commodities. The Danish Workers Union followed suit. The European Parliament called to suspend Israel's Association Agreement with the EU. Though Belgium supported this move, harsher steps were avoided so as to allow Colin Powell, then U.S. Secretary of State, to proceed with his peace mission to the Middle East.

Israel has been subjected to boycotts and embargoes before. In the first four decades of Israel's existence as well as in the last five years, the Arabs imposed strict market access penalties on investors and trade partners of the Jewish state. The United States threatened its would-be ally with economic and military sanctions after the Suez War in 1956, forcing it to return to Egypt its territorial gains in the desert campaign.

For well over a decade afterwards, Israel was barred from direct purchases of American weaponry, securing materiel through West German intermediaries and from France. After the Six Day War, French President Charles de Gaulle imposed an arms embargo on the country. Faced with Arab intransigence and virulent enmity towards Israel in the Khartoum Summit in 1967, the USA stepped in and has since become Israel's largest military supplier and staunchest geopolitical supporter.

Yet, even this loyal ally, the United States, has come close to imposing sanctions on Israel on a few occasions.

In 1991, Yitzhak Shamir, the Israeli Prime Minister at the time, was reluctantly dragged into the Madrid Arab-Israeli peace conference by a victorious post Gulf war administration. He proceeded to negotiate in bad faith and continued the aggressive settlement policies of his predecessors.

In consequence, a year later, President George H.W. Bush, the incumbent's father, withheld $10 billion in sorely needed loan guarantees, intended to bankroll the housing of 1 million Jewish immigrants from the imploding Soviet Bloc. Shamir's successor, Yitzhak Rabin, succumbed to American demands, froze all new settlements and regained the coveted collateral.

Only concerted action by the EU and the USA can render a sanctions regime effective. Israel is the recipient of $2.7 billion in American annual military aid and economic assistance. In the wake of this round of fighting in the Gulf, it will benefit from $10 billion in guaranteed soft loans. It has signed numerous bilateral tax, trade and investment treaties with the United States. American sanctions combined with European ones may prove onerous.

Israel is also finding itself increasingly on the wrong side of the "social investing" fence. Activist and non-governmental organizations are applying overt pressure to institutional investors, such as pension funds and universities, to divest or to refrain from ploughing their cash into Israeli enterprises due to the country's "apartheid" policies and rampant and repeated violations of human rights and international law.

They are joined by student bodies, academics, media people and conscientious Jews the world over.

According to The Australian, a petition launched in 2002 by John Docker, a Jewish-Australian author and Fellow of the Australian National University's Humanities Research Centre and Christian Lebanese Australian senior lecturer and author Ghassan Hage of Sydney University's Anthropology Department, "calls (for a) ban on joint research programs with Israeli universities, attending conferences in Israel and disclosing information to Israeli academics".

It is one of many such initiatives. In the long run such grassroots efforts may prove to be have the most devastating effects on Israel's fragile and recessionary economy. Multinationals are far more sensitive to global public opinion than they used to be only a decade ago. So are governments and privatized academic institutions.

Israel may find itself ostracized by consent rather than by decree. Already a pariah state in many quarters, it is being fingered by European left-leaning intellectuals as being in cahoots with the lunatic fringes of Christian and Jewish fundamentalism. Yet, if sanctions cause a recalcitrant Israeli right to trade occupied land for a hitherto elusive peace, history may yet judge them to be a blessing in disguise.

Written June 5, 2009 

Macedonians in Denial about the Name Issue Dispute with Greece


Faced with an unprecedented choice between their identity and their future, Macedonians resort to a classic psychological defense mechanism: denial. Greece demands that the Republic of Macedonia change its name, or else forget about its Euro-Atlantic aspirations: NATO membership and EU accession. Macedonians react with horror and revulsion to such truly unprecedented bullying. Unable to face reality, they collectively retreat to fantasy.


FANTASY NUMBER 1: Macedonia will not be asked to change its Constitutional name


Macedonian intellectuals and politicians like to pretend (and usually succeed in convincing themselves) that Greece will demand only the change of Macedonia's name in international settings, bilateral relations, and multilateral organizations.


REALITY: Macedonia will be required to change its constitutional name.


FANTASY NUMBER 2: Macedonia is actually negotiating with Greece


REALITY: Greece is negotiating this issue with the United States and, to a lesser extent, with certain members of the European Union. Macedonia is not a party to the negotiations and is completely irrelevant in this context. It will be presented with a "take it or leave it" solution. If it doesn't take it, it will pay a heavy price, both internally (as its restive minorities rebel) and externally (as it is further excluded from the mainstream of the international community).


Thus, Macedonia was utterly shocked by the Greek veto that prevented its accession to the alliance in the NATO Bucharest Summit in April 2008. But this move was coordinated well in advance with both the USA and the EU (they were not happy about it, but they were fully informed and apprised of the Greek decision). They simply did not bother to keep Macedonia in the picture.


On March 30, 2008 (days before the NATO summit took place), I published this text in the Long Beach Chronicle:


"High-placed NATO officials informed the Chronicle a few weeks ago that, if the negotiations between Macedonia and Greece regarding what has come to be known as "the name issue" fail, NATO will invite Macedonia to join the alliance, effective June 30, 2009, and conditioned upon a resolution of its bilateral bone of contention with its much larger neighbor by said date."


FANTASY NUMBER 3: America and many European countries are friends of Macedonia and regard Greek behavior and demands as atrocious.


REALITY: While the United States and the majority of the member-countries of the European Union indeed regard Greek conduct as inexcusable and disruptive, they will all, without exception, side with Greece against Macedonia. This is because Greece is richer, a key member of NATO's ever-more-crucial southern plank, and an important trading partner of many countries. Macedonia, by comparison, is of very limited importance. Hence, it has no leverage.


Macedonia's only hope is to influence American decision-makers through international public opinion; to act against the Greek position in a variety of multilateral and judicial institutions; and to cooperate with core constituencies in the United States in order to change the minds of legislators and bring them to its side.


FANTASY NUMBER 4: Even if there is a referendum in Macedonia on a proposed solution, the West will make sure that it succeeds


REALITY: Nikola Gruevski and his government will not publicly support any solution that they (secretly) find unacceptable. At best, Gruevski will remain neutral and leave it to the people to decide. Gruevski will not collaborate with the International Community in perpetrating what he regards as the coerced abrogation of Macedonian's natural rights.


FANTASY NUMBER 5: The name issue is very important to the ruling coalition.


REALITY: The name issue is a distraction. Gruevski's main priorities are economic growth and prosperity and nation-building, based on history, both modern and ancient. The name issue is not as important to him as it is to many of his detractors. He is willing to wait out the storm, even if it means belated NATO and EU accession. He does regard the name issue as a failure and does take it personally. But he will not let his emotions affect his policies.


FANTASY NUMBER 6: Gruevski is using the name issue to gain political points


REALITY: Gruevski feels very deeply and authentically about this issue. As a person, he reacts badly to injustice and pressure. He hates being blackmailed. He becomes very stubborn when subjected to arm-twisting. On the other hand, it is true that he is overly-sensitive to his rating and popularity and is, indeed, doing everything he can to evade the name issue and put it on the back-burner because he believes that the problem cannot be solved without utterly unacceptable Macedonian concessions. He is a pragmatist, so he concentrates on the here and now and on what can be achieved in the sphere of the economy.

Written June 13, 2009

Steering Macedonia towards Health


As healthcare systems go, Macedonia's is far from being the worst. By various criteria, Macedonia has attained more than all its neighbors and has even done better than the vastly richer countries of the EU or Israel. These accomplishments are rendered even more incredible if one considers the fact that, with an average monthly income of c. 250 euros, Macedonians are among the poorest nations in Europe. Macedonia's Health Insurance Fund has to cope with the same size of population (2 million) as does its Slovenian counterpart, but with 10 times fewer resources (300 million euros in contributions and other income vs. more than 3 billion euros).


Still, while, by objective measures, the system is reasonably successful, by subjective ones (customer satisfaction and trust) it is abysmally deficient. Patients consistently complain about a lack of resources, decrepit equipment, inordinately long waiting times, an all-pervading lack of responsiveness, corruption and informal payments, and other ills of the country's tottering healthcare institutions.


Enter the country's youthful (28) Minister of Health, Bujar Osmani, a medical doctor by profession. Having worked in the United Kingdom for a year, he speaks wistfully of its fabled National Health Service (NHS). This exposure to a model of healthcare delivery and provision that actually works may have been the impetus to the unusual events that took place in his Ministry in the last 4 months or so.


Osmani is soft-spoken, thoughtful, and pragmatic. He is well-educated, intellectually alert, and his English is impeccable. He, thus, reifies a new breed of Albanian politician in a country where Albanians are a much-maligned minority. In the government, he is in the demanding position of belonging to DUI, a party that is the political incarnation of Albanian insurgents and malcontents. In 2001, an armed conflict between the two major ethnic communities - Macedonians and Albanians - resulted in the Ohrid Framework Agreement which regulates their uneasy co-existence. Since then, DUI has twice joined coalition governments with various all-Macedonian parties.


Though naturally mindful of his public image, Osmani is far from vain. He was the one to reach out and initiate the first meeting between us. When I offered him the idea that was to become the Steering Committee for the Advancement of Healthcare in the Republic Macedonia, he unhesitatingly accepted it, an act of exceptional political courage. Attempts to reform the healthcare system - steeped as it is in special interests, political meddling, and resistance to change - have buried many a political career.


Osmani wants to leave a legacy of better health behind. He is a true reformer. But, after months of clashing with various constituencies while trying to implement even minor changes to the system, he understood that reform is not a command-and-control proposition. He had to bring aboard all the stakeholders in the process: doctors, patients, nurses, non-governmental organizations, consumer advocates, and the pharmaceutical industry. A varied group of experts - lawyers, economists, and healthcare advisors furnished by the World Health Organization (WHO) will help them along. The Steering Committee for the Advancement of Healthcare in the Republic Macedonia was launched on June 2, 2009.


Macedonia's long-suffering public has silently witnessed dozens of failed attempts at overhauling the creaking edifice of healthcare. A slew of committees has produced a midsize mountain of reports and recommendations that gather dust in drawers throughout the Ministry of Health. Not surprisingly, the new initiative met largely with skepticism and cynicism.


But Osmani started a truly new process. Its novelty will undoubtedly sink in as it progresses. Regardless of whether this particular committee succeeds or not, it has established precedents that will be impossible to ignore.


Being an active member of this body, I will revert to first person:


For the first time we are attempting a sector-wide analysis with the intention of implementing changes across all institutions, not restricted to certain elements in healthcare delivery, provision, commissioning, and stewardship. Incremental, piecemeal reforms do not work. The entire system must be tackled simultaneously.


For the first time, all stakeholders in the health sector are involved directly in a Steering Committee that is not governmental. The government has a seat at the table (in the person of the Minister of Health), but no privileged status. Such wide participation guarantees "ownership" of the committee's work and of its recommendations. No one will be able to say: I have had no part in this process; these proposed changes are imposed on me against my better judgment and will.


For the first time, the public will be consulted directly, through townhall meetings and by constantly submitting ideas, opinions, and suggestions to the Committee.


For the first time, cutting edge, Web 2.0, social networking high-technologies are used to involve the entire public and all the stakeholders in the debate (Wiki, blogs, Facebook, Twitter, and an interactive Website - ).


For the first time, the members of the Committee are allowed to invite expert witnesses and seek information, insights, and advice from them.


For the first time, the process commences with the Committee’s recommendations rather than ends with them. Such recommendations will serve as the starting point and the basis for extensive public consultations.


For the first time, the Committee will produce draft laws, amendments to laws, and regulations rather than reports that are ignored and stashed away to be soon forgotten.


Ultimately, elected politicians will decide the fate of these "draft laws, amendments to laws, and regulations". This is how it should be in a democracy. Hopefully, constant exposure of the Committee's work to the public will prevent special, moneyed interests from thwarting true reforms in collusion with corrupt decision-makers and legislators. There's no guarantee of that, of course - just a slightly better chance than before.

Written June 13, 2009

What is the REAL Size of Macedonia's Foreign Exchange Reserves?

Here are the facts as they emerge from the periodical (mostly annual) reports of Macedonia's central bank, Narodna Banka na Republika Makedonija - NBRM, for short.


1. Towards the end of 2008, Macedonia's foreign exchange reserves amounted to c. 1.6 billion euros.


2. Macedonia's foreign exchange reserves were managed by its central bank.


3. NBRM invested about 75% of these foreign exchange reserves in government bonds, issued by countries such as the United States, Germany, United Kingdom, and other countries.


4. On October 24, 2008, I warned the NBRM publicly (for instance, via my column in Nova Makedonija) that government bonds are overvalued and their prices may collapse. I recommended to sell some of the government bonds and invest the resulting cash in bank deposits in banks in the West (which at the time yielded about 3% annually).


The Investment Committee of NBRM reacted, in a letter published by Nova Makedonija on October 30, 2008. They called my text "malicious" and "sensational" and accused me of "hiding the true situation ... leading to public confusion".


More to the point they said that they didn't care what the market prices of the bonds were because they do not intend to sell them. They have every intention of holding them to maturity and collecting from the issuers of the bonds (the various governments) the money they (NBRM) had invested plus the coupon (the interest payments on the bonds).


5. By end November 2008, some government bonds provided negative yield (if you bought them in the open market, you received less money on maturity than you had invested). This was a clear signal to sell. Bonds have never maintained negative yields for more than a few weeks. In other words, the market prices of bonds always collapsed after they reached negative yields.


6. Between December 2008 and early June 2009, the prices of government bonds fell between 7 and 17%, depending on the type of bond in question. On average, 10-year Treasury Notes (USA), Bunds (Germany), and Gilts (UK) fell by 8% (with some US Treasuries falling by 15% and more).


7. Had the NBRM sold the bonds it owned in November, it would have avoided a sizable loss on these bonds. The size of this loss is unknown because the NBRM provides very little data about its investments.


Theoretically, the NBRM said that it had 1.2 billion euros invested in bonds. A decline of even 7% in their market prices means a loss (some it realized, some of it unrealized, on the books) that could have been avoided of c. 90 million euros.


The NBRM does not inform the public what is the market value of its investments (as opposed to the theoretical value of the bonds if they are held to maturity).


8. NBRM got it wrong not only regarding the prices of government bonds, but also regarding whether it would need to sell a meaningful chunk of its bond portfolio on short order. As you recall, the NBRM insisted that there would be no need to sell the bonds until they reach maturity.


