The Fifth Domain – Richard A. Clarke and Robert K. Knake

13-2-20

Dear Partners in thought,

As you know, Desperate Measures is a blog about the defense of Western liberal values in an unstable world which macro-events like the Trump ascent or now Brexit have made markedly worse from Western bloc standpoints be they related to NATO, the transatlantic relationship or the EU. Another sub- and linked facet of the blog is the discussion of conflicts in our world and their theaters, of which the newest one is doubtless cyber warfare. 

I wanted to give you yet another glimpse at cyber warfare this time through “the Fifth Domain” the latest book of Richard A. Clarke and Robert K. Knake. The Fifth Domain is that of cyber after sea, air, land and space which have been the traditional “theaters of war”. Richard (Dick) A. Clarke, a 30 U.S. year government veteran, was one of the lead counter terrorism and indeed the first cyber warfare/security adviser to Bill Clinton and George W. Bush, and is now considered the foremost American expert on cyber warfare strategy while the younger Robert (Bob) K. Knake, now a senior Fellow at the Council on Foreign Relations, in New York was Director for Cyber Security Policy at the National Security Council under Barack Obama. Those who like to spend their time in the trenches of defense strategy matters will recall that they both published “Cyber War” which in 2010 was giving a preview many did not believe about a world that would be subjected to cyber-attacks or hacks from both nation-states and criminal gangs that would threaten countries’ infrastructures like power grids, the business and financial sectors not to mention our ways of life. 

The book, covering the recent years of cyber warfare and its potential future, is about making us understand the cyber threat, its impact on our societies and defining ways that would make us stronger and one day immune from it. While going through many current facets of cyber warfare, Dick and Bob cover the topics of international cooperation, the protection of the integrity of elections, the impact of AI and Quantum Computing while making a number of proposals to improve cyber defense. It is clear that their approach and vantage point are very American and will thus involve a lot of things that Europeans may not directly relate to though many topics such as the role of government in protecting business and by which precise ways, triggering many sub-issues like privacy, may transcend borders (at least in the democratic West as cyber regulations are indeed simpler in China or Russia, this creating another sub-topic like the existence of one global or several internets in the future).      

Rather than going through the whole book I would like to list via bullet points key thoughts and facts put forward by Dick and Bob about cyber warfare and its battlefield today.

