About the World…………

☆The new uncertain new era starts

STRATFOR Newsletter has been delivering an unique analysis of Kosovo war since its outbreak in last December. Represented by the symbolic title '' It is the Russians, stupid!!'' it calls for the attention that the key issue of the war was Russia and its link with Milosevic.

During the initial period, NATO was totally carried around by Milosevic who judged then that the best opportunity, due deterioration of US-Russia relationship resulting from attack to Iraq, was offered to confront the West.

Unfortunately for him, the economical situation in Russia was in such a desperate phase, and Yeltsin found it appropriate to give preference to 45Billion USD IMF emergency aid rather than maintaining the support of Serbia. It was not a coincidence that Stepatin, though a hard-liner from Ministery of Interior, with abundant overseas career (spent several years in the U.S., speaks English fluently, and is well-versed in international finance matters) was chosen to replace Primakov, who traveled incognito to Washington in May to negotiate Russia's position.

Yet, NATO has infuriated Russia at different occasion, which finally developed to an uncontrolled tank parades to Belgrade without that Yeltsin even know about it beforehand. It is too often forgotten that, though Russian army is not identical to that of USSR during the cold war, the numbers of soldiers and warheads have not substantially diminished, and Russia remains a very dangerous bear, especially when humiliated and wounded. On the other hand, China which was very discreet during the war suddenly emerged as another key issue of the war with the catastrophic bombing of its embassy in Belgrade. Relationship between USA and China has been deteriorating rapidly with the WTO problem, the spy affair, to reach the climax with this bombardment happening, and it seems that a quiet, yet consistent anti-American alliance is born between Russia and China.

China's sudden increase of influence over south-east part of Asia, among others Indonesia, as well as the confrontation of Russia and U.S in Caucasus over crude oil exploitation, add additional factors of instability to world geopolitics. This is not quite a renewed start of cold war, but indeed a very insecure transition period.
(more detailed analysis follows)

About Europe………

☆　The Euro and EU of today

Since the euphoric launch with balloons and fireworks in Bruxelles in January, the new currency Euro kept on its decline corresponding to 11.3% against Dollar. Although the end of Kosovo war, as well as slight recovery signs of German economy, the fundamental problem with the currency remains. Key issues:

-- Lack of EU's identity
-- dull economic outlook, compared to the U.S.
-- Increase of fiscal deficit in Italy
-- Sick economical situation in Germany

Italy's situation was predicable, but the confrontation of the new Eruropean Commissioner Prodi and the prime minister D'Alema has poured fire on oil. At the moment 'Il Professore' dared say that, if the situation continues, Italy will be compelled to pull out from Euro Zone '', it has immediately affected the Euro rate.Though such possibility is for the moment to be excluded, this confirms how hard it is to maintain the discipline among the 'problematic members' of EU.

Problem with Germany is elsewhere; after sluggish performance (-0.2%) in last quarter of 98, the forcast for this year is said to remain around 1%. On top of this, the controversial former superminister Lafontaine's announcement of tax increase infuriated the major industrial companies, threatning to move their production sites outside the country. Though his successor Eichel tries hard to appease the industry, he still has announced an epoch-making cut of expenditures by 45 Billion DM.

There were admittedly several temporary reasons, such as,

-- the heavy burden of subvention as a result of unification, corresponding to 5% of GNP
-- crisis in Asia and Russia, the two main export markets
-- sluggish economical situation in UK due high pound, another main market within EU

However, main issues of the problems are of structural natures:

-- archaic tax systems
-- over-generous social welfare schemes (42%) and working conditions backed up by powerful unions
-- archaic regulations preventing free competition
(e.g.very severe regulation on discount sales, restriction on opening hours of shops, though this finally started to be liberated)

Accordingly, a funny situation prevails in Germany; whereas big number of industrial companies enjoy satisfactory results as a result of massive restructuration measures, this does not reflect to the economy and job creation, as unemployment remains as high as 10.7% (4million).

In order to get out of this dilemma, and prevent the massive exodus of production facilities, the Government should hasten to carry out fundamental structural reforms referring to the above mentioned points.

Another important issue; one of the breakthrough measures of Kohl's government of from such situation was the so-called ''DM630 Plan '', namely a low-level tax-exempted temporary job system which created over 6 million jobs was well-received by the industry, allowing an incomparable flexibility. However, the system is　now in peril as the new government threatens now to put and end to this favour. Under the actual situation, the Government should by all means take back such decision.

Some people describe the actual Germany as blokierte Gesellschaft, (blocked society) as pointed out by The Economist. This is indeed symbolic. In order to overcome this situation, a very high determination of Schroder's Government is the prerequisite.

About Japan…….

☆Invasion of the 'Barbarians'

Since the end of war, Japan's retail industry has been dominated by small shops thanks to the intensive Government's protection rules, called DAITENHOO. Upon repeated unsuccessful tentatives since the creation of special liberation task force called EZAKI Mission under the era of ex-prime minister Nakasone, a decisive breakthrough seems finally near reach.

According to the recent article in The Economist, French giant retailer CARREFOUR, as well as US giant Wal-Mart, has recently announced the opiening of first hypermarket in Japan. Toys ''R'' Us already became the biggest toy retailer in the country with 78 shops, and several foreign restaurtants and coffee shop chains, stationery and OA discounters, drug store chains, clothing retailers etc, are queing to try their luck.

Though Japan is not necessarily the ideal target for westerners, with very demanding consumers and still in deepest recession, land prices went down by 70% below its peak and thus offers very favourable opportunities for start-up. Simultaneously, substantial deregulations, including lift of restrictions on opening days and hours, on floo surface, offers additional stimulating factors.

The insular giant wholesalers like Daiei, Seibu, Ito-Yokado are of course trying to resist these Gaijins, but the tremendous burden of colossal debts and unsatisfactory diversification results prevent from taking effective counter measures. The war has just started.

(June, 28, 1999)