Tuesday, March 25, 2014

The Germans start to get real about Crimea

Watching the situation in Russia unfold is beyond fascinating—at least to someone who likes to indulge in Institutional Analysis. Because the facts on the ground are just so overwhelmingly obvious, the "crises" over Crimea makes a perfect introduction in how to actually do IA.

Here are the facts that pretty much drive everything else:
  • Crimea is not only the home of the Black Sea navy, it was a resort for the Russian elite—think Palm Beach or Aspen for the Romanovs.  There are historical reasons why Crimea is almost as Russian as St. Petersburg.
  • Eastern Ukraine was the site of the most ferocious warfare in human history—the Russians drove back the most elite Army ever assembled through a sheer force of will and a willingness to lose the lives of many, MANY brave young men.  The Russians shed a lot blood to liberate that territory from the Nazis.  It required decades to recover from the damage.  The Eastern Ukraine belongs to Russia because of how much they paid for it.  All arrangements must honor that fact and Russia will make sure it does.
  • The USA response is so ridiculously uninformed at all levels of the press, the elected representative, academia, and the State department, that anything they have to say on the subject of Crimea would be comical except that their rampant stupidity destroys lives.  Yes, many of these people are also evil but even someone as vile as Victoria Nuland is first and foremost just an idiot.  These people are still using George Kennan's ideas of containment and encirclement as the only response to Russia because, quite frankly no one in this crowd has even considered anything else or come up with anything better.  And these ridiculous amateurs get to play these absurd geopolitical games because USA is just more willing to spend for expensive weapons than anyone else.
  • The German Foreign Minister is a pig of a man who is even more primitive than the Kennan crowd.  This man truly believes in his bones that the Russians are Üntermenchen.  Lately, he's been running around the Ukraine stirring up trouble including a seduction of their oligarchs.  The man is so annoying it's a miracle of Christian charity that Putin hasn't assassinated his ass.
But soaring above this madness is Putin and so far, his response to this commotion has resulted in a near-80% approval rating, wild celebrations throughout Russia, and people in the streets hugging and openly weeping for joy.  And yet, we here in USA are supposed to believe that Putin is vulnerable politically and WE are the good guys.  We are on the side of Pussy Riot, after all.  Of course, it's pretty easy to sell this load of horseshit to a public that cannot find Crimea on a map and doesn't even know that Germany-USSR was about 96% of what we call World War II.  There are disadvantages to learning history from Stephen Spielberg, after all.

Anyway, the Germans have by FAR the most to lose if this "crises" gets any more serious.  Their investments in Russia represent a a great deal of toil and good strategic planning.  I am pretty sure that they are not willing to give this up over a dispute concerning a bankrupt country, a Russian resort, and a toy navy.  Now Germany must throttle in Frau Merkel and her I-hate-the-Übermenschen crowd so that everyone can get back to work.  The following from Der Spiegel seems like a good effort in that direction.

'Dear to Our Hearts': The Crimean Crisis from the Kremlin's Perspective

By Matthias Schepp

The EU and US have come down hard on Russia for its annexation of the Crimean Peninsula. But from the perspective of the Kremlin, it is the West that has painted Putin into a corner. And the Russian president will do what it takes to free himself.

Last September, Vladimir Putin invited Russia experts from around the world to a conference, held halfway between Moscow and St. Petersburg. At the gathering, the Russian president delivered a passionate address. "We will never forget that Russia's present-day statehood has its roots in Kiev. It was the cradle of the future, greater Russian nation," Putin said. He added that Russians and Ukrainians have a "shared mentality, shared history and a shared culture. In this sense we are one people."

At the time, German and European leaders still believed that it would be possible to bind Ukraine to the European Union by way of an Association Agreement and to free the country from Moscow's clutches. But Putin had long before made the decision to prevent such an eventuality.

Indeed, he had already used the Crimean Peninsula as his stage for a symbolic and vaguely menacing appearance in the summer of 2012. Astride a three-wheel motorcycle, a black-clad Putin was photographed at the head of a group of staunch nationalist bikers. Like a group of modern-day knights, they tore across Ukrainian territory. Even then it was clear who Putin thought was the true leader of Ukraine: himself.