  • Cyber warfare is about the superiority of offense against defense, the latter which always has been so far in a catch-up mode. Cyber is about the Offense Preference even if defense is closing the gap by taking advantage of new technologies and a renewed focus on the part of governments and businesses. 
  • Leading businesses and governments are attacked several hundreds of thousands of times every day.  Nearly all these attacks now fail but it takes one win for the offense to prevail.
  • According to Dick and Bob, cybersecurity should be a shared responsibility between government and the private sector, with the onus for protecting computer systems falling on the owners and operators of those systems – a view that is not shared by some in government, notably by some in the military and intelligence communities who would see the fifth domain as a field where they should also lead the charge, all the more due to the threats caused by the direct and indirect hacks of nation states.  
  • “Cyber resilience” should be the main focus, this in building systems so that most attacks cause no harm, allowing for responses and recovery from attacks that do succeed, with minimal to no disruption. Cyber resilience would lead to shifting the traditional and often erroneously historically perceived advantage from the attacker to the defender.  
  • One of the objectives of the “defenders”, largely Western nation-states (even if they go at times preemptive or retaliatorily offensive) is now through resilience to make attacks more difficult and costlier to execute for criminal outfits at times acting as proxies for nation-states of for the latter themselves when emanating from one of their military or intelligence units. 
  • Identification of offenders can be complex and time-consuming as experienced hackers, whoever they may be, often use mundane ways to carry their attacks. One of these could be using a stolen credit card number bought for 50 cents on the dark web and setting up an Amazon Web Services account that would be used to carry out the attack.    
  • Offenders can be nation states and/or criminal gangs (sometimes combined) and identification is always challenging even if the culprits are well-known. Among nation states, Russia, China, North Korea and Iran are to some degree the worst offenders with Russia being the most dangerous and volatile is usually strategically politically motivated while China has traditionally been focused on IP theft, which it always considered a key element of its world leadership building ambitions. Offenders officially deny all cyberattacks or, if required, reject the blame on non-governmental entities, even if “patriotic” ones they state they would not control.
  • For some nation-states like Russia, cyberwarfare is one of the elements of hybrid warfare, which along diplomacy, intelligence and other means short of actual war and as part of it even if not obvious at times can be deployed precisely like in the case of the seizure of Crimea and the activities of so-called local militias or “green men” in eastern Ukraine. Hybrid warfare is about “disruption” something cyber offense, a relatively cheap tactical tool, is focused on.
  • Western powers, including the U.S. now also resort to preemptive strikes or offensive defense (the most well-known being Stuxnet when the U.S. and Israel struck at the Iranian Natanz nuclear processing facilities to stop nuclear enrichment). This attack that was both a success (it achieved it goals) was also a fiasco as the attackers were quickly discovered and the viruses hit well beyond Iran, spreading worldwide and ended up being stolen for re-use by a number of hacking groups also aiming at American businesses.
  • The three main attacks that had a wide impact in recent years were those that took place in 2016 and 2017 and were named Petya, WannaCry and NotPetya. Two were Russian military-initiated (at times unwittingly) and one was North Korean-military sponsored.
  • WannaCry, that was “officially” a ransomware attack, occurred in May 2017 and got well-known for one of its targets being the British NHS and its network of hospitals, many of which came to a standstill, not being able to proceed with planned, at times time-critical, surgeries. Seven months later WannyCry was identified as having being perpetrated by the North Korean Lazarus Group, an outfit part of the North Korean government and in line with the reaction against a movie that had mocked the country’s leader and for which an American studio had suffered a strong cyber attack.  
  • WannaCry was a prelude to NotPetya (named after a 2016 Russian-originated cyberattack against Microsoft servers globally which took its name after one of the bad Russian characters in a James Bond movie), which was launched by the Russian GRU with Ukraine in sight but which went well beyond Ukraine via the infection of computer systems operating globally. While 10% of all Ukrainian computer systems went down many global companies suddenly grounded to a halt. Maersk, Merck, Mondelez (the OJ Oreo cookies) or TNT Express were severely affected, even if they had not been intended GRU targets. (Interestingly Zurich Insurance denied paying for the cyber insurance coverage of Mondelez as it viewed the attack as not covered by the cyber policy as an act of war; the matter is currently being discussed in a court of law).   
  • For those who want to know how NotPetya took place, the GRU hacked into Linkos Group, the Ukrainian software company responsible to install and manage the accounting software of most companies and government ministries in Ukraine, sending periodic updates to programs. The updates were digitally signed by Linkos and thus recognized by all the firewalls of their clients. The GRU planted an attack package in one of the Linkos updates that exploited a known Microsoft server software vulnerability combined with a password-hacking tool and instructions that would spread to any connected device on the network, wiping them of all software. In doing so, the GRU would have not realized that global companies operating in Ukraine and their global network would be hit due to the virus spread over Virtual Private Networks and corporate fiber connections back to headquarters in locations like England, Denmark, the U.S. and elsewhere.         
  • To be sure Russia, China, Iran and North Korea are not the only offenders even if they tend to use cyber very liberally as a policy tool and are often starting cyber conflicts unlike the U.S. and Western powers. During the 2018 mid-terms, U.S. Cyber Command led massive attacks against Russian targets as a preemptive strike and doubtless a reminder of what happened with the astute attacks of Russian social networks during the 2016 presidential elections (it is to be noted that the Trump campaign and then administration which benefitted unwittingly – one will say – from these Russian attacks kept to the 20 year US cyber warfare strategy implemented by President Clinton, though allowing for cyber strikes to take pace without presidential authorization as required by President Obama, this to avoid dangerous and slippery slopes).      
  • Estimates put worldwide spending on cybersecurity (in the West) at USD 114bn in 2018 while venture capital investments in cybersecurity start-ups reached USD 5bn and cyber insurance, long a fringe market, reached USD 2bn in gross written premium that year. Cyberattacks created a new, substantial market that gave another life and segment to the tech sector among big and smaller operators.   