The NBRM was wrong. Between December 2008 and May 2009 the NBRM sold more than 300 million euros in a misguided attempt to keep the exchange rate of the Macedonian denar fixed against the euro. Assuming that 75% of this amount was invested in bonds, it would seem that NBRM was forced to sell more than 200 million euros in bonds, in the open markets, at the new, much reduced prices - exactly the scenario that I had predicted.


9. Finally, from around February 2009, the consensus of experts and large government bond portfolio managers around the world is that bond prices will continue to fall, possibly precipitously. If NBRM has changed its policy of investing in government bonds it has yet to inform the public.


NBRM should sell as much of its bond portfolio as it can before it suffers catastrophic losses. In the past 60 years, bond markets have collapsed at least three times, with the market prices of bonds falling by more than 35%.

Written July 2, 2009

Greek Carrots in the Macedonian Salad?

Greece is putting together a package of economic incentives to be included in any compromise regarding the name issue with the Republic of Macedonia (for an overview of this convoluted conflict, see note below). The measures are intended to restore Greece's tattered relationship with the United States by casting Macedonia as the intransigent, radical, and irrational party when the Macedonian leadership rejects the offer (as the Greeks fully expect them to do).

The Greeks have been aided and abetted in this task by pro-Greek US Senators and Congressmen, who have acquired a reputation this past year as tireless signatories on anti-Macedonian petitions and Greek lobby sponsored House Resolutions. Elements in the State Department have also been involved - albeit unofficially - in compiling this economic program.

The Plan is conditioned on Macedonia's acceptance of the constitutional name "Republic of North Macedonia" (or a variant thereof) and on a withdrawal of  its lawsuit in the International Court of Justice. The package is still being finalized. Right now, it consists of these elements:

(i) Greece will financially and politically support Macedonia's involvement in various, specified transportation projects (the infamous "corridors");

(ii) Greece will extend oil pipelines into Macedonian territory;

(iii) Greece will provide Macedonia with capital (in the form of low-interest loans) to match European Union regional and other pre-accession funds and pressure Brussels to speed up the release of such allocations;

(iv) Greece will guarantee the energy needs of Macedonia and will allow it to withdraw crude oil and liquid gas from Greece's own reserves in case of emergency;

(v) Greece will sign with Macedonia an emergency standby electricity supply (grid) facility;

(vi) Greece will establish a "North Macedonia Investment Fund" with between 100 and 140 million euros. These moneys will be invested as matching funds in joint Greek-Macedonian projects in tourism; agricultural biotechnology; the financial sector; crime fighting; healthcare; and higher education. The Fund will also provide Greek exporters and investors with country risk and political risk insurance as well as export guarantees and subsidies.

(vii) Greece will gradually liberalize its visa regime with Macedonia; provide 10,000 work permits annually to skilled Macedonian workers; facilitate student and cultural exchanges; and provide student visas on a mass scale.

It is not clear at this stage who will deliver these proposals to the government of Macedonia: Matthew Nimetz, the hapless and less than successful UN negotiator whose credibility is strained with both parties; the State Department in the form of an "American Initiative", which will then be "graciously accepted" by Greece; or Dora Bakoyannis in her forthcoming visit to Skopje.

Note: The "Name Issue" between Greece and Macedonia

The "name issue" involves a protracted dispute over the last 17 years between the two Balkan polities over Macedonia's right to use its constitutional name, "The Republic of Macedonia". The Greeks claim that Macedonia is a region in Greece and that, therefore, the country Macedonia has no right to monopolize the name and its derivatives ("Macedonian").

The Greeks feel that Macedonians have designs on the part of Greece that borders the tiny, landlocked country and that the use of Macedonia's constitutional name internationally will only serve to enhance irredentist and secessionist tendencies, thus adversely affecting the entire region's stability.

Macedonia retorts that it has publicly renounced any claims to any territory of any of its neighbors. Greece is Macedonia's second largest foreign investor. The disparities in size, military power and geopolitical and economic prowess between the two countries make Greek "fears" appear to be ridiculous. Macedonians have a right to decide how they are to be called, say exasperated Macedonian officials.

The Greek demands are without precedent either in history or in international law. Many countries bear variants of the same name (Yemen, Korea, Germany until 1990, Russia and Byelorussia, Mongolia). Others share their name with a region in another country (Brittany in France and Great Britain across the channel, for instance).

In the alliance's Bucharest Summit, in April 2008, Macedonia was not invited to join NATO. Macedonia was rejected because it would not succumb to Greek intransigence: Greece insisted that Macedonia should change its constitutional name to cater to Greek domestic political sensitivities.

Interview granted to the Portuguese newsmagazine Politika, November 8, 2009

Q. In October the European commission has recommended that Macedonia should start its EU accession negotiations… Do you think the entrance of Macedonia in the EU will happen in 2012 as predicted?

No, I don't. Macedonia is not ready to accede to the EU and the EU bureaucracy know it. Macedonia has received a date for commencing the negotiations only because the EU is very troubled about the explosive situation in Bosnia, Kosovo, and in western Macedonia where restive and belligerent Albanians are a majority. The EU would rather postpone by as much as it can the accession of the "Ottoman Bloc" (Serbia, Macedonia, Bosnia-Herzegovina, Albania, and Kosovo which were all under strict Turkish rule for centuries). Macedonia would never accede to the EU before Serbia and Albania do and definitely not in its current state: poverty, corruption, low level of education, problems with human and minority rights, incompetent public administration, dysfunctional institutions, bad relations with all its neighbors, and a budding authoritarian faux-nationalistic regime.

Q. In June 2008 elections there were violent conflicts between the Albanian parties DUI and DPA. However, in April 2009, presidential and local elections in the country were carried out peacefully. Do you think the disputes between the two Albanian parties are now permanently solved?

DPA received unequivocal messages from Albanians in Albania and in Kosovo and from the international community that another civil war (such as the one that ONA, DUI's military predecessor, provoked in 2001) will not be tolerated. They are now in search of an alternative, more peaceful strategy of deposing DUI while complying with the rules of the democratic game. If they fail to be heard, however, the consequences in terms of strife could be dire. Political parties in this country function as combination employment bureaus and travel agencies. These vast, all-pervasive networks of patronage guarantee access to public funds and enhanced social mobility. Excluding the voters of any single party from this process of coordinated looting of the state is dangerously counter-productive and destabilizing.

Q. Do you believe the recognition of Kosovo independence, despite Serbia’s opposition, is an important contribution for the good relationship between Slav Macedonians and Albanian Macedonians?

The preferred term is "ethnic Macedonians", I believe. The recognition of Kosovo was mainly a nod to the West and an acquiescence to the relentless pressure exerted by the USA. DUI can present it as an achievement and, in this sense, it does reduce the friction between the two coalition partners. But DUI does not represent all the Albanians. DPA, for instance, is unlikely to be mollified by gestures that electorally buttress its main rival.

Q. How do you comment on the Greek persistent opposition to Macedonia’s name? Should European Union have a stronger influence over Greece, since most UN countries recognized the name Republic of Macedonia?

The Greeks not only oppose Macedonia's constitutional name, but they dispute the Macedonians' self-imputed identity as the direct descendants of the ancient Macedonians (with or without Slav blood). They also do not recognize the Macedonians within Greek borders as a separate minority, having persecuted them in the 20th century and having confiscated swathes of their property now worth billions of euros. Thus, the "name issue" is a multi-layered, complex bilateral dispute. The EU cannot sacrifice well-entrenched principles of governance just to resolve a single conflict with a minor wannabe Associate Member. Greece is far more important to the EU (and, more generally, to the West). It also has vested historical and institutional rights in the EU. Finally, Greece's flirt with Russia is a trump card. The West will easily sacrifice Macedonia to prevent a Greek-Russian axis on its southern flank. Macedonians must now choose between letting go of their identity, or ditching their future in the EU.

Q. Macedonia has lodged a lawsuit against Greece at the International Court of Justice in the Hague for blocking its NATO entry. Do you think the court decision will be in favor of Macedonia?

Yes, I think that the Court will rule in Macedonia's favor and Greece will ignore the ruling. Still, such a judgment would be an important moral victory for Macedonia.

Q. Macedonia's Foreign Minister Antonio Milososki is ready to continue talks with Greece in order to try to find a solution to the name row UN. However, the prime-minister Nikola Gruevski doesn’t seem willing to change the country's name. Which solution can be found?

Greece is not negotiating with Macedonia. Greece owns large chunks of Macedonia's economy and has enormous leverage over the country. Greece is negotiating the name issue with the USA and, to some extent, within the EU. Any concessions Greece makes, it would make in order to curry favor with the new Obama administration. Finally, Macedonia will have to change its constitutional name (probably to "The Republic of North Macedonia").

Q. Macedonia’s junior government party, the ethnic Albanian Democratic Union for Integration (DUI) set a deadline of December for its senior ethnic Macedonian partner to solve the ongoing “name” row. What does this means in terms of government coalition?

It means nothing. The issue will not be solved until December, of course. Still, the government will be able to show some "procedural" progress, make a few "creative" proposals and DUI will declare itself satisfied with these "achievements". The state administration is a goose that lays numerous golden eggs for DUI activists and members. Why slaughter it?

Q. Is the name dispute affecting the important economic relationship between Macedonia and Greece? Or could it affect this relationship in the future, is the dispute stands longer?

Macedonia's economic relationship with Greece is completely divorced from this and other political disputes between the two countries (for instance, regarding the Aegean Macedonians which were expelled from Greece last century). Greece continues to invest in Macedonia and trade with it and Macedonian tourists continue to flock to Greek resorts. This cannot change: Macedonia is partly-owned by Greek companies and banks and, as a land-locked country, depends on Greece for access to the sea. In fact, persistent rumors are that Greece is preparing to offer Macedonia a a packet of economic measures and “goodies” to help resolve the name issue.

Q. EU has urged the country to cut down on corruption before accession talks. Is this being achieved?

Overt corruption by small-time functionaries is definitely down. Whether institutionalized, high-level venality is on the rise is anyone's guess. The government has succeeded to change the atmosphere and the parameters of public debate, so that corruption is no longer tolerated, expected, or accepted by citizens and law enforcement authorities. But the ruling political elite is still untouchable, unaccountable, and non-transparent. In this sense, nothing has changed.

Q. The U.S. has invested in the judicial reform and that Rule of Law in Macedonia. Do you believe this reform is happening?

No, if we go by public perceptions, it has been a complete failure. Macedonia's courts have the somewhat justified reputation of being a travesty: clogged, politicized, corrupt, incompetent, and biased. The law is applied selectively against political opponents and investigative journalists. The average citizen has no recourse and equality before the law. Proceedings are often so slow as to constitute an abortion of justice. Some judges are ill-educated, misinformed, under political or police dictates, eminently bribable, luddite, and provincial.

Q. In 2009 Macedonia's unemployment rate is expected to hit 35% and youth unemployment, which currently stands at 54 per cent, is particularly worrying for the EC. How can Macedonia invert these statistics? Macedonia’s largest export oriented branches such as the metal, building and textile industries are being affected by the international crisis. Can tourism or other industries be a good bet in terms of GDP?

Macedonia is not a viable economic entity in its current form. Macedonia sustains an enormous trade deficit (equal to 45% of GDP) because its export markets are not diversified (60% of its exports go to the EU); its industry is non-competitive; its currency is way overvalued; and its exports are subject to cyclical price movements. It must dump its antiquated industry and agriculture and concentrate its efforts on services, tourism, biotechnology, finance, education, healthcare, entrepreneurship, microlending, and information technology. It must export its manpower to other countries willingly and in a planned fashion. It must wean itself from its dependence on borrowing and liberalize its foreign exchange regime. It must actively encourage exports and vehemently discourage imports. But, Macedonia's leaders always look for a miracle: loans from Taiwan, foreign investors, Jewish money. They are unwilling to confront reality, preferring instead to live in a fantasyland. The government sector constitutes 60% of the country's GDP and the state employs a whopping one third of the active workforce. Macedonia has had no economic crisis because it does not have an economy.

Q. After the NATO bombing, important trade links with Serbia have been broken creating economy slumps and unemployment. Is it possible to get these ties fixed?

This ties have been fixed long ago, with the rise of pro-Western politicians in Belgrade. Serbia is one of Macedonia's main trading partners, shares with it critical infrastructure (electricity, roads), and collaborates with Macedonia's army and intelligence services. Macedonians are essentially a Slavic, Christian Orthodox nation, very much like the Serbs.

Q. After the Kosovo war, the West, namely USA and EU, promised foreign help, a Stability Pact, to repair the damage in Macedonia economy. 10 years after the war, do you think this promise materialized?

Only a small fraction of the international aid pledges made to Macedonia in various donor conferences in the wake of the Kosovo crisis
 has actually made it to its coffers. The Stability Pact was a glorified talk shop, though it helped the countries of the region to maintain a productive dialog and encouraged economic collaboration among them.

Q. Despite its economic, judicial and political challenges, Macedonia was ranked, in 2008, as the fourth 'best reformatory state' out of 178 countries ranked by the World Bank. What were the most important achievements of Macedonia since independence?

There is no question that - like Obama - "reform" and "change" have been the mantras of the Gruevski administration. But the changes implemented were shallow, cosmetic, populist, and mainly intended to foster foreign direct investment. The World bank and the IMF are creditor institutions. Their main concern is to make sure that Macedonia's balance of payments can guarantee debt service and the repayment of loans to commercial creditors. Their ranking is meaningless because it does not reflect the truly salient issues: was the economy thoroughly revamped and restructured (no); did the government's policies create sustained jobs (no); was the dependence of foreign capital reduced (no); did domestic investment in crucial areas of the economy increase (no); did the country's multilateral standing improve (no).

Macedonia's main accomplishment hitherto is to have survived. It was the subject of an economic embargo, internal conflict, wars on its border, floods of refugees, economic meltdown, hyperinflation, brain drain - and, yet, it is still here, looking forward to a European and prosperous future. Macedonia is resilient, if nothing else.

April 11, 2010

Second Ohrid Framwork Agreement: Resolution of the Greek-Macedonian Name Dispute

Proposed on April 11, 2010 in preparation for a simulation-game initiated by the author and conducted under the auspices of A1 TV in Ohrid, April 23-25, 2010.