Putin knows that the vast majority of Russians are on his side when it comes to his Crimean policy. His cool and calculated -- and thus far remarkably peaceful -- annexation of the peninsula led to celebrations across Russia. After all, the conviction that Crimea -- with its "Hero Cities" of Sevastopol and Kerch in addition to Russia's Black Sea fleet -- is Russian soil is widespread and shared even by many in the opposition camp. These are places, Putin said in his address last week, that are "dear to our hearts" and for which Russian soldiers fought and died. Even Nobel Peace Prize laureate Mikhail Gorbachev said last week that the West should accept the results of the Crimea referendum. "This should be welcomed instead of declaring sanctions," he said.

Putin's popularity rating had already begun climbing as a result of the Winter Olympics in Sochi, with even Kremlin-critical pollsters reporting 67 percent approval. Now, that number is approaching an astonishing 80 percent. But what does it mean? Is the "reunification" with Crimea merely the last twitch of a former Soviet superpower as its successor state Russia rebels against a future as a less meaningful regional power? Or is it the beginning of a wave of re-conquests from a country that has seen itself for centuries as a hegemonic power in Eastern Europe? Is Putin a neo-imperialist or is he just a national leader with his back to the wall, one who is merely interested in protecting his country's security interests?

Specter of War

The world has changed since last week. The Ukraine crisis represents the most recent culmination of an extended process of estrangement between Russia and the West. The biggest country in the world will now likely turn its attentions more to China and India.

In Europe, meanwhile, the specter of war has returned, according to European Parliament President Martin Schulz.
"Ever since Putin's speech at the Munich Security Conference in 2007, everyone should have known that Russia would no longer accept Western games within its sphere of influence," says Fyodor Lukyanov, Chairman of the Presidium of the Council on Foreign and Defense Policy in Moscow. "But the West never took Putin seriously and never developed a strategy to deal with Russia's legitimate interests."

The West, says Lukyanov, disregarded every initiative from Moscow to discuss a new security regime for Europe, constantly suspecting that Russia was seeking to drive a wedge between Europe and the United States. Putin's proxy, former President Dmitry Medvedev, even presented a draft for a European security treaty in 2009, one which addressed territorial disputes and renounced the use of violence. "We are now paying the price for not having sat down at the table then," Lukyanov says.

Now, when the US and EU threaten to turn away from Russia, few in Moscow are particularly impressed. Aside from a couple of billion-dollar deals that benefited both sides, people close to Putin say, the only approach from the West consisted in NATO's steady eastward advance. Instead of appreciation for Gorbachev's having ushered in a peaceful end to the Cold War, the Russian view holds, the West has sought to waltz all the way into Red Square.
The view from the windows of the Kremlin is first and foremost a geo-political one. During Soviet times, the distance between the Russian capital and the Western military alliance was 1,800 kilometers (1,120 miles). Were Ukraine to become a member of NATO, as the US has long desired, this distance would be reduced to less than 500 kilometers. The Russian military is afraid that they would lose once and for all the strategic distance that allowed the country to survive the invasions of both Napoleon and Hitler.

This fear is partially the result of the traumatic, post-Cold War reordering of Eastern Europe. Eight years after the Soviet Union's collapse, Poland, the Czech Republic and Hungary joined NATO. In 2004, they were followed by Bulgaria, Romania, Slovakia, Slovenia and the three Baltic states; in 2009, Albania and Croatia followed suit. When NATO intervened in the Kosovo War by bombing Belgrade in 1999, Russia was furious; Serbia had been a close ally of Moscow's for centuries. In 2008, US President George W. Bush's proposal to extend NATO membership to Georgia and Ukraine was seen by Russia as a humiliation.

Plenty of Options

Now, Putin is releasing his people from their collective feeling of shame. "If you compress a spring all the way to its limit, it will snap back hard," the Russian president said during his address in the Kremlin last Tuesday.
Putin has a decisive advantage in the struggle for Ukraine: He has the initiative. He acts and the West reacts. And Moscow has plenty of options.

The first option involves Putin making no further advances, an eventuality that many in the West quietly see as the best way to end the crisis. In exchange for Western toleration of Russia's Crimean land grab, Putin would refrain from meddling in eastern Ukraine and would still be able to bask in the admiration of the Russian people.

But there are other options available. Putin could use pro-Russian groups, economic pressure and his own secret service to destabilize Ukraine to such a degree that it plunges into civil war. For such a scenario, the weak and chaotic government and parliament in Kiev are ideal partners, not to mention the radical nationalists who rose to prominence during the Maidan demonstrations. Indeed, the divisions within Ukraine are already prominent. It was only due to intense pressure exerted by Berlin and Brussels that the acting government in Kiev abstained from signing a law that would have prohibited Ukrainian regions from making Russian a second official language. The planned measure had triggered outrage in eastern Ukraine.

