Tag Archives: russia

Greek Debt Unsustainable: the Wikileaks Cables

Greek protests in front of Greek parliament

2011 Euro-crisis, Wikileaks Cables

Discussing the Greek financial crisis with her personal assistant on 11 October, German Chancellor Angela Merkel professed to be at a loss as to which option–another haircut or a transfer union–would be best for addressing the situation. (The term “haircut” refers to the losses that private investors would incur on the current net value of their Greek bond holdings.) Merkel’s fear was that Athens would be unable to overcome its problems even with an additional haircut, since it would not be able to handle the remaining debt. Furthermore, she doubted that sending financial experts to Greece would be of much help in bringing the financial system there under control. Within the German cabinet, Finance Minister Wolfgang Schnaeuble alone continued to strongly back another haircut, despite Merkel’s efforts to rein him in, while France and European Commission President Jose Manuel Barroso were seen to be in favor of a gentler approach. European Central Bank President Jean-Claude Trichet was solidly opposed, with IMF Managing Director Christine Lagarde described as undecided on the issue. Finally, Merkel believed that action must be taken to enact a Financial Transaction Tax (FTT); doing so next year, she assessed, would be a major step toward achieving some balance in relief for banks. In that regard, the Germans thought that pressure could be brought to bear on the U.S. and British governments to help bring about an FTT.

Euro-crisis Wikileaks Cables: EU Summit: Germans Prepared to Oppose Special Solutions for Greek Financial Crisis

…German Chancellery Director-General for EU Affairs Nikolaus Meyer-Landrut provided on 14 October, 2011 an overview of what Berlin planned to ask for and would be prepared to support. First, the German government wanted solutions that work within the context of current European legislation; accordingly, it would not agree to giving the European Financial Stability Facility (EFSF) a banking license, establishing a joint EFSF-European Central Bank Special Purpose Vehicle, or any other measures that would require legislative changes among the member states. On the other hand, the Germans would support a special IMF fund into which the BRICS (Brazil, Russia, India, China, and South Africa) nations would pool funds for the purpose of bolstering eurozone bailout activities. Meyer-Landrut also believed that a resolution of the Greek crisis will require greater private-sector involvement than was first thought, and that the eurozone must look beyond the technical aspects of a deal and focus instead on the actual progress that Greece will have to make, as regards both legislation and implementation. It was his further opinion that a full-term team will have to be ensconced in Athens for the purpose of monitoring the situation.

A Golden Opportunity: Russia and China Collaboration

china-russia-map (1)

Relations between China and Russia have been growing closer since the end of the cold war. Both, for different reasons, resent America’s “hegemony” and share a desire for a more multipolar world order. Russia, a declining great power, is looking for ways to recover at least some of its lost status; whereas China, a rising power, bridles at what it sees as American attempts to constrain it…..

But there have been occasional tensions. Russia played a key role during the 1990s in helping China to modernise its military forces. Russia was able to preserve a defence-industrial base that would otherwise have withered from lack of domestic orders. But since the middle of the last decade, irked by China’s theft of its military technology and its consequent emergence as a rival in the arms market, Russia’s weapons sales to its neighbour have slowed.

Russia is also wary of becoming little more than a supplier of natural resources to China’s industrial machine—a humiliating position for a country that until recently saw China as backward. As long as Russia could sell to Europe all the gas required to keep the Russian economy growing, it could put deals with China on hold. These included plans for two gas pipelines from Siberia into China that were announced in 2006 and then quietly dropped as the two sides bickered over prices.

All that has changed. The Ukrainian crisis is, as Russian media put it, forcing Russia to “pivot” its economy towards Asia in an effort to lessen the impact of Western sanctions by finding alternative markets and sources of capital. For China it is a golden opportunity to gain greater access to Russia’s natural resources, at favourable prices, as well as to secure access to big infrastructure contracts that might have gone to Western competitors and to provide financing for projects that will benefit Chinese firms.

But China abstained from voting on the UN Security Council resolutions condemning Russia, while Chinese media have given Russia strong support. China has quietly welcomed a new cold war in Europe that might distract America from its declared “rebalancing” towards Asia.