The only way to resolve the seemingly intractable name dispute between Greece and Macedonia is to internationalize it. The negotiations should openly include – besides the primary parties and the hapless UN negotiator, Nimetz – the USA, the EU, and, possibly, Russia. The final Agreement should be signed by Macedonia and Greece with the USA, EU, and, possibly Russia as witnesses and guarantors. Such an arrangement is not unprecedented: the Ohrid Framework Agreement of 2001 included international assurances and guarantees. It is a common practice in international relations, too: Israel and Egypt signed a series of agreements in 1982 only after the USA issued side letters with guarantees and assurances to both parties.

What should such a guarantee include as a minimum? Clearly, it should cater to the needs and assuage the anxieties of both parties, the Greeks and the Macedonians. It should not be too rigid: constructive ambiguity is essential for the final resolution of the name dispute in the future.

The main elements of such an assurance side letter should be:

1.     Both parties renounce all claims on each other’s territory and recognize the current borders between them as final. These borders are guaranteed by the USA, EU, and Russia;

2.     The USA, EU, and Russia support the use of the term “Macedonian” to describe the ethnicity and language of the citizens of Macedonia who so choose to define themselves;

3.     Article (2) above notwithstanding, the USA, EU, and Russia, together with the United Nations, will continue to collaborate with the parties to find an appropriate and lasting solution;

4.     Greece will support Macedonia’s accession to NATO and the EU and will not veto its admission, nor will it obstruct negotiations with Macedonia;

5.     Macedonia will terminate all legal proceedings against Greece brought by it in international or other courts.

September 1, 2010

Greek-Macedonian Name Issue Myths Debunked

In the absence of the glare of the global media, its coverage and exposure, the fourth-rate diplomats that stand in for the International Community in Macedonia ineffectually cajole its government with thinly veiled threats, Cassandra-like apocalyptic scenarios, and verbal bribery. To achieve their aims, they propagate three myths (not to say deceptions):

Myth number 1: The conflict initiated by Greece is “normal” and not intractable

The truth is that the “Name Issue” cannot be resolved because the diametrically-opposing positions of the parties occupy the same semantic and geopolitical space. Both fear for their cohesion and identity should they compromise.

The Greek demand - that Macedonia and, consequently, the Macedonians change their collective (national) name - is unreasonable ab initio. Unreasonable demands cannot be rendered reasonable by being modified or amended. Greek “flexibility” and “reasonableness” are, therefore, smokescreens behind which lurk irrationality and extremism.

Sovereign polities should never succumb to blackmail and extortion: not because of ethical or moral considerations or matters of national pride, but because concessions only tend to enhance the insatiability of blackmailers and extortionists. Macedonia gave in to Greek blackmail once (with regards to its flag), yet this did not slake Greece’s thirst for more.

The name issue negotiations consume vast and scarce resources, especially in terms of human capital. Macedonia is a poor country and this Greek diversion is proving to be lethal as far as its economic development and geopolitical prospects go.

In truth, Macedonia is winning the diplomatic and public opinion battle the world over. More than 120 members of the United Nations recognize it by its constitutional name and not a week passes by without a commiserating op-ed in some prime medium in the West. Greece looks bad: an extortionate bully in the throes of economic mayhem and domestic terrorism. Faced with such an asymmetry in global sympathy, why should Macedonia be the one to throw in the towel?

Myth number 2: A lack of progress (read: Macedonian capitulation) on the name issue will foster inter-ethnic unrest and worse

Ardent, well-choreographed protestations aside, the Albanians in Macedonia ought to be delighted with the lack of progress on both NATO and EU accession. The overwhelming majority of Albanians in Western Macedonia are enmeshed in activities which can only be charitably described as “informal”. The Albanians are the engine that runs the grey and black and criminal economies in Macedonia. EU accession will put an abrupt stop to all these lucrative endeavours and unravel networks that took decades to build and maintain.

Furthermore, the Albanian insurgency in 2001 was the outcome of copious nods and winks (and dollops of materiel) on the part of the United States and, to a lesser extent, the EU. No such support, implicit or explicit, is to be found today: the International Community is firmly and irrevocably committed to the Ohrid Framework Agreement and will not allow the Albanians to use weapons to try to alter its generous terms.

Albanian posturing concerning the Macedonian procrastination with regards to the Name Issue has to do with internecine strife between the two big Albanian parties: DUI and DPA. They both leverage the name issue and threaten civil war in order to re-divide the spoils of government on all levels.

Myth number 3: EU Accession is Macedonia’s ticket to instant and sustained prosperity

The EU is in the throes of a life-threatening crisis and the entire enlargement project is in ever-growing doubt. Even if the EU were to emerge unscathed from this predicament, its harried officials still regard the Western Balkans as a cesspit, an Ottoman-Byzantine-Oriental Muslim-infested relic in the heart of an otherwise civilized, genteel, and Christian Europe (read: West). The more bigoted of the EU members are going to drag the negotiations with the likes of Macedonia as they have been doing with Turkey for decades now.

Macedonia currently enjoys all the benefits of EU membership without incurring any of its costs: it has free trade, visa-free travel, and access to regional development funds and EU tenders. The costs of accession are bound to be crippling: Macedonia’s sheltered and inefficient industries will crumble in the face of European competition; its judiciary and legislature will be buried under the 84,000 pages of the acquis communautaire; environmental, sanitation, and labour rules will render the private sector, such as it is in this benighted place, all but dysfunctional and insolvent; brain drain will likely reach epic proportions. Macedonia is not ready for EU accession. For the time being, it is better off as it is.

In the long-term, accession will bring with it sizable benefits in the transfer of technological knowledge and management skills and in encouraging foreign direct investment. But these welcome side-effects and by-products of EU membership depend crucially on an all-pervading internal transformation. Macedonains lack the skills, the knowledge, the emotional maturity, and the cultural background to have a state of their own, let alone a democracy. They have yet to develop a sense of being part of a cohesive collective. Their rampant individualism is malignant and they all perceive the state and any form of authority as potential and actual enemies.

So, why are Macedonians so keen on joining the EU?

Some of them hope to turn a quick profit as asset prices (shares, real-estate) react to the good news. Others can’t wait to abandon ship and join the throngs of economic immigrants from Bulgaria and Poland. Not one Macedonian I have met realizes the full implications of EU accession and not one of them gives a fig. They all perceive the EU as a “get-rich-quick” scheme.

October 20, 2010

Nikola Gruevski, my friend: Time to Start the Revolution!

Nikola Gruevski, Macedonia’s Prime Minister, is the most popular politician his country has ever had. Yet, instead of leveraging this overwhelming mandate to transform Macedonia and reform it from the roots up, he opted for “change by a thousand cuts”, a gradualist, incremental approach to the fundamental rot at the basis of this polity he oversees.

Evolutionary leaders are slaves to opinion polls and crave favourable media coverage. They are terrified of sea changes and look to the electorate for cues on what tinkering would be acceptable. Revolutionary leaders get on with the job of leaving behind a different society and revamped, functioning institutions – and damned the personal price they pay for their audacity and iconoclasm. When I co-authored a book about economics with Nikola, my best friend at the time, I thought he was a revolutionary.

By February 2007, less than 6 months into his first government, it was painfully clear to me that I have misjudged him. I was publicly vocal about my disillusionment which did not endear me to him. The global crisis has been a godsend to Gruevski and his hapless ministers: they blame all their failures and setbacks and confabulations on the pernicious tumult outside their country’s borders and not on their erroneous and pusillanimous and haphazard policies.

But it is not too late. Nikola still has the hearts if not the minds of most Macedonians. The majority believe that he is well-meaning although somewhat bumbling, a bit lost, and surrounded by venal sycophants. It is his last chance to alter Macedonia for the better in a profound way. He is the only leader with an unequivocal mandate to do so. Macedonia does not need Nikola’s cosmetics and PR: it needs him to administer gory plastic surgery. It does not need to look more beautiful: it needs to be more beautiful.

There is a lot that can be done on a foundational level: establish a non-governmental investment authority to dispense with foreign aid and foreign borrowing as well as administer tendering; introduce foreign-born directors to corruption-ridden segments of the public administration; introduce true competition into the health sector; subject judges to bi-annual exams and fire them if they do not pass; establish special, fast-track courts and binding arbitration for investment and other topics that require expertise and training; render campaign and political party finance transparent; enforce media ownership rules; reform the budgeting process and introduce incentives on all government levels, including the ministerial one; introduce a rating system for all public institutions; give priority in public tenders to small and medium enterprises; grant true autonomy to organs like the Bureau of Statistics ... In 1997, I published a list of 310 such reforms in the daily “Nova Makedonija”. On multiple occasions, Nikola had this list translated and distributed inside the Ministry of Finance and the ranks of his political party, the VMRO-DPMNE.

But, what am I doing? Nikola is aware of all these things and much more besides. He has access to privileged and real-time information. He has the right priorities. He just lacks the courage to confront, head-on, vested interests, powerful oligrachs, trenchant institutions, public mores and myths, an antiquated constitution, the corrupt media and, above all, his own people who thrive in this swamp because it is their comfort zone. So afraid he is to lose the next elections and so eager to curry public favour that he has sacrificed his deep convictions and integrity to his own career. True leaders show the way and are ready to pay the ultimate price. Alas, Nikola does not appear to be cut of this cloth. There is still time to prove me dead wrong.

November 18, 2010

Interview granted to the news magazine “Forum”

Q. Is Macedonia a highly indebted country if 40% of the external debt are financial obligations of the private sector (trade credits and intercompany loans)?


A. The higher the private component of the external debt, the riskier the overall external debt is, the lower the credit rating of the country, and the higher the premiums demanded by foreign lenders and bond markets. Still, Macedonia is a middle-indebted country and is very far from being a highly-indebted one. It is also definitely not a heavily-indebted poor country (HIPC) because: (1) It is not poor (it is considered "middle-income"); and (2) its external debt is sustainable, Macedonia is not at risk of default any time soon.

Q. Do you think that macroeconomic stability in Macedonia is threatened?


A. Yes, it is precarious, but not as a result of Macedonia's external debt or its composition. The threats emanate from wrong-headed and populist economic policies; misinvestment and disinvestment of resources and credits; a national currency that is way too strong and, therefore, inhibits exports and encourages imports; the decline in remittances (doznaki); the unprecedented massive weight of the public sector in the economy; and the lack of true reforms. Inflation is a minor and transient issue in my view. Macedonia has no economy to speak of: the government IS the economy. Consequently, it is easy to avoid a crisis by manipulating the statistics and by increasing the size, influence, and involvement of the public administration.

Q. What kind of methodology is used by international rating agencies
when they determine the country’s credit ratings. Is there a possibility that this situation will influence Macedonia’s credit rating?


A. When credit rating agencies calculate the risk of default in the next 12 months (short-term sovereign credit rating) and the medium and long-term risks they take into account numerous elements and data. Macedonia cannot influence the fact that the global credit environment has deteriorated markedly since 2007; that the region is considered geopolitically unsafe; that ethnic strife may erupt any minute; that Greece is on the verge of economic meltdown and is also blocking Macedonia's EU accession, etc. But Macedonia can control other factors which go into the formula: it can change its exchange rate and monetary policies to encourage exports; it can limit its borrowing and not use the proceeds for current consumption, only for infrastructure projects and other capital investments; it can reduce the size of the public administration; it can create a favorable business environment (which this government is attempting to do to some extent); it can encourage investments in Macedonia and transfers from Macedonians abroad and the Diaspora; it can set aside funds to repay foreign debt, and so on.


December 19, 2010


NATO to Pull Out of Macedonia


In view of the interminable name dispute (the Greeks demand that the Republic of Macedonia changes its name), NATO decided to effectively abandon Macedonia and withdraw most of its personnel from the country. Administrative, logistical, and military capacities and assets will be gradually transferred, over the next few weeks, to neighboring countries, including Bulgaria, Albania, and even Serbia. This would be a serious blow, as inter-ethnic tranquility and the long-term cohesion of Macedonia depend on its ultimate membership in the Alliance.


At the same time, the US State Department is "very concerned" with Macedonian overtures towards unsavory regimes - some of which are still on America's Terrorism Watch List or are considered foes and adversaries of the USA: Syria, Iran, Libya, Cuba, China, Belarus, and Russia among them. High-level state visits, economic and cultural exchanges, and other gestures of goodwill and amity between Gruevski and leaders of these pariah states and contestants for global power have not gone unnoticed in Washington's corridors of power.


The West believes that - disappointed with the EU and USA reluctance to pressure Greece into a reasonable compromise - the Macedonian government has opted for an anti-Western orientation in a multipolar world. "Spontaneous" hunger strikes calling on the Macedonian government to withdraw from the name negotiations are believed to be orchestrated by the ruling party, VMRO-DPMNE.


I wrote and published the article below (titled "NATO Shuns Macedonia") on December 19 in and the Chronicle Media Group.


Nine days later, on December 28, 2010, Brigadier-General David Humar, Chief of Mission of NATO in Skopje, announced that he is leaving his post next month (6-12 months earlier than envisioned). NATO's Camp Able in charge of logistical support for KFOR in Kosovo has been transferred to ARM (Macedonia's army units based in and around Skopje's Alexander the Great airport) and all its staff are slated to leave Macedonia; NATO HQ personnel to be downsized from 180 to fewer than 30 in stages. The HQ will close down entirely and all the remaining personnel will move into Macedonia's Ministry of Defense. The new NATO Head of Mission will bear the rank of colonel only - while the current Head of Mission, Humar, is a Brigadier General.


Effectively, NATO is gone. Humar expressed his hopes that Macedonia will be able to resolve the name issue and join NATO next year (2011).


March 9, 2011


Macedonia’s Hopeful Holocaust


Macedonia boasts one of only four major Holocaust memorials in the world (the others are in Jerusalem, Washington, and Berlin). For a country of 2 million people with fewer than 130 Jews and no tourism to speak of this is a curious circumstance. That Hitler’s “Mein Kampf” is a bestseller in Macedonia and old people still believe in anti-Semitic blood libels renders the whole affair a travesty.


Like the vast majority of Jewish communities in Europe, the Jewish community in Macedonia – 7400 members strong - was completely annihilated during the Holocaust. Like the vast majority of the peoples of Europe (with a few notable and noble exceptions), the Macedonians sat back and did not lift a finger to help. Only a few brave Macedonian individuals bucked the trend. The silent majority gleefully took over the possessions and property of the exterminated Jews and looked the other way. For a definitive account of the Holocaust in Macedonia, read the book by the historian Jenny (Zeni) Lebl. For a harrowing – and, as far as the Macedonians go, unflattering – account of one survivor’s ordeal watch Eitan Oren’s documentary film about Isaac Adijes. Especially pay attention to how the local Macedonians “welcomed” Adijes when he had returned, decades later, to visit his ancestral home.


