News Colm McCarthy

Sunday 21 September 2014

As Russia flexes its muscles, the EU falters

Europe's recovery faces a serious setback if the West fails to contain 
the crisis in Ukraine, 
says Colm McCarthy

Published 27/07/2014 | 00:00

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Russia's Prime Minister Vladimir Putin holds a tranquilliser gun as he visits the academy of sciencies Ussuri reserve in Russia's Far East in 2008
Russia's Prime Minister Vladimir Putin holds a tranquilliser gun as he visits the academy of sciencies Ussuri reserve in Russia's Far East in 2008

The stand-off between Russia and the West over Ukraine has already resulted in economic sanctions, is likely to bring more, and has the potential to disrupt Europe's fragile economic recovery.

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Former German chancellor Helmut Schmidt once described the Soviet Union as "Upper Volta with rockets". He was trying to emphasise the economic insignificance of the nuclear-armed communist superpower in its declining years.

Shorn of its satellites and most of its constituent republics, the successor state to the Soviet Union is Russia, and apart from its oil and gas exports, Russia is not economically too significant either. But it retains its geopolitical importance (and its nuclear weapons) and is capable of an extremely disruptive role in world affairs, most especially in Europe. Russia has already destabilised Georgia through the establishment of two puppet breakaway pseudo-states on Georgian territory bordering Russia; has purported to annex the Crimean Peninsula - part of the sovereign territory of the Ukraine - and is arming a breakaway 'republic' in the eastern part of that country.

The downing of the Malaysian Airlines plane looks like a horrible mistake, made by buccaneer commanders of the pro-Russian separatists, and it is difficult to believe that the Russian government intended the massacre of 298 innocent people. But the adventurist policy it has followed in eastern Ukraine has been running the risk of unintended disasters since the beginning of 2014.

Given the centenary year that is in it, some commentators have been drawing parallels with the summer of 1914 and Europe's sleepwalking descent into the Great War. Whatever the economic fallout from the crisis in Eastern Europe, a shooting war is unimaginable. A more appropriate analogy is the behaviour of Serbia in 1991 on the break-up of the Yugoslav federation, which Serbia had dominated rather as Russia dominated the Soviet Union and the broader communist bloc in central and Eastern Europe.

On that occasion, Serbia under Slobodan Milosevic used the presence of Serb minorities outside its borders in Bosnia, Croatia and later in Kosovo, as the basis for wars of annexation which it eventually lost. Russia also bases its interventions in Georgia, and more recently in Ukraine, on the presence in those countries of regions with substantial populations of Russian ethnicity.

Vladimir Putin's chosen technique resembles the Serbian strategy: the protagonists are local pro-Russian rebels seeking self-determination and escape from alleged oppression, there is no invasion by the Russian military and full deniability is maintained. However, nobody is under any illusions as to the true state of affairs: the rebellion in Eastern Ukraine would not have occurred and will not endure without active and substantial Russian support, any more than would the secessions in Georgia.

The annexation of Crimea - enacted unilaterally by the Russian parliament and not recognised by the international community - represents the first forcible re-drawing of national borders in Europe since 1945. Numerous European countries can sustain grievances about territorial losses after World War II and earlier conflicts: all, except Russia, have decided to accept pre-existing borders and to abjure any attempt at the seizure of territory by force. The West has acquiesced in Russia's seizure of the Crimea, even though a Rubicon has been crossed. There is a pro-Russian majority there and the territory was handed over to Ukraine only in 1954, as an internal Soviet Union redrawing of the map. But the fact of the matter is that the map has again been redrawn, this time by force and against the wishes of the now-sovereign state of Ukraine.

The Russian game plan is to see how much the USA and Europe will tolerate - precisely the Milosevic strategy in the wars of the Yugoslav succession - and to date the strategy has succeeded as perceived from Moscow. Opinion polls last week showed continuing strong approval in Russia for the Putin strategy, even after the downing of the Malaysian airliner. In Russia, the state-controlled media has been reporting as news all sorts of conspiracy theories about the downing of the airliner, including the allegation that it was a mistake by Ukrainian government forces, which were really targeting a plane carrying Vladimir Putin! A London-based correspondent of the Kremlin-funded English-language news channel, Russia Today, has resigned in protest at its coverage of the disaster.

The West has acquiesced in Russia's seizure of the Crimea, the question now is whether it will acquiesce in the secession of the pro-Russian districts in eastern Ukraine, standing aloof if regular Russian forces become engaged in the conflict. Since Ukraine is not a member of Nato there is no obligation to intervene and nobody will want to risk a military conflict which would be a war of choice, rather than a war of necessity. But Russia also has ethnic minorities in the Baltic States, especially in Estonia and Latvia, the remnants of empire. These countries are members not just of the European Union but also of Nato. Should Russia attempt a separatist manoeuvre in the Baltics, Nato will have a treaty obligation to intervene.

If the Milosevic analogy is the correct one, Putin will push ahead with his current strategy until the West begins to draw red lines, which took four tragic years in the case of Bosnia. Milosevic calculated, correctly, that the West would huff and puff and do nothing serious.

For now, the US and the EU have contented themselves with diplomatic protests and sanctions on Russia. The sanctions have several components: travel bans on named individuals and embargoes on finance and trade, which will hit Russian financial companies, energy firms and armaments manufacturers. Russia will play tit-for-tat. US targets for personal bans from Russia already include former presidential candidate and moderate Republican senator John McCain. He responded: "There goes my beach holiday in Siberia". He also threatened to withdraw Mrs McCain's planned birthday present, a rouble credit card.

The economic sanctions are potentially a lot more serious for Russia. Its financial system is vulnerable to exclusion from Western capital markets, especially London and New York. Russia is a major exporter of oil and gas, with Europe heavily reliant on the latter. Gas revenues from Europe and oil industry exports are by far the main sources of foreign exchange in today's Russia: the country has failed to build a modern industrial base and resembles, to correct Helmut Schmidt, Kuwait with rockets, rather than Upper Volta.

Putin will be encouraged, and the US exasperated, by the incoherent response from the European Union. The British, who have a lot to lose in the way of Russian financial business in the London markets, have been pointing the finger at France, which is building two sophisticated warships for Russia and refuses to cancel. The French respond with jibes about London's financial business, which Paris has long coveted. Germany has been muttering about Britain's welcoming mat for Russian oligarchs, while reluctant to contemplate trade sanctions which would damage Germany's buoyant trade in capital goods to Russia.

As to oligarchic connections, another former German chancellor, Gerhardt Schroeder, is a director of several big Russian energy companies and there is a German-Russian joint venture gas pipeline project called Nordstream to weigh in the balance. Italy relies on Russian energy too and is nervous about the knock-on effects of a vigorous sanctions policy.

A divided and unfocussed response from the European Union emboldened Milosevic and the Bosnian Serb separatists, prolonging the Balkan conflict until decisive US action brought it to closure. If Putin intends to push his strategy until the West produces a serious and united response, then his aggression in Eastern Europe has a distance to run.

The economic costs of comprehensive trade sanctions would be sizeable, particularly given the weakness of the European recovery. The reliance on Russian gas is a real vulnerability. The US could help through accelerating the construction of export facilities for liquefied natural gas, which the rapid growth in shale production makes possible.

European countries should push ahead with onshore exploration and the construction of import terminals. Ireland, for once, is not too badly placed since the Corrib gasfield finally goes into production next year. Russia is, in any event, a minor trade partner for Ireland.

But for Europe the choice posed by the dysfunctional Russian state is to face serious costs now or to risk a greater disaster later on.

Sunday Independent

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