Hypocrisy is not scarce in the world of politics. But the current House and Senate budget resolutions set new lows. Each proposes to cut about $5 trillion from government spending over the next decade in pursuit of a balanced budget. Whatever one may think of putting the goal of reducing spending when the ratio of the debt-to-GDP is projected to be stable above investing in the nation’s future, you would think that deficit-reduction hawks wouldn’t cut spending that has been proven to lower the deficit.

Yes, there are expenditures that actually lower the deficit, typically by many dollars for each dollar spent. In this category are outlays on ‘program integrity’ to find and punish fraud, tax evasion, and plain old bureaucratic mistakes. You might suppose that those outlays would be spared. Guess again. Consider the following:

Medicare. Roughly 10% of Medicare’s $600 billion budget goes for what officials delicately call ‘improper payments, according to the 2014 financial report of the Department of Health and Human Services. Some are improper merely because providers ‘up-code’ legitimate services to boost their incomes. Some payments go for services that serve no valid purpose. And some go for phantom services that were never provided. Whatever the cause, approximately $60 billion of improper payments is not ‘chump change.’

Medicare tries to root out these improper payments, but it lacks sufficient staff to do the job. What it does spend on ‘program integrity’ yields an estimated $14.40? for each dollar spent, about $10 billion a year in total. That number counts only directly measurable savings, such as recoveries and claim denials. A full reckoning of savings would add in the hard-to-measure ‘policeman on the beat’ effect that discourages violations by would-be cheats.

Fat targets remain. A recent report from the Institute of Medicine presented findings that veritably scream ‘fraud.’ Per person spending on durable medical equipment and home health care is ten times higher in Miami-Dade County, Florida than the national average. Such equipment and home health accounts for nearly three-quarters of the geographical variation in per person Medicare spending. Yet, only 4% of current recoveries of improper payments come from audits of these two items and little from the highest spending locations.

Why doesn’t Medicare spend more and go after the remaining overpayments, you may wonder? The simple answer is that Congress gives Medicare too little money for administration. Direct overhead expenses of Medicare amount to only about 1.5% of program outlays—6% if one includes the internal administrative costs of private health plans that serve Medicare enrollees. Medicare doesn’t need to spend as much on administration as the average of 19% spent by private insurers, because for example, Medicare need not pay dividends to private shareholders or advertise.

But spending more on Medicare administration would both pay for itself—$2 for each added dollar spent, according to the conservative estimate in the President’s most recent budget—and improve the quality of care. With more staff, Medicare could stop more improper payments and reduce the use of approved therapies in unapproved ways that do no good and may cause harm.

Taxes. Compare two numbers: $540 billion and $468 billion. The first number is the amount of taxes owed but not paid. The second number is the projected federal budget deficit for 2015, according to the Congressional Budget Office.

Collecting all taxes legally owed but not paid is an impossibility. It just isn’t worth going after every violation. But current enforcement falls far short of practical limits. Expenditures on enforcement directly yields $4 to $6 for each dollar spent on enforcement. Indirect savings are many times larger—the cop-on-the-beat effect again. So, in an era of ostentatious concern about budget deficits, you would expect fiscal fretting in Congress to lead to increased efforts to collect what the law says people owe in taxes.

Wrong again. Between 2010 and 2014, the IRS budget was cut in real terms by 20%. At the same time, the agency had to shoulder new tasks under health reform, as well as process an avalanche of applications for tax exemptions unleashed by the 2010 Supreme Court decision in the Citizens United case. With less money to spend and more to do, enforcement staff dropped by 15% and inflation adjusted collections dropped 13%.

One should acknowledge that enforcement will not do away with most avoidance and evasion. Needlessly complex tax laws are the root cause of most tax underpayment. Tax reform would do even more than improved administration to increase the ratio of taxes paid to taxes due. But until that glorious day when Congress finds the wit and will to make the tax system simpler and fairer, it would behoove a nation trying to make ends meet to spend $2 billion to $3 billion more each year to directly collect $10 billion to 15 billion a year more of legally owed taxes and, almost certainly, raise far more than that by frightening borderline scoff-laws.

