Tanks make good pictures—the idea of an invasion of Ukraine sends shivers down the spines of most of Europe—and keeping the tanks at bay is what the political class is expected, indeed offers, to do. The price, however, will be for nations to surrender just about everything else. And that price is now about to be demanded of the elite not just in Russia but in Europe as a whole.
Stage One is to put the frighteners on. That’s why NATO bureaucrats made a clumsy attempt to pass off photos of last year’s Russian maneuvers as this year’s menacing military buildup. Of course they were found out, and of course they didn’t care. Everybody in what the Russians call “political technology” (we just call it “spin”) knows that the crisis in Ukraine is not about Ukraine at all. And it is not about war. One of the first things we were told is that there would be no “military intervention” (Mr. Putin) and no “military excursion” (Mr. Obama). There will be messy fighting, but it will be among special forces, mercenaries, and civilian militias, not armies.
This crisis will be played out in sanctions and is fundamentally about money and the movement of money. At stake are not bank balances but currencies, not loans but global bank clearing arrangements.
As the United States flexed her muscles in the first weeks, Visa and MasterCard stopped transactions for sanctioned banks. JPMorgan Chase, clumsily desperate to please the White House, went too far and stopped a transfer to a Russian diplomatic mission.
U.S. Trade Representative Mike Froman, a former security advisor to the President, told nervous E.U. nations that the new E.U./U.S. trade deal would be the foundation for a tighter union between the two sides of the Atlantic. Trade would grow, he enthused, by more than $100 billion—even $600 billion. Europe would have to pay more for gas, but the United States would provide. He mentioned two French energy companies by name. No matter that after a particularly cold winter, U.S. gas stocks are already low. This is a major diplomatic push now, with the stakes very high. You could almost hear Kaa singing, muffled by the sound of eggs being transferred into a single basket.
But that doesn’t mean there won’t be the frightening noise of gunfire. In fact, with the poison spreading, not just Southern and Eastern Ukraine, but the western region round Lviv (where the nationalist-dominated “Kiev regime” is based), Moldova, Transdniestria, and perhaps even Rumania and Poland will now be sucked in.
The lieu clé is the giant and modern port complex at Odessa, through which most of Ukraine’s grain exports flow. Before it’s over, we may be glad that Russian intervention ends the siege of Odessa.
Brussels has sleepwalked into a trap. Its trade and banking relations with Russia, now worth something like €350 billion per year—many, many times larger than those with the United States—are suddenly in jeopardy. Then there is energy. Germany might bear the cost of dearer gas, but can Italy?
There seems little hope now that the threatened sanctions against Russia can be minimized. The gas is very likely to be cut off.
Worse nightmare: Russia might retaliate, selling her euros or European bonds.
Too late. The time for choices on this one that don’t require heroic and ridiculous amounts of political and moral courage is well over. Half of Germany’s voters already disagree with the NATO line, but they won’t be deciding.
That this crisis is not about Ukraine at all but about economic strategy has been the view of the Kremlin since the crisis started. Commentators are now nonplussed by Moscow’s almost casual attitude to the geography of the turmoil. At the same time, the mood in Moscow is serious as never before. “This is a fight to the death between Russia and the United States. It is about finance,” said one source very close to Mr. Putin right at the beginning of the crisis. This was the right call.
Certainly, serious financial sanctions will damage the Russian economy and isolate the country from the West. Russia’s state banks Sberbank (already the largest in the region) and VTB have moved heavily into Eastern Europe and could lose their investments. The dominance by the United States of international clearing and technical management of banking finance could mean a separation of Russian trade from world markets. This looks as though it has been in preparation for some time. For instance, Washington has for years been putting steady pressure on Belgian-based clearing bank SWIFT, purportedly wanting information to assist with counterterrorism. This seemed perhaps plausible until Mr. Snowden told us just how deeply the NSA had penetrated the world of financial transactions.
But Mr. Putin, trained in the hall of mirrors itself, is unlikely to be the pushover the neocons have advertised. He may have long-range plans that might undermine the integrity of the European Union, making strategic offers, using Russia’s state holdings of metals and weapons to raise the price of European compliance with Washington. We will soon find out.
