Currently Great Britain’s annual net budgetary transfers to the European Union amount to 13 billion pounds. In various forms, every year the European Union injects 7 billion pounds into the British economy.
Hence, while – as a result of Brexit – Great Britain shall renegotiate the trade agreements with the European Union, it shall simultaneously reshape its trade flows also with the United States, Japan and China.
Not to mention the 60 Commonwealth nations, which would become a new and huge replacement area for all the economic sectors in which the EU incurs more difficulties in promoting British companies.
It is certainly a great economic change, but also a strategic and geopolitical revolution which many experts are already analyzing in Great Britain.
It is also worth recalling that over 50% of the current British trade regards the EU, while the trade balance with the other nations refers to Treaties reached only through the frame, namely the European regulatory framework.
And not all European frames have favored the British economy.
It is a painful mystery how we can imagine a Union of countries competing one another, with largely overlapping economies, in a context of international trade expansion, which uses one currency only (but this is not the British case), but has no common tax policy nor pools the public debt.
An eternal situation of countries which always quarrel and compete, but have more convergent interests than it may seem.
Sooner or later, however – as always happens within alliances – a leader creating a hierarchy will emerge.
Hence Brexit is Great Britain’s way to say that it no longer wishes to accept a German-led European Union.
Therefore Great Britain is reacting to an EU crisis which is structural and has not only merely commercial roots, but also strong geopolitical and strategic ones.
In fact, the idea of some British economists is that reformulating the Treaties with the EU itself and, at the same time, with China, the Russian Federation and the United States – pending the TTIP – is more useful than indulging in a massive negotiation between the EU and these external commercial areas.
A negotiation that would inevitably favor the continental economies at the expense of the British one, which has another productive configuration compared to the German or the Spanish ones.
Hence, at analytical level, the pros and cons, namely the Brexit and the Bremain are equal, and no one can now evaluate the specific weight of each economic or political choice.
For Great Britain remaining in the EU means to avoid the tariff barriers and the commercial brokerage costs which the Union has abolished.
Therefore leaving the European system could be dangerous.
Nevertheless, given Great Britain’s economic size and importance, the Brexit supporters think it is always possible to negotiate new and more favorable terms and conditions with the EU.
Moreover, outside the European Union, Great Britain will be in a position to renegotiate a new global tariff system without being obliged to be subject to EU regulations.
The new trade rules could certainly stimulate further internationalization of the British economy, which would have open doors in China, Japan and Russia.
All this while EU exports are shrinking.
With Brexit, Great Britain could also decide to carry out dumping on growing markets and quickly replace the exports of many EU countries, especially those in crisis.
Furthermore Great Britain pays 340 pounds a year to the EU for each household, while earning approximately 3,000 for each household.
Moreover, should Great Britain leave the European Union, the average costs would not decrease, because there would always be costly mechanisms for access to the European market or to the other geoeconomic systems.
Conversely, should Great Britain stop making transfers to the EU, the 350 million pounds a week (half of the British school budget), which are the cost for remaining in the EU and comply with its rules, could be spent to create new companies and improve vocational and scientific training – an issue to which Great Britain is particularly sensitive, as is the case with all the economies in which the service sector is particularly large and developed.
Moreover, leaving the EU does not absolutely mean reducing migration flows to Great Britain, as claimed by the Brexit opponents. After all, Great Britain could carry out more stringent controls at its borders thus avoiding – as currently happens – differentiating between the immigrants coming from the EU and the ones coming from other continents.
Furthermore, many Brexit supporters point out that now Great Britain counts for very little within the EU and hence it is highly unlikely for this situation to improve if voters decide to stay in the EU.
The British Treasury Ministry, which is firmly opposed to the country leaving the EU, notes that Brexit could make the British GDP shrink by 6% as from 2030.
We do not know how Prime Minister Cameron’s government has made these calculations.
Let us imagine it assumes an increase in the prices of goods and services imported from the EU, but this is by no means certain.
We are in a phase of structural deflation and competition among the EU Member States is such that Great Britain could take advantage of this situation by focusing on one country or the other.
As usual, the future renegotiation of Trade Agreements will lead to favor some sectors and penalize others.
Today no one can predict what the British top exports to the EU will be in the coming years, and not even the structure of European exports to Great Britain.
