Tuesday, April 01, 2014

Europe and Russia: Continental divide?

In annexing Crimea, President Vladimir Putin violated a powerful post-1945 taboo against incorporating other countries’ territory into your own. So far, not only does he seem to be getting away with his land grab, but he has moved on to demanding that Ukraine becomes a looser federation and gives Russia a veto over its international relations. The EU and the US should be united in rejecting this attempt to reduce Ukraine to a satellite of Russia; and they should ensure that any larger ambitions Putin may have are contained.

Putin’s March 18th speech to Russia’s Federal Assembly should have triggered a comprehensive reappraisal of the West’s relationship with Russia. Through it ran a worrying thread of ethno-nationalism. Putin claimed that in creating Soviet Ukraine after the Russian Revolution, the Bolsheviks incorporated in it territory from the “historical south of Russia”, inhabited by ethnic Russians. He expressed his resentment that Russians had become the world’s largest “divided population” after the fall of the Soviet Union. And he spoke of “the striving of the Russian world, of historical Russia, to re-establish its unity”.

The West has consistently underestimated the extent to which Putin means what he says: he told George W Bush in 2008 that Ukraine was “not even a state”, and he is now acting accordingly. In 2006 he said that Russian ‘peacekeeping’ forces would stay in the Georgian separatist regions of Abkhazia and South Ossetia despite Georgian “provocations”; in 2008, using the excuse of such provocations, Russia took military action against Georgia, effectively annexed the two enclaves and strengthened its forces there. In 2005 Putin denied that Estonia had been occupied by the Soviet Union after the Second World War, and suggested that it had only existed as an independent state between 1918 and 1939 because of a deal between the Soviet Union and Germany (when in fact it fought a war of independence to escape from Russian control).

Despite Estonia’s NATO and EU membership, the West should not wholly discount the possibility that Putin still thinks of the independence of the Baltic States as a mistake that could be reversed. Indeed, Andrei Illarionov, a former senior economic adviser to Putin, believes that Putin’s ultimate aim is to re-establish Russia’s rule over the lands it held before the 1917 revolution – which would include Finland, the Baltic States and part of Poland as well as the former Soviet Union.

Given the state of Russia’s economy, such a goal would be pure fantasy; but Eastern and Central Europe, as well as Russia itself, would suffer enormous damage from any attempt to make it a reality. Both the EU and NATO need therefore to take measures to deter further intervention by Russia, whether in Ukraine or elsewhere; to reinforce the freedom of action of allies and partners in Europe; and to encourage change in Russia itself.

The immediate need is for deterrence. The Western response has to change Putin’s calculus. The US and Europe need to make clear that if Russia moves into more Ukrainian territory, they will deny Russian financial institutions access to dollar- and euro-denominated financial markets in a way that will cause serious damage to the Russian economy and specifically to the elite around Putin. Russia’s economy barely grew last year, and the World Bank has forecast a contraction of 1.8 per cent and record capital flight of $150 billion this year (capital flight in the first quarter of 2014 was $70 billion). As a result of the Ukraine crisis, Russia’s cost of borrowing is rising, and downward pressure on the ruble will lead to increased inflation. But these effects may not last if the West returns quickly to business as usual.

It will be hard to get agreement on more comprehensive economic sanctions against Russia, particularly in the EU, where countries like Italy (heavily dependent on Russian gas and industrial contracts) and Cyprus (still tied to Russia through its off-shore financial services sector) will resist. Germany is Russia’s largest trading partner in Europe, and German businesses would clearly prefer to avoid further action against Russia; a number, including Siemens, ThyssenKrupp, Adidas and Deutsche Post have publicly criticised the EU’s approach. The German government is sending mixed signals, with Vice Chancellor and Economy Minister Sigmar Gabriel telling ARD TV that Germany did not want sanctions but had to show that it did not accept Putin’s “imperial policy”.

The risk is that the limited measures taken so far and the obvious divisions in the EU may lead Putin to think that the West will in the long term tolerate action in Eastern and Southern Ukraine as well as Crimea. One element in achieving agreement on tougher sanctions may be a ‘solidarity package’ to support states which would suffer disproportionately from their imposition, at the expense of others who are less affected. Lithuania is already feeling the economic impact of Russia blocking some imports via the port of Klaipeda; and the Latvian Prime Minister has indicated that in the worst case scenario a total shut off of trade with Russia could reduce Latvia’s GDP by 10 per cent.