Striking evidence of the new closeness between China and Russia was a $400 billion gas deal signed in May 2014 under which Russia will supply China with 38 billion cubic metres (bcm) of gas annually from 2018 for 30 years. At China’s insistence, the gas will come from new fields in eastern Siberia and will pass through an as yet unbuilt pipeline—the better for ensuring that it will not be diverted elsewhere. Other deals have followed. The biggest was a preliminary agreement signed in November 2014  for Russia to sell an additional 30 bcm a year through a proposed pipeline from western Siberia. In every instance it is probable that China was able to drive a hard bargain on price.

Russia’s weakness was also clear in its recent decision to resume high-tech arms exports to China. In April it agreed to sell China an air-defence system, the S-400, for about $3 billion. This will help give China dominance of the air over Taiwan and the Senkaku islands (Diaoyu to the Chinese, who dispute Japan’s claim to them). In November 2014 Russia said it was prepared to sell China its latest Sukhoi-35S combat aircraft. Initially it had refused to sell any fewer than 48, in order to make up for losses it calculated it would suffer as a result of China’s inevitable pilfering of the designs. Now it has meekly agreed to sell only 24.

But problems ahead are discernible. One is that both countries are competing for influence in Central Asia, once Russia’s backyard (Mr Xi was due to head there before proceeding to Moscow). Mr Putin wants to establish his Eurasian Economic Union partly to counter growing Chinese economic power in Central Asia, through which China wants to develop what it calls a Silk Road Economic Belt. China is using the Shanghai Co-operation Organisation (SCO), of which Russia and Central Asian nations are also members, to boost its security ties in the region as well: it often holds counter-terrorism exercises with its SCO partners.

Russia and China: An Uneasy Friendship, Economist, May 9, 2015, at 37.

Why Germany Loves Russia: geo-economics in action

merkel putin

Chancellor Angela Merkel’s deputy chided Siemens AG (SIE) Chief Executive Officer Joe Kaeser for traveling to Moscow, saying German companies shouldn’t sell out European values to protect business with Russia.   The conflict over Kaeser’s meeting with President Vladimir Putin last week underscores the rival forces tugging at Merkel during the crisis in Ukraine. While the European Union and the U.S. seek to punish Russia for annexing Crimea, many German corporate leaders view Putin as an economic partner.

Frankly, I found the scene a bit off-key,” Economy and Energy Minister Sigmar Gabriel, a Social Democrat who is also vice chancellor, said of Kaeser’s trip to Moscow in an interview with ARD television yesterday, according to an e-mailed transcript. “We don’t want economic sanctions, but we also have to show the Russian president that we can’t accept” his “imperial policy.”

Merkel, who learned Russian while growing up in communist East Germany, heads Russia’s biggest EU trading partner during the worst standoff since the end of the Cold War. Putin risks a “tough reaction” from EU governments if he escalates the crisis over Ukraine, she said on March 26.  While Merkel has said Germany could withstand the economic impact of European economic sanctions against Russia, the heads of Adidas AG (ADS), ThyssenKrupp AG (TKA) and Deutsche Post AG (DPW) questioned the need for sanctions, according to the transcript of a round-table interview with the Die Welt newspaper published two days ago. It showed the CEOs saying EU policy makers mishandled their engagement with Ukraine while affronting Russia.

Asked if Putin must be stopped, Adidas CEO Herbert Hainer said, “I’d turn the question around,” according to Die Welt. “I wonder if one shouldn’t have included Putin in the process much earlier, rather than starting talks when it’s too late.” ThyssenKrupp CEO Heinrich Hiesinger said “Russia felt cornered.” Deutsche Post CEO Frank Appel said the U.S. and its allies had meddled “in the front yard of another big power” and questioned calls by EU leaders including Merkel to review Europe’s energy ties with Russia, saying Germany “will always be dependent on others” for fossil fuel, according to Die Welt.

Kaeser said meeting with Putin showed that Munich-based Siemens, Europe’s biggest engineering company, “won’t be overly influenced by short-term turbulences” involving Russia. “We’re counting on dialogue and mutual understanding,” he said in a ZDF television interview after returning from his trip, which he said Merkel’s chancellery knew about in advance.