Hence, the British government reiterates that, in case of Brexit, the British GDP would decline by 5-6%.
And shall we not also consider the inevitable expansion of British trade in the Commonwealth region?
Again, rational forecasts cannot be made – everything will depend on the political mechanism of the upcoming negotiations and on a strategic and geoeconomic context full of variable factors rather than constant ones.
A global context which is changing very rapidly and it is unpredictable both in relation to Great Britain and the EU.
It is not at all certain that the pound sterling – which is currently 5.6% undervalued compared to its commercial value – shall remain “low”, thus attracting capital from abroad.
Indeed, it is likely that – after the signing of the TTIP between Great Britain and the United States – there will be an increase in the pound sterling at purchasing power parity and a parallel increase in the euro.
The advocates of Great Britain’ stay in the Union, provide the following assessment on the Leave costs.
The transport costs would increase (by 4-7.5%) since most of the vehicles used are produced in the EU region.
However, setting the great British automotive industry again into motion could become reasonable, with a large market outside the EU which requires being motorized.
A replacement economy would be created in the British transport sector which would increase employment.
Furthermore, obviously the means of transport have a short payback time which implies a decreasing trend of unit costs.
With Brexit, the prices of alcoholic beverages would increase (again in a 4-7% range), which is certainly bad news for all pub-goers.
But which is the British share of alcohol imports from the EU?
The British producers and dealers of this industry report that the imports are decreasing steadily, from about 151 million bottles in 2010 to 142 million ones in 2014.
The British government also charges high excise duties on alcohol, in addition to the EU common taxation.
As we can see, also the structure of alcohol prices in Great Britain is more complex than it may seem and the industry will be probably able to resort to effective replacement practices, to the delight of all British barfliers.
Again according to the Bremain supporters, food prices would increase by 3-5%.
However, how can such a statistical evaluation be made on one of the most diversified markets?
We do not know, nor do we know what the average British nutrition style is, although everyone knows that the British cuisine does not certainly stand out for quality.
Have you ever found an English restaurant abroad?
The already high prices of the selected, high quality and “high end” food products – almost all imported and consumed by the British upper classes –
are likely to further increase.
But probably the prices of lowbrow food for the working class, traditionally scarcely influenced by imports, will not rise much.
Clothing prices are expected to increase between 2% and 4%, but we think that the price of high fashion and luxury products imported from France and Italy may increase.
While, today, the networks selling low-cost clothes already largely defy EU regulations and manufacturing processes.
Again according to the Bremain advocates, as a result of Brexit, on the best possible assumption, the average revenue per household would fall by approximately 1.9% per year.
On the worst possible assumption, the purchasing power per household would decrease by over 4% per year.
But how? It is totally inconceivable that a country like Great Britain shall forcedly renegotiate, with the EU or the WTO, less favorable terms and conditions than those currently existing with the EU.
In fact, after the possible Brexit, Great Britain could follow the Norway’s and Switzerland’s examples and join the European Economic Area (EEA) and EFTA.
Or it could renegotiate trade agreements with the WTO only.
Hence are we sure that both negotiations would make Great Britain obtain much more draconian terms and conditions than the EU ones? And why?
On the contrary, it is likely for Great Britain to create good synergies with the Swiss Confederation, which walked out of EFTA in 1993, as well as with the other EEA countries, thus taking advantage of the weight of its economy and its world standing on the financial and stock markets.
Are we sure that a second trade agreement with the EU would be harder than the current one for Great Britain, after the EU possibly discovering the clout of the British economy no longer subject to its regulations?
Or its ability to “do harm” to the EU countries on global markets?
In that case I think that many countries would do everything to bring Great Britain back into the EU, after the possible Brexit.
Again at commercial level – and here the Bremain supporters show to have credible arguments – if Great Britain adhered to the EEA there would be more transaction costs for British exporters to those countries, with the inevitable reintroduction of quotas and administered prices for agricultural and fishery products.
Being outside the EU, Great Britain should renegotiate – and not always from a position of strength – trade agreements both with the European Union and other 50 countries, in addition to having to renew temporary trade agreements with other 67 nations.
A situation of “economic uncertainty” which would block British companies’ decisions and investment, besides driving back a lot of capital which could be used in the British production system, as well as in its innovative finance.