  • Leading banks, that have actually  become tech companies that happen to lend money, spend today USD 500m on cyber defense tools per budget year so our bank accounts and data are protected with many of them feeling that in five years they should be immune from cyber threats. Their in-house cybersecurity teams number hundreds of staff. Each of these banks use and daily rotate upwards of five or six dozen different, layered software tools developed by as many cybersecurity vendors to detect and prevent attacks.  Banks are the most impregnable targets for hackers, most low-level criminal hackers having left that field which is still pursued by nation states as shown in 2012 in the U.S. as a payback for Stuxnet. JP Morgan Chase, the leading U.S. bank spends USD 10bn a year in tech and employs 50,000 technologists (Facebook and Google in comparison have staffs of 35,000 and 61,000) while it spends 6% or USD 600m on IT security.  
  • Contrary to popular opinion “defense” when properly funded and equipped is winning against offense though knowing that the cost of the latter is a tiny fraction of that of the former. While offense is often a prevailing tactics to preempt or retaliate against cyberattacks (notoriously advocated by then NSC head John Bolton in 2018) many U.S. cyber experts also in government take the view that “those who live in glass houses should not throw stones”.    
  • Attackers’ helmets can be ripped off by defenders who can identify them but nothing is being done as the latter are operating from jurisdictions like Russia or Iran that will not cooperate with U.S. and Western European countries. Two well-known Iranian hackers (pure criminals in this case) are now living happily in the suburbs of Tehran, having earned several millions of dollars from a series of sophisticated ransomware hacks against businesses in 2018. However, one should add that they have to spend their ill-gotten gains in Iran…    
  • The risk of contagion through supply chains comprising thousands of SMEs for large industrial groups is one of the main weak points that require attention and is tricky due to the vast fragmentation of the segment and costs associated with the defense for SMEs.  Cloud service providers that have dedicated thousands of people and billions of dollars to protecting data enable SMEs to operate more safely on-line.
  • NotPetya which struck in June 2017 was launched by Fancy Bear, a.k.a. the GRU or Russian military intelligence’s cyber unit. According to the UK, the GRU operating as Sandworm attacked the Ukrainian power grid in 2015 and 2016. Operating under Cyber Caliphate, the GRU shut down TV5, the French television network. It interfered in the investigations of assassination attempts against dissidents in Bristol, England, the Russian doping of Olympic athletes and the downing of Malaysia Airlines Flight 17. And as we know too well it penetrated the Democratic National Committee during the U.S. presidential elections in 2016.  
  • As Dmitri Alperovitch, Chief Technology Officer (CTO) and founder of famed cybersecurity firm CrowdStrike, when at McAfee said: “There are two kinds of companies: those that have been hacked and know it; and those that have been hacked and don’t” (as an aside and as a tribute to their strong education system throughout the regimes and ages, there are many Russians involved on both sides of the cyber warfare equation!). Cyberwarfare has led to the emergence of many firms and a new segment with the likes of CrowdStrike, Dragos, Cylance and FireEye, not to mention Kaspersky (even if its Russian origins has cast a few shadows in some U.S. quarters recently) or Microsoft’s Advanced Threat Detection.
  • There are 200 so-called groups propagating Advanced Persistent Threats or APTS and going after governments and leading businesses, 77 of them Chinese and focused on Intellectual Property Theft. 
  • Most sophisticated attacks today still rely on spear phishing, hoping that some individuals (only one) will click on the link or attachment of an email offering him or her a free vacation or an amazing date that was long overdue. No amount of training, even if consistently pursued, will eliminate what the “sector” calls the “Poor Dave” after a well-known cartoon showing a boxing ring with on one side, firewalls, encryption and anti-virus software and on the opposite corner an overweight, slovenly, middle-aged Dave sporting a silly grin and a T shirt that says Human Error…There is no training Daves as they always click. However, companies now increasingly do random tests so the Daves can be identified and made to reflect after they get a “you’ve got phished” message and a delightful invitation to HR. 
  • The future of technology will be impacted by Artificial Intelligence (AI), Quantum Computing, 5G (much in the news due to the Chinese control of the main 5G provider, Huawei and associated strategic issues) and IOT or the Internet of Things. While explaining the basics of these four key items and their developments, Dick and Bob go through technical details that apply to their current and future developments that will delight the tech-minded and security policy wonks alike.     
  • It would be bad not to address the key topic of cyber hygiene that concerns us all as telecommunication device users and which Dick and Bob do cover in the book. They offer a list of steps to be taken to prevent as much as possible the impact of cyberattacks even if in our case usually not emanating from nation-states or their proxies.  The list is admittedly long and many of the steps are unlikely to be followed strictly as we are not corporations or governments or perhaps not all IT or cyber-interested. Anyway, here they are and some of these pieces of advices should be read in terms of what matters to you: 
  1. If you are an American citizen, just stop worrying about your Personally Identifiable Information (PII). Your Social Security Number was already stolen several times.
  2. Keep your passwords differentiated even if they may number 20+, use ten digit passwords (no less), pepper them with #, ^and *, potentially obtain a password manager like those at LastPass, Dashlane or Zoho – admittedly not household names.
  3. Do not keep all your password on a yellow ticker on your laptop. Duh. 
  4. If worried use one main password and a second certification like getting an SMS with a number to use as a second password. Many banks require this already.
  5. If worried, don’t use debit cards. Use only credit cards. Limit the monthly amount on them. For really unusually huge transactions, ask a human to call you for confirmation. Don’t be surprised if your transaction is stopped when you travel to and discover beautiful Chad at the last minute…Use answers to bank verification questions which are weird but yours (like if the question is what is your favorite baseball team and you are from Boston, don’t say the Red Sox. I know it’s hard).
  6. Beware of emails from Apple, Google, Microsoft and Facebook that look perfectly fine telling you need to rest your password. Just focus on the weird address of the sender with all these X, Z, w and its range of weird numbers. And don’t click, Dave!
  7. Beware of webcams on your devices including laptops and even if they look dormant. The same is true of cell phones (and why I always have to leave mine at the entrance of the US Embassy in Prague, this for several years. Strangely their French counterpart is more trustworthy…).   
  8. I can’t do that but Dick and Bob advise to keep only two months of emails (back up the previous ones if you really to keep them) unless you want your prose potentially found in strange places, especially if you write incendiary or compromising pieces…       