Deterrence should not be limited to financial steps. Though the immediate threat is to Ukraine, Russia has also made threatening moves in the Baltic, with surprise military exercises including amphibious landings in its Kaliningrad exclave. In an interview with German ARD TV on March 23rd, German Defence Minister Ursula von der Leyen urged increased NATO support for the Baltic states. She was right. NATO has already increased the size of its air policing mission, based in Lithuania (the UK will send four aircraft to join the mission in April), and the US has moved 12 F-16 aircraft to Poland. But so far NATO has not deployed any ground forces in the region. It should place small multinational contingents near the eastern borders of the Baltic States and Poland, as a visible statement of intent to live up to NATO’s Article 5 commitment to assist any ally subject to armed attack.

President Barack Obama and other Western leaders have made a serious mistake in categorically ruling out military involvement in Ukraine on the grounds that NATO’s security guarantee does not cover non-members. In doing this, they have reassured Putin that the West’s reaction will be diplomatic and economic; knowing that so far the EU has been split on imposing tough sanctions, he may feel that the price of further intervention is worth paying. Obama might instead have reminded Putin that Kuwait was not a NATO member, but the US-led coalition nonetheless intervened to restore its independence when Iraq sought to annex it in 1990. Western leaders should follow the Royal Navy motto: “Si vis pacem, para bellum” (“If you want peace, prepare war”). They should state publicly that if Ukraine were attacked and called for assistance in exercising its right to self-defence, they would be ready to deploy NATO forces. And to underline that this is more than empty rhetoric, they should open discussions with the Ukrainian government on concrete arrangements for such a deployment.

If such deterrent measures succeed in preventing any rash Russian action in the immediate future, they will still leave a changed security picture in Europe. A quarter century of (relatively) low levels of tension between the major powers in Europe is over. As long as Putin or others with similar views are in power in Russia, there will be a military and political threat to Russia’s neighbours.

In the 1997 NATO-Russia Founding Act, NATO stated that “in the current and foreseeable security environment”, it would carry out its missions without “additional permanent stationing of substantial combat forces”. Both sides agreed to respect the “sovereignty, independence and territorial integrity of all states and their inherent right to choose the means to ensure their own security”. NATO should announce that it is revisiting its policy in view of the changed situation. It would be imprudent for the alliance to abide by an agreement that Russia has abandoned.

NATO should review its relations with Georgia and Ukraine. Obama was clearly trying to reassure Putin when he said after the EU-US Summit in Brussels on March 26th that Georgia and Ukraine were “not currently on a path to NATO membership”; but he was ignoring the fact that successive NATO summits since 2008 have said that the two countries “will” become NATO members. NATO could withdraw that commitment, but that would merely reinforce Putin’s sense that former Soviet states are his to deal with as he wishes.

Georgia has consistently backed NATO membership and has been a major contributor to ISAF in Afghanistan; it should be rewarded at the NATO Summit in September with a Membership Action Plan (MAP) and a clear and short pathway to full NATO membership. There has never been a popular majority in Ukraine for joining the alliance, but after the Presidential election in Ukraine, once a new government is in place, NATO should discuss with Kyiv how the NATO/Ukraine relationship should develop. At least one recent opinion poll in Ukraine shows a sharp increase in support for NATO membership since the Russian intervention in Crimea, but at this stage membership remains a divisive issue and an unnecessary distraction from solving pressing economic and political problems.

The threats to Europe’s neighbourhood are not only or even primarily military. The prospects of all the EU’s Eastern Partners (Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine) have been blighted by corruption, poor governance and economic mismanagement. Ukraine would not have been so vulnerable either to internal instability or Russian meddling if it had been better governed and economically stronger. Moldova, though less corrupt than Ukraine, is still in 102nd position in Transparency International’s annual ‘Corruption Perceptions Index’. Georgia has done considerably better, but the rule of law is still weak there. And all three countries, lacking Russia’s mineral wealth, remain relatively poor.

Ukraine will need massive international assistance simply to meet its obligations this year; but financial aid should come with strict conditions, and with hands-on technical help. The priorities are to make state finances transparent and limit the opportunities for corruption; to establish courts that decide cases on the basis of laws, not in favour of the highest bidder; and to sort out Ukraine’s energy sector.

Ukraine’s gas industry has been a notoriously corrupt sector in a notoriously corrupt country. Energy inefficiency reduces competitiveness and increases dependence on Russia. Before the overthrow of President Viktor Yanukovych, the Ukrainian government had signed contracts with a number of Western oil majors to explore for both conventional and shale gas. Over time, these will enable Ukraine to buy less Russian gas; but reducing wasteful consumption will bring benefits more quickly and at lower cost. EU member-states like Denmark and Sweden have already identified energy efficiency as a priority area for investment.

