Telenor, a Norwegian operator, operating for providing cellular telecommunication service in Pakistan has filed cases against its long standing partners i.e. NSN (Finland based company) and Huawei Technologies (China based company). It has revealed that two cases have been filed against NSN in the last week of January, 2012 which was fixed for hearing before [...]

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Arctic Ambassador Klavs Holm

Earlier this month, Denmark appointed Klavs A. Holm as the new Arctic Ambassador, an office which will become permanent. At the same time, Danish Foreign Minister Villy Søvndal announced the closure of the embassies in Iraq, Benin, and Zambia. This move gives a strong signal that Denmark is putting forth a more visible diplomatic presence in the circumpolar north while refocusing its priorities in the Global South, where it will open embassies in Myanmar and Libya. Ambassador Holm will represent all three parts of the Danish Commonwealth: Denmark, Greenland, and the Faroe Islands. He will also coordinate the implementation of the government’s Arctic strategy, released last August.

Holm previously served as the Danish Ambassador in London, Paris, and Singapore. He also represented Denmark to the EU, in Brussels, where he worked on Arctic issues. The current ambassador for Public Diplomacy at the Ministry of Foreign Affairs will have his work cut out for him, as Foreign Minister Søvndal made clear when he visited Thule Air Force Base last December. When asked what assignments the new Arctic Ambassador would have, he responded, “If you ask for specific tasks, we can name climate change, which means that shipping in the Arctic is increasing in scope. There are very specific tasks to perform in relation to search and rescue in these remote areas. The area is large, and first and foremost, we must prepare the new agreements.” Specifically, he added, “It is clear that we need the Americans to not block civilian usage of Thule. Now, there will be a negotiation process to clarify how far we can go” (translated from the Danish). Search and rescue will thus be an important topic for Holm, as will mining and indigenous peoples – two issues which overlap heavily in Greenland. China has lately expressed strong interest in investing in Greenland’s mineral deposits, the Wall Street Journal reports, which might be cause for Holm to visit Beijing.

Denmark can now be added to the short list of countries which have Arctic ambassadors, which includes Sweden, Finland, and Russia. The United States and Canada are noticeably absent from this list, though there have been calls in the latter country to bring back the position (see here and here). Canada had an Arctic Ambassador from 1994 to 2006, but the role was abolished, as former Foreign Minister Peter McKay then stated, “We didn’t feel we were getting good value for money from that position.”

News Links

“New Danish Arctic Ambassador,” IPS

“Søvndal udnævner ambassadør for det aller nordligste,” Politiken (in Danish)

EU NAVFOR Atalanta in action (source: German Navy)

The last two years were a bumpy ride for the European security policy. One may claim that the Europeans once again failed not only to convey a clear message about their security goals to the foreign partners, but also to take concrete actions in order to stave off the creeping erosion of the Common Security and Defense Policy (CSDP). Do we really face a European strategic decay in that domain? Indeed, some serious doubts about this statement may be raised. Therefore, it is high time to debunk three prophecies about European security in 2012.

1. Do worry, do not be happy. The Polish Presidency did a good job. The last six months have been the most fruitful and substantial for CSDP since the French Presidency in 2008. The joint conclusions of the Council of the European Union of December 2011 gave a vivid signal that the EU Member States are still willing to further develop the CSDP concept and necessary capabilities (personnel, assets, intelligence analytical support.) It was not easy to reach a consensus as there are multiple visions of European security and the pace in which it should evolve. Despite that fact the current message is a bit more optimistic than a year ago: Be of good cheer! After two years of stagnation there is a light of hope for CSDP. However, there are still a lot of obstacles on the European way toward ultimate success. One of them are financial constraints.

2. Crisis will impede everything. Against the backdrop of current financial constraints, the challenge for Europe is to do better with less while making good on its responsibilities. The crisis has inevitably made it more difficult for politicians to sell the benefits of the ongoing defense integration to the wary public. The crisis has blunted the importance of Europe in the world, exposed the Old Continent to numerous risks and threats, but also put it to the critical test that it cannot fail. The biggest challenge for Europeans remains the weakening of mutual trust between the Member States. The Weimar initiative from December 2010 – which sought to strengthen CSDP – has to some extent filled the gap. Poland, France and Germany were able to build a coalition of the willing and able (e.g. Finland, Italy, Spain, Sweden, Romania) to spark a new wave of trust that may empower CSDP. However, crisis can only be overcome by concrete actions. Therefore, without a visible sign of progress in the implementation of the pooling and sharing initiative in 2012 it will be hard to revamp CSDP. In fact, an agreement on at least basic issues (e.g. support structures required for education, training and exercises) is a must.