I know I wish we could all be so good and wise. By the way the final advice of Dick and Bob is also to enjoy all the wonderful things that the internet provides modern society and stop worrying about the threats lurking in the shadows.  

I hope you enjoyed this Book Note on a topic that I would have never bothered with ten-fifteen years ago so tech-foreign I always was. However, it is great to keep up with our times and even fight the good fight while keeping young (even for those 1960ers like me!).

While I do not want to unduly advertise it, I am also a seed investor in a young UK cyber security start-up (yes even with the dreadful Brexit), Britain thanks to GCHQ being a beacon of cybersecurity excellence globally. If any of you may have a need in cyber risk prevention and management, so beyond managing the “after attack” and going after these guys in Tehran, I will always be very happy to put you in touch with my cyber warriors.

Warmest regards,

Serge       

On the need to understand the "rationale" for the impeachment process

Dear Partners in thought,

As we are in the midst of the Trump impeachment process and what looks like a comedy combined with a partisan fight, it is important to see through the sound and the fury and try to understand its rationale, the latter word which is almost a trespasser in the current American climate. 

Many high level witnesses who have played a role in the “Ukrainian story” behind which was launched the impeachment process (I will not restate it so well-known it is) have clearly and unequivocally stressed that there was indeed a “Quid Pro Quo”. The general view that the request to obtain information from a foreign ally on domestic political opponents in the context of a looming presidential election was made against military and financial aid is clear and not even any longer much disputed by the President himself. A few key additional witnesses such as former National Security Adviser John Bolton could confirm the point further and new evidence could also be heard at the trial if made available by the Senators (something 69% of Americans in a recent poll would want, so cross-party voter affiliation). The point of contention is more about the criminal aspect of the “Quid Pro Quo” which would lead to an impeachment (putting aside politics and which party controls the Senate) even if constitutional legal scholars (including the law professor arguing for the Republicans at the House) were clear in stressing that impeachment could be triggered even if no crime per say was committed. Putting fine constitutional legal matters and partisan politics aside, the common sense question should be whether a sitting President should withhold aid to an ally until he gets the information he would need for his reelection. Even if Trump’s “The Art of the Deal” (of which I have a first edition) would not concur, the answer is probably not.

It is clear that the impeachment process has been politically partisan since the beginning. It is clear that the Democrats or some of them among the radical wing of the party have wanted to impeach President Trump since he was in office and more so after the Mueller Report (some of us now forget) came to the fore. It is also clear that the Republicans in both houses have given little thought to the actual matter at hand, not seeing any problem with the “trifle” accusation and wanting to defend the President come what may. It is also clear that the outcome of the trial in the Senate was always  a forgone conclusion, making some wonder why there was any need for the Democrats to bother with such an acrimonious process, all the more near and in a reelection year,  the latter which should provide for a national forum to take a definite view on the President. However and putting omnipresent politics and motivations aside, the common sense question should be whether an impeachment process, however partisan in nature,  should simply be forgone due to its likely outcome while the behaviour of a sitting President has (once more) broken the tradition of the American presidency and put his country’s national security and the world stability at risk? The answer is certainly not.

The impeachment process of President Trump is not about partisanship even if it will be partisan by nature, it is about upholding now and for generations to come the core values that made America, this being said by someone who would have been a Rockefeller Republican had he been born in the once land of the free. 

Warmest regards,

Serge

What after striking Soleimani or carefully weighing the risk of creating chain reactions

6-1-20

Dear Partners in thought, 

I would like to wish all of you and yours a glorious New Year 2020 full of great achievements and of course a health of iron.

I would like to take this opportunity to express my gratitude for your readership and support understandably if not for all I write certainly the possibility to share thoughts with you and defend the Western liberal values that made whom we are.

Without wanting to using poor words the New Year started with a big bang though not one we would have expected in this period of revelling. Qassem Soleimani, the head of Iran’s Revolutionary Guards’ Quds Forces for twenty years, lead engineer of Iranian expansion in the Middle East and de facto number two of the theocratic regime was eliminated by a surgical drone strike near Baghdad airport on 3rd January. According to Donald Trump and Mike Pompeo, this strike took place to prevent imminent strikes in the Middle East that could have cost “hundreds” if not “thousands” of American lives over the near term. 

The decision to eliminate General Soleimani was taken as former Presidents George W. Bush and Barack Obama chose not to do so given the high risk of a chain reaction with events that would rapidly be out of control and could lead to a disastrous upheaval in the Middle East and beyond. While it is clear that some decisions have to be taken regardless of the high risks associated with their potential consequences, it is important to take them at the right time, for the right reasons and understanding, in order to manage them, the dynamics of chain reactions.

It is a fact that few in the West and many other parts of the world would miss General Soleimani who, as the mastermind behind Iran’s muscular regional foreign policy, was behind the losses of many American but also Iraqi lives while saving the regime of Bashar al-Assad in Syria. However it is not yet clear that the stated Iranian attacks were imminent and justified a drone strike when it took place. It is a reflection of the personality of President Trump that it is hard not to be skeptical about his motivations to strike right in the middle of an impeachment process and the context of a presidential election so as to create elements of diversions and an environment when America needs to be eventually “together” if next steps go awry . It is also also hard not to find a degree of recklessness in a strike of that nature, however its supposed preemptive nature, targeting the number two of an already hostile and aggressive power, thus actually making more American lives and others at risk.  

At this point Iran has made it clear that they will retaliate as they have to, seeing the strike as an act of war, which was to be expected. President Trump replied that 52 Iranian sites were earmarked for attack in case an Iranian reprisal, this oddly including cultural sites (while spontaneous and local responses, a U.S. military base was already attacked in Kenya by Al-Shabaab terrorists and a couple of rockets have landed into Baghdad’s Green Zone). A few thousands American troops are now shipped back to the Middle East at a time when the Trump administration’s long-stated goal was to decisively (and riskily for many) disengage America from the region as seen with recent Syrian developments and the last tragic Kurdish episode. One of the initial reactions to the strike in Iran was to largely mobilise a mourning and wounded nation (even if also orchestrated to some degree), many of whom were actually demonstrating in the streets against the mollahs’ regime a few weeks before. If anything the strike has given another life to the Teheran’s regime, which probably did not believe its good fortune, allowing to deflect popular discontent about the sad state of the economy, not to mention basic freedom rights. In another positive development for Teheran, the Shia-majority and Teheran-friendly Iraq has quickly reacted through his Prime Minister in asking its parliament to vote on requiring U.S. forces to leave Iraq, long a priority strategic goal of Iran in the region. And in a bad turn for the whole world, Iran now decided to roll back on the 2015 nuclear deal, something the Europeans and others were trying hard to preserve. The strategic gains of the Soleimani strike do not look very clear for America or the stability of the region and that of the world.      