It has been my experience that anti-Semitism is alive and well among the Macedonians. The few Jews left here are aware of it: being an Israeli Jew myself, I have been chastised by them for criticizing the government and, potentially, bringing the wrath of the populace and the authorities upon their collective head. Rightly or wrongly, they perceive their status as precarious.


Yet, the Macedonians are conflict-averse and their variety of anti-Semitism is relatively benign and far from virulent. Jews are mostly feared and admired because they "rule the world and the United States, the media and the banks, and all the money in the world". Such fear and "admiration" (which is a thinly-disguised stereotype, steeped in spite and envy) are also forms of anti-Semitism. Indeed, the Holocaust Museum – almost fully funded with the proceeds from the sale of denationalized properties of liquidated Jews, hastily declared heirless by the Macedonian authorities – is the Macedonians’ way of bribing the Jews to help them with their economic and geopolitical dire straits. Highfaluting speeches aside, Macedonia’s dignitaries – alternately bored or inappropriately smiling - said as much in the Museum’s festive opening ceremony.


As usual, the Jews collaborated: the “leaders” of the Jewish community took over the unclaimed funds and erected a white elephant of a museum in the erstwhile Jewish quarter. Now that the deed is done, it would be nice to see the accounting for the moneys contributed by the dead Jews and spent by the living ones in the multi-year process.


Anti-Semitism is a Balkan staple.


I was shown the same book in Yugoslavia, in Macedonia and in Bulgaria - "The World Conspiracy" - a shabby tome written by an ageing "scholar". The main, unabashedly anti-Semitic, hypothesis (presented as undisputed fact) is that the Jews rule the world supreme: always have, probably always will. Lists of prominent Jews in the world of international finance reprinted with lists of influential Jews in the Soviet communist regime. And it all amounts to a well organized secretive machinery of illicit power, claims the author with all the persuasion of a paranoid. In here, trash magazines dwell endlessly on these and similar themes.


Yet, anti-Semitism is only one species in a zoo of rumours, conspiracy theories, meta histories and metaphysics. Superstitions, prejudices and calumny thrive in the putrid soil of disinformation, mis-information and lack of information. In the void created by unreliable, politicized and corrupt media rumour mills spring eternal. It is a malignant growth, the outcome of a breakdown of trust so compleat that communication is rendered impossible. This is the main characteristic of the East (from Russia to Albania): distrust. Citizens and politicians, businessmen and government, the media and its consumers, manufacturers and service providers, the sick and their doctors - all suspect each other of ulterior motives and foul play. All are more often than not quite right to do so.


It is a Kafkaesque, sealed universe in which nothing is as it appears to be. This acrimonious divorce between appearances and essence, facade and truth, the Potemkin and the real is a facet of daily life, of the most mundane exchanges, of the most trivial pursuits. Motives are sought with increasing urgency: why did he do it, what did he try to achieve, why had he not chosen a different path, why here, why with us, why now, what can it teach us. Information is pursued frantically, appearances discarded, data juggled, heated debates ensue, versions erupt, only to subside and be replaced by others. It is a feverish ritual, the sound of clashing exegeses, of theories constructed and demolished in vacuo.


At the heart of it all, is the unbearable uncertainty of being. Political uncertainty under communism was replaced by economic uncertainty under the insidious and venal form of capitalism that replaced it. Tucked in identical cubicles, the citizens of planet communism were at least assured of a make belief job in a sprawling bureaucracy or in a decrepit factory, manufacturing redundant documents or shoddy goods. Subsistence was implicitly guaranteed by the kleptocracy that ruled them and, in principle, it was always possible to ignore the moral stench and join the nomenklatura, thereby developing instant upward mobility. Corruption, theft and graft were tolerated by the state as means of complementing income. Life was drab but safe as long as one abstained from politics and subserviently consumed the bitter medicines of acquiescence and collaboration. The vast majority (with the exception of the USSR under Stalin) were not affected by the arbitrary capriciousness of history. They decayed slowly in their housing estates, morally degenerate, possession-less but certain of a future that is the spitting image of their past.


Under the spastic orgy of legalized robbery of state assets that passed for privatization, millions were made redundant while thousands enriched themselves by choreographed looting. The results were instability, unpredictability, uncertainty and fear. In a world thus unhinged, the masses groped for reason, for a scheme, for a method in the madness, for an explanation, however sinister and ominous. Anything was preferable to the seemingly random natural forces unleashed upon them with such apparent vengeance. Even a "World Government" (a favourite), the Illuminati (a Freemasonry-like movement but much more odious), the Jews, the USA, aliens. The greatest conspiracy theory of them all - the Phoenix of religion - sprang back to life from the ashes it was reduced to by communism. A host of mystical beliefs and sects and cults mushroomed noxiously in the humid shadows of irrationality.


Thus, every event, no matter how insignificant, any occurrence, no matter how inconsequential and any coincidence, no matter how coincidental assume heraldic meaning. People in these domains carry their complex jigsaw puzzles with them. They welcome each new piece with the zeal of the converted. They bellow triumphantly with every "proof" of their pet theory, with every datum, with each rumour. Things don't just happen - they whisper, conspiratorially - things are directed from above, ordained, regulated, prevented, or encouraged by "them". A group of 400 rule the world. They are Jews, they are the Serb mafia, or the Bulgarian. Or the Americans who plan to dominate (which obviously puts Kosovo in context). They are the rich and powerful, the objects of envy and frightened admiration, of virulent hate and rage. They are responsible. We pay the price - we, the small and powerless and poor. And it is hopeless, it has been like that forever. The disparity between them and us is too great. Resistance is futile.


Why was this president elected? Surely, the West demanded it. Or political parties conspired to rig the vote. Or rich businessmen supported him. What is the real aim of foreign investors in coming to these godforsaken places, if not to infiltrate and penetrate and establish their long term dominion? And wouldn't it be safe to assume that al the foreigners are spies, that all the Jews collaborate, that the neighbours would have liked to conquer and to subjugate us, that the world is a colossal puppet show? In other words, is it not true that we are puppets - victims - in a theatre not of our making? They filter out that which does not conform to their persuasion, does not accord with their suspicions, does not fit within their schemes.


This deferral of responsibility brings relief from shame and blame. Guilt is allayed by symbolically and ritually passing it onto another. Fear is quelled by the introduction of schemata. These are potent psychological incentives. They provide structure to the amorphous, bring order to the chaos that is the brave, new world of the economies in transition. Flux is replaced by immutable "truths", possibilities by certainties, threats by "knowledge". It is a re-construction and reconquest of a paradise lost by giving up the fruit of the tree of knowledge.


It is this hyper-vigilance, this elevated suspicion, these instant certainties fabricated from frail pseudo-theories and conspiracies that make the Man of the East so easy to manipulate, so vulnerable, so amenable to collude in his own downfall. Bewitched by his self-spun myths, captivated by his own paranoia, under the spell of his magical, immature, thinking - non critical, non analytical, non discriminating - he is exquisitely susceptible to crooks and charlatans, to manipulators and demagogues, to the realization of the very threats he tried to fend off in the first place.

April 29, 2011


Interview granted to Vreme


Standard and Poore’s have changed the outlook for the credit rating of American Federal obligations (including Treasuries) from “stable” to “negative”. This means that the rating agency believes that the current fiscal haemorrhage (budget deficit) of the USA is not sustainable. The value of American debt is bound to be eroded either by defaulting on it (unthinkable hitherto) or, much more likely, by soaring inflation. Simultaneously, S&P downgraded debt instruments issued by US municipalities (“munis”) whose proceeds were used to pay for previous issues.


The looming downgrade is bound to have several effects on emerging economies the world over and particularly in Europe.


First, as the US dollar reacts adversely to the news, the currencies of the trading partners of the United States as well as other actual and potential reserve currencies (such as the euro) strengthen. This renders exports from nations which use these currencies – either directly or as anchors – less competitive and imports more attractively priced.


Consider countries such as Macedonia or Kosovo. Their currencies are effectively (unofficially or officially) pegged to the euro. As the euro soars against the USD and other currencies, Macedonian and Kosovar exporters would find it more difficult to export. Importers in these countries should rejoice as their strengthening currencies buy more of the same goods and services than they did before the rating review. Fewer exports and burgeoning imports translate into higher trade deficits. As long as remittances from workers abroad continue such deficits are sustainable. But, if, as I believe, we are entering the second, far more serious phase, of a global crisis, these flows are bound to dry up.


The rating announcement is a double whammy as far as emerging, indebted, growth-oriented economies go. Sovereign bond markets the world over are bound to price the new, unsettling information in and demand higher premiums (in other words: higher interest coupons) from future issuers. As market jitters grow and erstwhile ironclad securities are downgraded, certain poorer countries, will lose all access to investors in the global capital markets. Thus, a country like Macedonia may be hit by both declining remittances and an inability to borrow against Eurobonds or other sovereign obligations and promissory notes.


The flip side is that commodities and raw materials priced in USD (such as oil) are rendered cheaper in relative, trade-weighted terms. This benefit, however is more than eroded by the meteoric rise in the prices of comestibles, commodities, minerals, and other industrial inputs (such as electricity and gas).


September 11, 2011


Macedonia’s own Media Freedom Index: The Basis for Informed Debate


SEEMO, the Vienna-based offshoot of International Press Institute (IPI), is slated to send a fact-finding mission to Macedonia in October 2011. Enraged journalists and pseudo-journalists on both sides of the political isle have spent the past 12 months firing missives at each and other and at the international community arguing that press freedoms in Macedonia are either utterly extinguished or in full blossom. Outside observers, such as the OECD, tend to agree with the former view (as does the author of this column.)


But in all this mayhem, one critical issue is being overlooked: press freedom in Macedonia has never been defined let alone measured properly. How can an intelligent and informed debate take place when all parties involved – domestic and foreign alike – disagree on the very point being so hotly contested?


Several venerable non-governmental and multilateral organizations publish annual press freedom indices. Reporters without Borders (RSF, in its French acronym) compile the much-cited World Press Freedom Index. Freedom House has its Freedom of the Press Survey. UNESCO and International Research and Exchange Board (IREX) put forth similar annual studies.


But, while very useful as global comparative measures, these indices suffer from serious drawbacks and are rather useless when it comes to the analysis and monitoring of any single country, such as Macedonia. CIMA (Center for International Media Assistance) and the National Endowment for Democracy (NED) published an excellent overview of the problems inherent in these global indices, titled “Evaluating the Evaluators: Media Freedom Indexes and What They Measure.” Consequently, associations of journalists in several countries have developed their own, indigenous, country-specific measures. An excellent example is the Africa Media Barometer.


The first and most crucial task of the Association of Journalists in Macedonia is to develop a Media Freedom Index in Macedonia which will be acceptable to everyone involved in the profession, journalists, editors, civil society, and media owners alike. The index should cover all media, traditional and new, print, electronic, and Internet and should take into account at the very least the following parameters: threats to journalists, including judicial actions and dismissals; denied access to information; restrictive licensing and accreditation; self-censorship; prevalence of investigative reporting; media cross-ownership and business interests; political involvement in the media; equal access to the media, especially the state-owned ones; regulatory bias; advertising distribution and pressure; freedom of the Internet. This, of course, is a very partial list. The Index should reflect specific cultural and social sensitivities and determinants unique to Macedonia: dimensions that cannot be captured by global perception surveys, such as the RSF’s.


A Media Freedom Index in Macedonia will inform future debates and allow opposing parties, the international community, NGOs, and the government to engage in a fruitful polylogue and to generate a legislative and regulatory agenda with the aim of guaranteeing, once and for all, press freedoms in this country.


Riding the Tiger: Global Economic Crisis and Macedonia’s Opportunities


The Chinese ideogram for “crisis” also stands for “opportunity”. Indeed, while it is natural to dread the consequences of a global meltdown, economic crises represent a reversion to a healthier and more functional equilibrium. These momentous shifts are usually perceived by contemporaries as threats. Actually, they constitute unique chances and opportunities.


Macedonia is a small, marginal, and negligible economy. These are advantages as they allow it to act nimbly and to react flexibly to world events. As far as Macedonia is concerned, the global economic crisis presents these opportunities:


1.     Banking


Owing to their ownership structure (large Macedonian shareholders, EBRD, IFC, and foreign banks from countries largely unaffected by global contagion) and their reliance on domestic deposits, Macedonian banks can establish themselves as safe havens for foreign capital (legal capital flight - not tax evasion, or money laundering).


To do: Macedonia should streamline, deregulate and liberalize its banking sector and create an offshore banking zone for foreign depositors. The banks should introduce private banking and personal wealth management operations.


2.     Agriculture


In times of financial crises, farmland and other agricultural assets rise in value and represent safe and attractive investment opportunities. Recent surges in food prices coupled with shortages owing to multiple droughts across the globe, render Macedonia’s countryside a marketable commodity and its agricultural sector a major economic advantage and FDI (foreign direct investment) focal point.


To do: Macedonia should encourage the long-term leasing of agricultural land, set up domestic or participate in regional commodity exchanges, and cutting-edge agriculture (biotechnology, organic, genetically-modified).


3.     Exports


The Macedonian denar is pegged to the euro. A collapse in the exchange rate of the euro versus other major currencies will enhance the competitiveness and attractiveness of Macedonian goods in non-Eurozone markets in Europe, the Middle-East, Africa, and Asia. Tourism – being an export – will also benefit.


To do: Reorient Macedonian exporters and tour and hospitality operators towards emerging markets and away from the EU by providing subsidies, forex hedging instruments, marketing expertise, and overall support.


4.     Eastern Orientation


As the allure of Western markets fades, Macedonia could position itself as a transit area and a forward base for manufacturers which target Africa, the Middle-East, the Balkans, and Turkey. Unencumbered by the 84,000 pages of EU legislation, labor-intensive, environmentally-unfriendly, and transport-sensitive industries are natural investors in Macedonia.


Similarly, the recent phenomenon of “reverse brain drain” (immigrants returning from lagging Western economies to booming developing and emerging ones) means that Macedonia can, as a matter of national policy and in a state-coordinated manner, export manpower – unskilled and skilled, uneducated and highly-educated – to the West.


