European Dis-Union

Image by Henrique Oscar Loeffler via Flickr

What is happening with the European Union? For some time, it has been abundantly clear that the core countries of the EU, Germany and France, were intent on controlling the organization both politically and economically. Germany, the economic power in Europe, has clearly tried, more or less successfully, in bending the union to its needs and desires. France is a distant second on the team but still retains a certain amount of leverage over the direction of EU policy. The Greek financial crises revealed the key fissure affecting both concept and practice – self-interest. Germany became the indispensable player. In doing so, Brussels has been sidelined for major issues. Perhaps permanently.

The EU, founded in part to undermine the foundations of nationalism that had inflicted two major wars in the 20th century, is now closing the circle. As a unified economic union it has worked rather well – until now. The protection of NATO, led by the United States, provided the necessary cover to allow economic reforms resulting in unprecedented prosperity and wealth within the union which did not need to fund military expenditures. Once the Soviet Union crashed and burned, the EU could rapidly expand to bring former satellites of the Kremlin inside the club. Again, the existential threat to Europe having vanished overnight, allowed it to concentrate on rapid economic growth, presumably as a bloc, without concerning itself with military expenditures. Expansion was rapid, but then hints of political issues, based on national interests, began to rise to the surface.

The first clear sign of cracks in the unified system were political. The proposed constitution, a mammoth, 400 page tome, was seen by Eastern Europe – particularly Poland, as changing the rules of the game mid-stream. Ireland was the first to vote it down. Although eventually enacted, this document was not a constitution. It was another treaty. In other words, the constitution was a contractual relationship among individual nations. Contracts can be broken, but more importantly was the underlying glossed-over issue of nationalism that the European Union was established to abolish.

Then came Iraq. The key players in the EU, Germany and France, are also key members of NATO. They split, sharply, with the Bush administration over Iraq and the imperial attitude of that administration which flaunted a “with us or against us” childishness in foreign policy that made opposition to the war very, very easy. In no small part, Eastern Europe, and particularly Poland, supported US foreign policy because they needed a balance to the Franco-German alliance within the EU which was threatening to develop a robust relationship with the Russian Federation. European Union cohesion began to unravel at a faster pace.

Nationalism has now risen from the dead. France and Germany, both vying for a leadership position in Europe, appear to have subordinated the goal of the union to purely national interests. Germany under Merkel has increased its dependence on Russian energy supplies to an extent that makes it difficult to criticize, much less resist the more aggressive tendencies of Moscow. This is of particular concern to Poland and the Baltic States – EU members - given their prior experience of deal-making between Russia and Germany.
France has not mirrored the nationalism of Germany, but it also is clearly acting in its own interests when it announced the sale of one or more Mistral class ships to Russia – the first such sale of reasonably advanced military hardware by a NATO member to the Russian Federation. The sale – which has yet to be finalized – did not go down well in the Baltics, or in Georgia.

The Russo-German love affair has alarmed the Eastern European member states enough to send their governments into the bomb shelters of national interest as opposed to those of the EU. If the precedence of national over European goals is good enough for Germany and France, it is just as appropriate for Poland, Estonia, Lithuania, Latvia and Romania.

Greece tripped the nationalism wire completely. Andrea Merkel fomented an anti-Greek atmosphere in Germany for purely political, national reasons that made any sort of unified assistance by the other member states much more difficult. Germany, she clearly implied, would call the shots on any rescue plan. The Greeks were lazy, as compared to good, hardworking Germans, and could not be trusted. Her fulminations resulted in an electorate that not only does not care about Greece, but dislikes it. Now, when forced to lead the bailout, Merkel must backtrack – which resulted in the loss of an important bi-election and damaging her party’s ability to run the country alone. Hoisted on her own petard. And she is not alone in Europe.

Leaving aside the fact that the financial collapse of Greece was entirely self-inflicted, Merkel casually ignored the detail that German representatives occupy some lofty posts in the financial regulatory councils of Brussels who somehow missed the evidence of the approaching melt-down. Germany was going to run the show now for the good of Germany. The attitude was noted in Warsaw, Madrid, Rome and Ankara. The latter, though not a member largely because of the prejudices of the French, Germans and, as always the Austrians, has been given a taste of how it will be treated if the opposition to Turkish membership is ever overcome.

