Global Banks Slashed Lending to Ukraine, Endangering a Recovery
This month, IMF Managing director Christine Lagarde said Ukraine will need additional bailout financing from outside the IMF to keep the war-torn economy afloat. A European Union spokeswoman said the bloc appears unlikely to accept an additional loan request of 2 billion euros that officials say Kiev is seeking.[/quo
Europe is facing a challenge from Russia to its very existence. Neither the European leaders nor their citizens are fully aware of this challenge or know how best to deal with it. I attribute this mainly to the fact that the European Union in general and the eurozone in particular lost their way after the financial crisis of 2008.
The fiscal rules that currently prevail in Europe have aroused a lot of popular resentment. Anti-Europe parties captured nearly 30 percent of the seats in the latest elections for the European Parliament but they had no realistic alternative to the EU to point to until recently. Now Russia is presenting an alternative that poses a fundamental challenge to the values and principles on which the European Union was originally founded. It is based on the use of force that manifests itself in repression at home and aggression abroad, as opposed to the rule of law. What is shocking is that Vladimir Putin’s Russia has proved to be in some ways superior to the European Union—more flexible and constantly springing surprises. That has given it a tactical advantage, at least in the near term.
Europe and the United States—each for its own reasons—are determined to avoid any direct military confrontation with Russia. Russia is taking advantage of their reluctance. Violating its treaty obligations, Russia has annexed Crimea and established separatist enclaves in eastern Ukraine. In August, when the recently installed government in Kiev threatened to win the low-level war in eastern Ukraine against separatist forces backed by Russia, President Putin invaded Ukraine with regular armed forces in violation of the Russian law that exempts conscripts from foreign service without their consent.
In seventy-two hours these forces destroyed several hundred of Ukraine’s armored vehicles, a substantial portion of its fighting force. According to General Wesley Clark, former NATO Supreme Allied Commander for Europe, the Russians used multiple launch rocket systems armed with cluster munitions and thermobaric warheads (an even more inhumane weapon that ought to be outlawed) with devastating effect.* The local militia from the Ukrainian city of Dnepropetrovsk suffered the brunt of the losses because they were communicating by cell phones and could thus easily be located and targeted by the Russians. President Putin has, so far, abided by a cease-fire agreement he concluded with Ukrainian President Petro Poroshenko on September 5, but Putin retains the choice to continue the cease-fire as long as he finds it advantageous or to resume a full-scale assault.
In September, President Poroshenko visited Washington where he received an enthusiastic welcome from a joint session of Congress. He asked for “both lethal and nonlethal” defensive weapons in his speech. However, President Obama refused his request for Javelin hand-held missiles that could be used against advancing tanks. Poroshenko was given radar, but what use is it without missiles? European countries are equally reluctant to provide military assistance to Ukraine, fearing Russian retaliation. The Washington visit gave President Poroshenko a façade of support with little substance behind it.
Equally disturbing has been the determination of official international leaders to withhold new financial commitments to Ukraine until after the October 26 election there (which will take place just after this issue goes to press). This has led to an avoidable pressure on Ukrainian currency reserves and raised the specter of a full-blown financial crisis in the country.
There is now pressure from donors, whether in Europe or the US, to “bail in” the bondholders of Ukrainian sovereign debt, i.e., for bondholders to take losses on their investments as a precondition for further official assistance to Ukraine that would put more taxpayers’ money at risk. That would be an egregious error. The Ukrainian government strenuously opposes the proposal because it would put Ukraine into a technical default that would make it practically impossible for the private sector to refinance its debt. Bailing in private creditors would save very little money and it would make Ukraine entirely dependent on the official donors.
To complicate matters, Russia is simultaneously dangling carrots and wielding sticks. It is offering—but failing to sign—a deal for gas supplies that would take care of Ukraine’s needs for the winter. At the same time Russia is trying to prevent the delivery of gas that Ukraine secured from the European market through Slovakia. Similarly, Russia is negotiating for the Organization for Security and Cooperation in Europe to monitor the borders while continuing to attack the Donetsk airport and the port city of Mariupol.
It is easy to foresee what lies ahead. Putin will await the results of the elections on October 26 and then offer Poroshenko the gas and other benefits he has been dangling on condition that he appoint a prime minister acceptable to Putin. That would exclude anybody associated with the victory of the forces that brought down the Viktor Yanukovych government by resisting it for months on the Maidan—Independence Square. I consider it highly unlikely that Poroshenko would accept such an offer. If he did, he would be disowned by the defenders of the Maidan; the resistance forces would then be revived.
Putin may then revert to the smaller victory that would still be within his reach: he could open by force a land route from Russia to Crimea and Transnistria before winter. Alternatively, he could simply sit back and await the economic and financial collapse of Ukraine. I suspect that he may be holding out the prospect of a grand bargain in which Russia would help the United States against ISIS—for instance by not supplying to Syria the S300 missiles it has promised, thus in effect preserving US air domination—and Russia would be allowed to have its way in the “near abroad,” as many of the nations adjoining Russia are called. What is worse, President Obama may accept such a deal.
That would be a tragic mistake, with far-reaching geopolitical consequences. Without underestimating the threat from ISIS, I would argue that preserving the independence of Ukraine should take precedence; without it, even the alliance against ISIS would fall apart. The collapse of Ukraine would be a tremendous loss for NATO, the European Union, and the United States. A victorious Russia would become much more influential within the EU and pose a potent threat to the Baltic states with their large ethnic Russian populations. Instead of supporting Ukraine, NATO would have to defend itself on its own soil. This would expose both the EU and the US to the danger they have been so eager to avoid: a direct military confrontation with Russia. The European Union would become even more divided and ungovernable. Why should the US and other NATO nations allow this to happen?
The argument that has prevailed in both Europe and the United States is that Putin is no Hitler; by giving him everything he can reasonably ask for, he can be prevented from resorting to further use of force. In the meantime, the sanctions against Russia—which include, for example, restrictions on business transactions, finance, and trade—will have their effect and in the long run Russia will have to retreat in order to earn some relief from them.