Statement to Fokus Daily, dated November 10, 2011


In macroeconomics there is the concept of FUNGIBILITY: money received from one source for a specific (good) purpose releases other funds to be used for other (bad) purposes. With the help and guarantee of the World Bank, Macedonia is now borrowing from commercial banks to cover its budget deficit. Had this credit not been made available to Macedonia, maybe the government would have cut down on unproductive projects like Skopje 2014. Similarly, funds provided by the IMF allow Macedonia to sustain its enormous and dangerous trade deficit.

In this sense, the IMF and the World Bank are aiding, abetting, and encouraging the irresponsible allocation of scarce economic resources by this government. It is not clear why these august institutions are colluding with this kind of misbehavior: the reasons are probably geopolitical, rather than economic.

Macedonia is a middle-indebted country with impressive GDP growth (on paper, at least as this growth is fueled by government spending, mainly on construction projects.) This means that it can borrow safely more than it had hitherto. Still, the government's reliance on borrowing to finance mostly current expenditures and non--productive projects may change the country's status in the international credit markets in the future. Macedonia is repeating all the mistakes of Greece and may endure the fate of Greece only without the EU to bail it out.


Interview granted to Ekonomija i Biznis, May 2013


1. Mr. Vaknin, you often have unorthodox views on the global economic developments, what do you think are the reasons for what is happening in the global economy?


2. In your opinion what caused the financial crisis in the United States?

3. Are there any further roots of the problems in the world, especially in Europe?


4. How do you explain the debt crisis in Europe?

5. Some say that Europe is in debt and economic crisis, do you agree with it and do you make a difference between the debt and economic crisis?

6. For a longer period of time, the world economy has been experiencing turbulent times, but not in all countries. How do you assess this situation which in some countries led to problems in the economy, and in other to an economic growth although small?


A. The global crisis is a misnomer. What happened in 2007-9 was, actually, a confluence of totally unrelated problems on three continents.




In the United States, several investment banks were brought down by hyper-leveraged investments in ill-understood derivatives. As stock exchanges plummeted, the resulting devastation and wealth destruction spilled over into the real economy and caused a recession which was mild by historical standards. Both the corporate sector and the financial industry have largely recovered and even amassed record profits. The American middle-class has paid the price in stagnating wages, rising taxes, and plummeting home equity. But, despite a rollback of personal credits, consumption has not been adversely affected owing to stable prices and cheap imports. The net result of the panic: a massive transfer of wealth from the middle-class to a tiny elite and unprecedented income inequality. The USA has completed its transition from populist democracy to populist oligarchy.




Dependent heavily on imported energy and exported goods, Europe's economy faced a marked slowdown as the region's single currency, the euro, appreciated strongly against all major currencies; as China, India, and other low-wage Asian countries became important exporters; as the price of energy products and oil skyrocketed; and as real estate bubbles burst in countries like Spain and Ireland. Additionally, European banks were heavily leveraged and indebted - far more than their counterparts across the Atlantic. Governments throughout the continent were forced to bail out one ailing institution after another, taxing further their limited counter-cyclical resources.


Denied an autonomous monetary policy by the introduction of the euro and unable to increase taxes, several countries became insolvent and had to be bailed out by Germany and the IMF (=the USA.) This unilateral transfer of conditional funds completed the economic colonization of Europe by Germany, a process which started in the 1870s. Southern Europe is now the hinterland of Germany, its export market, and source of cheap labor. The only power that can challenge Germany in this geopolitical space is Turkey. Hence the reluctance to welcome Turkey to the EU.




Simultaneously, in Asia, growth rates began to decelerate. Massive exposure to American debt, both public and private, served as a vector of contagion. The weakening of traditional export markets affected adversely industries and employment. Stock exchanges tumbled, but the real economy remained fairly resilient and high growth rates resumed in short order.


The crisis cemented the ascendance of Asia - and especially India and China - as the future powerhouses of the global economy. They still have a long way to go to overtake the USA, but with their financial systems intact and their manufacturing sectors booming, they are bound to traverse the distance within the next few decades.


The 2007-9 upheaval was so all-pervasive and so reminiscent of the beginnings of the Great Depression that it brought about a realignment and re-definition of the roles of the main economic actors: the state, the central banks, financial institutions of all stripes (both those regulated and in the "shadow banking" sector), the investment industries, and the various marketplaces (the stock exchanges, foremost).


Housing and financial crises often precede, or follow the disintegration of empires. The dissolution of the Habsburg and the British empires, as well as the implosion of the USSR were all marked by the eruption and then unwinding of imbalances in various asset, banking, and financial markets.


The collapse of Communism in Europe and Asia led to the emergence of a new middle class in these territories. Flushed with enhanced earnings and access to bank credits, its members unleashed a wave of unbridled consumption (mainly of imported goods); and with a rising mountain of savings, they scoured the globe for assets to invest their capital in: from football clubs to stocks and bonds.


The savings glut and the lopsided expansion of international trade led to severe asymmetries in capital flows and to the distortion of price signals. These, in turn, encouraged leveraged speculation and arbitrage and attempts to diversify away investment risks. The former resulted in extreme volatility and the latter in opaqueness and the breakdown of trust among market players and agents.

7. Are you currently seeing any light at the end of the "tunnel"?

To finance enormous bailout packages for the financial sector (and potentially the auto and mining industries) as well as fiscal stimulus plans, governments had to issue trillions of US dollars in new bonds. Consequently, the prices of bonds are bound to come under pressure from the supply side.


But the demand side is likely to drive the next global financial crisis: the crash of the bond markets.


As the Fed takes US dollar interest rates below 0% (and with similar moves by the ECB, the Bank of England, and other central banks), buyers are likely to lose interest in government bonds and move to other high-quality, safe haven assets. Risk-aversion, mitigated by the evident thawing of the credit markets will cause investors to switch their portfolios from cash and cash-equivalents to more hazardous assets.


Moreover, as countries that hold trillions in government bonds (mainly US treasuries) begin to feel the pinch of the global crisis, they will be forced to liquidate their bondholdings in order to finance their needs.


In other words, bond prices are poised to crash precipitously. In the last 50 years, bond prices have collapsed by more than 35% at least on three occasions. This time around, though, such a turn of events will be nothing short of cataclysmic: more than ever, governments are relying on functional primary and secondary bond markets for their financing needs. There is no other way to raise the massive amounts of capital needed to salvage the global economy.


Five years later, many of the problems and imbalances that gave rise to the Great Recession are still with us and, owing to the might of special interest groups and Wall Street, are unlikely to be effectively tackled. This – coupled with the rampant mismanagement of public finances - virtually guarantee a second leg of this financial crisis in 2014-5.


Here is a partial list:


Synthetic collateralized debt obligations (structures of credit default swaps that yield streams of income identical to payments from pools of profile-specific mortgages) have not been banned or limited to the value of the underlying loans. Thus, leveraged, non-productive “wealth” is still being conjured out of thin air;


Naked short-selling and naked credit default swaps (writing or buying credit default swaps on securities not owned by the seller or buyer) are still allowed;


Brokerage firms and investment banks are still permitted to bet against securities held in their clients’ portfolios (often placed there by the very same “financial experts” and “investment advisors”);


Profits in the financial system are still siphoned off into huge bonus pools rather than augment balance sheets, capital ratios, and repay the bailout money forked out by taxpayers;


Bank deposits insured by the FDIC are still intermingled with and used in derivatives trading and investments in risky assets, such as equities and corporate bonds;


Accounting rules still allow the booking of profits on hedged investments, regardless of counterparty risk (frequently the result of wrong-way risk: when the insurer is as likely to be as damaged by the insurance event as the investor) and systemic or liquidity hazards (market failures);


Compensation in the financial sector is still divorced from long-term performance. This creates moral hazard and agent-principal conflicts.


8. How do you assess the behavior of the global financial system and institutions such as the IMF and the World Bank?


The World Bank was irrelevant in the crisis. The IMF has been exposed for what it has always been: the agent of creditors and their enforcer. The knee-jerk policy of austerity that it imposed on debtors such as Greece has prolonged the crisis and endangered the entire global financial architecture. But a few other changes are far more important, in my view: the credit and banking crisis of 2007-9 has cast in doubt the three pillars of modern investments and financial institutions.


Risk Diversification


That risk inherent in assets such as stocks can be "diversified away". If one divides one's capital and invests it in a variety of financial instruments, sectors, and markets, the overall risk of one's portfolio of investments is lower than the risk of any single asset in said portfolio.


Yet, in the last decade, markets all over the world have moved in tandem. These highly-correlated ups and downs gave the lie to the belief that they were in the process of "decoupling" and could, therefore, be expected to fluctuate independently of each other. What the crisis has revealed is that contagion transmission vectors and mechanisms have actually become more potent as barriers to flows of money and information have been lowered.


Investment "Experts"


That investment "experts" can and do have an advantage in picking "winner" stocks over laymen, let alone over random choices. Market timing coupled with access to information and analysis were supposed to guarantee the superior performance of professionals. Yet, they didn't.


Few investment funds beat the relevant stock indices on a regular, consistent basis. The yields on "random walk" and stochastic (random) investment portfolios often surpass managed funds. Index or tracking funds (funds who automatically invest in the stocks that compose a stock market index) are at the top of the table, leaving "stars", "seers", "sages", and "gurus" in the dust.


This manifest market efficiency is often attributed to the ubiquity of capital pricing models. But, the fact that everybody uses the same software does not necessarily mean that everyone would make the same stock picks. Moreover, the CAPM and similar models are now being challenged by the discovery and incorporation of information asymmetries into the math. Nowadays, not all fund managers are using the same mathematical models.


A better explanation for the inability of investment experts to beat the overall performance of the market would perhaps be information overload. Recent studies have shown that performance tends to deteriorate in the presence of too much information.


Additionally, the failure of gatekeepers - from rating agencies to regulators - to force firms to provide reliable data on their activities and assets led to the ascendance of insider information as the only credible substitute. But, insider or privileged information proved to be as misleading as publicly disclosed data. Finally, the market acted more on noise than on signal. As we all know, noise it perfectly randomized. Expertise and professionalism mean nothing in a totally random market.




That risk can be either diversified away or parceled out and sold. This proved to be untenable, mainly because the very nature of risk is still ill-understood: the samples used in various mathematical models were biased as they relied on data pertaining only to the recent bull market, the longest in history.


Thus, in the process of securitization, "risk" was dissected, bundled and sold to third parties who were equally at a loss as to how best to evaluate it. Bewildered, participants and markets lost their much-vaunted ability to "discover" the correct prices of assets. Investors and banks got spooked by this apparent and unprecedented failure and stopped investing and lending. Illiquidity and panic ensued.


If investment funds cannot beat the market and cannot effectively get rid of portfolio risk, what do we need them for?


The short answer is: because it is far more convenient to get involved in the market through a fund than directly. Another reason: index and tracking funds are excellent ways to invest in a bull market.


Banks as Capital-Allocating Institutions


The main role of banks, well into the 1920, was to allocate capital to businesses (directly and through consumer credits and mortgages). Deposit-taking was a core function and the main source of funding. As far as depositors were concerned, banks guaranteed the safety and liquidity of the store of value (cash and cash-equivalents).


In the 1920, stock exchanges began to compete with banks by making available to firms other means of raising capital (IPOs - initial public offerings). This activity gradually became as important as the stock exchange's traditional competence: price discovery (effected through the structured interactions of willing buyers and sellers).


This territorial conflict led to an inevitable race to the bottom in terms of the quality of debtors and, ultimately, to the crash of 1929 and the Great Depression that ensued. Banks then were reduced to retail activities, having lost their investment services to hybrids known as "investment banks".


The invention of junk bonds in the 1980s heralded a whole new era. A parallel, unregulated financial system has emerged which catered to the needs of businesses to raise risk capital and to the needs of those who provided such funds to rid themselves of the hazards inherent in their investments. Consumer credits and mortgages, for instance, were financed by traditional banking businesses. The risks associated with such lending were securitized and sold to third parties.


As expertise evolved and experience accumulated, financial operators learned to slice the hazards, evaluate them using value-at-risk mathematical models, tailor them to the needs of specific customer profiles, hedge them with complex derivatives, and trade them in unofficial, unregulated, though highly liquid amorphous, virtual "marketplaces".


Thus, stock exchanges have begun to lose their capital allocation functions to private equity funds, hedge funds, investment banks, and pension funds. In the process, such activities have become even more opaque and less regulated than before. This lack of transparency led to pervasive counterparty distrust and difficulties in price discovery. Ultimately, when the prices of underlying assets (such as housing) began to tumble, all liquidity drained and markets seized and froze.


Thus, at the end of 2006, the global financial system was comprised of three main groups of actors: traditional retail banks whose main role was deposit taking and doling out consumer credits; exchanges whose main functions were price discovery and the provision of liquidity; and investment banks and their surrogates and special purpose vehicles whose principal job was the allocation of capital to businesses and the mitigation of risk via securitization and insurance (hedging).


Yet, these unregulated investment banks were also often under-capitalized and hyper-leveraged partnerships (at least until the late 1990s, when some of them went public). This is precisely why they had invented all manner of complex financial instruments intended to remove credit-related risks from their books by selling it to third parties. Physicists, analysts, and rating agencies all agreed that the risk attendant to these derivatives can be calculated and determined and that many of them were risk-free (as long as markets were liquid, of course).


The business strategy of the investment banks was viable. It should have worked perfectly had they not committed a primal sin: they have entered the fray not only as brokers, dealers, and mediators, but also as investors and gamblers (principals), taking on huge positions, often improperly hedged ("naked"). When these bets soured, the capital base of these institutions was wiped out, sometimes literally overnight. The very financial instruments that were meant to alleviate and reallocate risk (such as collateralized debt obligations - CDOs) have turned into hazardous substances, as investors (and investment banks) gambled on the direction of the economy, specific sectors, or firms.


In hindsight, the "shadow banks" subverted the very foundations of modern finance: they created money (modifying the money-printing monopoly of central banks); they obfuscated the process of price discovery and thus undermined the price signal (incidentally casting doubt on symmetrical asset pricing models); they interfered with the ability of cash and cash-equivalents to serve as value stores and thus shook the trust in the entire financial system; they amplified the negative consequences of unbridled speculation (that is not related to real-life economic activities and values); they leveraged the instant dissemination of information to render markets inefficient and unstable (a fact which requires a major revision of efficient market hypotheses).