By Tony Czuczka, Siemens CEO Rebuked as German Business Defends Putin Partnership Bloomberg, Mar 30, 2014

Gas as a Tool of Foreign Policy: Gazprom

Gazprom_headquarters, Moscow. image from wikipedia

The good times for Gazprom once seemed like they would never end. The world’s largest natural-gas producer, founded out of the old Soviet gas ministry, enjoyed sky-high gas prices for years. The gas flowed along pipelines into Europe; the profits flowed back. Gazprom began work on a $1.9 billion headquarters in St Petersburg and acted as a bottomless wallet for Russia’s rulers. Whatever problems it encountered, it could “drown with money”, as Natalia Volchkova of the New Economic School in Moscow puts it.  All this is now under threat. Its ageing gasfields are in decline. Thanks to America’s shale boom, gas is more plentiful on the world market. Gazprom’s European customers are realising that they have other choices. The prices it can charge are falling, and with them the firm’s prospects.

Years of easy money have made Gazprom fat and slow. It dominates its domestic market, producing 75% of Russia’s gas. It enjoys a monopoly over exports of the stuff. Until recently, it had a tight grip on western Europe, where it supplies around 25% of gas. It retains an even tighter grip on former Soviet-bloc countries in eastern Europe. For a long time, this insulated Gazprom from shifts in global gas markets.

Gazprom is not a normal company. It serves two masters. As a firm that issues shares to outside investors, it should in theory strive to maximise profits in the long run. But since it is majority-owned by the Russian state, it pursues political goals, too.  In practice, it serves one master more assiduously than the other. As President Vladimir Putin consolidated his power in the early 2000s, he built Gazprom into a main instrument of Russia’s new state capitalism. He appointed allies to top positions. He used Gazprom as a tool of foreign policy, for example by cutting off gas supplies to Georgia, Ukraine, Belarus and Moldova during political rows.  Gazprom’s deep pockets have helped Mr Putin at home, too. It sells gas cheaply in Russia, so that the poor do not freeze in winter. Oddly for an energy company, it has bought television stations and newspapers, all of which are now friendly to the Kremlin. Mikhail Krutikhin of RusEnergy, a consultancy, says, “Gazprom has one manager: Putin.”

With friends in high places, Gazprom has enjoyed low taxes and privileged access to gasfields. But its costs are startlingly high…And some projects favoured by Mr Putin are of questionable economic value. For example, he is dead set on building a $21-billion South Stream pipeline between southern Russia and Austria via eastern Europe. This project has political appeal because it would bypass troublesome Ukraine as the main transit route for gas to Europe. But given weak prices and demand, it is “commercial idiocy”, says Mr Krutikhin. The opening in 2011 of Nord Stream, an offshore pipeline to Germany, was a diplomatic coup for Mr Putin, but it is still running far below capacity….

Gas on the spot market is often much cheaper than Russian gas delivered under long-term contracts… Because so many of its customers are tied to contracts, the full effects of the global gas glut on Gazprom’s bottom line will not be felt straight away….   The final threat to Gazprom’s old way of doing business is legal. An antitrust probe launched by the European Commission alleges that Gazprom is using its dominant position in central and eastern Europe to restrict competition and hike prices. If it loses the case, it could face a fine of up to $14 billion and lose the mighty lever of being able to charge some European countries more than others.  An adverse ruling might also threaten its strategy of trying to dominate the European gas market by owning both the supplies and the means of distributing them. Gazprom has quietly bought gas pipelines and storage facilities. It has tried to strike deals whereby it lends money to impoverished European utilities in order to secure their custom. If this strategy stops working, Gazprom will no longer be such a potent foreign-policy tool for the Kremlin….

Gazprom’s future may involve more robust competition even at home. Two domestic rivals have emerged: Novatek, a gas producer part owned by Gennady Timchenko, an old acquaintance of Mr Putin’s, and Rosneft, a state-owned oil firm led by Mr Putin’s trusted adviser, Igor Sechin. Put together, non-Gazprom firms now account for a quarter of all Russian gas production….

The other way to get gas to Asia would be via pipeline. The obvious destination is China, which sits on Russia’s doorstep and is potentially the world’s biggest market for gas. The two countries have haggled unsuccessfully for a decade. In February they revealed they had agreed to everything related to pipeline exports apart from the price. China has signed up to import gas from Central Asia, Australia, the Middle East and west Africa; almost everywhere, in fact, except Russia. China refuses to pay Asian prices; Gazprom won’t budge.

