26 July 2014

Will the EU Bark or Bite?

Bogdan Scurtu

The downing of MH17 caught Western governments unprepared. Mounting evidence on Russia’s role in the airliner attack and public disgust with the way pro-Russian “rebels” handled the bodies, complicate both Russia’s stance as well as EU’s foreign policy response. The conflict unfolds at a sensitive time when most EU members are in a fragile post-recession recovery. Russia supplies one-third of EU’s energy needs and is a lucrative market for EU products.

The July 17 tragedy comes after a string of “successes” by pro-Russia separatists in shooting down Ukrainian airplanes on July 16, July 14, and June 14. Voice of Russia bragged about pro-Russian militants capturing a Ukrainian anti-air military installation that was equipped with Buk surface-to-air missiles on June 19. Putin admitted that the “little green men” who appeared overnight in Crimea on February 26 (five days after former President Yanukovich fled Ukraine) were Russian soldiers but maintains that those who are acting similarly in Eastern Ukraine are not under his command. Russia has threatened Ukraine’s territorial integrity in the past.

EU Divided on Sanctions

The initial EU response was clumsy and exposed deep divides among the 28 member states. Brussels implemented sanctions so far only against Russian individuals, leaving out tougher sanctions against Russian businesses.

The UK, the Baltics, and other Eastern European states called for a strong response against Russia. British PM David Cameron wants “hard hitting sanctions” against “cronies and oligarchs” from Putin’s circle as well as Russian businesses: “Russia cannot expect to continue enjoying access to European markets, European capital, European knowledge, and technical expertise.” He also called France’s sale of two Mistral helicopter carriers to Russia “unthinkable.” Lithuanian foreign minister Linas Linkevicius said that shooting down the plane was a “terrorist act” and that by adopting a weak position, the EU is “becoming part of the problem, not of the solution.”

On the other side lie the economic interests of powerhouses such as France and Germany. “Hypocrites! … when you see how many oligarchs have sought refuge in London, David Cameron should start by cleaning up his own backyard,” said Jean-Christophe Cambadelis, head of France’s ruling Socialist Party. President Hollande vowed to go on with the €1.2bn deal and deliver the first of the two Mistral carriers to Russia in October. Delivery of the second carrier in 2015 will “depend on the attitude of the Russians,” according to the French President.

Russian Deputy Prime Minister Dmitry Rogozin poked fun at France, saying it needed the sale more than Russia: “This is billions of euros […] the French are very pragmatic … Suspension of the deal would be less damaging for Russia than for France.”

Germany had a more reserved position towards Russia. German exports to Russia totaled over €36bn last year, and figures published by Der Spiegel show that the current crisis could endanger up to 25,000 jobs in Germany. “Russian customers have begun looking for suppliers outside Europe,” said foreign trade expert Ulrich Ackermann. In addition, the country imports more than a third of its gas from Russia. German energy minister Sigmar Gabriel sees “no sensible alternative” to Russian energy imports for now.

The Netherlands, the country with the most MH17 victims, took a weak position. Dutch PM Mark Rutte said that all sanctions “political, economic, and financial … are on the table” against Russia. However, Dutch opposition leader Alexander Pechtold was more moderate and told the New York Times, “We are a small country, dependent on our exports, and unlike the United States, we cannot always react from our moral high grounds.”

EU Economic War Preparations

The EU Observer gained access to a leaked paper detailing “stage three” sanctions on Russia. The sanctions are grouped in low, medium, and high intensity scenarios. They range from luxury goods “restrictions” in the “low-intensity” scenario to an all-out economic war that includes prohibition of investments in Russia, and an import ban on oil and gas. EU Commission President José Barroso told the press that his energy department is conducting “stress-tests”  without Russian gas for EU member states. The results are due in October. Two German and Dutch trade associations representing firms active in Russia announced that the entrepreneurs they represent are ready to withstand economic losses from the sanctions.