One-quarter of all Ukrainian exports go to Russian, with 2.9 million Ukrainian workers in Russia having sent $3 billion (€2.17 billion) to relatives back home last year, an amount equivalent to roughly 10 percent of the country's budget. A Russian boycott would likely mean a rapid end to the current Ukrainian government, unless the US and Europe were to jump in with a hefty aid package.

As such, Putin could simply play for time in the hopes that sooner or later Ukraine will simply fall into his lap like a ripe fruit -- perhaps even a Ukraine bloated by Western aid. Under no circumstances, however, will Putin simply leave Ukraine to the West. Some close to Putin even believe that the Russian president would be willing to go to war to prevent that from happening.

Other Regions?

Hardliners in the Kremlin are urging Putin not to stop at Crimea, arguing that areas that belong to Russia anyway should be reunited with the motherland. Never before, they say, has the opportunity been quite as auspicious. Putin's reputation among the Western elite is already at a low point and NATO would certainly not risk a nuclear war on Ukraine's account. Kremlin leaders are fully aware that Germany's willingness to make sacrifices on behalf of, for example, the Russian-speaking industrial city of Donetsk is rather limited.

"Russia should support the pro-Russian areas in southern and eastern Ukraine and establish a line of security from Kharkiv to Odessa, without absorbing these areas into the Russian Federation," advises political scientist Alexander Nagorny. A referendum could then transform Ukraine into a kind of federal state. Moscow would have influence in Kiev, a NATO membership for Ukraine would be prevented and a bloody war avoided.

The West is now attempting to force Putin to back down by way of sanctions. It is a strategy that is much more comfortable for the US than it is for Europe, with just 1 percent of American trade being conducted with Russia and a lack of reliance on Russia oil and natural gas. Germany's trade with Russia, by contrast, represents 3 percent of Berlin's imports and exports, with a value of €76.5 billion. One-third of Germany's oil and natural gas imports come from Russia. It has always sounded good when EU politicians insisted that Russia cannot be allowed to have a say in Ukraine's future. But it was never particularly realistic.

When it comes to Ukraine, Putin feels deceived by German Chancellor Angela Merkel, whose power instincts he admires, as well as by the US. "The West's true aim is that of toppling the bothersome Putin," says the Moscow-based political scientist Sergei Markov, one of Putin's most loyal acolytes. That is why initial sanctions targeted the president's billionaire friends. The West, he says, is trying to turn Russia's financial elite against Putin.

'Can't Treat Us Like That'

But on the short- and mid-term, at least, sanctions are likely to strengthen Putin. His propaganda machine will present any economic difficulties as being the fault of the West, which will likely draw together the country's anti-Western, conservative majority. Even in Moscow, where never-published surveys from a year ago showed that Putin had lost his majority, sanctions will be seen as yet another indignity visited on Russia by the West.

"First the German and Polish foreign ministers make appearances on the Maidan, and now they want to punish us for no longer being willing to simply accept everything," says one senior bank manager who has never voted for Putin in her life. She wants Putin "to deliver a strong response so that the West understands that you can't treat us like that."

Russia, as one proverb would have it, has great patience, but its response will be all the more severe. Russian confronts pressure with pressure and external critique has traditionally been met with defiance. In 1830, France angrily protested against czarist Russia's violent crushing of an uprising in areas including present-day western Ukraine and the Baltic states. Paris even threatened military action.

Renowned Russian poet Alexander Pushkin penned a response in a poem entitled "To the Slanderers of Russia." "What are you sounding off about, you orators of nations? Why do you threaten Russia with anathema? Leave off: It is a battle of Slavs amongst themselves, a domestic, ancient quarrel, already weighed by fate. A question you will not decide."

Russia's recent reaction to European and US sanctions was not dissimilar. Putin announced that he intended to open an account with Rossiya Bank, which had been targeted by Washington, and Kremlin advisors expressed pride at having been included on the list. Fully 353 of the 450 parliamentarians in the Duma published a request that they too be added. Not much would seem to have changed in Russia since the times of Pushkin. more

German companies worry about sanctions spiral

Rayna Breuer / asb  25.03.2014

A new week of Ukraine crisis management has just begun and German companies are nervously following negotiations. Further sanctions against Russia could have serious consequences for foreign investors.