Disability Insurance. Thirteen million people with disabling conditions who are judged incapable of engaging in substantial gainful activity received $161 billion in disability insurance in 2013. If the disabling conditions improve enough so that beneficiaries can return to work, benefits are supposed to be stopped. Such improvement is rare. But when administrators believe that there is some chance, the law requires them to check. They may ask beneficiaries to fill out a questionnaire or, in some cases, undergo a new medical exam at government expense. Each dollar spent in these ways generated an estimated $16 in savings in 2013.

Still, the Social Security Administration is so understaffed that SSA has a backlog of 1.3 million disability reviews. Current estimates indicate that spending a little over $1 billion a year more on such reviews over the next decade would save $43 billion. Rather than giving Social Security the staff and spending authority to work down this backlog and realize those savings, Congress has been cutting the agency’s administrative budget and sequestration threatens further cuts.

Claiming that better administration will balance the budget would be wrong. But it would help. And it would stop some people from shirking their legal responsibilities and lighten the burdens of those who shoulder theirs. The failure of Congress to provide enough staff to run programs costing hundreds of billions of dollars a year as efficiently and honestly as possible is about as good a definition of criminal negligence as one can find.

Tomorrow, President Obama unveils his last budget, and we’re sure to see plenty of proposals for spending on education and skills. In the past, the Administration has focused on investments in early childhood education, community colleges, and infrastructure and research. From a budgetary standpoint, the problem with these investments is how to capture their benefits as well as their costs.

First step: find out what works. The Obama Administration has been emphatic about the need for solid evidence in deciding what to fund. The good news is that we now have quite a lot of it, showing that investing in human capital from early education through college can make a difference. Not all programs are successful, of course, and we are still learning what works and what doesn’t. But we know enough to conclude that investing in a variety of health, education, and mobility programs can positively affect education, employment, and earnings in adulthood.

For example:

1. Young, low-income children whose families move to better neighborhoods using housing vouchers see a 31 percent increase in earnings;

2. Quality early childhood and school reform programs can raise lifetime income per child by an average of about $200,000, for at an upfront cost of about $20,000;

3. Boosting college completion rates, for instance via the Accelerated Study in Associate Programs (ASAP) in the City University of New York, leads to higher earnings.

If such estimates are correct (and we recognize there are uncertainties), policymakers are probably underinvesting in such programs because they are looking at the short-term costs but not at longer-term benefits and budget savings.

First, the CBO’s standard practice is to use a 10-year budget window, which means long-range effects are often ignored. Second, although the CBO does try to take into account behavioral responses, such as increased take-up rates of a program, or improved productivity and earnings, it often lacks the research needed to make such estimates. Third, the usual assumption is that the rate of return on public investments in human capital is less than that for private investment. This is now questionable, especially given low interest rates.

A hot topic in budget politics right now is so-called “dynamic scoring.” This means incorporating macroeconomic effects, such as an increase in the labor force or productivity gains, into cost estimates. In 2015, the House adopted a rule requiring such scoring, when practicable, for major legislation. But appropriations bills are excluded, and quantitative analyses are restricted to the existing 10-year budget window.

The interest in dynamic scoring is currently strongest among politicians pushing major tax bills, on the grounds that tax cuts could boost growth. But the principles behind dynamic scoring apply equally to improvements in productivity that could result from proposals to subsidize college education, for example—as proposed by both Senator Sanders and Secretary Clinton. Of course, it is tough to estimate the value of these potential benefits. But it is worth asking whether current budget rules lead to myopia in our assessments of what such investments might accomplish, and thus to an over-statement of their “true” cost.

Event Information

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On December 17, 2014, President Barack Obama and President Raúl Castro announced that the United States and Cuba would seek to reestablish diplomatic relations. Since then, the two countries have engaged in bilateral negotiations in Havana and Washington, the United States has made several unilateral policy changes to facilitate greater trade and travel between the two countries, and bipartisan legislation has been introduced in the U.S. Congress to lift the travel ban. Meanwhile, conversations are ongoing about ending the 50-plus-year embargo and Cuba has continued the process of updating its economic system, including establishing new rules for foreign investment and the emerging private sector.

In light of the significant shifts underway in the U.S.-Cuba relationship, new questions arise about Cuba’s development model, and its economic relations with the region and the world. On Tuesday, June 2, the Latin America Initiative at Brookings hosted a series of panel discussions with various experts including economists, lawyers, academics, and practitioners to examine opportunities and challenges facing Cuba in this new context. Panels examined macroeconomic changes underway in Cuba, how to finance Cuba’s growth, the emerging private sector, and themes related to much-needed foreign investment.