These are false hopes derived from a false argument with no factual evidence to support it. Putin has repeatedly resorted to force and he is liable to do so again unless he faces strong resistance. Even if it is possible that the hypothesis could turn out to be valid, it is extremely irresponsible not to prepare a Plan B.
There are two counterarguments that are less obvious but even more important. First, Western authorities have ignored the importance of what I call the “new Ukraine” that was born in the successful resistance on the Maidan. Many officials with a history of dealing with Ukraine have difficulty adjusting to the revolutionary change that has taken place there. The recently signed Association Agreement between the EU and Ukraine was originally negotiated with the Yanukovych government. This detailed road map now needs adjustment to a totally different situation. For instance, the road map calls for the gradual replacement and retraining of the judiciary over five years whereas the public is clamoring for immediate and radical renewal. As the new mayor of Kiev, Vitali Klitschko, put it, “If you put fresh cucumbers into a barrel of pickles, they will soon turn into pickles.”
Contrary to some widely circulated accounts, the resistance on the Maidan was led by the cream of civil society: young people, many of whom had studied abroad and refused to join either government or business on their return because they found both of them repugnant. (Nationalists and anti-Semitic extremists made up only a minority of the anti-Yanukovych protesters.) They are the leaders of the new Ukraine and they are adamantly opposed to a return of the “old Ukraine,” with its endemic corruption and ineffective government.
The new Ukraine has to contend with Russian aggression, bureaucratic resistance both at home and abroad, and confusion in the general population. Surprisingly, it has the support of many oligarchs, President Poroshenko foremost among them, and the population at large. There are of course profound differences in history, language, and outlook between the eastern and western parts of the country, but Ukraine is more united and more European-minded than ever before. That unity, however, is extremely fragile.
The new Ukraine has remained largely unrecognized because it took time before it could make its influence felt. It had practically no security forces at its disposal when it was born. The security forces of the old Ukraine were actively engaged in suppressing the Maidan rebellion and they were disoriented this summer when they had to take orders from a government formed by the supporters of the rebellion. No wonder that the new government was at first unable to put up an effective resistance to the establishment of the separatist enclaves in eastern Ukraine. It is all the more remarkable that President Poroshenko was able, within a few months of his election, to mount an attack that threatened to reclaim those enclaves.
To appreciate the merits of the new Ukraine you need to have had some personal experience with it. I can speak from personal experience although I must also confess to a bias in its favor. I established a foundation in Ukraine in 1990 even before the country became independent. Its board and staff are composed entirely of Ukrainians and it has deep roots in civil society. I visited the country often, especially in the early years, but not between 2004 and early 2014, when I returned to witness the birth of the new Ukraine.
I was immediately impressed by the tremendous improvement in maturity and expertise during that time both in my foundation and in civil society at large. Currently, civic and political engagement is probably higher than anywhere else in Europe. People have proven their willingness to sacrifice their lives for their country. These are the hidden strengths of the new Ukraine that have been overlooked by the West.
The other deficiency of the current European attitude toward Ukraine is that it fails to recognize that the Russian attack on Ukraine is indirectly an attack on the European Union and its principles of governance. It ought to be evident that it is inappropriate for a country, or association of countries, at war to pursue a policy of fiscal austerity as the European Union continues to do. All available resources ought to be put to work in the war effort even if that involves running up budget deficits. The fragility of the new Ukraine makes the ambivalence of the West all the more perilous. Not only the survival of the new Ukraine but the future of NATO and the European Union itself is at risk. In the absence of unified resistance it is unrealistic to expect that Putin will stop pushing beyond Ukraine when the division of Europe and its domination by Russia is in sight.
Having identified some of the shortcomings of the current approach, I will try to spell out the course that Europe ought to follow. Sanctions against Russia are necessary but they are a necessary evil. They have a depressive effect not only on Russia but also on the European economies, including Germany. This aggravates the recessionary and deflationary forces that are already at work. By contrast, assisting Ukraine in defending itself against Russian aggression would have a stimulative effect not only on Ukraine but also on Europe. That is the principle that ought to guide European assistance to Ukraine.
Germany, as the main advocate of fiscal austerity, needs to understand the internal contradiction involved. Chancellor Angela Merkel has behaved as a true European with regard to the threat posed by Russia. She has been the foremost advocate of sanctions on Russia, and she has been more willing to defy German public opinion and business interests on this than on any other issue. Only after the Malaysian civilian airliner was shot down in July did German public opinion catch up with her. Yet on fiscal austerity she has recently reaffirmed her allegiance to the orthodoxy of the Bundesbank—probably in response to the electoral inroads made by the Alternative for Germany, the anti-euro party. She does not seem to realize how inconsistent that is. She ought to be even more committed to helping Ukraine than to imposing sanctions on Russia.
The new Ukraine has the political will both to defend Europe against Russian aggression and to engage in radical structural reforms. To preserve and reinforce that will, Ukraine needs to receive adequate assistance from its supporters. Without it, the results will be disappointing and hope will turn into despair. Disenchantment already started to set in after Ukraine suffered a military defeat and did not receive the weapons it needs to defend itself.
It is high time for the members of the European Union to wake up and behave as countries indirectly at war. They are better off helping Ukraine to defend itself than having to fight for themselves. One way or another, the internal contradiction between being at war and remaining committed to fiscal austerity has to be eliminated. Where there is a will, there is a way.
Let me be specific. In its last progress report, issued in early September, the IMF estimated that in a worst-case scenario Ukraine would need additional support of $19 billion. Conditions have deteriorated further since then. After the Ukrainian elections the IMF will need to reassess its baseline forecast in consultation with the Ukrainian government. It should provide an immediate cash injection of at least $20 billion, with a promise of more when needed. Ukraine’s partners should provide additional financing conditional on implementation of the IMF-supported program, at their own risk, in line with standard practice.