This systemic dysfunctioning of financial markets led risk-averse investors to flee into safer havens: commodities, oil, metals, real estate and, finally, currencies and bonds. This was not merely a flight to quality: it was an attempt to avoid the abstract and fantastic "Alice in Wonderland" markets fostered by investment banks and to reconnect with tangible reality.


With the disappearance of investment banks (those who survived became bank holding companies), traditional banks are likely to regain some of their erstwhile functions: the allocation to businesses and creditworthy consumers and homeowners of deposit-based capital. The various exchanges will also survive, but will largely be confined to price discovery and the allocation of risk capital. Some financial instruments will flourish (credit-default swaps of all types), others will vanish (CDOs).


All in all, the financial scenery of 2015 will resemble 1910 more than 2005. Back to basics and home-grown truths. At least until the next cataclysm.


Interview granted to Goran Arsov of


1) You are the author of "Malignant Self-love: Narcissism Revisited" and an expert in matters concerning narcissism.

1.1 What are your three main advices to people dealing with narcissists on a daily basis like their family, friends, and coworkers?


SV: Make sure you have no further contact with them: resign your job, divorce your narcissistic husband, avoid your narcissist "friends" and children.

If you absolutely must remain in touch with narcissists: never criticize them and always offer gratuitous admiration and adulation (known as "narcissistic supply".)

2) You claim that Barrack Obama may be a narcissist.


SV: I published an article titled "Barack Obama: Narcissist or Merely Narcissistic" in July 2008, before Obama became President. It created a storm of radio interviews, follow-up essays, and articles in the right-wing conservative American media, and an avalanche of internet postings and tweets that has yet to subside, 6 years later. I must have hit a raw nerve.

3) Our Government has put into law a psychological test only for newly employed teachers. Do you approve of it?


SV: Yes. All professionals who are in regular contact with children should be periodically subjected to rigorous psychological testing.

3.1 Do you think it will have any effects; what?


SV: If properly administered, in an honest and professional manner, with no corruption, nepotism and cronyism, it should weed out those whose psychological profile indicates that they could constitute a threat to children and those who lack the basic emotional equipment to deal with children.

3.2 Do you think there should be one for all aspiring politicians as a part of their candidacy?


SV: Absolutely. And the same goes for law enforcement, the judiciary, the military, and parents. The right to become a parent should be regulated and be subject to psychological evaluation.

3.3 For all current politicians?


SV: All politicians should submit themselves to an annual medical exam, including a psychological structured interview. The results should be published and debated. Politicians who suffer from certain mental health afflictions should be disqualified from serving in any public elected office.

Part two: Politics

6) What is the significance of political parties' statutes for the functioning and "political culture" of its members?


SV: Nothing much. Statutes and platforms are dead letter. No one bothers to actually read them, let alone adhere to them. They line up trash cans minutes after the election is over.

6.1 Can you give us some examples?


SV: Yes. Compare Obama's platform in 2008-9 to his actual actions and accomplishments in government. Of 100 promises he made in the campaign trail, he kept 3. In most cases, he adopted decisions that diametrically contravened his most fervent public, written vows.

6.2 What is the significance of political parties' statutes for the country as a whole?


SV: The platforms of political parties are like advertising, or like business plans: they are never truthful and they are founded on wishful thinking, not on thorough analyses. Political party platforms are rarely actual, detailed plans of action. The main role of a political platform is to demonstrate to the electorate that the party in question has a brand which is clearly differentiated from the brands of other political parties and that the party has the brainpower and the cadre required to carry out the arduous and intellectually challenging task of governing.

Part three: Economy

7) Do you think that bitcoins created today will exist after 100 years? Why?


SV: The Industrial Revolution led to the centralization of tasks that used to be carried out within the family unit: education, food production, transportation, and the manufacture of clothing, for instance, were all relegated from the family to massive, faceless state-run or privately-owned institutions. The family was hollowed out and, devoid of functionality, collapsed. Modern technologies have reversed this trend and are returning many of these tasks to the hands of households and individuals: self-publishing, home schooling, the personal computer, and 3-D printing are four examples. Microcurrencies and crypto-currencies such as Bitcoin are the wave of the future, but the monopolists of money, the central banks, are going to put up a fierce rearguard action to defend their monopoly. No one can stop the march of progress, though, and people and corporations and private issuers will shortly be printing their own media of exchange and competing in the marketplace for the trust of users.

8) Please see first:

8.1 Do you agree with the conclusion of the study? Why?


SV: I never understood why scholars keep rediscovering America and reinventing the wheel, year after year. There is nothing new, let alone surprising in this study. The idea of "crowding out" (that governments unfairly compete with the private sector for scarce economic resources) is old hat.


Still, my (highly unorthodox, I must add) view is that the private sector destroys the very wealth that governments so laboriously create - not the other way around.


It is a maxim of current economic orthodoxy that governments compete with the private sector on a limited pool of savings. It is considered equally self-evident that the private sector is better, more competent, and more efficient at allocating scarce economic resources and thus at preventing waste. It is therefore thought economically sound to reduce the size of government - i.e., minimize its tax intake and its public borrowing - in order to free resources for the private sector to allocate productively and efficiently.


Yet, both dogmas are far from being universally applicable.


The assumption underlying the first conjecture is that government obligations and corporate lending are perfect substitutes. In other words, once deprived of treasury notes, bills, and bonds - a rational investor is expected to divert her savings to buying stocks or corporate bonds.


It is further anticipated that financial intermediaries - pension funds, banks, mutual funds - will tread similarly. If unable to invest the savings of their depositors in scarce risk-free - i.e., government - securities - they will likely alter their investment preferences and buy equity and debt issued by firms.


Yet, this is expressly untrue. Bond buyers and stock investors are two distinct crowds. Their risk aversion is different. Their investment preferences are disparate. Some of them - e.g., pension funds - are constrained by law as to the composition of their investment portfolios. Once government debt has turned scarce or expensive, bond investors tend to resort to cash. That cash - not equity or corporate debt - is the veritable substitute for risk-free securities is a basic tenet of modern investment portfolio theory.


Moreover, the "perfect substitute" hypothesis assumes the existence of efficient markets and frictionless transmission mechanisms. But this is a conveniently idealized picture which has little to do with grubby reality. Switching from one kind of investment to another incurs - often prohibitive - transaction costs. In many countries, financial intermediaries are dysfunctional or corrupt or both. They are unable to efficiently convert savings to investments - or are wary of doing so.


Furthermore, very few capital and financial markets are closed, self-contained, or self-sufficient units. Governments can and do borrow from foreigners. Most rich world countries - with the exception of Japan - tap "foreign people's money" for their public borrowing needs. When the US government borrows more, it crowds out the private sector in Japan - not in the USA.


It is universally agreed that governments have at least two critical economic roles. The first is to provide a "level playing field" for all economic players. It is supposed to foster competition, enforce the rule of law and, in particular, property rights, encourage free trade, avoid distorting fiscal incentives and disincentives, and so on. Its second role is to cope with market failures and the provision of public goods. It is expected to step in when markets fail to deliver goods and services, when asset bubbles inflate, or when economic resources are blatantly misallocated.


Yet, there is a third role. In our post-Keynesian world, it is a heresy. It flies in the face of the "Washington Consensus" propagated by the Bretton-Woods institutions and by development banks the world over. It is the government's obligation to foster growth.


In most countries of the world - definitely in Africa, the Middle East, the bulk of Latin America, central and eastern Europe, and central and east Asia - savings do not translate to investments, either in the form of corporate debt or in the form of corporate equity.


In most countries of the world, institutions do not function, the rule of law and properly rights are not upheld, the banking system is dysfunctional and clogged by bad debts. Rusty monetary transmission mechanisms render monetary policy impotent.


In most countries of the world, there is no entrepreneurial and thriving private sector and the economy is at the mercy of external shocks and fickle business cycles. Only the state can counter these economically detrimental vicissitudes. Often, the sole engine of growth and the exclusive automatic stabilizer is public spending. Not all types of public expenditures have the desired effect. Witness Japan's pork barrel spending on "infrastructure projects". But development-related and consumption-enhancing spending is usually beneficial.


To say, in most countries of the world, that "public borrowing is crowding out the private sector" is wrong. It assumes the existence of a formal private sector which can tap the credit and capital markets through functioning financial intermediaries, notably banks and stock exchanges.


Yet, this mental picture is a figment of economic imagination. The bulk of the private sector in these countries is informal. In many of them, there are no credit or capital markets to speak of. The government doesn't borrow from savers through the marketplace - but internationally, often from multilaterals.


Outlandish default rates result in vertiginously high real interest rates. Inter-corporate lending, barter, and cash transactions substitute for bank credit, corporate bonds, or equity flotations. As a result, the private sector's financial leverage is minuscule. In the rich West $1 in equity generates $3-5 in debt for a total investment of $4-6. In the developing world, $1 of tax-evaded equity generates nothing. The state has to pick up the slack.


Growth and employment are public goods and developing countries are in a perpetual state of systemic and multiple market failures. Rather than lend to businesses or households - banks thrive on arbitrage. Investment horizons are limited. Should the state refrain from stepping in to fill up the gap - these countries are doomed to inexorable decline.


In times of global crisis, these observations pertain to rich and developed countries as well. Market failures signify corruption and inefficiency in the private sector. Such misconduct and misallocation of economic resources is usually thought to be the domain of the public sector, but actually it goes on everywhere in the economy.


Wealth destruction by privately-owned firms is typical of economies with absent, lenient, or lax regulation and often exceeds anything the public administration does. Corruption, driven by avarice and fear, is common among entrepreneurs as much as among civil servants. It is a myth to believe otherwise. Wherever there is money, human psychology is in operation and with it economic malaise. Hence the need for governmental micromanagement of the private sector at all times. Self-regulation is a costly and self-deceiving urban legend.

Another engine of state involvement is provided by the thrift paradox. When the economy goes sour, rational individuals and households save more and spend less. The aggregate outcome of their newfound thrift is recessionary: decreasing consumption translates into declining corporate profitability and rising unemployment. These effects are especially pronounced when financial transmission mechanisms (banks and other financial institutions) are gummed up: frozen in fear and distrust, they do not lend money, even though deposits (and their own capital base) are ever growing.

It is true that, by diversifying risk away, via the use of derivatives and other financial instruments, asset markets no longer affect the real economy as they used to. They have become, in a sense, "gated communities", separated from Main Street by "risk barriers". But, these developments do not pertain to retail banks and when markets are illiquid and counterparty risk rampant, options and swaps are pretty useless.

The only way to effectively cancel out the this demonetization of the national economy (this "bleeding") is through enhanced government spending. Where fearful citizens save, their government should spend on infrastructure, health, education, and information technology. The state's negative savings should offset multiplying private savings. In extremis, the state should nationalize the financial sector for a limited period of times (as Israel has done in 1983 and Sweden, a decade later).


9) What do you think will happen with S&P's 500 Index in the next 10 years? What kind of movements do you expect for this index?


SV: To finance enormous bailout packages for the financial sector (and the auto and mining industries) as well as fiscal stimulus plans, governments had to issue trillions of US dollars in new bonds. I my view, bond prices are poised to crash precipitously. In the last 50 years, bond prices have collapsed by more than 35% at least on three occasions. This time around, though, such a turn of events will be nothing short of cataclysmic: more than ever, governments are relying on functional primary and secondary bond markets for their financing needs. There is no other way to raise the massive amounts of capital needed to salvage the global economy. Such a calamity will affect the stock indices as well. In a decade's time, I am more inclined to see the DJIA at 7000 than at 20000.

9.1 Do you think that the Chinese economy will experience a major crash within the next 10 years (their economy will need years to repair)? When?


SV: Mounting sovereign debts crises in Europe and an anemic rebound in America's economy were more than offset by the emergence of Asia – and, in particular China and India - as a global powerhouse. Yet, the warning signs are there: China's economic "miracle" has long been based on an artificial rate of exchange for its currency, the Yuan (RMB); on unsustainable dollops of government largesse and monetary quantitative easing which led to the emergence of asset bubbles (mainly in real-estate) and to pernicious inflation; and, frankly, on heavily-redacted statistics.


Real wages have been declining in China for quite a few years now as rural folk moved to burgeoning cities, bad loans proliferated, and consumption remained subdued as savings rates reached malignant, self-defeating levels. In an effort to sanitize humungous export proceeds, China amassed trillions of dollars worth of foreign exchange reserves, mostly invested in American treasury bonds, creating a dangerous exposure to the vicissitudes of the increasingly-more decrepit US dollar and to America’s downgraded sovereign credit rating.


The Chinese authorities' attempts to clamp down on rampant speculation and price gouging are too little, too late, not to say irrelevant. The economy will screech to a shuddering halt in the mother of all hard landings. The Chinese house of cards and hall of mirrors will collapse ominously and swiftly. This will bring the entire global economic edifice into disarray with mounting imbalances and increased risk-aversion among investors. The second phase of the global crisis will resemble closely the Great Depression with massive write-offs in the values of equities, across-the-board crumbling of entire banking systems, and mounting, two-digit, unemployment rates everywhere.


How to reconcile this doomsday prognosis with China’s uninterrupted string of decades of stellar (often two-digit) annual growth figures?


By seeing China for what it is: the world’s greatest-ever Ponzi scheme. Behind the hype, spin, propaganda, and outright confabulations, China’s economic miracle is founded in its entirety on a simple premise, a breathtakingly audacious prestidigitation: a large (equal to two-fifths of GDP) and steadily soaring balance of payments (current account) surplus (mainly with the USA, its addict-partner in this danse macabre) serves to disguise and directly underwrite the fetid outcomes of an all-pervasive state. These include a mountain-range of rotting credits in the state-owned banks and local government; neglected sectors of the lopsided economy; and egregiously misallocated economic resources (mainly in the construction and retail sectors and via huge stimulus packages.) In many countries government spending translates into GDP “growth” – but China is a special case: most of the seemingly inexorable mushrooming of its GDP had been faked this way in 2007-9.


Indeed, it is China’s very dependence on a weary and wary US consumer which spells its doom when the American music stops. Once it does, China’s investment-driven economy will revert to crippling overinvestment, overcapacity, hidden unemployment and underemployment. In one word: history’s worst deflation (or, worse yet, stagflation.) We have seen it all before with Japan. The only difference being that Japan had a real and thriving private sector while China doesn’t: its “private” sector – albeit officially accounting for three-fourths of its GDP - is mostly foreign-owned, export-oriented, or immersed in non-productive operations (read: speculation.)