To be sure, Iran has been a destabilising factor across the Middle East as seen in Yemen but also in its dealings with regional nemesis Saudi Arabia, though has also worsened its approach following the American withdrawal from the 2015 nuclear deal while getting more involved, together with Russia, in ensuring that Bashar al-Assad regime perdured in Damas. There is little doubt that Iran’s foreign policy and its overtly aggressive approach to Middle eastern affairs led largely by General Soleimani’s Quds Forces have been against the interests of creating a more stable world especially one closer to Western liberal values. Very few in the Western capitals will moan the demise of General Soleimani. However the action such as the one taken on 3rd January needs to have been taken at the right time, for the right reasons and understanding its consequences given the whole play at stake.

While it is too late to avoid an Iranian retaliation, it is still time to try avoiding a worse chain reaction or limiting its damages. It is thus key to go deeper into why such an initial strike decision was taken given its likely consequences. As a first step, the Trump administration, while explaining its strategic rationale in relation to Teheran, also needs to offer Congress and the world – as none of us will be bystanders in what could take a much worse turn – the irrefutable evidence that a strike against this target was all but inevitable in order to prevent a far more destructive outcome. Based on past experience gained over the last three years, such a development is very unlikely but judgement should be reserved.

Warmest regards,

Serge

What the historians may write about this 12th December General Election and its Brexit subtext years from now

13-12-19

Dear Partners in thought,

When writing about the 12th December election years from now, historians may tell future generations a few things that are worth saying even today.

This election was to be about Brexit even though the matter was surprisingly little mentioned besides catchy slogans and involved two political parties with equally abysmal leaderships that no moderate voter, still representing a majority of Britons, could support so extreme the two parties had become. As if “entryism” had become a national political sport.

The Tory leadership wanted to win so Brexit could “get done” while the Labour leadership by refusing to back a clear Remain position and offering a radical “manifesto” guaranteed its loss and automatically ensured Britain left.

One leader, Boris Johnson focused on winning but had no program to govern. The other Jeremy Corbyn, had a program to govern (few wanted) and did all he could not to win, which should also seal his fate, not that many would mind, especially in the Remain camp, for he he had been the true Brexit-enabler. 

To be fair, while many moderate conservatives switched to the Liberal Democrats with little success given the “first pass the post” system eternally favouring the two main parties, Boris Johnson, a great campaigner, successfully convinced otherwise solid Labour voters in the impoverished Leave constituencies of the North of England and the Midlands to back him so Brexit could indeed “get done”, which explains his strong majority and will be a headache in future governing given the steep disparity with his traditionally Tory base. I am not sure these Labour voters will be happy either by the Brexot outcome or what they will end up receiving from this “One Nation” Tory government.  

A likely majority of Britons were Remainers, this for more than two years, but party affiliation and the greater repelling factor of the opposition party leader still prevailed, all facilitated by the “first pass the post” electoral process that already favoured the now “dreadful twos” in the first place. 

In the end, the British voted to prevent a radical and questionable Corbyn to enter Number Ten even at the cost for many Remain voters of seeing Britain leaving the EU. That the future of Britain in Europe was decided by such a low quality and devious electoral offering will be sadly remembered in British history.    

The Liberal Democrats who were the key to trying to stop Brexit acted strangely autistically by backing “revoke Article 50” in spite of the fair option of a second referendum that was even put forward by the lukewarm Corbyn. Their fate was sealed. 

The road to the a second referendum, this one on Scotland as part of Union, was now open, with an expected outcome at this point given where they stood on Brexit.  

So Brexit “got done” (how, we still don’t know) mainly as the British electorate grew tired, to be fair, also of the dire process and preferred to put it behind them even at the cost of leaving, hence the apt Tory campaign slogan choice. In the end a strange election took place where voters went for the least hatable leader to decide the future of Britain in Europe while they were not even asked to confirm if their views of June 2016 were still the same three and half years and more facts at hand later. Even more sadly, the 18-29 age group (not to mention those we were 15, 16 and 17 then and would now be electors) that had a participation rate of 26% in June 2016 – definitely their mistake – would not be able to redeem themselves and vote for the future they of all people would fully live through. 

Delusion is still running high in the rejoicing Leave camp following this electoral outcome, some dreaming about the return of the Victorian era or the advent of a national “Singapore-on-Thames” and others simply about jobs in “left out” areas of Britain. In the end none will likely come but the tears associated with the realisation of what is “notional” sovereignty, the steep decline in foreign investment, less plumbers as the Poles are now going back to a thriving Poland, and the continued deindustrialisation desolation of the Midlands and Northern England. The Special Relationship has already taken a beating lastly with the US forcing Turkey to not buy British military aircraft, this one day before the General Election. Listening to Donald Trump congratulating Boris Johnson, one could only worry about the hidden assymetry when he added that he looked forward to a great trade deal “that they so desperately want” I could go on with such developments but, if I may say, will keep this for a book of “alternative future history fiction” (for a lack of better words) – not focused on Britain but spanning the world – that I am finalising and hopefully should be published in early 2020. 

While as a true Anglophile I “feel” for all my Remainer friends (probably on the true majority side of things if not for their political party system) and really only wish for Europe and Britain to work together as well as they can even as no longer fellow club members, one should honestly wonder, even within the Leave camp, whether that terrible question that never needed to be asked and ensuing process that benefited only an awful political class and a dubious cast of characters, was really necessary…The sober answer being no unless the goal was to be poorer and alone. 

The only question now is: When will Britain apply to rejoin the EU, this time without the nice rebate?  