The spending of borrowed funds is controlled by the agreement between the IMF and the Ukrainian government. Four billion dollars would go to make up the shortfall in Ukrainian payments to date; $2 billion would be assigned to repairing the coal mines in eastern Ukraine that remain under the control of the central government; and $2 billion would be earmarked for the purchase of additional gas for the winter. The rest would replenish the currency reserves of the central bank.
The new assistance package would include a debt exchange that would transform Ukraine’s hard currency Eurobond debt (which totals almost $18 billion) into long-term, less risky bonds. This would lighten Ukraine’s debt burden and bring down its risk premium. By participating in the exchange, bondholders would agree to accept a lower interest rate and wait longer to get their money back. The exchange would be voluntary and market-based so that it could not be mischaracterized as a default. Bondholders would participate willingly because the new long-term bonds would be guaranteed—but only partially—by the US or Europe, much as the US helped Latin America emerge from its debt crisis in the 1980s with so-called Brady bonds (named for US Treasury Secretary Nicholas Brady).
Such an exchange would have a few important benefits. One is that, over the next two or three critical years, the government could use considerably less of its scarce hard currency reserves to pay off bondholders. The money could be used for other urgent needs.
By trimming Ukraine debt payments in the next few years, the exchange would also reduce the chance of a sovereign default, discouraging capital flight and arresting the incipient run on the banks. This would make it easier to persuade owners of Ukraine’s banks (many of them foreign) to inject urgently needed new capital into them. The banks desperately need bigger capital cushions if Ukraine is to avoid a full-blown banking crisis, but shareholders know that a debt crisis could cause a banking crisis that wipes out their equity.
Finally, Ukraine would keep bondholders engaged rather than watch them cash out at 100 cents on the dollar as existing debt comes due in the next few years. This would make it easier for Ukraine to reenter the international bond markets once the crisis has passed. Under the current conditions it would be more practical and cost-efficient for the US and Europe not to use their own credit directly to guarantee part of Ukraine’s debt, but to employ intermediaries such as the European Bank for Reconstruction and Development or the World Bank and its subsidiaries.
The Ukrainian state-owned company Naftogaz is a black hole in the budget and a major source of corruption. Naftogaz currently sells gas to households for $47 per thousand cubic meters (TCM), for which it pays $380 per TCM. At present people cannot control the temperature in their apartments. A radical restructuring of Naftogaz’s entire system could reduce household consumption at least by half and totally eliminate Ukraine’s dependence on Russia for gas. That would involve charging households the market price for gas. The first step would be to install meters in apartments and the second to distribute a cash subsidy to needy households.
The will to make these reforms is strong both in the new management and in the incoming government but the task is extremely complicated (how do you define who is needy?) and the expertise is inadequate. The World Bank and its subsidiaries could sponsor a project development team that would bring together international and domestic experts to convert the existing political will into bankable projects. The initial cost would exceed $10 billion but it could be financed by project bonds issued by the European Investment Bank and it would produce very high returns.
It is also high time for the European Union to take a critical look at itself. There must be something wrong with the EU if Putin’s Russia can be so successful even in the short term. The bureaucracy of the EU no longer has a monopoly of power and it has little to be proud of. It should learn to be more united, flexible, and efficient. And Europeans themselves need to take a close look at the new Ukraine. That could help them recapture the original spirit that led to the creation of the European Union. The European Union would save itself by saving Ukraine.
What a moron. Why not simply align with Russia and continue to pay $47 rather than align with west and pay $380. Here is the truth. Ukrainian economy is gone. If the west wants to use Ukrainian territory and some zealots in the west, it will have to finance the country for the next 20 years at least.The Ukrainian state-owned company Naftogaz is a black hole in the budget and a major source of corruption. Naftogaz currently sells gas to households for $47 per thousand cubic meters (TCM), for which it pays $380 per TCM. At present people cannot control the temperature in their apartments. A radical restructuring of Naftogaz’s entire system could reduce household consumption at least by half and totally eliminate Ukraine’s dependence on Russia for gas. That would involve charging households the market price for gas. The first step would be to install meters in apartments and the second to distribute a cash subsidy to needy households.
JEM, no matter how this Ukraine thing turns out, strong-arming stable polities and economies many times your own will have predictably tragic consequences. This won't turn out well for Russia.JE Menon wrote:Go to sleep, Soros. Please. Spare us this bull.
Meanwhile, Poroshenko, ahead of elections seems to have turned on the central heating a bit. Ukrainians are feeling warmer this morning. They were freezing the past week. This morning, it is minus 2 degrees celsius in some parts.
If they can take USA down with them, they would have done the world an irredeemable favor.KrishnaK wrote:This won't turn out well for Russia.
let them also take Pak, ME and China down the drain with them. Then the whole world can live happily for a while atleast.habal wrote:If they can take USA down with them, they would have done the world an irredeemable favor.KrishnaK wrote:This won't turn out well for Russia.
Couldn't agree with this more.^^This was a obviously a classic destabilisation operation. Plenty of prior examples. This is why I cannot understand the silliness of what the US/EU have done. If they wanted Ukraine in their orbit, all they had to do was let things evolve naturally - give it time. They would simply have drifted in that direction inevitably. Bloody hell, even the Russian population is drifting into that non-ideological accretion disk, as it were... But, no, they wanted to rush things. Some old generals, some fading bureaucrats, and a distracted political leadership - and this is the result.
Yes. However the US and EU are on a far stronger footing. They can afford to make those mistakes and get away with it. Hell the last time these exact players clashed during the cold war, the US made far grievous mistakes and ended up paying what ? How tottering does the US look today after it's Iraq, Afghanistan wars and 2008 financial crisis. A goaded Putin responded in predictable fashion. The Russian invasion and eventual downing of an airliner has only served to pull US chestnuts out of the fire.The strategic error here, long term, is definitely by the Americans, and certainly (albeit to a lesser extent) by the Europeans. What the US has done here is make the Europeans likely to get more wary of their exhortations in the coming years and decades.