What has happened with the financial crises in the euro-zone is that Germany has essentially changed the deal - one member’s problems are not those of the EU. The union was established as an economic zone, and not a United States of Europe. Gradually, the idea of being a citizen of Europe took over. Without a deep crises, this political concept worked well despite the fact that it was never intended to politically integrate each member nation. With the financial crises in general and the Greek collapse and bailout in particular, the unity of the EU has been shattered despite the rescue plan. The entire episode firmly establishes the lack of a unified foreign policy within the EU. This inability to formulate a consensus approach in foreign affairs is not new. It has merely been below the event horizon for most of the last 50 years. Not any more. The interests of Germany, France, Poland and the southern tier of states are not congruent and in many cases are in direct opposition to each other.

From a foreign policy standpoint, the charade of a unified European approach as a balance to the US, however admirable, has vaporized. The election in the UK resulted in a coalition government, however long it lasts, that is led by a strong Euroskeptic crowd which the LibDems will not be able to overcome. Brussels will find it hard to maintain the appearance of unity, much less a unified foreign policy approach, in a firmly nationalistic Europe.

Ukraine Election 2010

Image via Wikipedia

The loss of Ukraine to Russia following the election of Yanukovich on Sunday will significantly change the geo-political map in Eastern Europe and the Caucuses.

Assuming that the recent election process change by the Party of Regions in the Rada repealing the requirement that representatives of both candidates be present to supervise vote counting at polling stations is exactly what it seems - an effort to forestall any challenges to the vote due to fraud and the final destruction of the Orange Revolution forces - then the game is over.

In Eastern Europe, Poland and the Baltic States have good reason to become alarmed as Russia regains its historical base in Ukraine. A new line will be drawn and without support from their EU counterparts in Western Europe - particularly Germany -these NATO countries will be looking toward a virtually bankrupt Britain and the overstretched United States for bilateral support. Other than words, the US has committed to major military games in the Baltics during 2010 - a not so subtle hint to Moscow that the annexation of territory from Georgia is significantly different from similar attempts in the Baltics - all of which are NATO members.

The role of non-EU members will need to be ramped up in Eastern Europe to fill the compromised economic positions of Germany - dependent on Russia for energy - and France - whose President is more than easily persuaded to follow purely economic interests (e.g. potential sale of a Mistral class ship to Russia). After Sunday, Europe will be looking at a resurgent Russian Empire in the east - and not a democratic one.

In the Caucuses Georgia now stands alone following the loss of Ukraine to Russia. Previously an important ally, the two countries worked in tandem in opposing Russian expansionism. The relationship now could turn confrontational. Yanukovich was fiercely pro-Russian regarding the invasion of Georgia. When Yanukovich is elected it is likely that he will follow through on a promise to recognize Georgia's rebel regions as independent states. Moscow recognized South Ossetia and another rebel region, Abkhazia, as independent after the war, a move that has so far been followed by only Nicaragua, Venezuela and the Pacific island state of Nauru. This would be an easy foreign policy decision for Ukraine and would be an immediate sign that Ukraine will cooperate with Russia's foreign policies. Even Belarus has refused to take this step, to the annoyance of Moscow.

Turkey will also need take a deep breath as it is Russia's only strong regional competitor. Russia has been calling the shots in the Armenia/Azerbaijan talks. Armenia is already a client state of Russia and Azerbaijan is furious with its cultural brother, Turkey, for attempting to normalize relations with Armenia without resolution of the Ngorno Kharabach dispute. Turkey will need to balance its economic interests with its now much more powerful neighbor in the north against US hopes that Turkey would be a powerful buffer. Also, the Armenia normalization issue will be put on the back burner simply because of Russian control of the negotiations will push Turkey to expand its considerable influence in the Middle East. The continuing opposition to EU membership by France and Germany will add to a Turkish foreign policy emphasis away from Europe and a geo-political settlement in the Caucuses with Russia.