Economic warfare with a big state like Russia is something that even the neocons haven’t tried before. They think that they only need to scale up their well-practiced attacks on small polities with unprincipled leaders. They may be right: Iran, Turkey, and the Europeans may prove to be little more than scaled-up Iraqs.
But no one can be confident. To see either side as having a master plan is not sophisticated.
On the U.S. side, the similarities with Yugoslavia are striking. Policy is made initially by eccentric (or even militant) “ambassadors”—actually a sort of satrap responsible for control of a putative region of imperial interest. These figures—in this crisis, Geoffrey Pyatt and Victoria Nuland—offer policy or even low-level faits accompli to the White House, which picks and chooses. In Syria, as we’ve seen, even high-level officials can be overruled and made to do the opposite of what they prefer.
Mr. Kerry would be less than human if he didn’t blame the Russians rather than a nervous White House for his humiliation over Syria, where Mr. Kerry’s allies lost control of the situation and had to be dumped.
Having gone silent for weeks, the leading actors on the U.S. side in Ukraine have now reemerged, talking about diplomatic solutions and NATO solidarity. They are too late, as is Kiev in offering halfhearted autonomy. Since the question at heart is trade relations and finance, autonomy cannot be the answer, since only sovereign states can sign the treaties. Both sides know this.
The policy of sanctions, growing as the tactical situation in Ukraine erodes and becomes unmanageable for all sides, is probably unstoppable now.
Russian raw materials will likely go up in price, but more sophisticated industries will also be hurt. There will be pain in companies like Energomash, for instance, which supplies the rockets that launch U.S. military and commercial satellites.
Already, websites are crashing on both sides of the new line between Europe and Russia, with a vigorous propaganda war and attacks on satellites, systems, and other electronic targets. A new virus called Snake has penetrated most of the Ukrainian government’s network.
But economic warfare tends to be slow-moving, so the immediate aim of all this must be political, to drive a wedge between Mr. Putin’s inner circle of half-a-dozen ex-KGB confidants and his wider support. It seems to be a development that Mr. Putin anticipated when he was reelected, for his first move was to urge members of his inner circle to divest themselves of assets abroad, “lest they have a conflict of loyalties in a crisis.”
Still, Mr. Putin’s power base might be more hesitant to back him, despite the growing public popularity of his stand against what nearly all Russians see as a Washington-organized coup in Kiev. Faced with the prospect of complete isolation from not just the goodies of the West but the business opportunities, Russian banks and companies might feel Ukraine was just a bridge too far. And even Russian oligarchs are vulnerable to threats. The nature of the Russian plutocracy—very small, very hard, and ludicrously wealthy—may thus prove a weakness.
We have to wait and see whether Mr. Putin uses the crisis in Ukraine to expand his inner circle, to see which oligarchs can be trusted. By childishly bandying about lists of “Putin’s friends” at hopelessly insecure E.U. meetings, the West may have already helped him to sort the patriotic sheep from the globalist goats.
But this crisis is not about finesse, it is about strength. And the United States is displaying a strength of purpose that may have taken Mr. Putin by surprise.
There has been a remarkable joined-up quality to the Obama administration’s response. The rhetoric on Syria drops away, the drone strikes stop (or at least the announcements), and we all start talking about international law. There is a logic to the U.S. administration’s progress; the Latin America deals, consolidating the failed NAFTA arrangements, tighter ties for the core Western economies under its leadership, and so forth.
The next step is the attempt to freeze out Russia, while at the same time fishing for important second-level players like Iran. It’s instructive how processes currently running elsewhere in the world have quickened. In Turkey, a key player in all this, Mr. Erdogan has come under relentless attack now from his nemesis, the exiled imam Fetullah Gulen, who lives in Virginia.
The CIA has been casting about for ages looking for a form of Sunni extremism it can work with safely. Perhaps Imam Gulen is the answer.
It’s not absolutely clear that President Obama believes it will all work. But for the moment, he seems to have given the bipartisan hardliners a clear field.