3. The EU will diminish its external security policy engagement. To be fair, a glance at the number and locations of the past and current EU missions around the world reveals the union’s clear desire to live up to its ambitions in terms of crisis management policy. Since 2003, the EU has launched 25 civilian and military missions, in such far-flung countries as Chad and the Central African Republic in 2008-2009 and Guinea-Bissau from 2008-2010. Currently, the EU’s engagement in the world stretches from the Balkans, in Bosnia-Herzegovina and Kosovo; through Eastern Europe, in Georgia and Moldova; to the Middle East, in the Palestinian territories; up to Africa, in the Democratic Republic of the Congo, the Horn of Africa and Uganda. In 2011, as a result of budget cutbacks, the EU has struggled at least to maintain the status quo of its foreign operational engagements. Some experts even thought that the EU was likely to adopt an even less expeditionary posture in the future. On the contrary, the 2012 agenda looks both ambitious and promising. Besides, the ongoing operations the EU will remain committed to addressing the security challenges in the Sahel with a view to start a CSDP mission to reinforce regional security capabilities, in close cooperation with the African Union. A second operation, in South Sudan (with a focus on airport security), is also being prepared. Finally, the Polish Presidency has facilitated the amendment process of the Athena mechanism which administers the financing of common costs of EU operations having military or defence implications. Therefore, it will be now easier than before to set up a mission.

On paper it all seems doable and easy. But, as diplomats say: Paper is patient. After the Libyan crisis there is a growing sense of ambiguity about the real outcome of the EU’s crisis management policy. Therefore, it is more than certain that the development of CSDP will be a long process. But Europeans should not forget that they are approaching a “do or die” moment for Common Security and Defense Policy.

Dominik P. Jankowski serves as Expert Analyst at the National Security Bureau of the Republic of Poland and is pursuing a doctorate at the Warsaw School of Economics.

The opinions, findings and conclusions expressed herein are those of the author and do not necessarily reflect those of the National Security Bureau of the Republic of Poland.

French President Nicolas Sarkozy (AFP, Pierre-Philippe Marcou)

Standard and Poor’s rating agency has lowered the credit ratings of 9 eurozone members, including formerly AAA-rated France and Austria. The move is significant, affecting as it does the future of the eurozone’s bail-out fund, the French presidential election, the roll-over of existing European sovereign debt, and more. However, the downgrade is not really a catastrophe for the nations downgraded nor for the European economy’s prospects. Our purpose here is to understand what the downgrade is, what it means and what it may not mean.

First off, what is a sovereign credit rating and what does a downgrade mean? There are numerous entities in finance that offer their well-informed (or otherwise) opinions about a variety of investment instruments. What we are concerned with here are the three main credit rating agencies: S&P, Fitch and my former employer Moody’s. What they do is issue a rating, that is an alphanumeric symbol, that encapsulates the agency’s detailed analysis of a debtor’s ability and willingness to repay a debt. In that sense, their ratings aren’t a whole lot different from the FICO score you have that is supposed to tell lenders about your creditworthiness.

While the methodologies vary a bit from one agency to another, the ratings scales of each are comparable by and large. For example, AAA is the best rating possible (Aaa at Moody’s). Junk status is about 10 notches below that at BB+ (Ba1 Moody’s) , and default is another 10 or so notches down. Because these agencies have been in the business of issuing ratings for decades (Moody’s was founded in 1900), it is possible to tie actual default experiences to the ratings. S&P’s can be found here.

On Friday, France and Austria fell one notch from AAA to AA+, Italy fell a couple of notches from A to BBB+, Spain went down one from AA- to A, Cyprus dropped two notches to BB+, Portugal’s two notch fall leaves it at BB (junk status, and it also has a negative outlook), Malta went down one notch to A- from A, Slovakia fell a notch to A from A+, and Slovenia is one notch lower at A+ from AA-. The other members of the eurozone retain their ratings. That means Germany, the Netherlands, Luxembourg, and Finland kept their AAA. For the record, the other members states and their S&P ratings are: Belgium (AA), Estonia (AA-), Greece (CC) and Ireland (BBB).

What is extremely important to remember is that the downgrades were only to the ratings issued by S&P. Moody’s and Fitch did nothing. In their eyes, France and Austria (and the USA for that matter) are still AAA. Split ratings, when the agencies don’t agree exactly, are rather common. And in every regulation where ratings agencies are mentioned, two different agencies’ opinions matter, not three. So, there is a real question as to whether Austria and France are still AAA or not. The market, of course, is not focused on the dog that didn’t bark – it’s paying attention to S&P despite it having the minority opinion.

Be that as it may, the S&P downgrades for France and Austria are economically inconvenient but not really all that important for investors. Yes, both will have to pay a bit more in interest to fund their debts. However, a study by JPMorgan Chase looking at the nine sovereign borrowers that lost their AAA ratings between 1998 and the US downgrade in August shows an increase of 2 basis points (or 0.02%) in the following week. Is it a make or break situation if your mortgage is 4.12% or 4.14%? France and Austria will face no funding problems as a result of the downgrade. And indeed, the US saw its borrowing costs actually decline immediately after S&P downgraded it a few months ago.