Gazprom: Russia’s wounded giant, Economist, Mar. 30, 2013, at 69

US Special Forces in Iraq against Alliance of Iraq, Iran, Syria and Russia

The civil war in Syria is testing Iraq’s fragile society and fledgling democracy, worsening sectarian tensions, pushing Iraq closer to Iran… just nine months after American forces ended their long and costly occupation here.  Fearing that Iraq’s insurgents will unite with extremists in Syria to wage a two-front battle for Sunni dominance, Prime Minister Nuri Kamal al-Maliki recently ordered guards at the western border to block adult men…along with thousands of refugees seeking to escape the grinding war next door.  Farther north, Iraqi officials have another concern, also related to the fighting across the border. Turkish warplanes have stepped up attacks on the mountain hide-outs of Kurdish insurgents galvanized by the war in Syria, underscoring Iraq’s inability to control its own airspace.

The hardening of the antagonists’ positions in Syria — reverberating across Iraq — was made clear Monday at the United Nations when the new special envoy for Syria, Lakhdar Brahimi, gave a bleak appraisal of the conflict to the Security Council and said he saw no prospect for a breakthrough anytime soon.

The Syrian war’s spillover has called attention to uncomfortable realities for American officials: despite nearly nine years of military engagement, an effort that continues today with a $19 billion weapons sales program, Iraq’s security is uncertain and its alliance with the theocratic government in Tehran is growing. Iraq’s Shiite-dominated leadership is so worried about a victory by Sunni radicals in Syria that it has moved closer to Iran, which shares a similar interest in supporting the Syrian president, Bashar al-Assad.,,,

In response, the United States has tried to secure its interests in Iraq. It has unsuccessfully pressed Iraq to halt flights from Iran that traverse Iraqi airspace to ferry weapons and fighters to the Assad government, although The Associated Press reported that over the weekend a government spokesman said Iraq would begin random searches of Iranian aircraft.  While some Congressional leaders have threatened to cut off aid to Iraq if the flights do not stop, the United States is trying to speed up weapons sales to Iraq to secure it as an ally, said Lt. Gen. Robert L. Caslen Jr., the American commander in charge of that effort. As regional security deteriorates, the United States is finding it hard to deliver the weapons — especially antiaircraft systems — quickly enough to satisfy the Iraqis, who in some cases are looking elsewhere, including Russia.

“Although they want a strategic partnership with the United States, they recognize the vulnerability, and they are interested in going with the nation that will be able to provide them, and meet their need, their capabilities gap, as quickly as possible,” said General Caslen, who oversees a Pentagon office here, under the authority of the American Embassy, that brokers weapons sales to Iraq.  The United States is providing Iraq with refurbished antiaircraft guns, free of charge, but they will not arrive until June. In the meantime, the Iraqis have collected cold war-era missiles found in a junkyard on an air base north of Baghdad, and they are trying to get them in working order. Iraq is negotiating with Russia to buy air defense systems that could be delivered much more quickly than those bought from the United States.

“Iraq recognizes they don’t control their airspace, and they are very sensitive to that,” General Caslen said. Each time Turkish fighter jets enter Iraq’s airspace to bomb Kurdish targets, he said, Iraqi officials “see it, they know it and they resent it.”  Iskander Witwit, a former Iraqi Air Force officer and member of Parliament’s security committee, said, “God willing, we will be arming Iraq with weapons to be able to shoot down those planes.”

The American military withdrew at the end of last year after negotiations for an extended troop presence collapsed because the Iraqis would not agree to extend legal immunities to any remaining force. Once the Americans left, Iraq celebrated its sovereignty, even as military officials in both countries fretted about the deficiencies of Iraq’s military and sought ways to work together that would not require a public debate about immunities.  Iraq and the United States are negotiating an agreement that could result in the return of small units of American soldiers to Iraq on training missions. At the request of the Iraqi government, according to General Caslen, a unit of Army Special Operations soldiers was recently deployed to Iraq to advise on counterterrorism and help with intelligence.

Excerpts from TIM ARANGO, Syrian War’s Spillover Threatens a Fragile Iraq, NY Times, Sept. 24, 2012

Nuclear Jitters: Enough to Stop Nuclear Power?