Join the conversation on Twitter using #CubaGrowth

Video

• Panel 1: Trends in the Cuban economy in light of the new U.S.-Cuba context
• Panel 2: Financing Cuba’s growth, development, and trade
• Panel 3: Next steps for Cuba’s emerging private Sector–Cuentapropistas and cooperatives
• Panel 4: A New stage in foreign direct investment

Audio

• Rethinking Cuba: New opportunities for development - Part 1 (English)
• Rethinking Cuba: New opportunities for development - Part 2 (English)
• Rethinking Cuba: New opportunities for development - Part 1 (español)
• Rethinking Cuba: New opportunities for development - Part 2 (español)

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20150602_rethinking_cuba_transcript

On Monday, March 23, 2015, leaders of Egypt, Ethiopia, and Sudan met in the Sudanese capital Khartoum to sign an agreement that is expected to resolve various issues arising out of the decision by Ethiopia to construct a dam on the Blue Nile. The Khartoum declaration, which was signed by the heads of state of the three countries—Abdel Fattah al-Sisi (Egypt), Omar al-Bashir (Sudan), and Halemariam Desalegn (Ethiopia), has been referred to  as a “Nile Agreement,” and one that helps resolve conflicts over the sharing of the waters of the Nile River. However, this view is misleading because the agreement, as far we know, only deals with the Blue Nile’s Grand Ethiopian Renaissance Dam project (GERDP) and does not tackle the broader, still contentious issues of sharing of the Nile River waters among all riparian states. Thus, the new agreement does leave the conflict over the equitable, fair, and reasonable allocation and utilization of the waters of the Nile River unresolved.

As we celebrated Earth Day recently, it is important that we reflect upon the importance of natural resources such as the Nile and gain an understanding of why they are so important, especially for Africa and its long-term development. In fact, 160 million people rely on the waters of this important river for their livelihoods. Thus, preserving, maintaining, and using the waters and resources of the Nile River efficiently and sustainably is a goal shared by all.

These disagreements over the use of the Nile are not recent and, in fact, have a long history because of these countries’ high dependence on the waters of the Nile. In 1929, an agreement was concluded between Egypt and Great Britain regarding the utilization of the waters of the Nile River—Britain was supposedly representing its colonies in the Nile River Basin. [1] The Anglo-Egyptian Treaty covered many issues related to the Nile River and its tributaries. Of particular relevance to the present discussion is that it granted Egypt an annual water allocation of 48 billion cubic meters and Sudan 4 billion cubic meters out of an estimated average annual yield of 84 billion cubic meters. In addition, the 1929 agreement granted Egypt veto power over construction projects on the Nile River or any of its tributaries in an effort to minimize any interference with the flow of water into the Nile.

In 1959, Egypt and an independent Sudan signed a bilateral agreement, which effectively reinforced the provisions of the 1929 Anglo-Egyptian Treaty. The 1959 agreement increased water allocations to both Egypt and Sudan—Egypt’s water allocation was raised from 48 billion cubic meters to 55.5 billion cubic meters and Sudan’s from 4 billion cubic meters to 18.5 billion cubic meters, leaving 10 billion cubic meters to account for seepage and evaporation. Finally, the agreement stipulated that in the case of an increase in average water yield, the increased yield should be shared equally between the two downstream riparian states (i.e., Egypt and Sudan). The 1959 agreement, like the 1929 Anglo-Egyptian Treaty, did not make any allowance for the water needs of the other riparian states, including even Ethiopia, whose highlands supply more than 80 percent of the water that flows into the Nile River.

Over the years, especially as the populations of the other countries of the Nile River Basin have increased, and these countries have developed the capacity to more effectively harvest the waters of the Nile River for national development, disagreements have arisen over the fact that Egypt has insisted that the water rights it acquired through the 1929 and 1959 agreements (collectively referred to as the Nile Waters Agreements) be honored and that no construction project be undertaken on the Nile River or any of its tributaries without prior approval from Cairo. In fact, various Egyptian leaders have threatened to go to war to protect these so-called “acquired rights.” Upstream riparian states such as Kenya, Tanzania, Uganda, and Ethiopia, have argued that they are not bound by these agreements because they were never parties to them. In fact, shortly after independence from Great Britain in 1961, Tanganyika’s (now Tanzania, after union with Zanzibar in 1964) new leader, Julius Nyerere, argued that the Nile Waters Agreements placed his country and other upstream riparian states at Egypt’s mercy, forced them to subject their national development plans to the scrutiny and supervision of Cairo, and that such an approach to public policy would not be compatible with the country’s status as a sovereign independent state. All the upstream riparian states have since argued in favor of a new, more inclusive legal framework for governing the Nile River Basin.