However, as the Brexit supporters maintain, the time schedule may be reduced by a standardization of negotiations.
A dangerous, albeit not impossible, choice.
Moreover, if Britain were to use only the WTO for tariffs and trade, it should decide its import tariffs on its own.
Nevertheless, if Great Britain decided to maintain zero tariffs with the EU countries – which is in its own interest – it should unilaterally reduce its tariffs for imports from all the WTO members, should there be no specific preferential agreements with particular countries.
However the EU economic and political leverage vis-à-vis Great Britain is still very significant: only 8% of EU exports go to Great Britain, while over 50% of UK exports go to the EU region.
Only 3.1% of European GDP depends on exports to Great Britain, while 12.6% of the British GDP depends on trade with Europe.
But man does not live by bread alone.
Brexit is the materialization of Great Britain’s dream of a new global role, the memory of an imperial past, as well as confirmation of the fact that the British people are not, and will never be, fully Europeans and the other way round.
In these cases, we should well revise the EU Treaties and rethink the structure of the European single currency – which luckily Great Britain has not adopted – as well as create a new myth for the whole continent, including Great Britain.
This is exactly what will never happen and the EU business as usual will also destroy many of the good results the EU has achieved over the years.
Iceland’s Historic(al) Elections
The morning of September, 26 was a good one for Lenya Run Karim of the Pirate Party. Once the preliminary results were announced, things were clear: the 21-year-old law student of the University of Iceland, originating from a Kurdish immigrant family, had become the youngest MP in the country’s history.
In historical significance, however, this event was second to another. Iceland, the world champion in terms of gender equality, became the first country in Europe to have more women MPs than men, 33 versus 30. The news immediately made world headlines: only five countries in the world have achieved such impressive results. Remarkably, all are non-European: Rwanda, Nicaragua and Cuba have a majority of women in parliament, while Mexico and the UAE have an equal number of male and female MPs.
Nine hours later, news agencies around the world had to edit their headlines. The recount in the Northwest constituency affected the outcome across the country to delay the ‘triumph for women’ for another four years.
Small numbers, big changes
The Icelandic electoral system is designed so that 54 out of the 63 seats in the Althingi, the national parliament, are primary or constituency seats, while another nine are equalization seats. Only parties passing the 5 per cent threshold are allowed to distribute equalisation seats that go to the candidates who failed to win constituency mandates and received the most votes in their constituency. However, the number of equalisation mandates in each of the 6 constituencies is legislated. In theory, this could lead to a situation in which the leading party candidate in one constituency may simply lack an equalisation mandate, so the leading candidate of the same party—but in another constituency—receives it.
This is what happened this year. Because of a difference of only ten votes between the Reform Party and the Pirate Party, both vying for the only equalisation mandate in the Northwest, the constituency’s electoral commission announced a recount on its own initiative. There were also questions concerning the counting procedure as such: the ballots were not sealed but simply locked in a Borgarnes hotel room. The updated results hardly affected the distribution of seats between the parties, bringing in five new MPs, none of whom were women, with the 21-year-old Lenya Run Karim replaced by her 52-year-old party colleague.
In the afternoon of September, 27, at the request of the Left-Green Movement, supported by the Independence Party, the Pirates and the Reform Party, the commission in the South announced a recount of their own—the difference between the Left-Greens and the Centrists was only seven votes. There was no ‘domino effect’, as in the case of the Northwest, as the five-hour recount showed the same result. Recounts in other districts are unlikely, nor is it likely that Althingi—vested with the power to declare the elections valid—would invalidate the results in the Northwest. Nevertheless, the ‘replaced’ candidates have already announced their intention to appeal against the results, citing violations of ballot storage procedures. Under the Icelandic law, this is quite enough to invalidate the results and call a re-election in the Northwest, as the Supreme Court of Iceland invalidated the Constitutional Council elections due to a breach of procedure 10 years ago. Be that as it may, the current score remains 33:30, in favor of men.
Progressives’ progress and threshold for socialists
On the whole, there were no surprises: the provisional allocation of mandates resembles, if with minor changes, the opinion polls on the eve of the election.