Warmest regards,

Serge 

Hong Kong and the Western conundrum

20-11-19

Dear Partners in thought,

The unrest in Hong Kong (HK) started about a proposed law pushed by HK’s Chief executive, Carrie Lam, to extradite criminals to the mainland. Incidentally Carrie Lam, may be remembered, as David Cameron always will be for Brexit, for a proposal that was not really needed and created havoc. Like with the Yellow Vests in France and while that proposed law was shelved, unrest continued to focus on more fundamental issues centred around freedom and the very future of HK. Demonstrations became increasingly violent, like now at HK Polytechnic University, as months went by, opposing two sides that could no longer relate to each other.

Premier Xi Jinping likely looks at the HK situation with incredulity so much he has been focused on restoring power and dignity to his country as if it had been held under servitude since the Boxers’ revolt of 1900 (the restoration of national pride is in effect very similar to what has happened in Russia under Putin). To Xi, HK is a spanner thrown in all his good works and a very untimely one too. It is clear that the hopes that HK would have a gradual liberal impact on the mainland ahead of the 2047 full integration is as justified as the belief that economic liberalism would bring personal freedom to the mainland Chinese. If anything it shows that the seven years of Xi have been a focus on world power rise and national economic improvement combined with an increased dose of unsurprising authoritarianism in line with the early credos of Mao’s Little Red Book.

It is clear that Xi and his team are lost and do not know how to manage the HK crisis as the Chinese leadership was never faced with such a massive series of events if we exclude Tiananmen Square in 1989 at a time when news travelled less fast and fluidly. They believe in “One China” and do not know to deal with the singular Hong Kong leadership whom they find inefficient while not being sure how to quell the riots, mostly in terms of image impact globally and the likely cost to the Belt and Road Initiative. China reiterated that it would use military force if it needed to so as to assist local police forces and restore order in HK, a division of the PLA being already on site and using the old Gurkhas’s barracks.    

We got used to the demonstrations and the tear gas as a daily dose of news on the major media outlets but see not much reaction from the West, especially its leading governments beyond the mild protests from some, the UK in the lead for obvious historical  reasons. The European Commission stressed that the response to the protest had to be “strictly proportionate” and that violence was “unacceptable” all with good intent and little weight (again stressing the power void of EU foreign policy beyond trade and why Macron is right in wanting to change it). As for the US, it has kept relatively silent on the whole matter, being busy trying hard to disentangle itself from an ill-fated trade war with potential electoral consequences. 

The West experiences a very strong conundrum. Human rights and freedoms of all sorts, that are part and parcel (in theory at times) of our Western existence are not a daily feature of Chinese life, including now in once differentiated HK that gets daily reminders that it is de facto part of the Popular Republic of China. The West does not know yet how to express views on what is happening in what it also sees as a sovereign country entitled to manage its own affairs without interference, which is another respected Western tenet called sovereignty. 

Values face realpolitik for the West with HK today. The problem obviously is that Hong Kong is not ruled ultimately by a non-relevant country in world affairs but by a rising world power if not already by many standards the leading world power. There is a pervasive and unsaid Dantzig feeling (like in the “not wanting to die for Dantzig” of 80 years ago)  about the HK events as many in the West would not want to upset a key trading partner (already destabilised by trade wars with America) not least going to war so Hong Kongers could feel more free. We see every day a descent into more serious and ultimately lethal confrontations between the HK police and demonstrators with no end in sight as Beijing will never soften its approach to ruling its people, all the more in HK whose value to the mainland is far less than it used to be in today’s economic context and given its ability borne out of sheer power not to bother with how the West would perceive its ruling ways. 

While Xi is unlikely to display “humility, open-mindedness and tolerance” in thriving to find a peaceful and well-balanced resolution to the HK “conflict”, the West should press more forcefully Beijing, though in a cooperative manner, focusing on mutual interests, on finding ways to find a way forward to go back to a peaceful environment. Hong Kongers should also realise that their protests have indirectly endangered the high status enjoyed by HK as a business and financial center the world over, with one of the most desirable environments to do business, itself a factor of prosperity and a barrier to authoritarianism from the mainland. There is a point when protests will create chaos that will only bring in the PLA and condemn HK to economic oblivion, with possibly an earlier and more challenging full integration into the mainland.

We cannot – the West – go and fight with China on a matter that may be close to our values but which is also deeply “Chinese”. It is not as if China invaded Japan or indeed Taiwan (which they would if the latter declared independence). We need to soberly engage with China (as we need to engage with Russia) making them make progress on fronts we deem important, including HK, but we need to be realistic and cautious in doing so as we first and foremost need them to be a key part of the community of leading nations. 

Warmest regards, 

Serge       

Amazing America and why Trump may be happy (for now) looking at 2020

18-11-19

Dear Partners in thought,

We live in odd times, especially in America (ok, in Britain for sure and maybe Italy too). America has the worst President on record in terms of style, values, principles and leadership – to keep the list short. In a world upside down, a TV reality star with great property development “marketing” acumen won the biggest job in the world, with impacts on us all, simply as he had known how to gamble for years (sometimes literally) and the stars were aligned in a few states, all with the help of an electoral system whose potential flaws, however their historical merits, had not been so clear before 2016. To make matters weirder he is also supported by a strong economy in spite of everything he has led, trade wars especially, that risk upsetting the apple cart (the red ones too) though perhaps after 2020. Again all that background, there is a majority of Americans not happy with Trump though they do not think alike on many matters in spite of their dislike or hatred of the President. America never ceases to amaze.