In 1999, the Nile River riparian states, [1] except Eritrea, signed the Nile Basin Initiative (NBI) in an effort to enhance cooperation on the use of the “common Nile Basin water resources.” Under the auspices of the NBI, the riparian states began work on developing what they believed would be a permanent legal and institutional framework for governing the Nile River Basin. The Cooperative Framework Agreement (CFA), as this agreement is called, formally introduced the concept of equitable water allocation into discussions about Nile governance, as well as a complicating concept called “water security.”

The CFA was ready for signature beginning May 10, 2010; Burundi, Ethiopia, Kenya, Rwanda, Tanzania, and Uganda have signed it; and the Ethiopian parliament has ratified it. However, arguing that their “acquired rights” to the waters of the Nile River would not be protected, Egypt and Sudan immediately registered their intention not to sign the agreement because they objected to the wording of Article 14(b): “Nile Basin States therefore agree, in a spirit of cooperation: . . . (b) not to significantly affect the water security of any other Nile Basin State.” They then proposed an alternative wording for Article 14(b): “Nile Basin States therefore agree, in a spirit of cooperation: . . . (b) not to significantly affect the water security and current uses and rights of any other Nile Basin State,” (emphasis added). This wording was rejected by the upstream riparian states, who argue that “the current uses and rights” phrasing would entrench the concept of prior rights, including those created by the Nile Waters Agreements and effectively retain the inequity and unfairness that has characterized the allocation and utilization of water in the Nile River Basin since the 1920s.

On April 2, 2011, then-prime minister of Ethiopia, Meles Zenawi, laid the foundation for the construction of the Grand Ethiopia Renaissance Dam. The dam is located on the Blue Nile, in the Benishangul-Gumuz region of the country. Shortly after the announcement, authorities in Cairo immediately launched a campaign of words against what they believed was an attempt by Addis Ababa to interfere with Egypt’s water needs. Then Egyptian president, Mohamed Morsi, angrily stated that while he was not “calling for war” with Ethiopia, “Egypt’s water security cannot be violated at all,” that “all options are open,” and that Egyptians would not accept any projects on the Nile River that threatened their livelihood.

The 2015 agreement between Egypt, Ethiopia, and Sudan—with Sudan acting as an intermediary—represents an important but predictable shift in Cairo’s approach to the Nile River—that those colonial agreements are unsustainable. About 85 percent of the water that flows into the Nile River comes from the Ethiopian highlands through the Blue Nile; the rest comes from the White Nile. It was simply unrealistic and untenable for Egypt to believe that it could continue to prevent Ethiopia from using water resources located within its boundaries to meet the needs of its people. While it is true that Egyptians rely totally on the waters of the Nile River for all their needs, they must be sensitive to the development needs of the upstream riparian states, especially given the fact that the latter, particularly Ethiopia, are in a position to cause significant harm to the quantity and quality of water that flows into the Nile. Hence, the practical and more accommodating attitude taken by Egyptian leaders in their decision to endorse Addis Ababa’s Grand Ethiopian Renaissance Dam project (GERDP), should be welcomed. However, Cairo needs to go further and sign and ratify the CFA without insisting on changes to Article 14(b) to guarantee Egypt the rights created by the Nile Waters agreements. With the CFA in place, all 11 riparian states can negotiate in good faith to agree an allocation formula that is acceptable to all of them and considered fair, equitable, and reasonable. As Africa becomes more and more affected by climate change, the continent’s various groups must agree to cooperate in the development of institutional structures that can enhance their ability to live together peacefully and allocate their natural resources, including water, in a fair and sustainable manner.

Further reading

Mwangi S. Kimenyi & John Mukum Mbaku, Governing the Nile River Basin: The Search for a New Legal Regime (Washington, D.C.: The Brookings Institution, 2015).

[1] Ethiopia was not one of those colonies. The British colonies then included Kenya, Uganda, Tanganyika, and what was known as Anglo-Egyptian Sudan (a condominium under the control of Britain).