Where do you see this boss ? The only things Russia seems to be able to produce is energy, minerals and weapons. On top, in all those cases Russia needs capital from the buyers to finance the production in the first place. Not having used the popular mandate he got, the buffer of the last decade and the oil income to turn Russia into a country with stable, clean and transparent political institutions and economy will come to roost.Russia is no longer an inflexible, non-mercantile behemoth the Soviet Union was.
Russia had a choice. Russia could well have resisted the urge. It has thousands of nuclear warheads and delivery systems. There is not any combination of countries that can actually take it on and win that fray.The Euro-American combine backed Russia into a corner with Ukraine with NATO, crossed a red line they knew damn well was there and agreed to at one point. Essentially, Russia had no choice, and given that lack of real choice it has played its cards pretty well by exercising the minimum of declared intervention.
Russia didnt have a choice for the same reasons that you say it will suffer more. All its friends gone, its economy in shambles.Russia had a choice. Russia could well have resisted the urge. It has thousands of nuclear warheads and delivery systems. There is not any combination of countries that can actually take it on and win that fray.
October 24, 2014 4:12 am • By CHRISTOPHER BODEEN
BEIJING (AP) — Twenty-one Asian nations have signed on to a China-driven initiative to create a new development bank for Asia that's aimed at boosting infrastructure investment of all kinds. Beijing sees that as a way to raise its international standing, but Washington opposes the move as an unnecessary and potentially damaging rival to established institutions such as the World Bank.
— WHO'S IN THE GROUP?
Members are overwhelmingly developing nations, with Singapore the only advanced economy. The others range from economic powerhouses India and China to smaller but economically dynamic nations such as Singapore, Vietnam, the Philippines and Mongolia. A few are drawn from among the poorest nations including Laos, Cambodia and Oman.
Others taking part are Uzbekistan, Thailand, Sri Lanka, Qatar, Pakistan, Nepal, Bangladesh, Brunei, Kazakhstan, Kuwait, Malaysia and Myanmar.
Just as important is who's not in the group: Solid American allies Japan, South Korea and Australia, although they, along with the U.S. may enter at a later date if the venture proves to be a success. Although Singapore is a close U.S. ally, its officials say entering now will give them a chance to make a positive impact on the way the bank plans to do business.
— SO WHAT'S WASHINGTON'S VIEW?
The U.S. is concerned that the new bank will introduce laxer standards for lending when it comes to environmental and labor protection, transparency of the project bidding process, and human rights. Washington worries that could undercut existing institutions like the World Bank, the International Monetary Fund and the Asian Development Bank that have sought to impose standards to promote good governance, fair labor practices and a clean environment.
Naturally, Washington is also concerned about any move by China to shift attention away from institutions that it and its allies dominate. The world's first and second biggest economies deeply distrust each other and are locked in a ceaseless competition for pre-eminence in Asia, where the U.S. is the dominant military power but China's massive economy carries enormous heft.
— HOW MUCH CAN IT LEND?
China says it's willing to pony up just about all of the $50 billion to capitalize the bank, while other institutions and private lenders are expected to provide another $50 billion. That $100 billion is still relatively small compared with existing institutions. The World Bank's capital is about $220 billion, while the Asian Development Bank has $175 billion capital.
However, China appears inclined to streamline the lending process, meaning countries may not have to wait as long or jump through as many hoops to get their money. That could stimulate borrowing all-around if it ends up competing with existing institutions for business.
— WHAT'S IN IT FOR CHINA?
The bank is in large part China's reaction to being constantly relegated to second-class status at existing institutions. China is also backing another alternative institution, the New Development Bank, sponsored by the so-called BRICS countries that also include Russia, India, Brazil and South Africa.
The idea is that if the U.S. and other major powers won't make room for China at the table, then Beijing will make its own. China also hopes the bank will improve its global stature and end what it views as the West's bullying and discrimination in the political and economic spheres.
In addition, the bank is expected to bring solid economic benefits to China, whose companies already benefit massively from policy loans offered abroad by the country's state banks. They can expect to pick up port, railway and telecommunications contracts for projects tied to China's oft-mentioned dream of restoring ancient Silk Road trade links to Europe. The bank could also absorb some of China's $3.89 trillion in foreign currency reserves.
— WHAT NEED DOES IT SERVE?
Asia needs infrastructure development. A lot of it. The world bank estimates that $8 trillion in spending is required between 2010 and 2020 just to keep Asian economies humming along. Only a tiny slice of that can now be provided by the Asian Development Bank and other institutional lenders, so the AIIB hopes to help fill some of those enormous gaps.
At the very least, the AIIB ought to give borrowers more options and could put pressure on the World Bank and others to streamline their heavily bureaucratic operations, which often take years to process loan requests. By its multinational nature, it could also pressure China's banks to shape up their operations and help defray some of the resentment that has built up toward Beijing among borrowers who feel burned by the terms of their loans from Chinese state banks.
"In China we have a folk saying. If you would like to get rich, build roads first, and I believe that is a very vivid description of the very importance of infrastructure to economic development," Chinese President Xi Jinping told participants after the signing ceremony
Italy failing the tests
Jill Treanor
The Guardian, Sunday 26 October 2014 11.45 GMT
New banking health checks from the European Central Bank and the European Banking Authority says up to 25 banks need more money. Photograph: Horacio Villalobos/Horacio Villalobos/Corbis
European banking regulators warned on Sunday that 24 banks in the European Union had a €25bn (£19.6bn) capital hole after being tested over their financial strength.
The outcome puts the focus on Italian banks, nine of which were found to have a total shortfall of €9.4bn, the largest of which was at Banca Monte del Pashi di Siena. In Greece, three banks failed the stress tests and another three in Cyprus.
The European Banking Authority (EBA) also found that a number of banks were close to failing the tests, which examined whether they had enough capital to withstand a series of economic shocks, such as a rise in unemployment and declining economic growth. UK banks passed the tests but Ireland’s Permanent TSB failed.