Large swathes of China’s economy – including and especially the mission-critical financial sector - are in the incompetent and venal hands of China’s decidedly uncivil service and are “managed” (mismanaged rather) by bumbling and provincial party apparatchiks. To this toxic brew one should add a devastated environment, a dysfunctional judicial system, shoddy accounting practices (including by Western multinationals), stunted capital markets, an obliterated countryside and dying agriculture, and a demographic time bomb: owing to the “one child” policy, China’s population is ageing faster than any other major country’s. This is not to mention political risk in an age of Facebook-driven Tweeted revolutions.


10) Do you think that the Macedonian denar should dissociate from the euro and become fully convertible in the whole world? (It's convertible in Macedonia.)


SV: Only currencies of major, stable, sound, and growing economies are convertible. Macedonia has no economy to speak of, so its currency cannot be fully convertible at this stage in its development (or lack thereof.) The reason is that the currency should be supported by sufficient reserves to guarantee convertibility and the monetary policy should not be subject to external shocks and political risks. Additionally, both the monetary and the fiscal policies of the country should be aimed at propping the currency within a band of exchange rates and this is very expensive to do. When these elements are missing, the convertible currency is subject to the huge pressures of hot, speculative money flows, which drive the exchange rate wildly up and down. This, in turn, deters long-term economic planning and investment and imperils the whole economy.


Global Politician: The Malaysian Mystery of Nova Makedonija (March 19, 2014)


Unusually, we open with a disclaimer: the source of some of the information provided to Nova Makedonija about the mysterious vanishing of the Malaysian airplane was Sam Vaknin, our Editor-in-Chief.

The plane disappeared inexplicably on Saturday, March 8, 2014. The Monday after, tiny, landlocked Macedonia’s oldest and most venerable daily paper, “Nova Makedonija”, started to publish revelations about the affair that beat all other media in the world to the punch by days. The paper leveraged all its limited resources and embarked on a piece of incredible investigative journalism the likes of which should be the envy of even the well-endowed major media in the West.


Nova Makedonija’s coverage of the disappearance of this airplane is a mystery unto itself. Where and who from did they obtain the top secret and exclusive information that even the likes of CNN and the New-York Times failed to garner? How, for instance, did they know, two days before it was confirmed, that the plane had been pinging satellites hours after its disappearance off the primary radar screens?

Here is the story behind the story and behind the scenes as published by Nova Makedonija on Saturday, March 15, in the words of one of its editors, Marjan Velevski. We were unable to access the online archive of the paper, so instead we provide you with links to the original articles at the bottom of this translated text.


“The Mysterious Disappearance of the Malaysia Airlines plane: What We Knew Before the Others


Nova Makedonija was the first newspaper that published on Monday quoted sources, which claimed that the plane was hijacked. On Thursday, American experts and official government bodies admitted that the plane was probably hijacked. On Monday, we asked why the plane diverted and whether the pilots acted on their own or someone else ordered them to do so. Less than 36 hours later, CNN announced that high government official of Malaysian army aviation has confirmed that the plane turned back.


The mystery regarding the disappearance of “Malaysia Airlines” Boeing 777, which on Friday night, just a few minutes after midnight, embarked on its fatal flight “MH 370”, is at the center of the world’s attention. For the past few days, thousands of pieces of information, predictions, speculations, disinformation and many more in that media cocktail were prepared to be served to the public, hungry for information about the destiny of the 239 passengers and members of the crew. What is certain is that at 00.41 o’clock the plane took off from Kuala Lumpur to Beijing. The plane’s signal disappeared at 01.30 o’clock. And that was it. The plane disappeared from the radars, while air-traffic authorities and security forces aimlessly tried to locate the plane and eventually take care of the passengers.


One step ahead of the others


According to its editorial policy, Nova Makedonija tried to get additional information regarding the entire mystery, unsatisfied with the usual news of the world agencies. We have engaged our coworkers throughout the world and managed to get the information we are offering to our readers. Their comments were various - from a complete approval and acceptance to denial and rejection of the information. However, we remained persistent in our cause while the confirmation of the claims of our sources came from the major world media, with a delay of day or two. The following examples we proudly present show that we are not simply boasting or decorating the reality.


Nova Makedonija on Monday published the following: there were two passengers on the plane with previously reported false passports, one Italian and one Austrian. Both were stolen from Thailand in the past two years and reported to Interpol. These two passengers were captured on security cameras while they were checking in their tickets. The same day the newspaper published the following: “Five other suspicious passengers checked in their luggage but didn’t board the plane.”


On Monday, this information was confirmed by the Malaysian government and published by many media. Nova Makedonija published this information on Monday: “The airport authorities confiscated the luggage of the five passengers that didn’t get on the plane and found anti-Russian propaganda”.


Malaysian officials on Monday afternoon confirmed that the luggage of the five mysterious passengers was removed from the plane. Nova Makedonija was the first newspaper that published on Monday quoted sources, which claimed that the plane was hijacked. On Thursday, American experts and official government bodies admitted that the plane was probably hijacked. On Monday, we asked why the plane diverted and whether the pilots acted on their own or someone else ordered them to do so. Less than 36 hours later, CNN announced that a high government official of Malaysian army aviation has confirmed that the plane turned back. That was the first official confirmation of the information Nova Makedonija published a day and a half earlier.


On Tuesday, the newspaper, again referring to our sources, published the following information: “The videos of the security cameras show that two of the suspects are of Asian origin, short, with dark complexion and Asian look.” A day later, the photos of two Iranians with similar features that were previously described in our article were published throughout the world. Although it’s unusual and a bit odd, yet Malaysian officials confirmed that they’ve altered the photographs. On Tuesday we’ve published that the NSA (National Security Agency) was involved in the investigation, which is extremely unusual. On Wednesday evening, CNN also confirmed this.


On Thursday we published that a signaling device on the plane was on for a short period: “A signaling device, reportedly, shortly after its activation was registered as being active by the Malaysian authorities.”  Twelve hours later “Wall Street Journal” announced that the transponder in the plane’s engine was turned on for four hours. But this one had GPS and it’s not the same one Nova Makedonija wrote about: “The activated device had no GPS for accurate mapping of the location. The signal didn’t contain enough data to pinpoint the exact location.” (On Friday) Wall Street Journal admitted that it had published the wrong information and that the transponder that was turned on for four hours didn’t have GPS and it’s called a “ping”. In other words, they’ve confirmed our information.


Two possible scenarios


This short review of the information presented in the past few days, despite of all the controversies, shows that our news was confirmed by most major world media. But this also raises the question of what happens next. Will this mystery be finally solved and the destiny of the crew and passengers discovered? While looking for the answers we’ll refer to our sources, the same ones we had been using these days. Sam Vaknin, a political analyst with sources in the intelligence community, suggests that there are two possible scenarios, based on past information. The first one is that there had been a disastrous failure, which led to fatal oxygen deficiency on the plane. The plane continued to fly for another four hours by the automatic pilot and then crashed in the Indian Ocean.


The second one is that the plane was hijacked by Islamic terrorists that they reached the Caucasus region in Central Asia or Pakistan. According to this scenario, terrorists have shut down all the communication devices except the transponder called ping and flew to Pakistan. Whether they succeeded in landing the plane or it crashed in the waters, remains a puzzle. We’ll look for the final answers with our sources, whilst respecting the journalist standards, and loyalty and responsibility to the public.”


Global Politician tips its proverbial hat. Bravo.


Nova Makedonija Articles


Malaysian Plane: Terrorism Target? (March 10, 2014)


Vanished Passengers on the Vanished Flight (March 11, 2014)


Malaysians Talking to Plane’s Hijackers? (March 13, 2014)


What Did We Learn Before All Others (March 15, 2014)




Macedonia’s election results: Interview granted to Financial Times on April 29, 2014


Q: Is Gruevski stronger now? Will there be a prolonged political crisis over the opposition's rejection of the results?

A: Yes and no. Yes in the sense that Gruevski has all but obliterated the opposition socialists (SDSM), exposing their gross incompetence as an organized political party. Unable to come forth with creative solutions to Macedonia's multifarious problems and unwilling to produce a fresh cadre of untainted and capable candidates (Stevo Pendarovski, the presidential candidate, being the sole exception), the opposition have doomed themselves to irrelevance and obscurity.

And this is precisely where Gruevski may have overplayed his hand. By excluding the opposition so decisively, by suppressing press freedom so resolutely, and by relegating the presidency, parliament and the judiciary to tragicomic obscurity, he has pushed the opposition into a Ukrainian scenario. Street politics and people power confrontations will now supplant political polylogue within democratic institutions, fairly elected. This applies to the Albanian minority as well.

A. The OSCE is mild, but were there problems with the vote in your opinion?

Q. Free and fair elections in the absence of free and fair media is an oxymoron. There can be no proper process of voting where the boundaries between the state and its resources and the ruling party and its needs are so fuzzy and where funds are so fungible. The elections were perhaps well-organized, but, to some extent, they were a charade. The SDSM never stood a chance, even had it presented a viable, credible option to the VMRO-DPMNE, which it hasn't.

A. And on the economy, can we expect a pick-up in foreign investment following the election? Growth seems set to pick up according to forecasts: what do you think?

Q. Like Greece's, Macedonia's official statistics are to be taken with more than a mountain range of salt. "Growth" in Macedonia is the exclusive outcome of debt-fuelled government spending, largely on spurious and non-productive construction projects and the recovery in remittances from abroad, which now account for a whopping 15% of GDP (Gross Domestic Product.) The elections will likely plunge Macedonia into an intractable political crisis and enhance its political risk. I can be forgiven, therefore, for doubting whether a Renaissance in FDI (Foreign Direct Investment) is in the offing.


April 2015


Macedonia: A Way Out?


The diagnosis (audio)




Macedonian society is incapable of producing functioning, benign elites.The "elites" here are power-crazed, venal, and disloyal to the nation. Macedonia is small and educated people tend to leave the country and emigrate elsewhere. Political parties here have become corrupt and sometimes criminalized employment and travel agencies.


Macedonia needs to follow the example of dozens of other countries, including Sweden, the United Kingdom, Israel, and all the Baltic states and IMPORT the elites that are needed to run and lead the country from the ranks of the Diaspora of Macedonians in the West. Foreigners can also be asked to assist and participate with their expertise and connections, but on a temporary basis.




Like in many other countries (including the USA and Russia), there should be an upper limit on the number of terms a politician can serve and be re-elected. This limitation will prevent power from becoming entrenched and concentrated in the hands of the few.




Macedonia should remove the political parties from the business of running the country. Like in the United Kingdom, a civil service should take care of day to day activities. Policy-making will, of course, be left to politicians, but not implementation, procurement, and employment. Non-partisan expert bodies with multiple checks and balances and oversight should regulate, govern, oversee, and execute policies - not politicians.




Macedonia is a society traumatized by multiple catastrophes in a short period of time. This post-traumatic condition leads to dysfunctional and self-destructive behaviors and traits. National healing of these wounds and traumas should be a top priority. This could be achieved via Truth and Reconciliation Committees (such as in South Africa or Latin America) or even by implementing a "national healing" program that will apply to individuals and institutions which have been affected by these mishaps and disasters.




Economic revival starts inside, with indigenous entrepreneurship. Foreign Direct Investment is important, but it is not the panacea that it is misleadingly made out to be. Macedonia should apply a rigorous program of Economic Renaissance overseen by domestic and foreign experts and firmly founded on local and family entrepreneurs.


May 2015


Macedonia’s National and University Library’s Digital Revolution


A quiet revolution is happening in the National and University Library (NUL) in Skopje, in the tiny Republic of Macedonia. Increasingly and inexorably, it is augmenting its print collections with digital offerings, in line with international developments and practices. The wider public now has unprecedented access online to a wealth of bibliographic materials and primary sources. We met Žaklina Gjalevska, M.Sc., Senior Librarian - Head of Sector Virtual Library of Macedonia, Miodrag Dadasovic, M.Sc., Library Adviser - Head of the Referral Centre, and Aleksandar Stojanov, a system analyst/programmer.


Zaklina Gjalevska: During the 1970s and 1980s, NUL was involved in developing offline applications for cataloguing serial publications and for recording the data of Macedonian research institutions and the work of researchers. These  proved highly successful. In late 1980s NUL and several other Macedonian institutions adopted the former Yugoslavia’s shared cataloguing system, which later evolve into the COBISS system. With the dissolution of Yugoslavia this system ceased operating, but in 1996 NUL and several libraries decided to implement COBISS again and use it locally for the automation of their work and building their online public access catalogues (OPACs). One of the reasons for choosing COBISS was its ability to support the Cyrillic script.


When MANU (the Macedonian Academy for Sciences and Arts) came on board, bibliographic databases of participating libraries were connected into a library system, later named COBISS.MK, and an online union bibliographic database COBIB.MK was launched. COBISS, as an organizational model for developing the national library information system with shared cataloguing as well as software application, is used in more than 40 Macedonian libraries and encompasses the holdings of mostly public libraries in Macedonia as well as NUL’s.


Regional integration with the systems of Slovenia, Serbia, Montenegro, Bulgaria, Albania, and Bosnia and Herzegovina – a total of 700 libraries – followed. Egged on by the Ministry of Culture, starting in 2007, specialized and academic libraries in Macedonia have begun to join the effort and current research is added daily. Budgetary constraints and a pervasive lack of staff are still holding back the majority of these institutions and several have left the system.


Users at home now have free access to and can search online library catalogues through COBISS/OPAC, renew the loan period of borrowed materials, reserve items, make interlibrary loan requests, and view their accounts. Libraries which joined the system saw a rise in both the number of users and in the level of user interest, rendering them information hubs.


Aleksandar Stojanov: The digitisation of medieval manuscripts in Macedonia dates back to 1999. More than 70 such illuminated treasures were captured on microfilm as well as digital artefacts. The project naturally evolved from in-house CDs to an online Website in cooperation with PMF. A mobile app is in the cards. New materials of a higher quality are now made available to the public via a digital library portal which boasts a customized Macedonian interface. Cutting edge scanning equipment now buttresses this 3-year program.