The ruling three-party coalition has rejuvenated its position, winning 37 out of the 63 Althingi seats. The centrist Progressive Party saw a real electoral triumph, improving its 2017 result by five seats. Prime-minister Katrín Jakobsdóttir’s Left-Green Movement, albeit with a slight loss, won eight seats, surpassing all pre-election expectations. Although the centre-right Independence Party outperformed everyone again to win almost a quarter of all votes, 16 seats are one of the worst results of the Icelandic ‘Grand Old Party’ ever.
The results of the Social-Democrats, almost 10% versus 12.1% in 2017, and of the Pirates, 8.6% versus 9.2%, have deteriorated. Support for the Centre Party of Sigmundur Gunnlaugsson, former prime-minister and victim of the Panama Papers, has halved from 10.9% to 5.4%. The centrists have seen a steady decline in recent years, largely due to a sexist scandal involving party MPs. The populist People’s Party and the pro-European Reform Party have seen gains of 8.8% and 8.3%, as compared to 6.9% and 6.7% in the previous elections.
Of the leading Icelandic parties, only the Socialist Party failed to pass the 5 per cent threshold: despite a rating above 7% in August, the Socialists received only 4.1% of the vote.
Coronavirus, climate & economy
Healthcare and the fight against COVID-19 was, expectedly, on top of the agenda of the elections: 72% of voters ranked it as the defining issue, according to a Fréttablaðið poll. Thanks to swift and stringent measures, the Icelandic government brought the coronavirus under control from day one, and the country has enjoyed one of the lowest infection rates in the world for most of the time. At the same time, the pandemic exposed a number of problems in the national healthcare system: staff shortages, low salaries and long waiting lists for emergency surgery.
Climate change, which Icelanders are already experiencing, was an equally important topic. This summer, the temperature has not dropped below 20°C for 59 days, an anomaly for a North-Atlantic island. However, Icelanders’ concerns never converted into increased support for the four left-leaning parties advocating greater reductions in CO2 emission than the country has committed to under the Paris Agreement: their combined result fell by 0.5%.
The economy and employment were also among the main issues in this election. The pandemic has severely damaged the island nation’s economy, which is heavily tourism-reliant—perhaps, unsurprisingly, many Icelanders are in favor of reviving the tourism sector as well as diversifying the economy further.
The EU membership, by far a ‘traditional’ issue in Icelandic politics, is unlikely to be featured on the agenda of the newly-elected parliament as the combined result of the Eurosceptics, despite a loss of 4%, still exceeds half of the overall votes. The new Althingi will probably face the issue of constitutional reform once again, which is only becoming more topical in the light of the pandemic and the equalization mandates story.
New (old) government?
The parties are to negotiate coalition formation. The most likely scenario now is that the ruling coalition of the Independence Party, the Left-Greens and the Progressives continues. It has been the most ideologically diverse and the first three-party coalition in Iceland’s history to last a full term. A successful fight against the pandemic has only strengthened its positions and helped it secure additional votes. Independence Party leader and finance minister Bjarni Benediktsson has earlier said he would be prepared to keep the ruling coalition if it holds the majority. President Guðni Jóhannesson announced immediately after the elections that he would confirm the mandate of the ruling coalition to form a new government if the three parties could strike a deal.
Other developments are possible but unlikely. Should the Left-Greens decide to leave the coalition, they could be replaced by the Reform Party or the People’s Party, while any coalition without the Independence Party can only be a four-party or larger coalition.
Who will become the new prime-minister still remains to be seen—but if the ruling coalition remains in place, the current prime-minister and leader of the Left-Greens, Katrín Jakobsdóttir, stands a good chance of keeping her post: she is still the most popular politician in Iceland with a 40 per cent approval rate.
The 2021 Althingi election, with one of the lowest turnouts in history at 80.1%, has not produced a clear winner. The election results reflect a Europe-wide trend in which traditional “major” parties are losing support. The electorate is fragmenting and their votes are pulled by smaller new parties. The coronavirus pandemic has only reinforced this trend.
The 2021 campaign did not foreshadow a sensation. Although Iceland has not become the first European country with a women’s majority in parliament, these elections will certainly go down in history as a test of Icelanders’ trust to their own democracy.