US president Barack Obama has shown himself to be determined and energetic during his European trip. "We are united in imposing a cost on Russia for its actions so far," he said in Amsterdam after meeting with Dutch Prime Minister Mark Rutte.

According to Obama, the West will impose stronger economic sanctions against Russia. And he seems to be convinced that this approach will work. "Growing sanctions will bring significant consequences to the Russian economy," he said.

But European partners are more skeptical about Obama's plans. After all, they have far more to do with Russia than the United States and further sanctions could have a negative impact on their business. Whether it's the tourism industry in Greece and Cyprus or the financial market in London, Europeans seem a little more reserved when it comes to economic sanctions against Russia.

When capital stops flowing

German companies fear that stronger punitive measures could result in higher costs. And listening to German business executives for the last couple of days, it seems there is much at stake for the German economy.

"We are already feeling the impact of the exchange rate of the ruble," Opel head Karl-Thomas Neumann told German car industry newspaper Automobilwoche. According to Neumann, Russia will have the largest automobile market in 2020.

And others are alarmed as well. "If you campaign for sanctions against Russia in the current debate then you play with fire," said Martin Sonnenschein, a central Europe consultant with management consultants A.T. Kearney. "The consequences for the German economy and society's prosperity would be fatal." According to Sonnenschein, investing in Russia now means taking big risks.

Throughout the Crimea crisis, the European economy has seemed to be walking on eggshells. For now at least, companies exporting to Russia or investing there have lowered their expectations. "2014 was supposed to be a really good investment year for German companies in Russia," said Volker Treier, Deputy General Manager at the German Chamber of Industry and Commerce (DIHK).

"But now investments are being postponed and some are being thrown in the trash. Capital is flooding out. And even German banks are now categorizing Russia as a risky business partner and giving out fewer credits." Preparing for the worst and hoping for the best seems to be the common approach of foreign companies in Russia.

Is fear of sanctions justified?

According to financial expert Jürgen Pfister, individual companies will be affected but the economy as a whole is not at risk. "The importance of foreign trade between Germany and Russia is actually too minor to let it become a problem," he said.

Russia only contributes 3.8 percent to Germany's total exports. In 2013, exports to Russia totaled only 38 billion euros ($52.5 billion) out of a total export amount of over one trillion euros. German investment in Russia is estimated at 1.8 percent of the country's total foreign investment.

Even though the numbers speak for themselves, Volker Treier is not as optimistic and is thinking about the possible consequences of further sanctions. According to him, Germany as a national economy would be able to handle further sanctions "but it will cause damage. In this country every third job depends on export. And if people are talking about sanctions, then this affects almost 400,000 jobs in Germany."

Moscow presents itself confident

So far Russia seems unimpressed with what the heads of states and governments of the G7 countries are planning in The Hague. Yuri Kovalchuk, chairman of Russian bank Rossiya, said on Sunday (23.03.2014) that the US sanctions have even brought him new patriotic Russian customers, including Russian President Vladimir Putin himself.

However, Russia is vulnerable. The country would be severely affected by trade restrictions with the west, according to Pfister. "All revenues from export come basically from sales to the West. If those were to be at risk, then the economic boom in Russia, which has already been weak in the past years, would be at risk as well," he said.

That's one of the reasons why Russia will have to think twice about if and for how long they can afford to turn off their gas deliveries. The EU commissioner for energy, Günther Oettinger, does not expect Russia to cut back its gas supply to Europe during the course of the crisis in Ukraine.

"I don't think the Russians are interested in that," he told German business news magazine Wirtschaftswoche in an interview published on Saturday. "Gazprom is interested in daily sales revenues," he said.

According to Oettinger, Russia needs not only the revenues but also investment from the EU. "It would be in Russia's interest that German cars are not only built in [the German cities of] Ingolstadt and Sindelfingen, but that new locations in Russia are created as well."

If both sides start piling up their threats, there will be more losers than winners in the end, which is why experts call for calm. "If Russia limits itself to annexing Crimea but agrees not to intervene further in Ukraine we should back away from tougher economic sanctions," said Pfister. That would be the pragmatic approach that would help stop the crisis from getting worse. The question is whether both sides will stick to this approach. more