An alternative view of the European Union

The EU launches programme to forge closer ties with six countries in Eastern Europe and the Southern Caucasus.

The ‘Eastern Partnership’ holds out the prospect of free-trade pacts, financial aid, help with energy security and visa-free travel to the EU for Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine. For Europe, it could mean more stability and security on its eastern rim.

The region has gone through multiple crises since the collapse of the Soviet Union and remains troubled by unresolved conflicts. At a summit in Prague to launch the programme, President Barroso said the EU had a “vital interest” in stronger relations.

The partnership adds a specific eastern dimension to the EU’s umbrella policy for neighbouring countries. The urgent need for this was brought home by the Russia-Georgia conflict last summer and the Russia-Ukraine gas dispute in January. The recent unrest in Moldova has renewed concerns about stability in the region.

The six countries will receive increased financial assistance from the EU to help with political and economic reforms. Successful reforms may lead on to comprehensive Association Agreements with the EU, which would include free-trade pacts and commitments on energy security – important for EU countries whose oil and gas supplies transit the region from Russia.

The countries, former Soviet republics, face major challenges to democracy and the rule of law. Badly hit by the recession, they continue to struggle with the transition to market economies.

Alongside regional-development expertise, the EU is offering programmes to address economic and social disparities, and would consider opening up its labour market to workers from the partner countries. And visiting the EU could be made easier for travellers if the countries bring border controls up to EU standards.

Border management is one of the five key areas the EU wants to help with. The others are support for small businesses, connections between regional electricity grids, gas and oil pipelines from the Caspian Sea to Europe, and cooperation on disaster response.

The commission will add €350m in fresh money on top of the planned resources for 2010-13. Another €250m already earmarked for the region will be refocused to support the new programme.

Diamonds on the Cheap(er) - Bloomberg

More than 20 years ago journalist Edward Jay Epstein wrote the definitive expose of the diamond business, initially published in the Atlantic Monthly in 1982 and subsequently as a book, The Rise and Fall of Diamonds. Epstein, it must be said, is a conspiracy buff, but his research on diamonds is pretty credible. His central contention is that diamonds have little inherent value; their perennially high price is solely a function of clever promotion and ruthless manipulation of the market. You ask: Isn't that true of any high-value product? Nope. Take gold, a true commodity in the sense that it's fungible, as the economists say--like quantities of gold are freely interchangeable. Gold's purity can be readily assayed and it's indestructible for practical purposes, making it a reliable store of value. Even now that the world has abandoned the gold standard, gold's price has held up well on the open market.

Not so with diamonds. Despite the hype, diamonds aren't forever; they can be damaged or destroyed. The value of diamonds varies widely depending on grade and, despite efforts at standardization, is basically arbitrary--experts often disagree sharply on the worth of a particular gem. Sure, the same can be said of paintings or other collectibles. The difference is that the world diamond market is largely controlled by a single private enterprise, the South Africa-based De Beers cartel. The geniuses behind De Beers recognized early on that a stable, profitable diamond industry depended on controlling both supply and demand. De Beers rarely discovers new sources of diamonds; rather, it focuses on controlling existing ones, limiting production, and if necessary buying up surplus gems and stockpiling them to prop up the market. It sets prices arbitrarily and cuts off supplies to dealers who buy through unauthorized channels. On the marketing side, De Beers hired advertising firms, starting with N.W. Ayer in the late 1930s, to render axiomatic the idea that diamonds = true love. De Beers and Ayer didn't invent diamond engagement rings but did rescue a fading concept--in 1932 worldwide diamond sales had been only $100,000. Ayer's ploys ranged from planting news stories about newly betrothed celebrities flaunting big rocks to positioning diamonds as heirlooms, preventing the market from being flooded with secondhand goods. (The market for used diamonds is dismal, by the way.) The campaign worked--U.S. wholesale diamond sales increased from $23 million in 1939 to $2.1 billion in 1979. The J. Walter Thompson agency performed a similar miracle in Japan in the 1960s, essentially creating a tradition of diamond engagement rings out of thin air.

Throughout all this De Beers has successfully fended off threats due to political upheaval, competing producers, and even the U.S. justice department (the firm recently paid a $10 million fine to settle an antitrust case). The big challenge today is synthetic diamonds. In a widely noted article last fall, Wired magazine reported on two start-up firms, one in Florida and the other in Boston, that had begun manufacturing gem-quality artificial diamonds. Synthetic diamonds have been available since the 1950s and are commonly used in industrial abrasives, but till now have made little headway in the gem market due to prohibitive manufacturing expense. Supposedly the new artificial diamonds, particularly those made by chemical vapor deposition (CVD), are both cheap to produce and, unlike knockoffs such as cubic zirconium, virtually indistinguishable from natural diamonds even in the lab.

So, the jig's up for De Beers, right? Maybe, maybe not. The last chapter of The Rise and Fall of Diamonds, entitled "The Coming Crash of 1983," described a scenario in which a concatenation of factors, including a flood of diamonds from new mines in Australia, would trigger "the final collapse of world diamond prices." It didn't happen (although De Beers did lose market share), and Epstein has omitted the chapter from the online version of his book. De Beers has dodged plenty of disasters in its history, and I'd hesitate to write the final pages yet.