[2] The Nile River riparian states are Burundi, Democratic Republic of Congo, Egypt, Eritrea, Ethiopia, Kenya, Rwanda, South Sudan, Sudan (Republic of), Tanzania, and Uganda. Egypt, Sudan, and South Sudan are downstream riparian states. South Sudan, however, has indicated that it does not recognize the 1959 bilateral agreement between Egypt and Sudan.

Professor Mwangi S. Kimenyi, senior fellow and former director of the Africa Growth Initiative (AGI), passed away on Saturday, June 6, 2015, in Baltimore, Maryland.

Professor Kimenyi was the heart and soul of the Africa Growth Initiative, something that all of us care about. He believed very much in AGI’s mission, its work, and perhaps, more importantly, its people. His scholarship and work ethic were only matched by his dedication to the AGI team and the issues that we were (and are) striving to accomplish.

Professor Kimenyi not only cared about the right things, but he was also keen about addressing them and doing so in the right way, no matter how difficult or challenging. In many ways, if the world worked like this, the world would be a much better place for all of us to live. In all AGI activities, Professor Kimenyi tried to bring people together, help colleagues advance their careers, and nurture the expertise that is needed in the long term.

Professor Kimenyi dedicated himself to utilizing the resources and prestige of the Brookings Institution to enhance governance, peaceful coexistence, the protection of human rights—especially those of vulnerable groups—and economic and human development in Africa. During his short tenure at AGI and the Brookings Institution, he achieved a lot. Through his leadership and thanks to the generosity of the Brookings Institution, AGI has contributed significantly to the improvement of the policy environment in Africa, as well as to a better understanding of African issues by U.S. policymakers.

Professor Kimenyi was an accomplished man: Before he came to AGI and Brookings, Professor Kimenyi was a professor at the University of Mississippi and the University of Connecticut. He was the founding executive director of the Kenya Institute for Public Policy Research and Analysis (KIPPRA, 1999-2005); a resource person with the African Economic Research Consortium (AERC); and a research associate with the Center for the Study of African Economies, University of Oxford. Professor Kimenyi earned his undergraduate degree from the University of Nairobi (Kenya), and completed graduate work at Ohio University and George Mason University. He received a Ph.D. in economics  from the Center for Study of Public Choice at George Mason University in 1986.

Through his research, he sought to enhance governance and economic development in Africa. He was especially interested in poverty reduction, pro-poor economic growth, and peaceful coexistence on the continent. He authored or co-edited eight books, many policy monographs, and several chapters in edited volumes. He also published many papers in refereed journals.

Professor Kimenyi was also the recipient of many honors and awards, including the Outstanding Research Award (2001) from the Global Development Network, and the Georgescu-Roegen Prize in Economics (1991). He was recognized by the Senate and House of Representatives of the State of Mississippi for his work on the public transit system. In 1994, Professor Kimenyi was named by Policy Review (Washington, D.C.) among the top 10 young market economists in the United States. During his tenure as the executive director of KIPPRA, the institute was ranked the top policy institution in Africa and was recognized as an international center of excellence.

At KIPPRA, he believed in and promoted excellence, leading the institute from its founding in 1999 to Africa’s premier research and policy institution by the time he left in 2005. KIPPRA remains an important and influential source of policy advice for Kenya and the region, thanks to the solid foundation laid by Professor Kimenyi.

He was not afraid to criticize or be controversial when he believed that something important needed to be said. In many of the blogs that he wrote about policy issues in Africa, for example, he challenged President Obama and his administration to take a more active part in Africa. He rebuked the government of South Sudan for its decision to ban all foreign workers from the country and replace them with nationals—a decision that Professor Kimenyi argued would undermine badly needed foreign investment. Nevertheless, in seeking to hold governments accountable, Professor Kimenyi was professional, respectful, and polite.

Despite his extraordinary professional and academic accomplishments, Professor Kimenyi was humble, extremely kind, and loyal to his friends and colleagues. I have worked very closely with Professor Kimenyi on projects in Africa since 1986, and have often been taken aback by the patient and kind manner in which Professor Kimenyi treated young scholars who approached him and asked him to help them further their education or research.