In a striking break with tradition, the programming code developed in NUL will be published as open source in order to allow programmers and developers from the public to modify and improve it, thereby alleviating the nagging staff shortage. Such community contributions are solicited in hackathons which will hopefully attract mainly students. There are also bilateral attempts, such as the digitisation and cataloguing on the NUL premises of 2700 Ottoman, Persian and Arab historic documents which will be shortly added online (as part of the Yunus Emre Institute's Reconstruction of the Cultural Heritage of the Balkans project, initiated and financially supported by the Central Bank of Turkey). There is close cooperation with the National Library of Serbia, Europeana (the all-European online portal), World Digital Library, Wikimedia, OCLC, Internet Archive (whose software we use), and other national libraries, from Bavaria and Hungary to London. There are problems with the digitisation of Cyrillic script, though, and this temporary obstacle is holding back several initiatives.


Scholars and researchers now work with the digitised versions of manuscripts because they afford them higher resolution and the ability to zoom in. It’s a win-win situation: the originals are preserved even as the academic community – and all Internet users - are granted unlimited, around the clock access.


Miodrag Dadasovic: Online databases have been available in Macedonia on the premises of the NUL since 1987, with the introduction of the Dialog databases and databanks. Many other information services were accessible as well, including Science Citation Index and Journal Citation Reports (JCR) and several encyclopaedias on networked CD-ROMs.


In 2003, the Ministry of Culture established MeL (Macedonian eLibraries) with around 80 member libraries today. In collaboration with EiFL (Electronic Information for Libraries), a consortium that provides affordable access to commercial e-journals for academic and research libraries in developing countries, MeL secured access to the EBSCO databases. These are used by the entire academic community and several government Ministries and are available to all the member libraries and their patrons. The databases are accessible to users throughout the country in the various sites of the MeL member libraries, including many public libraries and NGOs, as they are IP-authenticated. But universities, members of faculty, librarians, and employees at the Ministries can access them from other locations with usernames and passwords. Home access to these databases is denied in line with the licensing terms of the providers.


Owing to budgetary constraints, databases from other providers - like Sage, Emerald, Cambridge and Oxford Journals, and SCOPUS – are no longer available. Various member-libraries in the consortium have access to HINARI, JSTOR, the World Bank eLibrary, Clinical Key, Elgar, New England Journal of Medicine, Oxford Textbook of Medicine and others priceless resources. Usage has increased dramatically over the last 13 years: from several thousand queries a year to hundreds of thousands of searches and tens of thousands of downloaded documents. In a country of 2 million inhabitants and several thousand users, these are impressive figures. I don’t have a demographic breakdown of the user community, but I believe that most of them are students and researchers. Users are kept informed of the databases and trained and skilled in their usage, including via dedicated and very popular Webinars, training sessions, librarian skilling, and on-demand visits and presentations. We rely on the local contact of MeL, usually a librarian, to disseminate this information, but we reach out to our users, mainly to students.


June 2015


Zaev’s Critical Mistakes: The World Offers a Possible Way Out


In his attempt to dislodge the current government, opposition leader Zoran Zaev committed five faux-pas errors:


1.     By releasing his bombs over an extended period of time, Zaev fostered a chronic, prolonged, and extended crisis. Experience shows that in order to induce a regime change, Zaev should have opted for an acute crisis: overwhelming (“shock and awe”), strictly limited in time, and immediately escalated. Chronic, protracted crises alienate the suffering population and backfire against the initiator of the crisis: they resent him for disrupting their lives unnecessarily and begin to suspect his motives;

2.     Zaev (and the international community which egged him on) completely misjudged and misread the psychology of their adversary, Nikola Gruevski. The Prime Minister is a man of principles, stubborn, convinced of his own values, considers himself omniscient and infallible, and regards the opposition as self-interested and destructive. He reacts to blackmail and threats with a stiffening of his resolve. The more he is backed into a corner, the less likely he is to surrender, especially to people whom he considers to be long arms of foreign powers, acting against the national interest;

3.     Instead of relying on people power, street demonstrations, strikes, and other populist and popular expressions of discontent, Zaev chose to secretly negotiate with Gruevski, tete-a-tete, like two elitist conspirators about to divide the spoils of a successful bank heist. This made him look like a dishonest control freak, out to secure sinecures, jobs, money and power for himself and his acolytes. Hardly the profile of a national, selfless hero-whistleblower. People even began to speculate that he has embarked on this adventure merely to avoid a possible prison sentence in one of several investigations and cases against him;

4.     Convinced that Gruevski was a dangerously delusional, authoritarian, and anti-Western strongman (not unlike Erdogan, Putin, and the late but not lamented Chavez), the international community decide to dispose of him. They trusted Zaev to do the job, but he failed. His failure engendered growing domestic and regional instability which threatened both the Balkans and the West’s fight against ISIS. The West always prefers stability to democracy. The tide has turned: now Zaev and his attempts to destabilize Macedonia have become the immediate threat, the clear and present danger to the interests of the international community.

5.     By targeting only Macedonian politicians in his bombs, Zaev appeared to be increasingly pro-Albanian, letting this restless and vociferous ethnic minority become the natural arbiters of power between the warring internecine and immature Macedonian political factions. This bias did not endear him to a big segment of the increasingly more nationalistic and anti-Albanian Macedonian public.


Zaev can learn from the experience of 23 countries in which identical political crises occurred and implement these solutions which led to favourable and long-term outcomes in countries big and small on 3 continents:


1.     SDSM must return to the Parliament and thus reacquire the goodwill of the international community. Such a step would allow the SDSM to exert greater control over the deeds and misdeeds of the coalition and provide the party with enhanced visibility in and access to local and foreign media;

2.     SDSM must give up its demand for a transitional or temporary government. Instead, it should adopt the British model of a shadow government: a parallel government-in-waiting whose members have full access to all the information that the government possesses, are briefed by incumbent Ministers on a regular basis, and participate in important decision making in a consultative capacity. Should the SDSM win the early elections, the shadow government will be ready to assume its responsibilities without a drawn-out and debilitating period of transition;

3.     SDSM should agree to offer the leading members of the current regime conditional amnesty. Such amnesty requires full and public disclosure of wrongdoing by the culprits and a restitution to the coffers of the state of ill-gotten gains in return for immunity from prosecution;

4.     Like in many other countries (including the USA and Russia), there should be an upper limit on the number of terms the Prime Minister can serve and be re-elected. This limitation will prevent power from becoming entrenched and concentrated in the hands of a single individual.

5.     Macedonia is a society traumatized by multiple catastrophes in a short period of time. This post-traumatic condition leads to dysfunctional and self-destructive behaviors and traits. National healing of these wounds and traumas should be a top priority. This could be achieved via Truth and Reconciliation Committees (such as in South Africa or Latin America) or even by implementing a "national healing" program that will apply to individuals and institutions which have been affected by these mishaps and disasters.

6.     Macedonia should remove the political parties from the business of running the country. Like in the United Kingdom, a civil service should take care of day to day activities. Policy-making will, of course, be left to politicians, but not implementation, procurement, and employment. Non-partisan expert bodies with multiple checks and balances and oversight should regulate, govern, oversee, and execute policies - not politicians. Party members should not be allowed to serve in certain critical functions of the state.

7.     Economic revival starts inside, with indigenous entrepreneurship. Foreign Direct Investment is important, but it is not the panacea that it is misleadingly made out to be. Macedonia should apply a rigorous program of Economic Renaissance overseen by domestic and foreign experts and firmly founded on local and family entrepreneurs. Domestic Direct Investment should be the new rallying cry. SDSM could start to implement such policies in the few municipalities that it still controls.


Gruevski’s Critical Errors


Nikola Gruevski, the longest-serving Prime Minister of Macedonia, came to power on a platform of economic reforms. In less than a decade he has transformed the Macedonian business scene, passed numerous laws in various spheres of public and private life, and, for better or for worse, altered the aesthetics of Skopje, the capital. But he failed to tackle the pervasive culture of nepotism and cronyism and the vast informal social networks that undermine the rule of law and foster corruption as a way of life throughout Macedonia. His deep-felt need to exert and maintain control over everyone and everything led Gruevski to aid and abet the rent-seeking conduct of Macedonian businessmen and the media, rendering them vassals of the state.


Gruevski surrounded himself with loyal, obedient, but inexperienced functionaries and Ministers. Their tender age and inexperience would have disqualified them from office anywhere else in Europe. The hubris, contemptuous arrogance, and lack of self-discipline of the Prime Minister’s inner circle is evident in Zaev’s illicit recordings. But Gruevski felt that he had no choice: he could not rely on or trust the former elites of the country (affiliated with the opposition) whom he justly regarded as kleptocratic, venal, mendacious, and disloyal to the interests and priorities of the nation.


But Gruevski underestimated the groundswell of focused ill-will toward his regime. His populism and Narodnik, anti-elitist, anti-intellectual revolution alienated many constituencies: the urban middle-class, the country’s intellectuals, self-appointed elites, erstwhile managers and politicians, journalists, and even bona fide social and political reformers. The backlash against him reflected the pent-up resentment of these excluded and ignored constituencies. The release of Zaev’s bombs was the latest skirmish after they had lost the battles over Skopje 2014 (the interminable reconstruction and beautification of the capital) and the Name Issue (the conflict with Greece over the country’s official name and, therefore, its historical roots and identity). With Zaev’s bombs, these disgruntled leftovers of previous regimes felt that their time has finally come and that this may be their last chance to wrest power from Gruevski, who is still by far the most popular politician in Macedonia. Hence their panicky reaction to his adamant refusal to step down.


Gruevski should have been magnanimous in victory. He should have been less insecure. He should have adopted a more tolerant and inclusive policy towards the opposition and its journalists. He should have leveraged the human capital of the SDSM – its professors, intellectuals, and managers – to the benefit of the state. Given that Macedonia is a small country with a dire shortage of qualified and skilled people, permanently blacklisting half the population is a bad idea. In the United Kingdom, the opposition participates in decision-making in the form of a shadow government. In other countries, there are permanent consultative bodies which incorporate the opposition. Macedonia would do well to emulate these models. The civil service, the administration, should be strictly separated, with a Chinese wall, from the political parties. There are tried and true methods of accomplishing this separation in short order. The first step should be the introduction of term limits: a Prime Minister should never serve more than 2 mandates in a row. Even Putin had to resign when he served two terms in office!


When it comes to the European Union and, more generally, the West, Gruevski is understandably disappointed. As a country, Macedonia has been consistently lied to, manipulated, promises were broken, and rogue members (Greece and Bulgaria) allowed to subvert the accession process. But Gruevski should ease up on the rabid nationalistic, conspiratorial, and anti-Western propaganda. Even more importantly: he should stop acting or appear to be acting against the vital interests of the West. Allowing Iran to open an embassy and operate freely in Macedonia was not a good idea. Allowing Turkey a free hand here with regards to its Middle-Eastern allies is an even worse idea. Getting too friendly with Russia is definitely bad thinking. In a small and impoverished country, the national interest is identical to the national interests of its greatest benefactors, export markets, and hosts to its Gastarbeiter. As Gruevski found out the hard way, you cross the West (USA and EU) at your peril.


Gruevski should have been more attuned to the lessons of the Arab Spring and Ukraine. He underestimated technology and how it empowers the hitherto disenfranchised and impotent. With minimal or no investment, blogs and social media, YouTube and Facebook, helped to amplify and magnify the voices and opinions of his adversaries. Inconvenient truths found home and distribution networks where none had existed when he first became Prime Minister.


Finally, Gruevski’s obsession with foreign direct investment (FDI) prevented him from realizing his economic agenda. Macedonia may be the second fastest growing economy in Europe, but, in terms of developing countries, its growth is lacklustre and driven mainly by non-productive investment such as construction and government largesse. It is still way too dependent on remittances and, therefore, on the ups and downs of the global economy. He should have emphasized domestic investment and family firms and not link his and the country’s future to the whims and caprices of multinationals who regard Macedonia as just another fringe statistic in their enormous portfolios.


The Bumbling International Community


As Gruevski’s nationalistic, xenophobic, anti-Western rhetoric grew shriller and as he cosied up to the likes of Iran, Russia, and Turkey, the West decided that he should “step down”. As usual, the inapt, corrupt, and none-too-intelligent functionaries of the European Union teamed up with arrogant, ignorant, and incompetent US intelligence operators to bungle it all up and make a godawful mess of things. There was no overt conspiracy to change Macedonia’s regime. Rather, the West switched its allegiance to the opposition and provided it with invaluable information, moral support, and an avalanche of reports which damned the government and its high-handed, authoritarian misconduct.


The West overestimated Zaev, misjudged Gruevski, and misread the national character of the Macedonians. We have analyzed Zaev’s mistakes in the first part of this triptych. He failed to deliver. Blackmail and threats only rendered Gruevski even more intransigent and entrenched in his conviction that, chosen by the people, he should never surrender to a clique of criminals (as he regarded them). The Macedonians are a peace-loving, conflict-averse, and submissive lot. They avoid trouble even at a great personal cost. No matter what he did and what revelations he showered on them, Zaev did not succeed to mobilize the people’s power. His biweekly appearances fast degenerated into a perverse form of prurient entertainment.


The International “Community” steadfastly ignored the risks that an increasingly unstable Macedonia posed not only to its immediate neighbors, but to more global interests. Macedonia is the main gateway to Middle-Eastern refugees crossing into Europe and to European jihadists flocking into Syria and Iraq to join ISIS. It also features as an important junction in Europe-wide several gas pipeline schemes. Its restive Albanian minority has close kinship and business links with unsavoury characters across two borders: Kosovo and Albania. Crime is a way of life to many young, unemployed, uneducated, and destitute members of these communities. Some of them smuggle refugees across borders – a lucrative vocation. Others joined the fray in the Middle-East and returned home, well-trained in urban guerrilla. It is an explosive mix. Thus, the “regime change operation” could not have been more ill-timed.


The West’s overt and heavy-handed interference in the internal affairs of Macedonia (as if it were a colony or a protectorate) tarnished the opposition as a traitorous fifth column. This bout of Western arm-twisting and threats was only the latest round in a long series of lies, deceptions, and abuse heaped over Macedonia in the past two decades: a mountain ridge of broken promises, humiliating surrenders to Greek and Bulgarian (and now Albanian) vetoes, and blatantly unfair exclusion from NATO and the EU. The West’s policy consists of only sticks, no carrots – the Greek took all the carrots away.


The EU’s mismanaged public relations, haughty statements by pompous officials, and its typically bumbling and obscure way of managing the crisis as well as the esoteric secrecy that shrouded the whole affair led ineluctably to the proliferation of conspiracy theories and to a metastasizing paranoid xenophobia. These are the long-term legacies of this engineered crisis, regardless of its outcomes.


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