The banks being tested had combined assets of €28tn – 70% of assets in the EU. Twenty-six of them, including the Royal Bank of Scotland and Lloyds Banking Group, had their restructuring plans approved before the tests started.
The banks now have two weeks to tell the European Central Bank how they intend to plug the gaps in their balance sheets. Their financial strength was tested at the end of 2013, along with their likely position at the end of 2016 after being subjected to market and economic shocks.
While there is an urgent need for banks to plug the shortfalls, as many as 40 banks would need to find ways to raise capital to meet a higher threshold that will be imposed in four year’s time.
Lawyers at Linklaters calculated that banks had been raising more capital ahead of the stress tests than they did before the previous tests held in 2011, when eight banks out of 90 failed and 16 banks almost failed.
Since then the methodology has been tightened and was also linked to a review of the quality of their assets – known as the asset quality review, the outcome of which is being published on Sunday by the ECB.
An additonal bank – Liberbank of Spain – failed the ECB tests but passed the EBA exam, which measures capital ratios at year-end periods.
The EBA said €54bn of extra capital has been raised in the nine months from the end of December 2013, when the tests were imposed on the banks, while others had already embarked on efforts to bolster their capital.
This reduced the number of failed banks to 14, with an urgent need to raise €9.5bn.
The three Greek banks put plans to restructure themselves to the ECB after the start of the test period. They accounted for €9bn of the total shortfall. However, only one of them – Eurobank Ergasias – would have failed had these restructuring plans been taken into account.
The stress tests found that banks’ capital strength would be hit hardest by debts caused by credit losses, which would wipe €500tn off their balance sheets - an amount equivalent to the size of Belgium’s GDP.
The banks had to meet a capital threshold of 5.5% and the average for banks after the test was 8.4%.
Forty banks would not meet a 7% threshold being used by international standard setters from 2018.
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Addressing foreign journalists and academics in Sochi, he said the US had repeatedly violated the rules through military action – sometimes with Nato or European allies – in Kosovo, Afghanistan, Iraq and Libya and instigating often ill-fated “coloured” revolutions. Along the way, Mr Putin alleged, it had even used Islamist terrorists and neo-fascists as instruments.
That had made the world much more dangerous. Americans were “constantly fighting the consequences of their own policies, throwing all their efforts into addressing risks they themselves created”.
October in Kiev has brought a gorgeous Indian summer. The reprieve from autumn’s slow creep towards winter gives the city a feeling of hope as it prepares for parliamentary elections on 26 October. Ubiquitous political advertisements for the 29 parties running appear to indicate that change is coming.
However, a deeper look at the socio-political environment in Kiev suggests that this picture of progress may be a façade. For most Ukrainians, the optimistic political advertisements (which were almost completely absent during the presidential election in May) contrast sharply with their own experiences. The war in Donbass and the worsening economic and social situation are likely to bring more people to parliament with no appetite for dialogue. Rather, many will want to fight — literally — for what they believe is right.
Petro Poroshenko’s bloc “party of peace” is the darling of pre-election polls. Ukraine’s president has designed the bloc, which has been campaigning in the name of unity, to include civil activists, soldiers fighting in Donbass, oligarchs’ proxies, traditional regional power brokers and former Party of Regions lawmakers.
Poroshenko has also tried to keep the ruling coalition in check. First, he managed to essentially absorb the Udar party after cutting a deal with Kiev mayor and former boxer Vitaliy Klitschko and oligarch Dmitry Firtash. For his loyalty, Klitschko received support from Poroshenko in the mayoral election, which he easily won.
More than half of Ukrainians oppose Poroshenko’s peace plan, according to a recent poll
Second, Poroshenko appears to have made a “non-aggression” pact with Svoboda, the radical Ukrainian nationalist party. Third, he seems to have made a tacit agreement with Arseniy Yatsenyuk’s National Front – the “war party” – to weaken the actual military populists – Oleh Lyashko’s Radical party and former prime minister Yulia Tymoshenko’s Batkivshchyna.
Ukraine's president Petro Poroshenko visits a training centre for junior experts of the Ukrainian state border guard.
Ukraine’s president Petro Poroshenko visits a training centre for junior experts of the Ukrainian state border guard. Photograph: TASS / Barcroft Media/TASS / Barcroft Media
Peace, however, is not necessarily a unifying aim: more than half of Ukrainians oppose Poroshenko’s peace plan, according to a recent poll. Still, the Poroshenko bloc is likely to dominate the 26 October vote.
Keeping a wide number of stakeholders on the party list will likely mean that the next parliament will become a battlefield on which deputies fight for power. The question is whether Poroshenko can harmonise the diverse interests surely to be represented in the next parliament, while reforming Ukraine’s economy and brokering a lasting peace with Russia.
Keeping a wide number of stakeholders on the party list will likely mean that the next parliament will become a battlefield
The mixed electoral system – half of MPs will be elected from single-member district and half from party lists – and the fact that one major party (the Poroshenko bloc) is likely to control the new Rada means that the parliament will be more split than ever, as party blocs will be able to assert less “centralised” will.
It is becoming clear that radicals will hold a significant number of seats in the new Rada. Polls suggest six other parties may enter, including the Radical party, which is composed of celebrities, fighters, singers, civic activists, sportsmen, and lesser-known businessmen. Like Lyashko’s party, Batkyvshchyna is highly populist and pro-war: captured Ukrainian female pilot Nadia Savchenko is number one on Batkivshchyna’s candidate list. Her sister is running, too, emphasising the lengths to which Tymoshenko will go to drum up popular support. The right wing Svobodawill also likely to get in as turnout in western Ukraine, where the party’s support is mainly based, is expected to be higher than elsewhere in the country.
A supporter of Ukrainian nationalists attends a rally in front of St Michael's golden-domed monastery in Kiev, Ukraine, on 14 October 2014.