I can recall a particularly memorable incident at Mount Kenya in 2002: We were at the Mount Kenya Lodge to consult with then-vice president of Kenya, Professor George Saitoti, who was working on his vision for holistic development in Africa. While we were eating breakfast, a couple of young people recognized Professor Kimenyi and came to talk to him about their plans for graduate school. He patiently talked to each one of them, gathered as much information from them, gave each person that he talked to his business card, and promised to contact them once he had an opportunity to research their issues further. Despite the fact that his breakfast was going cold, he calmly advised these young people and told them that it was important that they remained hopeful because they held the future of Kenya in their hands. He was truly inspiring. Of course, during nearly 30 years of friendship with me, he remained a loyal and supportive friend to me and my family.

There is no question that Professor Kimenyi was a talented and well-regarded economist. Nevertheless, his colleagues, students, and the many people whom he worked with and whose lives he touched will remember him more for his kindness, warmth, and willingness to mentor younger scholars.

Professor Kimenyi’s untimely passing is a great loss, not only to his colleagues and friends at AGI, but also to the many scholars whom he has mentored in Africa and around the world. He will be greatly missed, not only at AGI, but also at the many institutions that he has worked with to improve economic and human development in Africa.

Our thoughts and prayers are with his family. May his soul rest in peace.

Since May 2010’s Mavi Marmara incident, which resulted in the killing of nine Turkish activists from Israel Defense Forces’ fire, relations between Turkey and Israel have been suspended. Two major regional developments in 2012, the lingering Syrian crisis and Israel’s Operation Pillar of Defense in Gaza, have underscored the lack of a senior-level dialogue between Israel and Turkey. However, in the wake of the latest Gaza crisis, officials on both sides have confirmed press reports detailing recent bilateral contacts between senior Turkish and Israeli officials in Cairo and Geneva, possibly signaling a shift in the relationship.

Since 1948, Israeli-Turkish relations have been through periods of disagreement and tension, as well as periods of cooperation and understanding. Relations developed gradually over the years and eventually reached their peak in the 1990’s when the two countries forged a strategic partnership, supported and strengthened by the United States. During those years, the Turkish general staff and the Israeli defense establishment were the main proponents for an enhanced relationship between the two countries. Military cooperation and coordination with Israel fit the broader world view of the secularist Turkish defense establishment. Turkey’s military structure and posture was NATO and Mediterranean oriented, and within this framework Israel was naturally viewed as an ally. From the Israeli perspective, Israel’s defense establishment recognized Turkey’s geostrategic importance and the potential that existed for defense collaboration.

Positive relations between the two countries continued well into the first decade of the 21st century but began to slow down when Turkey experienced a new social transformation and political Islamists became the dominant political force in Turkey. The clash that ensued between the new Turkish leadership and the military elite eroded the military’s standing, coupled with a major shift in Turkish foreign policy, inevitably led to a souring in the relationship between Turkey and Israel. With the launch of Israel’s Operation Cast Lead in December 2008, relations began to seriously weaken, as Turkey expressed clear disapproval of Israel’s actions. Despite its efforts, the United States was not able to repair relations between the two countries. The Mavi Marmara incident in 2010 led to further decline of relations between the two.

Two and a half years have passed since the incident on board the Turkish passenger vessel, and relations between Turkey and Israel remain strained, with the two countries locked into their positions. Turkish Prime Minister Recep Tayyib Erdoğan insists that if Israel wishes to normalize relations, it must accept three conditions: issue a formal apology over the incident; compensate the families of the nine Turks (one of them an American citizen) killed on board; and lift the naval blockade of Gaza. Not surprisingly, Israeli Prime Minister Binyamin Netanyahu is reportedly not willing to meet the three Turkish demands.

In recent months, Israel has made several attempts, both directly and through third parties, to find a formula that will restore the dialogue between Jerusalem and Ankara, but to no avail. Erdoğan publicly rejected these Israeli diplomatic approaches, reiterating the need to address the three conditions before further talks can ensue. As a result, bilateral ties, excluding trade, are practically at a standstill, with low level (second secretary) diplomatic representation in respective embassies in both Ankara and Tel Aviv.

Over the past year and a half, the upheaval in the Arab world has occupied the top of the Turkish foreign policy agenda. Thus, the relationship with Israel has not been a priority for the Turks, pushing Israel to invest greater efforts in developing its ties with Turkey’s rivals and neighbors, including Greece, Cyprus, Bulgaria, and Romania. Moreover, Turkey, previously an Israeli vacation hotspot, has experienced a substantial decline in the number of Israeli tourists.