The Guardian released an “economic meltdown scenario” if EU implements all the sanctions, quoting senior economist Adam Slater of Oxford Economics. Slater estimates that oil prices would reach above $200 a barrel and trigger a return to recession, high inflation, and low consumer confidence. Russia’s energy exports would be cut by 80% and its economy would collapse with a $300bn hole in its $420bn annual budget.

SanctionsEU Commission on EU’s “Stage Three” Sanctions, April 2014

Putin’s House of Cards

Putin was a mid-level KGB agent with lackluster results, known mostly for his talent to create legends. He is implementing the Eurasian doctrine of Aleksandr Dugin, dubbed in the West as Putin’s Rasputin or Putin’s Brain. Constructed on anti-western prejudices and conspiracy theories, the doctrine sees an epic confrontation between a Slavic-Turkic Eurasian empire (which includes Turkey and Iran) and a morally corrupt West. His revisionist history sees continuous conspiracies and battles since Roman times between cosmopolitan maritime powers and conservative land-based societies. In this story, Putin is the defender and savior of Christian spirituality and conservative morals. To his Western disciples such as Gábor Vona in Hungary, Marine Le Pen in France, and even American libertarian conspiracy theorists, Putin is the last bastion against “the New World Order” and corporate dominance.

Putin has a symbiotic relationship with powerful oligarchs. Russia’s GINI coefficient measuring income inequality is 40.1 as opposed to EU’s 30.4 (1 shows a perfect egalitarian society, and 100 shows a society in which one individual owns the entire wealth). His lack of tolerance of any dissent through “both crude and sophisticated forms of media management” earned Russia the press freedom score of 81/100 (100 being the worst). Putin increased the fine for participation in “unsanctioned rallies” a thousandfold, from $9.15 to $9,150, and mandated foreign funded NGOs to register with the Justice Ministry as “foreign agents,” a somber memory of Stalin era paranoia. The stubborn refusal to accept pluralism makes Russian society increasingly fascist.

Putin’s narrative of defending Russian ethnics outside the “motherland” is one of his legends. There are no documented atrocities or discrimination against Russian ethnics in Ukraine, just like there was no discrimination against Russian ethnics in Georgia back in 2008, or even earlier in Moldova in the ‘90s. In all three cases, Russia sent its military to intervene under the pretext of defending Russian ethnics, whenever a pro-Western government came to power.

428px-Vladimir_Putin_caricature_by_DonkeyHoteyPutin caricature by DonkeyHotey source: © World Economic Forum via Wikimedia Commons

The massive uprising of Russian ethnics in Eastern Ukraine never happened. While thousands of Russian ethnics fleeing the war in Ukraine took refuge in Russia, increasing numbers of Russian dissidents are fleeing in the opposite direction, seeking asylum in Ukraine. According to George Friedman from Stratfor, the latest events in Ukraine show Putin as a “dangerous incompetent supporting a hopeless insurrection with wholly inappropriate weapons.”

Putin’s choices in escalating the conflict have the potential of triggering economic war that might depose him of its most powerful weapon: EU dependency on Russian gas.

Friedman points to the precedents of opaque coups in Moscow. Khrushchev was replaced by his protégé after the Soviet Union was publicly humiliated in the Cuban missile crisis, and Yeltsin was replaced after Russia’s will was disregarded in the Serbia and Kosovo affairs. Most importantly, both presidents also failed to move the economy forward. Ukraine could be Putin’s public humiliation. Even without the “global financial meltdown” scenario, Russia’s economy will see zero growth this year. Could Putin be deposed like Khrushchev for “harebrained scheming” that is, irresponsible behavior? Probably not. However, he may be forced by the EU and the US to pull back, and that would weaken Putin.

EuroPoint: Western sanctions against Russia in response to the shooting down of MH17 have the potential to humble Putin. The question is: will the EU bark or bite?

Copyright © GSJ & Author(s)