When this is done, China will be next. Washington’s first target, though, is—naturally—its allies.
Relations between the European Union and the United States are principally about money and trade, and less about defense and security, however often the Poles and the Baltics demand to be reassured.
Berlin has mortgaged its future by trying to squeeze too much out of the euro.
It’s been obvious ever since the Bankers Crash that Germany’s desire to keep the euro project on the road depends on assistance from the Federal Reserve. There is a strange reticence in the financial press to acknowledge the existence of massive bank transfers and dollar-swap lines that translate U.S. quantitative easing into support for the euro. Some estimates reckon that up to 40 percent of the Fed’s fiat money ends up in Europe. One source told me it was in excess of ten trillion dollars, an almost unimaginable sum. The figures are, in fact, secret.
The financial dependence that the euro has brought makes Germany’s position very difficult. Already unwilling to pay for the alleged profligacy of 11 million Greeks and 10 million Portuguese, the German government is facing the prospect of having to support 40 million Ukrainians, and in circumstances where a scandal is almost inevitable.
Germany is now caught between Russia and the United States. If Germany defies Moscow and cuts her economic ties, she is denied Russian gas—and the prospect of Russian trade—and has to pay not just for Ukraine but for all the other European mendicants, as Washington will insist.
If, on the other hand, Germany defies Washington, and does a deal with Mr. Putin, U.S. support for the euro goes bang. Too late, Berlin realizes the export capacity on whose altar she sacrificed her smaller neighbors is going to be whipped away, and with it the logic of propping up the euro.
The European Union will almost certainly go with the Americans, and will swallow its pride.
This is all the more likely because Germany has just been taught a lesson for trying to defy Washington—an enterprise at which she failed horribly.
On February 21, the German foreign minister flew to Kiev, accompanied by his French counterpart, Laurent Fabius, and the Polish foreign minister, Radoslaw Sikorski. They brokered a settlement between the Yanukovych government and the Maidan opposition, in the presence of a very senior Russian official, who approved the deal. The details, on the German Foreign Ministry website, demanded a change in the constitution to a less presidential system, withdrawal of security forces, early elections, more regional autonomy, and so forth. (One may recall the Lisbon Agreement of March 1992, which was signed by all sides but dropped after U.S. opposition. That agreement could and should have ended the Bosnian war before it started.) Yet 12 hours later, the deal was off. Gunfire had erupted in Maidan Square, and the Ukrainian president fled. The Germans were not off the hook after all.
As a result of this failure of German diplomacy, Mrs. Merkel is today obliged to put up with excruciating denunciations from the opposition left in the Bundestag.
No one has yet thought fit to mention that Stepan Bandera was still working for the Germans when he was assassinated in Munich in 1959 by KGB agents.
When you stand back from the rush of bewildering detail, the lies and deceptions, the electronic warfare, the eavesdropping and the cynicism, the wonder is that neither Russia nor the European Union has seriously tried to sort out a future for Ukraine, or indeed for any of the other post-Soviet states. It is pretty clear that the Russian Federation cannot carry on with the old Soviet Union’s 1945 borders. Yet without strong successor states, some borders and territories must come into question.
Moscow may be guilty of sins of omission, sitting on its hands while Ukraine collapsed. But Washington has been trying very hard to speed up the arrival of this moment. U.S. Assistant Secretary of State Victoria Nuland, married to leading neocon Robert Kagan, has admitted that by December the United States had spent over six billion dollars undermining the Kiev regime.
What we are looking at now is a pushing of Russia’s borders further east, but in a way that partitions Ukraine—and threatens the stability of Europe. As usual, European states will not benefit very much. And we may be lucky to get away with a redrawing of Russia’s borders.
Writing in the Financial Times, Timothy Garton Ash, now a professor at Oxford and a veteran of journalism in Eastern Europe, describes what’s happening as the destruction of the old czarist empire. Russia will be reduced to a preimperial rump. Some people in Washington, he tells us, want Mr. Putin to be “Czar Vladimir the Last.” It’s such a good line.
But it’s Brussels, which made Victoria Nuland resort to profanity, that is going to be brought to heel.