The Turkish-Israeli relationship was not a high priority on the U.S. administration’s foreign policy agenda in the months leading up to the U.S. presidential elections. While the United States did previously engage in efforts to bridge the gap between the two countries, recently, other issues, including the 9/11 attack on the U.S.’s mission in Benghazi, Libya, the Syria crisis, and Iran’s nuclear program, have consumed the attention of U.S. policy makers dealing with the Middle East.

Against this backdrop, Erdoğan’s willingness to allow his head of intelligence to meet the head of Mossad in Cairo, and his foreign ministry’s director general to meet with Israeli Senior Envoy Ciechanover in Geneva, may seem surprising, especially considering Erdoğan’s own harsh rhetoric against Israel during the initial phases of Operation Pillar of Defense. Turkish Foreign Minister Ahmet Davutoğlu explained that the meetings were aimed at finding an end to the Gaza crisis and that there would be no discussion of reconciliation so long as Israel did not address Turkey’s three previously stated conditions. Israeli officials confirmed that while the discussion in Cairo focused on Gaza, the meeting in Geneva went beyond the Gaza issue, and Israel’s envoy Ciechanover did in fact suggest possible options to address Turkey’s three stipulations.

What does all this mean?

Turkey’s recent moves can be attributed to a growing realization that it has hurt its interests and hampered its diplomatic efforts by not maintaining dialogue and open channels with Israel. This move has allowed the Muslim Brotherhood-led Egypt to take center stage and orchestrate, together with the United States, the ceasefire between Israel and Hamas. Turkey, which takes pride in facilitating diplomacy in the Middle East (as demonstrated in the 2008 Turkish-brokered Syrian-Israeli proximity peace talks), was marginalized in the latest round of negotiations on Gaza simply for having damaged its relationship with Israel.

Furthermore, as Turkey’s involvement in the Syrian crisis deepens, and as it prepares to deploy Patriot missiles on the Turkish-Syrian border, Turkey most certainly will aspire to improve intelligence cooperation with Israel. With regards to Syria, there is very little disagreement, if any, between Turkey and Israel, and cooperating on this issue could prove to be very useful and beneficial for both countries.

The possible cooperation on Syria does not mean that Turkey will drop its insistence on Israel meeting the three conditions, but it may indicate a greater inclination to show flexibility with regard to the actual wording and terms of those conditions.

Israel may be willing to be more forthcoming toward Turkey in respect to the three conditions, so long as it receives assurances that Turkey will not just pocket an Israeli apology and compensation and revert to its anti-Israel mode. Israel has its own concerns, and feels more isolated than ever before in a volatile Middle East region. Its need to rely solely on Egyptian President Mohamed Morsi’s mediating efforts last week certainly left Israeli decision makers uneasy. Israel will likely continue to reach out to Turkey in the coming weeks, but a final decision, which may include compromises, will possibly wait until after the Israeli elections in January 2013.

One must not lose sight of the fact that the Turkey-Israel relationship has deteriorated to a low point not only because of disagreement on political issues but also because of the clash of personalities between leaders on both sides. Officials on both sides will face tough decisions in the coming year, and will likely have to go against their own constituencies and popular public sentiments in order to repair relations.

The distrust between both countries is deep and the level of animosity at the leadership level is high. While it is encouraging that they are finally communicating with one another, undoubtedly progress will require a third party presence and involvement. In this respect, the Obama administration has an important role to play. Unquestionably, a rapprochement between Turkey and Israel will serve U.S. global and regional strategic interests. The strong rapport between U.S. President Barak Obama and Erdoğan and what seems in the aftermath of the Gaza crisis as more frequent consultations between Obama and Netanyahu, can contribute to a U.S.-brokered deal between the two sides. If successful, this deal will address not only the Mavi Marmara incident and Turkish demands, but it will also lay out guidelines and a “code of conduct” for interaction between the two sides in times of war and peace and sponsor a Turkish-Israeli dialogue on regional developments and issues of mutual concern. After a long disconnect between the parties, recent interactions between the two regarding the latest Gaza crisis signal that both sides are predisposed to take another look at seriously engaging with each other again, and the United States can help make this a reality.

Perhaps this could be one of Secretary of State Hillary Clinton’s last missions before leaving office.