The additional fear inspired by the Fukushima disaster will be reflected in soaring costs for nuclear power worldwide, largely owing to demands for improved safety and insurance. Indeed, nuclear plants are prone to a form of panic transference: should a reactor of one design go wrong, all reactors of that type will be shut down instantly around the world.

In India, the dilemma is this: it has 20 nuclear plants in operation, with an additional 23 on order. With the country desperately short of power, and requiring energy to grow, concerned citizens are asking if nuclear is still the answer for India.

Prime Minister Manmohan Singh has cautiously announced a “special safety review” of all plants. “Not enough,” say about 50 eminent Indians, who at the end of March demanded a review of the country’s entire nuclear power policy for “appropriateness, safety, costs, and public acceptance”. The group also called for an “independent, transparent safety audit” of all nuclear facilities to be undertaken with the “involvement of civil society organisations and experts outside the department of atomic energy”. Until then, they demanded a moratorium on all nuclear activity and a revocation of recent clearances. This is as explicit as opposition can get.

How have other countries reacted? France, a global leader in nuclear power, initially avoided most of the global anti-nuclear concerns. But now it too is promising to upgrade its safety procedures, including a reassessment of the potential effects of natural disasters on nuclear plant operations, conceding that the occurrence of more than one natural disaster simultaneously had not been considered previously.  China, which has 77 nuclear reactors at various stages of construction, planning, and discussion, has said that it will embark on a wide-ranging review, but Russia has announced that it will go ahead with its programme.

The US has just two under construction on its own territory, despite being the principal exporter of reactors. Meanwhile Denmark, Greece, Ireland and Portugal are strongly anti-nuclear, and Switzerland has stopped all nuclear power projects.  All of this will lead to cost evaluation and escalation. According to a study conducted by former Indian government minister Arun Shourie, the price of uranium could rise to $140 per pound, close to its record high.

Excerpt, Jaswant Singh, Now is not the time for energy-starved India to increase nuclear dependency, Guardian, April 29, 2011

Where it Never Died: Nuclear Power in Russia, Urkraine and Belarus

Twenty-five years after the Chernobyl disaster, Eastern Europe is still clinging to nuclear power. The anti-nuclear movement is essentially non-existent, but experts say ‘green’ energy is still a viable alternative. Don’t panic, it’s really not so bad! This is a sentiment that has been repeated by leading politicians in Russia, Belarus and Ukraine since the start of the crisis at the Fukushima nuclear power plant in Japan. They view this neither as a second Chernobyl, nor as a reason to consider ending the use of nuclear power. In the eyes of Russian President Dmitry Medvedev, for example, nuclear power is “absolutely safe.”

In fact, the Kremlin is planning to more than double the number of nuclear power plants in Russia from the current 10 by 2020. There were even plans to build a nuclear power plant in the Pacific Ocean. However, analysts say that since last month’s powerful earthquake and tsunami, that idea is being revisited and the project may well be cancelled.

Belarus and Ukraine also see nuclear power as the way forward. Ukraine has four nuclear plants and there are plans for a Russian firm to build two more reactors at one of them. The Russian energy firm Rosatom is to begin construction of the first nuclear plant in Belarus in the autumn. Belarusian officials signed the contract on March 15, just days after the nuclear disaster in Japan.  Tobias Münchmeyer, a nuclear expert at Greenpeace in Berlin, believes the difference between Western and Russian nuclear power plants in terms of safety is “much less” than widely believed. According to Münchmeyer, most power plants in Eastern Europe are no less safe than their Western counterparts. But 11 Russian reactors, of the same type involved in the Chernobyl disaster, are an exception. These, Münchmeyer regards as “particularly dangerous.”….

Russian and Ukrainian politicians have repeatedly claimed that there is no alternative to nuclear power. But Münchmeyer disagrees, arguing that Moscow could do away with the use of nuclear power relatively quickly, as it currently accounts for just 17 percent of the electricity produced in Russia. This could be replaced, he said, with power generated by renewable sources or gas.  The situation in Ukraine is quite different. The four nuclear plants there account for 48 percent of the electricity produced in the country. But at the same time, the country produces an excess of power and exports what it doesn’t use itself….

For Russia, Ukraine and Belarus the future is nuclear, Deutsche Welle, Apr. 23, 2011