Two battles are already joined over Ukraine. One is the fight for public opinion, in Russia and in the West. The scale of the deception and the blatant rigging of public information makes Syria look straightforward and tells us how important this struggle is.
Second is the fight for territory in Ukraine. Who will end up with what?
Well, we saw how this worked in Yugoslavia. The European Union, despite that warning from history in the 90’s, has never tried to work up anything like a proper policy for Ukraine. A policy to produce true independence for Ukraine, ending the current mess where Moscow tries to tug the country one way and the E.U./U.S. the other, would not have been that hard to create. Now another messy partition is going to follow along the old oblast demarcation lines, rivers, etc.
But, as with Yugoslavia, that means the people who live on the wrong side of the new lines will have to move. It’s ethnic cleansing by stealth. The cynics in Brussels seemed to be hoping that the E.U./Ukraine agreement would destroy the industries in the east and south, round Kharkiv and Donetsk, in particular. Many Russian defense plants are sited here, and the population is heavily ethnic Russian. Contrary to tabloid belief, these industries are not old-fashioned and doomed, but while they might survive globalization, they will not survive E.U. arrangements for trade and tariffs.
If this happened, many people in the east and south would have to migrate to Russia or emigrate to low-paid jobs in Germany.
However, once the E.U. plan was scotched by Yanukovych’s decision last December to sign the $15 billion deal with Russia, cynics in Moscow knew that the pressure was on the population in the west to take up that low-paid work in the European Union. Hence, perhaps, the nationalists’ desperation to force the issue in Maidan Square.
Ukraine is bankrupt and will soon default. She cannot pay for gas. She needs at least €35 billion.
Mr. Kerry went to Kiev in March with a paltry one billion dollars in loan guarantees. The IMF/E.U. is offering $11 billion in the usual mix-and-match bag with added conditionality. The cash will not be found; there can be no federal solution. Ukraine’s population—as Yugoslavia’s was—is about to be uprooted, terrified, displaced, or forced to emigrate.
I suspect that in Ukraine, Mr. Putin would prefer to let General Winter and General Hunger do his work for him. When it’s over, Western and Central Ukraine, perhaps even including Kiev, would have fewer Ukrainians and more Russians (just as the E.U. planners hoped Eastern and Southern Ukraine would have fewer Russians and more Ukrainians). It may be better than the famine of the 1930’s in which about three million people died, or the mass murder and genocide of the 1940’s—and more like the civil war of 1917-21, which partitioned Ukraine between the Soviet Union and Poland.
The diplomats will then be able to draw the line where Russia ends and the Marches begin. Because creating an unstable borderland is the problem with any partition of Ukraine that does not leave the agricultural land and the port of Odessa linked up with the west. The western rump would not be a viable country. And Galicia has always had hungry neighbors.
Speaking of the 1930’s, Timothy Snyder, the Harvard professor whose book Bloodlands accurately mapped the appalling suffering of this area in the last century, reminds us that the Polish government then had “secret and implausible foreign policy goals” to seize more territory. Marshal Pilsudski had done this in the 1920’s, and some Polish patriots today yearn for the Krezy (pronounced “crazy”), the recovery of the ancient eastern lands of the various Polish/Lithuanian empires, and for the “artificial entity” of Ukraine to be sliced up between her neighbors.
The European Union might have enlisted Polish help earlier. This is another tale of missed opportunities.
The nonviolent Maidan Square protestors were displeased with, but probably would have been able to live with, the February 21 agreement. More shame on both Moscow and Brussels for not negotiating something more consequential earlier, especially after the violence got worse last autumn, and many thought Yanukovych was simply “auctioning” the country for cash.
But by February, the protests had been taken over by the extremists. As Professor Snyder reminds us in a recent article, the political innocents who started the demonstrations were replaced at that time by the “scarred veterans” from Russia’s Afghan wars, who used violence. By this stage, all political innocents were getting out of their depth.
The problem is what happened on February 22, when snipers from high buildings like the Hotel Ukraine and the Philharmonic Hall started firing into the crowd and also into the riot police. Something like 100 people were killed. It is hard to avoid the conclusion that someone, somewhere summoned extreme violence to head off the February 21 agreement.