A supporter of Ukrainian nationalists attends a rally in front of St Michael’s golden-domed monastery in Kiev, Ukraine, on 14 October 2014. Photograph: Tatyana Zenkovich/EPA
Out of the three “middle class” parties — Yatsenyuk’s National Front, Anatoliy Hrytsenko’s Civil Position, and Lviv mayor Andriy Sadovyi’s Samopomich (“Self-help”) — Civil Position and National Front will most likely win seats in parliament.
The Lviv mayor’s party seems like a Lviv version of a typical Ukrainian political party: Sadovyi has co-opted regional businesses, an entire group of civil activists (Reanimation Package of Reforms), previous politicians, and a handful of soldiers in eastern Ukraine (including Donbas Battalion commander Semenchenko). Given that it is receiving less than two per cent of support from likely voters it is unlikely to enter parliament (parties must win at least five per cent of the vote for their representatives to enter the Rada).
Anatoliy Hrytsenko, the former presidential candidate and minister of defence, made a pact with Democratic Alliance, Ukraine’s only self-funded party, which was established by young political and civil activists. In Kiev, Hrytsenko was described to me as “Lyashko for the educated.”
One lingering uncertainty about the election is whether the newly created Opposition Bloc, headed by Serhiy Tihipko and composed of former Party of Regions members, will garner enough votes. It is polling at less than three per cent, but a strong media campaign by its oligarch backers may tip the scales.
Ukrainian soldier carries an unexploded shell during de-mining works in a field near the eastern city of Mariupol on 23 October, 2014.
A Ukrainian soldier carries an unexploded shell during de-mining works in a field near the eastern city of Mariupol on 23 October, 2014. Photograph: Alexander Khudoteply/AFP/Getty Images
Unlike previous elections, few businessmen are running for office, and most oligarchs have been keeping a low profile. Some of the oligarchs, like Dnipropetrovsk governor Igor Kolomoyski, are clearly picking up part of the bill by financing a great number of candidates, and all of them are losing money in the current crisis. But in context, as one insider reminded me in Kiev, it is better to lose part of your wealth than all of it like former Ukraine president Viktor Yanukovych.
Civil activities have a strong vision for and a commitment to Ukraine’s European future, but they lack the experience necessary to implement crucial reforms
The presence of more than 30 civil society activists and dozens of fighters on various party lists ensures fresh blood in the Rada. The emergence of prominent civil activists is welcome as a positive sign as Ukraine in dire need of a new, responsible political elite. Whereas former pro-Yanukovych lawmakers are running mostly in majoritarian districts, civic activists have been essentially co-opted by political parties.
Although those civil activities have a strong vision for and a commitment to Ukraine’s European future, they also lack the experience necessary to implement crucial reforms. Further, as members of political parties, they may lose the freedom to act independently from those who have their way to power. They will also lose the credibility they gained while holding the ruling elite accountable by applying external pressure. They will enter a system that could easily absorb their best intentions. Cultivating new civil activists will be no problem for Ukraine, but gaining political credibility will take time.
Soldiers will be a new element in the parliament, reflecting the desires of many in society: to fight. Seventeen candidates are running from the Donbas Battalion alone. With Aydar, Dnipr, Luhansk, and Azov battalions’ candidates in parliament, the Rada may became a new kind of battlefield. This trend should raise the question about whether other professionals — lawyers, doctors, economists, teachers — could enter parliament and elevate Ukraine’s lawmaking.
Thousands of pro-nationalist supporters of the Svoboda party in a stand off with police outside the parliament in Kiev this month. Photograph: Oleksandr Ratushniak/Oleksandr Ratushniak/Demotix/Corbis
Society is becoming more radical and aggressive. The so-called “trash bucket challenge” – in which activists threw politicians they believed to be corrupt into bins – must be painful to watch for those believing Ukraine is moving closer towards European values. The indicator of a real breakdown in society is not rare episodes, but rather the support they garner even among educated Ukrainians. The “you have to understand” choir is much louder than the few warning voices. What is even more worrisome is the lack of reaction from law enforcement and lack of legal accountability for the perpetrators.
According to the famous Georgian toast, our desires should match our possibilities
What does this mean for the west? According to the famous Georgian toast, our desires should match our possibilities. The problem with western policy in Ukraine is that it is beginning to look more like a desire than a policy. Holding early elections was supposed to legitimise central authority. But the opposite seems more likely by the day.
The west must ensure rigorous election observation, press authorities to conduct the fairest elections ever held in Ukraine, and immediately condemn violations of any kind. Making the elections as transparent and fair as possible is the least the Poroshenko administration can do to give Ukrainians hope for a new future and an ethical and effective government. Yet in their cooperation with leaders from the government and civil society, the west seems to be continuing to chase a dream instead of addressing the swiftly changing reality on the ground.
For the majority of Ukrainians, the fight for survival is just about to begin. Lowering expectations from Kiev, increasing support in fields that can bring immediate and practical improvement for Ukrainians should be the west’s immediate priority.
Air force chief announces plans for new air base in Belarus, as well as expansion of existing facilities in Armenia and Kyrgyzstan.
The Moscow Times, part of the New East network
theguardian.com, Thursday 16 October 2014 17.50 BST
A Russian Air Force Beriev A-50 early warning aircraft flies with fighter jets over Red Square and the Kremlin during a military parade rehearsal in Moscow in 2010.
The head of the Russian air force has announced Moscow’s plans to establish an airbase for fighter jets in eastern Belarus in 2016, according to state media.
Colonel General Viktor Bondarev also said Moscow planned to expand its airbases in Armenia and Kyrgyzstan.
The three nations are members of a loose Russia-dominated security alliance known as the Collective Security Treaty Organization (CSTO), which has accelerated efforts to create a unified air defence network as the Ukraine crisis re-energises the West’s military powerhouse, Nato.
The new airbase in the Belarusian city of Babruysk will expand Russia’s already strong air presence in Belarus. The base will be home to a wing of Russian Su-27 fighter jets, news agency TASS reported.