The Democrats have embarked on an impeachment process which is right as any President needs to be accountable when they cross some lines. However this process as we see it daily is a way for Trump to victimise himself and strengthen his core base even though he unleashes vile Twitter attacks on sober and respectable foreign policy professionals who testify in the House about the matter of his likely Ukraine-related abuse of power. One would imagine, like during Watergate, that some bipartisanship could be struck based on facts but the lines hold strongly. The outcome of the impeachment process, which had to be launched this time (even if the House Leader knew the obvious risks) is foretold in that Trump will be impeached by the House and likely rescued on the Senate floor as GOP senators are not yet ready to dump the President to save their seats and dignity for now.        

Trump voters do not mind about facts, they do mind about outcome and their inner beliefs, combined with a drive to fight the other side and finding a culprit for their unease or anger, be it the Deep State, globalisation, the two-coastal Liberals or even for some the minorities. Trump could indeed shoot someone on Fifth Avenue and not lose many votes as he said in the last campaign – all of that while having no real historical “proximity”, social or otherwise, to his core base, having actually been more at home in the elite segments of society since he was born. Women supporters, even among evangelicals, who would shoot their husbands if they adopted Trump’s behaviours, think that the President’s attitude towards women is a personal matter – the next Supreme Court Judge being more key to them.  We live in a world of unconditional love for Trump among its core base, something that is actually a “fact” today. There is a bit of a Faustian pact among Trump’s supporters, red cap or not (without the horns).

It is interesting to notice that, even with a very “favourable” environment, the Democrats have failed so far to find the right candidate with the strong attributes to win in 2020 even if polls give them winners for now. Two are radical left wingers and risk alienating the strong moderate base with policies that may be seen as running against the American way (Warren, Sanders), one may be too old for some in “many ways” (Biden) and one may be too young and unusual (Mayor Pete). The Dems have not found their saviour, being constrained by their own candidate selection process and perhaps a lack of new talent. The state of play has led many good individuals to enter the fray to offer a “more suitable choice” and to maximise victory. The recent arrival (to be confirmed but his moves in many states and ad campaign make him a candidate) is Michael Bloomberg, another New Yorker, though one well loved for his achievements and work for the city. Yet we find someone who is also factually old, inexperienced in campaigning and with a background that may be welcome on Wall Street but less digestible in other parts. His decision to skip the early primaries may also not be smart even if his legendary mastery of the numbers tell him so (Who wins New Hampshire wins the primary. OK, but only if you take part maybe). The late arrival of Bloomberg and Patrick says it all about where the Dems are – some saying a repeat of the 1988 race leading to the esteemed Mike Dukakis winning the nomination – even if in the end Biden should prevail in spite of all his shortcomings, also as he would definitely beat Trump, fulfilling what matters most in 2020, and go for one mandate (making the VP selection absolutely key).  

America never ceases to amaze but it is a also “the” country of hopes, even if in a current state of flux, so let’s not despair.

Warmest regards,

Serge

Not the end of history 30 years later but a clear summon, especially for Europe

11-11-19

Dear Partners in thought,

This month of November is heavy in celebrations and memories from the fall of the Berlin Wall to the Velvet Revolution in Prague and similar developments across the former Soviet sphere thirty years ago. While it was a momentous point in history, it proved not to be the end of it as Francis Fukuyama hoped for but rather a wind of freedom that ran into the daily hurdles of rebuilding a civilisation and a system that could could make us work together, especially in Europe. 

As I was going through the rooms of the exhibit celebrating the Velvet Revolution in the Prague summer palace this past week I could not help but thinking that the broadcast news of my younger years were now, well, history. I remember the times when right after the fall of the Wall, as a young banker, my team leader Jan, a Londoner of historical Polish descent, and I went through the large Soviet style rooms of the Ministry of Finance in Warsaw to pitch for and win their pioneering and transformational Mass Privatisation Programme. This unusual banking episode likely led me to combine finance and history when I joined the new EBRD in 1993 to help rebuild at my small level a new continent and facilitate market transition through investment projects with high “additionality” (the institution’s then buzzword) throughout Central & Eastern Europe. As Dean Acheson for another period had stated and in a much lesser role for me then, the feeling of being “present at the creation” was very vivid and thrilling.  

It is easy to moan about the failures, which were many in the 1990s and after, in terms of rebuilding a world where social and economic liberalism would lead the way as if there was no tomorrow. It is fair to say that we did our best given the constraints at play, however imperfect the outcome. However we need to be pragmatic and realistic and see where we are. Thirty years later, the West is under threat as to what it means, nationalism is resurgent both in Western and Central & Eastern Europe, liberalism is under siege and capitalism is no longer revered. And yet we keep going.

America under Trump has lost its mantle of Western leadership based on its founding fathers’ values that undeniably protected us while serving its interests very well the world over since WW2. An “America first”, prone to protectionism, further disengagement and unilateralism, gradually emerged in an erratic and troubling way, with allies getting increasingly lost as to its game plan, if any. From Europe and also for Americans and the world one would hope that voters, who still would back Trump while holding their noses, see beyond short-term economic gains and focus on what really matters and what made America this unique country in November 2020.  

Russia, which was neglected in the 1990s notably by a supremely victorious, suddenly sole superpower, America, and suffered a deep national humiliation, got gradually resurgent under Putin who understood that its people wanted respect more than they wanted bread, with the exclusion of some docile oligarchs. Assertiveness paid off in Crimea and in Western Ukraine while sending shivers down spines from Warsaw to the Baltics. With the unwitting help of a new America that seems geopolitically unaware, Russia is now one of the game changers in the Middle East. 