In an intercepted private phone call, we hear Urmas Paet, the Estonian foreign minister, explaining to Baroness Ashton, the E.U. foreign-affairs commissioner, that he’s just been shown evidence that bullets which killed both policemen and protestors were fired from the same weapon. The “signature” rifling marks, as he put it, were the same on the bullets. The postmortem evidence confirms the high angle of the penetration wounds. Mr. Paet had just returned from Kiev and had been there only days after the events. He was evidently very bothered by this. Baroness Ashton seemed strangely cool.
Mr. Paet’s political credentials are eminently not pro-Russian. He reported that opinion in Maidan Square was that the bullets had been fired by “someone in the opposition.”
The first whispers were that it was “people from Yugoslavia”—then “Chechens.”
The most likely culprits seem in fact to have been members of the UNA-UNSO organization, one of those interlinked extreme nationalist movements in Western Ukraine. But the conclusion “the fascists did it” is too easy and probably wrong.
UNA merged with UNSO in the 1990’s, but the two are a strange mix. UNSO has always been a paramilitary group. We know it did not start recruiting in Kiev until 1991, when it concentrated on disaffected Ukrainian veterans of Russia’s Afghan wars.
But UNSO was active elsewhere in Eastern Europe, far from Ukraine, well before that date.
U.S. intelligence sources say that it grew out of the Gladio organization formed around the Italian far right to provide a covert “stay-behind” guerrilla core in case of a Soviet invasion or communist election victory in Rome. Russian intelligence sources place it in Chechnya in the 1990’s—with the Saudis, not the Chechens. UNSO members regularly go around passing themselves off as Spetsnaz, Russian special forces.
But the most notorious incident in which UNSO is said to have been engaged was in Lithuania, more than 20 years ago.
On January 13, 1991, as the Soviet Union was breaking up, Russian soldiers are said to have opened fire on Lithuanian demonstrators, killing 13 people. It became the defining moment of Lithuania’s breakaway from Moscow. In fact, it is a crime in Lithuania to question the official version of events.
The Lithuanian government ill advisedly took a journalist to court in November 2010 for suggesting that the 13 dead had in fact been killed by snipers firing from high buildings around the square. Lithuanian sources added that the snipers “had been trained by U.S. special services.”
We have forgotten Vilnius 1991. The air campaign in the Gulf War started shortly afterward, and we were all looking the other way. But the coincidence of the method and the odd nature of UNA-UNSO make it bothersome. The former director of communications for UNA-UNSO is now head of the Anti-Corruption Bureau of the interim government in Kiev.
The European Union, asleep at the wheel again, has allowed these vile events to unfold on its very doorstep. Brussels has, as usual, quoted Jean Monnet and repeated, as it always does, that it needs more power—presumably so it can make bigger mistakes.
Still, more foresight should be expected of the major European governments, which have become too callow and substrategic for robust policymaking, allowing Senator McCain and the neocons to have their opportunity for grand confrontation.
Mr. Putin has the initiative. He probably wants the low-cost, low-risk road of responding reluctantly to trouble in Ukraine and riding out the sanctions, hoping that others will tire of them first. The danger is that the low-level violence in Ukraine will force him to intervene.
Still, he might take the high road and offer an alternative world currency, backed by gold. We are about to find out just how much Russia has squirreled away. My guess is that it will be a game-changing quantity. But while the Federal Reserve remains in clear command of the world’s trading currency, gold is less important than paper. Russia would have to persuade the doubters that she can issue, clear, and exchange transactions as well as or better than the West.
It’s a matter, as they say in the City of London, of confidence. But no one will listen to the City on this one.
As medieval monarchs understood, money—once it gets out of your pocket—is political, a matter for the council chamber, not the counting house. Washington has not forgotten this, nor has Mr. Putin.
We have known for at least six years that if the Russians feel pressed too hard in their near abroad, they will lash out. We pressed them, and they have lashed out. As Sergey Glazyev said, it’s a fight to the death now.
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