From our partner RIAC
EU-Balkan Summit: No Set Timeframe for Western Balkans Accession
On October 6, Slovenia hosted a summit between the EU and the Western Balkans states. The EU-27 met with their counterparts (Albania, Bosnia-Herzegovina, Serbia, Montenegro, North Macedonia and Kosovo) in the sumptuous Renaissance setting of Brdo Castle, 30 kilometers north of the capital, Ljubljana. Despite calls from a minority of heads of state and government, there were no sign of a breakthrough on the sensitive issue of enlargement. The accession of these countries to the European Union is still not unanimous among the 27 EU member states.
During her final tour of the Balkans three weeks ago, German Chancellor Angela Merkel stated that the peninsula’s integration was of “geostrategic” importance. On the eve of the summit, Austrian Chancellor Sebastian Kurz backed Slovenia’s goal of integrating this zone’s countries into the EU by 2030.
However, the unanimity required to begin the hard negotiations is still a long way off, even for the most advanced countries in the accession process, Albania and North Macedonia. Bulgaria, which is already a member of the EU, is opposing North Macedonia’s admission due to linguistic and cultural differences. Since Yugoslavia’s demise, Sofia has rejected the concept of Macedonian language, insisting that it is a Bulgarian dialect, and has condemned the artificial construction of a distinct national identity.
Other countries’ reluctance to join quickly is of a different nature. France and the Netherlands believe that previous enlargements (Bulgaria and Romania in 2007) have resulted in changes that must first be digested before the next round of enlargement. The EU-27 also demand that all necessary prior guarantees be provided regarding the independence of the judiciary and the fight against corruption in these countries. Despite the fact that press freedom is a requirement for membership, the NGO Reporters Without Borders (RSF) urged the EU to make “support for investigative and professional journalism” a key issue at the summit.”
While the EU-27 have not met since June, the topic of Western Balkans integration is competing with other top priorities in the run-up to France’s presidency of the EU in the first half of 2022. On the eve of the summit, a working dinner will be held, the President of the European Council, Charles Michel, called for “a strategic discussion on the role of the Union on the international scene” in his letter of invitation to the EU-Balkans Summit, citing “recent developments in Afghanistan,” the announcement of the AUKUS pact between the United States, Australia, and the United Kingdom, which has enraged Paris.
The Western Balkans remain the focal point of an international game of influence in which the Europeans seek to maintain their dominance. As a result, the importance of reaffirming a “European perspective” at the summit was not an overstatement. Faced with the more frequent incursion of China, Russia, and Turkey in that European region, the EU has pledged a 30 billion euro Economic and Investment Plan for 2021-2027, as well as increased cooperation, particularly to deal with the aftermath of the Covid-19 pandemic.
Opening the borders, however, is out of the question. In the absence of progress on this issue, Albania, North Macedonia, and Serbia have decided to establish their own zone of free movement (The Balkans are Open”) beginning January 1, 2023. “We are starting today to do in the region what we will do tomorrow in the EU,” said Albanian Prime Minister Edi Rama when the agreement was signed last July.
This initiative, launched in 2019 under the name “Mini-Schengen” and based on a 1990s idea, does not have the support of the entire peninsular region, which remains deeply divided over this project. While Bosnia and Herzegovina and Montenegro are not refusing to be a part of it and are open to discussions, the Prime Minister of Kosovo, Albin Kurti, who took office in 2020, for his part accuses Serbia of relying on this project to recreate “a fourth Yugoslavia”
Tensions between Balkan countries continue to be an impediment to European integration. The issue of movement between Kosovo and Serbia has been a source of concern since the end of September. Two weeks of escalation followed Kosovo’s decision to prohibit cars with Serbian license plates from entering its territory, in response to Serbia’s long-standing prohibition on allowing vehicles to pass in the opposite direction.
In response to the mobilization of Kosovar police to block the road, Serbs in Kosovo blocked roads to their towns and villages, and Serbia deployed tanks and the air force near the border. On Sunday, October 3, the conflict seemed to be over, and the roads were reopened. However, the tone had been set three days before the EU-Balkans summit.
German Election: Ramifications for the US Foreign Policy
In the recent German election, foreign policy was scarcely an issue. But Germany is an important element in the US foreign policy. There is a number of cases where Germany and the US can cooperate, but all of these dynamics are going to change very soon.