China which was going through one of its darkest modern hours in Tiananmen Square while East Germans were climbing the wall managed to keep a strong control over its population and politics while creating a massive change in economic well being and keeping rising as a superpower. Many Chinese, having become consumers and being able to act like quasi-Westerners almost forgot that freedom was not part of the deal offered by Beijing, something that Hongkongers came to realise the hard way and that most of the West has tacitly accepted as an internal matter for a sovereign country.

Europe kept building itself gradually welcoming the former Central & Eastern Europe states (minus Ukraine and the ex-Yugoslav countries) in the hope of strengthening the European bloc, putting an emphasis on trade and the economy while a NATO led by a benevolent and self-serving America was ensuring the peace for the traders. Nearly 15 years after this major step, divergences were clear between the old and new members especially in terms of identity and nationhood that the latter had lost for so long. 

The Visegrad four (Poland, Czech Republic, Slovakia and Hungary) are now often taking a more nationalistic approach in terms of identity and immigration (like with the refugee crisis on 2015) than the older members. It is strange that the European stalwart supporters of nationalism, not to say populism are Poland and Hungary today with the Czechs not being far behind while Slovakia seems to be far more liberal (a wink to history for those who remember the Meciar years in the 1990s). It is sad to see Poland and Hungary being led by governments that are backed by solid majorities, supporting  populist policies that indeed gained power with local, mostly rural electorates (following the American and British models) while they were the beacons of democracy and freedom thirty years ago (Orban, true to Hungarian legacy, being quite a liberal politician for those who remember the 1990s). It should be noted however that both Warsaw and Budapest, like Prague, have recently elected liberal politicians in municipal elections, counter-balancing the image their governments have created.

There is a lack of memory in parts of Poland, Hungary and to some extent the Czech Republic. Poland, now the sixth economy in the EU, was for years the leading recipient of economic aid from Brussels (some will remember that a week after receiving a massive EU aid programme 20 years ago they ordered US fighters jets, the weight of history taking precedence over continental partnership and economic gratitude). When I walk on Petrin Hill near Mala strana in Prague I cannot help remembering 20 years ago the billboard stating that the whole redevelopment of the hill, which is a beautiful area in the center of Prague, was then being funded by the EU. Memories fade and newer generations want to be elected, using what they can to do so while one should not expect gratitude to be a guarantee of true partnership. It is also true that France and Germany (and Britain of course) took the EU as a way to keep leading the continent, if not on their own, at least as a concert of key nations, seeing probably these new members as docile partners that should belong but follow. The refugee crisis (many thanks to Bashar al- Assad who knew what he was doing, something we should never forget) created pressure points with the old members not helping enough the new ones but also forgetting the ones on the front lines like Italy, helping the populists using that strategic mistake to seize power. 

Macron, probably the only heavy weight leader in the EU as Merkel goes into the sunset, is right to emphasise that Europe needs to be redefined not only as a trading and economic club or bloc but as one also focused on foreign policy and defence, all the more given the vacuum if not disruptions created by today’s Washington. The choice is indeed between oblivion and leadership, if not sheer existence, playing a strategic role between America and China, both superpowers of our age that will lock horns in a world leadership contest. That Britain may chose to leave the EU at this time in history is a surprising sign of misunderstanding of the future directions of the world, all the more for a country that was once its leader. Macron, who increasingly speaks for Europe as much if not more than for France, the two agendas being intertwined (though not in the old French “European agenda” of old Présidents  but more as a straight European game plan for the whole bloc), is also right in re-engaging with Russia, while being vigilant of its developments, as Europe will not benefit from an isolated and economically weak but strong military power in search of a renewed  existential role in world affairs. Macron may be imperious to some but he has a vision for Europe and the words to say it. 

Europe is not perfect and is a project constantly in progress. It is likely that the gaps between the old and new members, like on the subject of immigration, will be reduced as can be judged by the far more restrictive steps taken by the French in this area so identity is indeed preserved and immigration becomes more selective. Macron’s opposition to enlargement for North Macedonia and Albania (which is supported by his “friendly” incoming EU Commission President, Ursula von der Leyden, while many members states hide behind France) may be tactical and a bargaining chip with other member states for his “European Intervention Initiative” as well as his push for EU reform plans he would like to see hammered before any enlargement. It is also likely that voting mechanisms in the EU will be revisited, with the right of veto possibly no longer being a tool and the economic and population weight of members states playing a bigger, weighted role in decision-making, something that would make EU life more efficient and fair, this without weakening policy-making.  

Thirty years later, Europe has grown stronger (even with Brexit – look at the one voice in the negotiations) and should redefine itself so the citizens of its members states see it for what it is: a strong bloc of nations that should become even stronger and not the end of sovereignty, which it never was. We are far from a more federalist Europe which some would like (myself included) and we should work harder at making the EU seen by the citizens of its member states as a beneficial tool for prosperity, happiness and indeed sovereignty in an increasingly challenging world for small nations. 

We need to keep building a strong and independent Europe and living in our times, away even if respectful of past historical national achievements that are no longer relevant in the new world equation. We owe it to those who fought for freedom in the darkest years we remember this month and, more importantly, to future generations.  

Warmest regards,

Serge