Distant from the borders of Russia and Ukraine, expect the acceleration of NATO membership of Montenegro which will leave Russia's sole ally in the region, Serbia, completely surrounded by NATO members. Additionally, as a move to protect the Baltic States, Sweden will likely move closer to NATO and increase its influence in the Baltic region while the US Defence Department has announced a realignment of forces in Europe to account for the North Atlantic Treaty Organization’s changing role and security issues such as events of the last couple of years in Georgia.

Following Sunday the map changes, which will mean a realignment of foreign policy objectives by Europe and the United States.

Aside from that it is a very sad day for Ukraine as under Yanukovich, a man with a criminal record who was unfortunately allowed to remain free after 2004 by the now disgraced Yushchenko, expect the media to be suppressed to please Moscow and for future elections to model themselves after the political structure of Russia.

Tough Times in the Baltics

Latvia is approaching an economic meltdown that could bring people out on the streets and the IMF is not helping the situation with its demands that collide with what the EU wants, and has received.

Latvia is not alone in Europe to feel the effects of the global recession, but it's recent failed bond sale back in June was, to say the least, eyebrow raising. All of Europe has struggled with stimulation plans that simultaneously increase budget deficits. For example, public debt in the UK was 52% of the GDP in 2008. Now,it is over 68%. Similar problems have appeared in Hungary, the Czech Republic, Spain and Estonia, to name a few.

Street demonstrations have became violent in Latvia at the beginning of 2009. As countries seek budget cuts to deal with deficits, demonstrations have increased in France and Greece.

Latvia's bond sale failure raised an issue with its monetary peg to the Euro (a requirement) prompting a demand by the EC to cut its deficit, which it did by dropping 10% from its pension funding. The EC then provided loan funds to help stabilize the economy. This is a tough decision, as cuts in social programs can easily translate into street riots. But, the EC required that 50% of the tranche be spent on shoring up the banking system.

Enter the IMF. They don't care as much about the banking system. So, their demand is a further cut in social programs - particularly in the pension system. This is asking for trouble and continues the history of the IMF demanding budgetary reforms which it knows, or should know, will result in social unrest. In the Baltics, of course, this plays into the hands of Russia which is happy to provide loans for political and not economic reasons.

The IMF is requiring changes that the EC does not. It is knowingly requiring budget cuts that will result in social unrest. During a global recession, this is certifiably stupid and I don't blame the Latvian Prime Minister Dombrovskis for saying "no".

Russia and the WTO

Russia has pursued a policy of creating an alternate universe, politically and economically, in a strangely confrontational manner. The recent withdrawal from WTO talks, coupled with the veto of the OSCE mission in the Caucuses confirms that it has no fundamental intention of cooperating with any organization or country that it considers a threat to its goal of reasserting its hold on what used to be termed its "near abroad".

This may be a mistake of huge proportions in the long term. It faces competition from China in Central Asia and in Europe, Putin's aggressive stance has been only successful in the short-term. The EU is now painfully aware that it's dependence on Russian energy is a serious problem since Russia is very willing to use it as a weapon to achieve its foreign policy goals. But, Nabucco will now go forward, China has just concluded a huge deal for gas with Turkmenistan and although Norway's recent discovery of a potentially huge reserve of natural gas will not come on-line for years, the short-term gains achieved so far by Moscow will be remembered in the long-term.

The recognition by Russia of Abkhazia and South Ossetia as independent states, accompanied by Lavrov's assertion that the world needs to accept "new realities", has focused the attention of the Baltic States and Poland (perhaps even Belarus) that Russian foreign policy as applied to its neighbors is not benign.

Withdrawal from WTO negotiations seems particularly gratuitous since membership has been a goal of Russia since the collapse of the Soviet Union. To tell the world that Moscow is the center of a new, multi-polar world in which the Russian Federation can do anything it wants within its sphere of influence will backfire. It's economy is not strong and would benefit by WTO membership, which might force it to broaden its economy beyond energy. It is surrounded by political and economic competitors who do belong to the WTO and are not inclined to accept Russian leadership.

Russian positioning is not earning it any friends, much less partners. Putin - and he is fooling no one - is in charge. Medvedev is a messenger. The message to Russia's neighbors is to tow the line or suffer the consequences - mostly economic, but with the threat of military intervention. Coupled with the death of anything that could remotely be defined as "democratic" makes the region, ultimately, less stable.