By the time the President Obama touched down in the Hague on Monday 24 March the United States and its European allies were already in a deep dispute with Russia. Urgent telephone calls to Putin by Merkel and Obama had failed utterly to dissuade him from his course. They were followed by public denunciations of Russia’s violations of Ukraine’s sovereignty and territorial integrity. Russia was twice isolated in UN Security Council meetings. Yet it remained defiant and mobilised to take more action of the same kind. What could the powerful western states do about it if it did?
Sanctions
Prior to Obama’s visit to Europe, his Administration and the EU heads of state had adopted economic sanctions against Russian and Ukrainian officials responsible for the takeover of Crimea. The US sanctions were harsher than the Europeans ones; they were targeted against members of Putin’s inner circle and Bank Rossiya, which serves the Russian elite. The European sanctions targeted some of the same officials, but overall they were aimed at fewer and lower level officials. During Obama’s visit to Europe, the G7 countries and the European Union vowed to ratchet up the economic sanctions if Russia further threatened Ukraine’s government or its territory.
The EU Association Agreement and the IMF standby loan
There were two actions taken by the Western powers that anchored the Ukrainian government more firmly into Western institutions. On 21 March, the European Union heads of state all signed the Association Agreement with Prime Minister Yatseniuk. At the request of the Ukrainian government they put aside the Deep Free Trade Agreement for further discussion. And on 27 March, the International Monetary Fund agreed to lend Ukraine up to $18bn. Its immediate aim is to provide emergency credit to the almost bankrupt government to help it make repayments to international creditors over the next two years.
This is the seventh standby loan that a Ukrainian government has received from the IMF since 1995. It contains the same provisions that were put in the past to the governments of Yuliya Tymoshenko and of Viktor Azarov. In return for the credit the IMF requires the government to raise prices for gas to consumers by 50% and to cut back state social expenditures in order to reduce the state budget deficit. The IMF requires the devaluation of the hryvnia, which has the effect of lowering the prices of Ukraine’s exports and of its domestic economic assets that can be bought by foreign investors. The devaluation of the hryvnia has been practically achieved already by the actions of international currency markets during the crisis.
The deeper aim of the IMF loan, which it shares with the terms of the EU’s Association Agreement, is to foster institutional changes that will make Ukraine more like a liberal market economy of the Western type. These are the kind of changes most of the people who took part in the Maidan want to see implemented as an alternative to the oligarchic capitalist system. However, from the point of view of the Western powers, such changes will also permit Western capital to participate in a more familiar, more predictable and safer institutional setting, and therefore more competitively against Ukrainian and Russian capital. Like the still unsigned Deep Free Trade Agreement with the EU, the IMF agreement also seeks to open up more sectors of the Ukrainian economy to long term foreign investment and acquisition of property, including land, the final frontier of this country’s conversion to the capitalist market.
The Group of Eight suspends Russia
At their March 24 emergency meeting in the Hague, the G8 countries suspended Russia’s membership in it indefinitely. However, they refrained from expelling Russia, holding out the hope that Russia will at some point be willing to resolve its differences with Ukraine through more peaceful negotiations. Consisting of the USA, Canada, Britain, France, Italy, Germany, and Japan, and since 1991 the Russian Federation, the G7/8 meets annually to discuss and agree action on important questions facing the global economy. For example, in 1989-91 it took the key decisions that initiated the integration of Central Europe into the European Union. Such decisions are financed and implemented by multilateral institutions controlled by the advanced capitalist states: the International Monetary Fund, World Bank, OECD and the EU.
Russian foreign minister Sergei Lavrov shrugged off the suspension, claiming the G7/8 is merely an informal gathering that is already outdated “because now that the G20 exists all matters of global economy are discussed within that forum”. Russia does indeed have the option to pursue its foreign economic policy goals through the G20. However, the actual sanctions will inflict some serious damage on Russia’s economy. As Mr Lavrov dismissed the G7/8 in the Hague, deputy economy minister Andrei Klepach was announcing in Moscow that Russia expects capital outflows of $65-70 bn in the first quarter of 2014, largely the result of Western corporations repatriating profits they originally planned to reinvest in Russia. That amount would exceed the $63 bn capital outflow for the whole of 2013. (FT 25 March 2014). On the other hand, flight of capital out of Russia is matched by repatriation of Russian capital from abroad, as Russian investors, including those already targeted by sanctions, scramble to protect their wealth.
NATO’s response
As the Russian intervention in Crimea got underway NATO added fighter aircraft to its forces already stationed in the Baltic states, Poland and Romania. Later, however, it turned down an appeal from the Kyiv government for military equipment and joint patrols over Ukraine’s airspace; it only agreed to provide 25000 ready made meals. On 23 March Phillip Breedlove, NATO Supreme Allied Commander Europe, warned that Russian forces were massed in very large numbers and in a high state of combat readiness on Ukraine’s eastern border, and that they were capable of quickly crossing Ukraine to Transdnistria. The Russian speaking majority there has called through a referendum ion 2006 for inclusion of its territory into the Russian state. Breedlove pointed to other countries in the region, both NATO members and non-members, whose Russian minorities could provide the same kind of justification for invasion of their host states as did the Russian population in Crimea.
