NATO's Dangerous Gambit in Kosovo May Threaten Allied Stability

The stock market, in one of its periodic flights from reality, is betting that NATO will manage to achieve its objective of bombing Serbia into submission, even though this outcome is looking less likely by the day.

Events in the Balkans suggest that Yugoslav President

Slobodan Milosevic

, using the same ruthlessness he has displayed throughout the breakup of Yugoslavia, will be able to determine a settlement in Kosovo on his terms.

When investors grasp the domestic and international political instability that could result from that sort of humiliating result,

Dow

10,000 could soon be a distant memory and European equity markets could also get pounded.

The administrations of

Bill Clinton

,

Tony Blair

,

Jacques Chirac

and

Gerhard Schroeder

, all of whom have enthusiastically backed the campaign, could be seriously wounded by a climbdown. Resignations and firings at the highest level would ensue. A government or two could fall.

Since most of the business press, as well as its mainstream counterparts, was in favor of the allied bombings of Yugoslavia, it has not yet felt comfortable speculating on the consequences of a Kosovo peace forced upon the world by the Serbs. Following is an attempt to carry out that distasteful task.

Already Close to Losing

In many ways, the allies are already close to losing Kosovo. Milosevic, through forced emigration and, reportedly, mass killings, has begun to construct a Serb-dominated Kosovo. Some 130,000 ethnic Albanians have fled the Serbian province in the past 12 months, with nearly half of those leaving since the NATO campaign started, according to the

State Department

. Before the troubles began in Kosovo last year, around 90% of the region's 2 million people were Albanian.

Russian Prime Minister

Yevgeny Primakov

said Tuesday that Milosevic would accept the return of "all peaceful refugees." Even if Milosevic could be believed on that count, the following questions would then have to be answered. To what, exactly, would the Albanians return? Would they be able to get their property back? Who would represent them, now that some of their leaders reportedly have been executed? And who would protect them if the

Kosovo Liberation Army

had been decimated in fighting with the Serbs?

Clearly, Milosevic's goal in Kosovo has been to clear the Albanians out of the northern area to create an "ethnically pure" land in the north of Kosovo on the border with Serbia, leaving a rump of land for the Muslim Albanian population.

"He's aiming to partition Kosovo between north and south," says Neil Winn, a lecturer at the Centre for European Studies, a part of the U.K.'s

Leeds University

. "And if Milosevic gets that, he'll use his victory to set up a one-party state in Belgrade."

The fact that the Serbs have stepped up their terrorizing of Kosovar Albanians has prompted NATO to intensify its bombardment and focus it on Serb military facilities in Kosovo. But most military experts agree that even this so-called Phase II of the campaign will not stop the ethnic cleansing.

That's why hawks in the U.S., most notably Sen.

John McCain

(R., Ariz.) and

Henry Kissinger

, are pressing the Clinton administration to consider sending ground troops to intimidate Milosevic. "It could lend impetus to convincing him that he cannot win," McCain said recently. NATO says it has no current intention of deploying ground troops.

And it will almost certainly stay that way.

Lessons From Somalia, Vietnam, World War II

A ground assault against the Serbs in Kosovo could turn out to be extremely difficult to win. Getting a force of 200,000 troops to the Balkans could take as long as 12 weeks, by which time the Serbs may already have effectively partitioned Kosovo and established strong defenses.

The terrain in Kosovo favors defenders. In fact, it's possible that the reliance on aerial bombardment comes from NATO's realization that a ground war would be hellishly difficult. "NATO's not full of idiots. It must have calculated that a ground campaign would be really tough," says Dan Goure, deputy director of political and military studies at the

Center for Strategic and International Studies

. "NATO only had three real options: arm the KLA, aerial bombing or accept ethnic cleansing."

Goure argues that the only viable way into Kosovo is on the main road from Skopje, the capital of neighboring Macedonia. But it is full of hairpin bends as it winds its way through the mountainous terrain, and is therefore easy to defend, he says.

The Serbs would also prove tough opponents. As absurd as it may sound to outsiders, they have been galvanized into seeing this campaign as a replay of the Nazi invasion of their country. During World War II,

Churchill

recognized the huge damage that the Serbs could do to the occupying Axis armies. The occupying armies "found themselves confronted by desperate men who had to be hunted down in their lairs," Churchill wrote in his World War II memoirs. "For them it was death or freedom."

And Winn adds that the U.S., which would be relied on to provide the bulk of the forces and equipment in a land campaign, have not performed well in recent guerilla wars: "The NATO countries don't have a great deal of success in fighting counterinsurgency-type battles, as Somalia and Vietnam show."

But a number of military experts think the allies are up to the job militarily. "NATO could do it," says Terence Taylor of the London-based

International Institute for Strategic Studies

. "What seems impossible can be done." He recalls that many pundits predicted gloom, doom and an unstomachable number of casualties before the Gulf and Falklands wars, only to be proven wrong.

But Taylor stresses the need for political commitment from the U.S. Without that, a land campaign could not be fought, he says.

And the U.S. public, according to opinion polls, is opposed to a ground war, with a recent

Pew Research Center

poll showing 49% of the respondents against the deployment of ground troops and 44% in favor.

Allied Governments Could See Fearsome Fallout

Clearly, investors cannot ignore the possibility of a NATO defeat. In Europe it could deal a deathblow to the already shaky Schroeder government in Germany. Blair looks solid for now, but he has staked everything on Milosevic's humiliation and an autonomous Kosovo with precampaign borders. Blair's attempts to get the U.K. into the European single currency would also suffer collateral damage.

In the U.S., failure in Kosovo would rock the Clinton cabinet, as pressure would grow on National Security Adviser

Samuel Berger

and Secretary of State

Madeleine Albright

to resign. Clinton himself would be further weakened, as would

Gore

.

The accusation will repeatedly be made that the Clinton team failed to predict the ferocity of the Serbian attack on the Albanians, and then refused to follow up with the sort of response needed to stop it.

But the Republicans would also be hit. The internationalists of the party, who have supported the strikes, would suffer a nasty blow, losing support to isolationist populists like 2000 presidential candidate

Pat Buchanan

, who have opposed the campaign. While a Kosovo debacle would not be enough to win him the presidential nomination, his greater stature could tug other candidates toward his foreign policy stance.

Perhaps more importantly, a NATO retreat would embolden other rogue states -- like North Korea and Iraq -- to attack Western countries. China may see U.S. weakness as an opportunity to pursue its goals in Asia. And if the Kosovo campaign dissolved into infighting, a gulf could open between Europe and the U.S.

We're not there yet. But Kosovo threatens to force America into retreat around the world. If that happens, one of the main pillars of this bull market -- global domination by a U.S.-style liberal capitalism -- would look very shaky. And the Serbs will have bagged another target: the Dow.