Even before the conflict in Ukraine, Russia under President Vladimir Putin had been making major efforts to re-establish its historical military presence in Eastern Europe, Central Asia, the Arctic and beyond. Negotiations with Vietnam, Cuba, Venezuela and Nicaragua to establish bases for Russian strategic bombers are ongoing.
“By 2020... 47 airfields, including in Crimea in the Arctic, will be renovated under the state armaments programme,” Bondarev was quoted as saying by Interfax on Wednesday. By 2025, he added, the Russian air force will have restored and reopened over 100 military airbases.
Last year, a unit of Russian fighter jets were deployed to a Belarussian airbase in Baranovichi as part of the countries’ integrated regional air defense network. Russia also announced that it would station fighter jets at a Russian-built airbase in the Belarusian city of Lida, near the country’s border with Poland and Lithuania.
Russian defense officials have characterised these deployments as a response to Nato’s beefed-up air patrols in the Baltics and Poland.
Bondarev was also quoted by RIA Novosti on Wednesday saying that Moscow is negotiating with Bishkek to reconstruct the Kant airbase in Kyrgyzstan, which is a home for Russian fighter jets under CSTO auspices. While the base is usable, further construction is needed to support Russian strategic bombers, he said.
Bondarev said similar work will be done on an airbase in Armenia, the Soviet-era Erebuni base, which is already home to Russian MiG-29 fighter aircraft.
Boyd Tonkin
Monday 27 October 2014
“When I ride my bicycle through the Brandenburg Gate, I still think: ‘Wow!’” On a misty October morning, in a café on a quiet, pretty square in upmarket Schöneberg, Bernhard Schlink remembers the epoch-making excitement of Berlin a quarter-century ago. He quotes Willy Brandt, the former West German chancellor who greeted the reunification of his country with the words: “What belongs together, can now grow together.” For Schlink, “I still have a feeling of joy that, in my lifetime, I have witnessed Germany growing together.”
The writer and legal scholar, whose worldwide bestseller The Reader interrogated the lingering secrets and shames of the Third Reich, also played his part in the transformations that re-shaped Germany and the world after the fall of the Berlin Wall in November 1989. Early in 1990, he moved from Heidelberg to Humboldt University in East Berlin. There, along with churches, civil-rights groups and political parties, he joined the round-table talks that began to devise a free constitution after the downfall of the dictatorship led by the “Socialist Unity Party” of the German Democratic Republic. “There was such a sense of ‘Let’s try together to get out of this mess’,” he recalls. “There was not much desire for revenge or prosecution. That was brought in more by West Germany even before, and finally after, reunification.”
The stampede towards reunification, which took effect on 3 October 1990, left Schlink’s model constitution for a liberated East Germany on the shelf. Perhaps, given another 6 per cent of “Yes” voters, Scotland could have imported it.
Now, almost 25 years after the peaceful revolution that began to topple the post-1945 world order, hindsight detects a pattern of inevitable change. The Wall fell. Germany united. The Soviet Union lost control of all its satellites before itself falling apart. The Cold War – even history itself, if you interpret Francis Fukuyama’s contested thesis in the triumphalist fashion that the historian himself disavows – came to an end.
Hindsight, however, tends to read chance as fate and choice as destiny. History might have broken another way. No Western intelligence agency foretold the collapse of the Soviet empire. Gorbachev’s top-down reforms in the USSR might have delivered a Chinese future, with Berlin in November 1989 the shaming, blood-stained site of its Tiananmen Square.
That it did not owes next to nothing to the central committee of the SED. On 9 November, after a month of ever-swelling mass demonstrations, the party suddenly reversed its hard-line stance with a bungled, ambiguous announcement at a shambolic press conference of freedom of movement for all East Germans. Rather, the revolution owes amazingly much to a man called Harald Jäger.
A Stasi lieutenant-colonel with 25 years’ service as a passport official, Jäger unilaterally decided to open the crossing at Bornholmer Strasse to the milling crowds of protestors just before 11.30 pm. After a long evening of dithering and insults from his superiors, Jäger snapped. He rang them to say: “I am going to end all controls and let the people out.” And he did. As historian Mary Sarotte argues in a book that traces, minute by minute, the events of that night (The Collapse), “The Wall’s opening was not a gift from political elites… It resulted from a remarkable constellation of actors and contingent events”. Who ended the Cold War? Forget Thatcher, Reagan and Gorbachev. Toast Herr Jäger.
Berliners from East and West celebrate at the Brandenburg Gate in December 1989 Berliners from East and West celebrate at the Brandenburg Gate in December 1989
Even at the time, what happened and what it meant remained a matter of dispute. Over coffee and cake in her book-filled apartment, two blocks away from the Wall Memorial strip that runs for a mile along Bernauer Strasse, novelist Jenny Erpenbeck recalls that evening. She and her East Berlin student friends enjoyed an ordinary night out and then turned in. In the morning, she didn’t know whether to believe the startling overnight news: “We thought, ‘Is it true? Probably not’.”
She had grown up in central East Berlin, on the GDR side of severed streets “that all ended with a wall”. That seemed natural. So did distrust of the official media. “It made you very sceptical about the system. That was our forte.” Even after it became clear that East Berliners could now travel west at will, she didn’t. “I refused to be in the position of the one who was grateful.” Like many of her GDR peers, Erpenbeck still harbours mixed feelings about the pace and terms of reunification: “We were hoping to have opened the door to reforms, but not to give everything away in a few seconds.”
As the anniversary nears, Germany’s restored capital is meditating on its pivotal role in the making and the breaking of the Cold War world with plenty of polemic, a degree of introspection, but precious little self-congratulation. The S-Bahn station at Bornholmer Strasse – where history stepped into a new era – will keep its name rather become the “9 November 1989” stop, after Deutsche Bahn overruled the borough council. For some reason, visitors stick bubble gum to a surviving section of the Wall at Potsdamer Platz: spontaneous folk-art, or a risk to public hygiene? Berlin loves a row, especially one that draws on its eternally contentious past. At the eastern end of Unter Den Linden, after a decade of ferocious argy-bargy, it is rebuilding the former Prussian “City Palace” on the site of the GDR’s swanky “Palace of the Republic” – a GDR showcase, demolished after reunification, known to East Berliners as “Erich’s Lamp Shop” after party leader Honecker decked it out with fancy lighting.