The reason for this minimal change lies in the default record of AA+ issuers. According to the chart cited above, issuers rated AAA will default 0.00% of the time in the next 12 months. An issuer with a rating of AA+ has the same default rate over 12 months. Over a 5-year period, the default rate for AAA issuers is 0.10%; for an AA+ debtor, it’s 0.15%. In other words, if you lend to France or Austria by buying a 3-year bond, you still have a 99+% chance of getting paid back in full with interest on time.

Where the downgrades do become problematic is in the political sphere. In three months’ time, the French will go to the polls to elect a president. France lost its AAA rating on Nicholas Sarkozy’s watch, and whether justly or not, he will take some blame for it – the leftish newspaper Liberation ran a headline calling him S_RKOZY, having lost an “A” of his own. He currently trails socialist candidate Francois Hollande by 10% in the polls. With 53% of the electorate believing that the loss of the AAA rating is a serious matter, the downgrade only makes his re-election more difficult.

In the end, though, the ratings come back to the issue that undermined them in the first place – the euro. The bail-out fund that has kept Greece, Ireland and Portugal afloat so far, the European Financial Stability Facility, was rated AAA because of its backing from AAA-rated sovereigns. However, 16 January 2012, S&P dropped that rating to AA+ because of the French and Austrian downgrades. S&P said that the EFSF could get its AAA back if it could obtain more guarantees (from whom I wonder?) or if it raised less money that would be better protected by the existing guarantees. A smaller bail-out fund, however, is less likely to succeed at stabilizing the eurozone. At the same time, a fund rated less than AAA will have to pay more for its funds, and that will make the bail-out fund less effective as well.

So what does it all mean? Objectively, the difference between AAA and AA+ is very small, and it should not have much impact. Markets, however, are never objective. They are fueled by greed and fear. S&P’s downgrade of these nations has made the eurozone’s problems harder to solve.

The Kolskaya oil rig.

The Russian oil rig Kolskaya sunk 200 miles off the east coast of Sakhalin late Saturday night in stormy weather with 67 crewmembers were on board. So far, four people have been found dead and 14 people rescued, while 49 people still remain lost. The Kolskaya sunk in twenty minutes in fifteen-foot, 32 degree seas. In Moscow, President Dmitry Medvedev called for all necessary help to be directed towards the rescue efforts. The Neftegaz-55, which had been towing the Kolskaya to the port of Kholmsk, in western Sakhalin, and the icebreaker Magadan were at the scene assisting with the rescue efforts. The SMIT Sakhalin (an icebreaker of class 1A Super) and the Atlas rescue ship were on their way to the site of the sinking, too. Two helicopters searched for people on Sunday, but had to return to Sakhalin until Monday morning due to nightfall and continuing adverse weather conditions.

This graphic from RIA Novosti shows the location of the sinking, some statistics about the rescue efforts, and a diagram of the rig.

33 of the crewmembers hailed from Murmansk. Counselors from the city, in Russia’s western Arctic, have flown to Sakhalin to assist those affected by the sinking. The Russian Ministry of Emergency Situations (EMERCOM) has established a hotline for people to call for information regarding the disaster or for psychological counseling. This time, the authorities seem to be enacting a swifter response than in the past, when it clumsily and belatedly responded to disasters such as the sinking of the icebreaker Kursk in 2000.

The Kolskaya was a jack-up rig that stood on three legs to drill for oil. Built in Finland, the rig was 26 years old. The Arktikmor Neftegaz Razvedka (AMNGR) company owned the rig, which was performing exploration work for Gazflot, a subsidiary of Gazprom. A spokesperson for AMNGR stated, “There is no ecological danger. The vessel was carrying the minimum amount of fuel as it was being tugged by two craft.” The head of EMERCOM Sakhalin, Taimuraz Kasaev, echoed this statement, saying, “Stocks of fuel on board PB” Kola were minimal. They are in sealed tanks, so there is no threat of a spill.”

The Sakhalin is a hotbed of offshore exploration activity, with Gazprom, ExxonMobil, and Shell all involved. While the sinking is a tragedy for those lost onboard, it could have been much worse for the environment. Incidents such as the sinking of this rig should prompt more oversight of offshore drilling activities, whether in Russia or anywhere else in the Arctic. The same goes for shipping, whether of oil or other cargo, as it was only days ago that the Korean cargo ship Oriental Angel ran aground in similar conditions off Chukotka, to the northeast of Sakhalin.

Russia’s maritime infrastructure could also use an upgrade. Near Antarctica, the Russian fishing ship Sparta has run into trouble, as its hull became damaged when it hit a submerged iceberg. The Korean icebreaker Araon, which is currently seven days away from the Sparta, in Christchurch, had been about to embark on an Antarctic research mission. However, it will now sail towards the trapped ship to try to rescue it – a reversal of the situation on the opposite end of the earth.

News Links

“Russian drilling rig sinks off Sakhalin, 49 missing,” Chicago Tribune

“Crew face long, cold wait for rescue,” New Zealand Herald