A number of EU countries, particularly in Central and Northern Europe, are even more dependent than Ukraine on Russian gas. Reducing this dependence will take time, but is vital if the potential for Russia to use gas as a geopolitical tool is to be reduced. In a forthcoming CER insight Stephen Tindale will set out the options in detail. Europe needs more LNG terminals, and freer access to LNG, including from the US (which, thanks to shale gas, now has a surplus of gas). It needs more interconnectors, both for gas and electricity, particularly between the countries of Central Europe. These countries rely on pipelines from Russia but are largely isolated from each other and from other sources of gas and electricity. Interconnectors would support diversification, increasing both security of supply and competition. Europe needs more pipelines from the Caspian Sea and Iraqi Kurdistan. And it needs to overcome its fear of fracking and of nuclear power.

Europe is also losing the propaganda battle with Russia, not only in Ukraine but in some EU member-states. Russia has a number of means to get its messages across. Many Western articles on events in Ukraine are influenced by Russian reporting on the supposedly deep linguistic and ethnic divide between Eastern and Western Ukraine – a divide which Ukrainian census data shows is very blurred. Because Russian leaders constantly repeat that the Crimean ‘referendum’ reflected the will of the people, most Western media are now uncritically reporting this line without commenting on the shortcomings in the process. Outlets like RT, the Kremlin-controlled English language TV channel, though ridiculed by experts for their misinformation, still get quoted in social media; their views are given the same value as more objective journalism. And Western populists and anti-Europeans, including Nigel Farage of the UK Independence Party and Lord Tebbit of the Conservative Party, are promoting the Russian narrative that EU ‘expansionism’ has created the problems in Ukraine.

Western media should not stoop to propaganda, but Western governments should be more active in ensuring that objective information is available – including through direct engagement on social media. The US embassy in Kyiv has done a better job than most of trying to counter propaganda directed at Ukraine; the EU Delegation there could do a lot more. If Russia’s version of the story is allowed to dominate, it will foment division not only in Ukraine but also in Latvia and Estonia, where Russian TV is widely watched; and Western publics will be less likely to back strong action if Russia continues to expand into its ‘historical’ territories.

A return to some form of implicit containment and East-West competition may be the most likely short- to medium-term scenario, albeit this would (and should) fall far short of a comprehensive ‘Cold War’. But much better in the long term, both for the West and Russia, would be a constructive, win-win relationship. This seems out of reach as long as Putin is in power, or the oligarchic concentration of political and economic power around the Kremlin and the securocrats continues. Putin has been paranoid about attempts by the West to engineer a revolution against him. Perhaps it is time the EU gave up trying to reassure him, and instead worked on a long-term programme to support democratic change in Russia. Elements of this might include:

* Strong enforcement of the international ‘rules of the game’, including in the WTO. EU member-states should also make full use of existing anti-corruption and anti-money laundering legislation, and publicise examples of those in Putin’s circle who have grown rich in suspicious circumstances (the explanation by the US Treasury of the links between Putin and some of those sanctioned by the Americans in relation to the annexation of Crimea provides an excellent model).

* Investment in the next generation of Russians through scholarship schemes and increased links between universities. The more that ordinary Russians are exposed to the realities of life in the West – and particularly in former Communist countries which have benefited from economic and political reform – the harder it will be to mislead them with propaganda, and the more they will understand how free societies work.

* Support for small and medium enterprises (SMEs) in Russia. SMEs suffer from weak rule of law in the current system; entrepreneurs have a strong interest in change. There is funding available for help to SMEs in the framework of the EU-Russia ‘Partnership for Modernisation’, but there should be more.

* Support to civil society organisations – not necessarily political ones, but those working in areas such as protecting the environment, aiding vulnerable groups or identifying and combating corruption. This would be deeply unpopular with the Russian government, which has tried to brand NGOs that work with international donors as ‘foreign agents’, but it should be left to the NGOs themselves to decide whether to run the risk of taking Western funding or advice.

* Long-term political and economic engagement with Russia’s neighbours. If the EU can help the countries of the Eastern Partnership move from basket-cases to success stories, that will show that post-Soviet countries, including Russia, have alternatives to the way they have done things for the last 20 years, and undermine Putin’s argument for the system he has created.

* Consistent messaging to Russian society that it was not democracy and the free market that left Russia chaotic and impoverished in the 1990s, but the legacy of autocracy and communism, the worst elements of which Putin is now perpetuating with his imperial adventures.

Ian Bond is director of foreign policy at the Centre for European Reform.

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