Russia’s occupation of Crimea has ignited concern, particularly in Central Europe, that Russia may next send its forces across border into eastern Ukraine, or indeed into Transdnistria or one of the Baltic states. Such concerns have provoked calls – for example from US General Jack Keane, a Republican hawk – for NATO to move ground troops into its Central European member states in order to show Putin that NATO is ready to respond with force. At this point Western leaders and their strategists are entering a grey zone, where it is quite unclear just what kind of aggression should be deemed sufficient to trigger a NATO military response: an attack across Ukraine’s eastern border, an invasion of non-NATO Transdnistria, or an attack on a NATO member state like Lithuania?
Transatlantic unity?
The likelihood of NATO action against Russia, however, is unlikely because NATO member states are divided among themselves on the central issue of their collective security and of the relevance of Ukraine to it.
Since 1989-91 American grand strategy in the western side of Eurasia seeks to prevent Russia from reviving as a great power, to maintain an opposition between its European allies and Russia, and to keep its allies united and disciplined under US leadership. Indeed, a simple way to keep its allies on side has been to foment tensions over their heads between Russia and the USA. Encouraging NATO to expand eastwards towards Russia, for example, has served such a purpose; so has the attempt to install a missile system in Poland.
Russia’s strategy in turn has been to pursue distinct relations with Western European states, to develop economic co-operation and a security dialogue with them, but without the simultaneous involvement of the USA, and in the long term to decouple the leading West European states from the USA. Russia sees this decoupling as an essential step to a truly multipolar interstate system in which it has a strong voice.
Russia has made some progress through its diplomatic efforts, trade and investment to build strong relations with Germany, France, Italy, the Netherlands and other EU states. Thus the logic in the US strategy to keep NATO Europe, in the first instance Germany, and Russia apart. That is the way that American leadership of Europe is maintained.
However, it is not a simple matter to keep Russia and Germany apart on a European subcontinent that is now capitalist from east to west, linked by trade and investment. Germany relies on Russia for one third of its gas imports. Gazprom has been investing in downstream German utilities for twenty years. Together with German partners it has built the Nordstream undersea pipeline to link the two countries, bypassing Ukraine. It was no accident that on the day Obama addressed European dignitaries in Brussels, Joe Kaeser, chief executive of Siemens, Germany’s biggest engineering company and supplier of many products to the Russian economy, was sitting down to a meeting with Vladimir Putin in Moscow. Kaeser had come to reassure Putin that Siemens remains committed to its long term investments in Russia. German companies in all have invested some $20bn in Russia. Total trade between the two countries exceeded 76 bn euros last year, approximately the same amount as Ukraine’s combined private and public sector external debt.
Thus Obama on his visit to the Hague and Brussels sought to bring his European allies into line, to get them “to speak with one voice” to the Russians. He also chided them for their declining investment in their own security since 2008 (from $200bn to $170bn a year), and to say that the present crisis obliges them to reverse this decline.
The Ukrainian crisis now serves as a barometer of unity for the transatlantic alliance. It will show what binds the alliance together, how much its members are prepared to do together and by what means. Will the Germans lead the other Europeans in an effort to resolve this conflict through diplomatic and economic means? Or will the US call such methods inadequate or even appeasement, and instead try to persuade its allies to apply the threat of NATO’s force against Russia? Or, on the other hand, will the US bypass NATO and rely on its closest European allies – Britain, Poland and other Central European member states to fashion a new “coalition of the willing”?
And in the long run, will the Ukrainian crisis reinforce the bipolar opposition between Russia and the transatlantic alliance, or will the European states in the alliance become more divided in their response to it?
Conclusions and proposals
These initial political, economic and military responses of the Western states exert little real pressure on Russia to desist, and they anchor Ukraine in Western institutions in ways that give away little, but expect a lot of a government struggling to hold on: more debt from the IMF attached to conditions that cannot be realized without driving the oligarchs out of power; and association with the EU that offers no path to actual membership in its institutions, only participation in its market on patently unequal terms. These terms may be acceptable to the interim government, but they do not contribute to a resolution of the crisis that serves the aspirations and the interests of the millions of people of Ukraine.
Rather than saddle the Ukrainian people with more debt, the government should be calling for the cancellation of existing debts. The international creditors have earned their interest on these loans many times over. The oligarchs’ wealth in offshore locations should be repatriated t replenish the state budget so that it can preserve, rather than cut public expenditures on health, education, pensions, and support for the poorest in society.
NATO moving east, strengthening its forces in the member states only raises the danger of a military escalation by the Russian side. If NATO were to move into Ukraine in response to a Russian invasion the country would be split in two and placed under two military regimes. Now, that would encourage the Ukrainian and the Russian far right forces to pursue their respective dreams of nationalist dictatorships! Rather than provoking a military confrontation between NATO and Russia, we need a pan-European security order that includes Russia, Ukraine, Poland and all the other countries on both sides of the present divide.
Yes to integration with the European Union by way of an Association Agreement that offers a path to membership!
Cancel Ukraine’s foreign debt! Tax the oligarchs, nationalise their stolen wealth!
No to westwards integration that creates barriers preventing Ukraine from maintaining its trade and economic co-operation with Russia!
No to any military intervention! Demilitarise all of Ukraine’s borders!
The Ukrainian language version of this post is here http://www.pravda.com.ua/columns/2014/04/3/7021257/
Observer Ukraine 