The Germans’ strategic culture makes it hard to be aligned perfectly with the US and disagreements can easily damage the relations. After the tension between the two countries over the Iraq war, in 2003, Henry Kissinger said that he could not imagine the relations between Germany and the US could be aggravated so quickly, so easily, which might end up being the “permanent temptation of German politics”. For a long time, the US used to provide security for Germany during the Cold War and beyond, so, several generations are used to take peace for granted. But recently, there is a growing demand on them to carry more burden, not just for their own security, but for international peace and stability. This demand was not well-received in Berlin.
Then, the environment around Germany changed and new threats loomed up in front of them. The great powers’ competition became the main theme in international relations. Still, Germany was not and is not ready for shouldering more responsibility. Politicians know this very well. Ursula von der Leyen, who was German defense minister, asked terms like “nuclear weapons” and “deterrence” be removed from her speeches.
Although on paper, all major parties appreciate the importance of Germany’s relations with the US, the Greens and SPD ask for a reset in the relations. The Greens insist on the European way in transatlantic relations and SPD seeks more multilateralism. Therefore, alignment may be harder to maintain in the future. However, If the tensions between the US and China heat up to melting degrees, then external pressure can overrule the internal pressure and Germany may accede to its transatlantic partners, just like when Helmut Schmid let NATO install medium-range nuclear missiles in Europe after the Soviet Union attacked Afghanistan and the Cold War heated up.
According to the election results, now three coalitions are possible: grand coalition with CDU/CSU and SPD, traffic lights coalition with SPD, FDP, and Greens, Jamaica coalition with CDU/CSU, FDP, and Greens. Jamaica coalition will more likely form the most favorable government for the US because it has both CDU and FDP, and traffic lights will be the least favorite as it has SPD. The grand coalition can maintain the status quo at best, because contrary to the current government, SPD will dominate CDU.
To understand nuances, we need to go over security issues to see how these coalitions will react to them. As far as Russia is concerned, none of them will recognize the annexation of Crimea and they all support related sanctions. However, if tensions heat up, any coalition government with SPD will be less likely assertive. On the other hand, as the Greens stress the importance of European values like democracy and human rights, they tend to be more assertive if the US formulates its foreign policy by these common values and describe US-China rivalry as a clash between democracy and authoritarianism. Moreover, the Greens disapprove of the Nordstream project, of course not for its geopolitics. FDP has also sided against it for a different reason. So, the US must follow closely the negotiations which have already started between anti-Russian smaller parties versus major parties.
For relations with China, pro-business FDP is less assertive. They are seeking for developing EU-China relations and deepening economic ties and civil society relations. While CDU/CSU and Greens see China as a competitor, partner, and systemic rival, SPD and FDP have still hopes that they can bring change through the exchange. Thus, the US might have bigger problems with the traffic lights coalition than the Jamaica coalition in this regard.
As for NATO and its 2 percent of GDP, the division is wider. CDU/CSU and FDP are the only parties who support it. So, in the next government, it might be harder to persuade them to pay more. Finally, for nuclear participation, the situation is the same. CDU/CSU is the only party that argues for it. This makes it an alarming situation because the next government has to decide on replacing Germany’s tornados until 2024, otherwise Germany will drop out of the NATO nuclear participation.
The below table gives a brief review of these three coalitions. 1 indicates the lowest level of favoritism and 3 indicates the highest level of favoritism. As it shows, the most anti-Russia coalition is Jamaica, while the most anti-China coalition is Trafic light. Meanwhile, Grand Coalition is the most pro-NATO coalition. If the US adopts a more normative foreign policy against China and Russia, then the Greens and FDP will be more assertive in their anti-Russian and anti-Chinese policies and Germany will align more firmly with the US if traffic light or Jamaica coalition rise to power.
|Issues Coalitions||Trafic Light||Grand Coalition||Jamaica|
1 indicates the lowest level of favoritism. 3 indicates the highest level of favoritism.
In conclusion, this election should not make Americans any happier. The US has already been frustrated with the current government led by Angela Merkel who gave Germany’s trade with China the first priority, and now that the left-wing will have more say in any imaginable coalition in the future, the Americans should become less pleased. But, still, there are hopes that Germany can be a partner for the US in great power competition if the US could articulate its foreign policy with common values, like democracy and human rights. More normative foreign policy can make a reliable partner out of Germany. Foreign policy rarely became a topic in this election, but observers should expect many ramifications for it.
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