The recent outbreak of hostilities between Israel and Hamas is a serious setback to ongoing Turkish-Israeli normalization efforts. Israel launched Operation Protective Edge, its third operation against Hamas since leaving Gaza in 2005, in response to rockets and missiles fired by Hamas from Gaza into Israel. As in Israel’s two previous Gaza campaigns, Operation Cast Lead (2008-09) and Operation Pillar of Defense (2012), Turkey quickly condemned Israel’s actions, yet offered to mediate, together with Qatar, between Israel and Hamas.

After Turkish Prime Minister Recep Tayyip Erdogan, in the midst of his presidential campaign, equated Israeli policy towards Gaza to a “systematic genocide” and accused Israel of surpassing “Hitler in barbarism,” Israel accepted an Egyptian cease-fire proposal. Israeli Foreign Minister Avigdor Lieberman accused Turkey and Qatar of “sabotaging the cease-fire proposal,” and Israeli Prime Minister Benjamin Netanyahu complained to U.S. Secretary of State John Kerry about Erdogan’s statements.

Turkish leaders’ harsh rhetoric sparked violent demonstrations in front of Israel’s embassy in Ankara and its consulate in Istanbul, lead the Israeli government to evacuate diplomats’ families, and issue a travel warning advising against travel to Turkey, which prompted numerous cancellations of tourist travel. On Sunday, Netanyahu refrained from declaring Turkish-Israeli reconciliation dead, but accused Erdogan of anti-Semitism more aligned with Tehran then the West.

These heightened Israeli-Turkish tensions come just as the two countries were negotiating a compensation deal for families of victims of the May 31, 2010 Mavi Marmara incident. The deal was intended to facilitate a long-awaited normalization between the two countries, more than a year after Israel’s official apology. The draft stipulated an estimated $21 million in Israeli compensation, the reinstatement of each country’s ambassador, and the reestablishment of a senior-level bilateral dialogue. However, a series of issues has prevented the deal’s finalization, including: Turkish domestic political considerations about the timing (related to March 2014 municipal elections and August 2014 presidential elections) and Israeli demands for Turkish commitments to block future lawsuits related to the Marmara incident.

With the ongoing Gaza conflict, prospects for normalization have again faded at least in the short term, and policymakers on both sides seem to have accepted a limited relationship. Erdogan even declared publicly that as long as he’s in power, there is no chance “to have any positive engagement with Israel”, dismissing any prospect for normalization. Israeli-Turkish animosity runs deep, not only among leaders, but at the grassroots level as well. While it may be difficult to look beyond the short term, a focus on the broader regional picture suggests four reasons why the two countries would benefit from restoring ties.

• First, they share strategic interests. Turkey and Israel see eye to eye on many issues: preventing a nuclear Iran; concerns over spillover from the Syrian civil war; and finally, the rise of the Islamic State of Iraq and the Levant (ISIS/ISIL) and security and stability in Iraq. A resumed dialogue and renewed intelligence sharing can pave the way for more concrete cooperation between Turkey and Israel on all these regional issues, with development of a joint approach toward Syria topping the agenda.
• Second, regional environment may be beyond their control, the bilateral relationship is not. Normalization can eliminate one factor of instability in an unstable region.
• Third, Washington sees greater cooperation and cohesiveness in the U.S.-Turkey-Israel triangle as essential. President Obama has sought to restore a dialogue between Ankara and Jerusalem, including efforts to “extract” an Israeli apology and Turkish acceptance. Senior U.S. officials remain active in trying to improve the Turkish-Israeli relationship.
• Fourth, normalization may convey benefits in the economic sphere, with possible cooperation on natural gas, tourism, and enhanced trade. Gas in particular is viewed as a possible game-changer. In 2013, bilateral trade first crossed the $5 billion mark, and data from the first six months of 2014 indicates a continued rise. A political thaw can help accelerate these joint business opportunities. 

Nevertheless, at this stage it is clear that serious U.S. involvement is required for Turkish-Israeli rapprochement to succeed, even in a limited fashion. At present, there are far greater challenges for U.S. foreign policy in the region. The question now is whether the relationship between two of America’s closest regional allies reflects a new “normal,” or whether the leaders of both countries – and the U.S. – can also muster the political will to reconnect the US-Turkey-Israel triangle along more productive lines.

Check back to Brookings.edu for Dan Arbell’s upcoming analysis paper: The U.S.-Turkey-Israel Triangle.