Berlin air – and Berlin backchat, or Schnauze (snout) – does not readily incubate triumphalism. No one thinks that history ended there on 9 November 1989. Global hyper-capitalism remains the object of widespread suspicion or disgust. As across Europe, “neo-liberal” (read “Thatcherite”) is the ultimate put-down among everyone of a mildly progressive bent. Don’t, however, write this off as “Ostalgia” for the grey landscapes of “actually existing socialism”.
“People say, you’re being sentimental about the terrible GDR regime,” explains Jenny Erpenbeck. “It isn’t that. It’s the feeling of loss – that we lost everything, the good and the bad.” For Schlink, “Even among former members of the East German intellectual elite, whom I happened to meet and to know, I never found a real nostalgia for the GDR. What I found was nostalgia for elements of the GDR – always coming with the knowledge that, if one had to have the whole GDR to have the elements, one would rather not have the elements!”
Erpenbeck worries that, when parties of schoolkids come to visit the Wall memorial displays that run along Bernauer Strasse, they learn only about the terror and repression, the split families and the gunned-down refugees. What more ought they know about her GDR? “For me, the main impression, when I look back, was that I felt safe… You could not buy so many things so you didn’t need money. And the most important things – bread, butter, books, musical scores – these were very cheap.” She studied to be an opera director, without career anxieties. All her artistic colleagues “trusted they could make a living somehow”. Above all, “Money was not a topic. It was not interesting.”
A phrase that Bernhard Schlink used stays with me. “The modesty of life”: friends, family, culture, a rich private existence cultivated against the fraudulent and intrusive state. After dropping her son off at his post-school swimming club, Erpenbeck drives me to the old apartment block on Chaussee Strasse - another Wall-bisected street - where the dissident singer and playwright Wolf Biermann lived. We wander through the shabby courtyard and into a brown, dark stairwell. “In its own way, it’s beautiful,” she muses. Not superficially: but you imagine that the life of inner freedom nurtured here could well have been.
The former Stasi officer Harald Jäger, who defied orders and gave the command to open the barricades and ‘let the people out’ The former Stasi officer Harald Jäger, who defied orders and gave the command to open the barricades and ‘let the people out’
Not everyone looks back with such fondness. At a riverside restaurant on Schiffbauerdamm, yards away from the theatre where Bertolt Brecht created his Berliner Ensemble as the jewel in the artistic crown of East Germany, I meet novelist Daniel Kehlmann – a Berliner by adoption, but with family roots in Vienna and Munich. Kehlmann tells me that his wife, a human-rights lawyer brought up in East Berlin, felt wounded by having to walk past a preserved segment of the Wall after its fall: “It felt like an insult to her.” For him, relics of repression have dwindled into tourist kitsch: “So much of it has been turned into folklore now.” Still, he welcomes the anniversary jamboree: “It’s good to remind people that the GDR was a serious thing, not just some funny little niche.” Among their friends is Vera Lengsfeld, an outspoken politician and writer who, as a 1980s civil-rights activist, was informed on to the Stasi by her husband. Now – “singularly unforgiving”, notes Kehlmann - she leads tours around the cells of the Stasi remand prison at Hohenschönhausen, where she was once detained and tortured.
Berlin, though, looks outwards as well as backwards – to the global forces unleashed by the Cold War’s close as well as to the upheavals of 1989. Migration now looms almost as large in German politics as in British. Jenny Erpenbeck currently campaigns on behalf of a group of 200 African refugees driven out of Libya after Gaddafi’s fall, who want to stay together in Berlin. She helps them with jobs, health issues, even piano lessons: “I wanted to see them not just as refugees, but as people with their own lives.” Two generations back, her Communist grandparents fled Nazi Germany for a difficult spell in the Soviet Union. She identifies with “people who are not allowed to have a life”. As for her own GDR upbringing, “For me, it’s an experience that formed my thinking and character: to have been on the wrong or the poor side” of history. “You get a feeling of how it is to be on the silent side or in the shadows.”
At a cafe on Bayerischer Platz – focus of the “Bavarian Quarter” developed around 1900 by Salomon and Georg Haberland, and the favoured neighbourhood of Berlin’s pre-war liberal, often Jewish intelligentsia – I talk to Julia Franck. From a partly Jewish family herself, the writer left the GDR aged eight with her brother and mother. She recreates that ordeal, and especially the limbo of the Marienfelde reception camp south of Berlin, in her novel West. Today, she points out, Marienfelde – which processed 1.35 million fugitives from the East – still houses refugees. Like Erpenbeck, this former child refugee thinks about Europe’s new “others” and the puzzle of “why society excludes certain people and is even able to destroy them”. Deadly frontiers persist, taking a human toll much higher than the thousand-odd (136 in Berlin) killed trying to cross her torn nation between August 1961 and November 1989: “A lot A rising generation will soon stake its claim on 1989. For now, we live in a world shaped by those who lived that transition and built their careers on its consequences. At Bornholmer Strasse, on 9 November, a young East German scientist from the Central Institute for Physical Chemistry dropped by to see what the fuss was about, and then made a brief crossing. Her name? Angela Merkel. A few weeks earlier, in Dresden, a resident KGB officer anxiously observed the mass protests triggered by the passage of “trains to freedom” taking GDR refugees west by way of Prague. His name? Vladimir Putinmore people die on Europe’s borders now than ever died on the East-West border.”
For Franck’s own children, now 11 and 13, divided Germany seems a thoroughly foreign country: “They ask some very strange questions! It’s really not their experience at all.” She, too, believes that commemorations matter: “On an intellectual level, it’s not bad to re-think history again and again. Like memory, it has its own plasticity.” In Berlin, the meaning of the revolution of 1989 remains in flux because the new world that it engendered does as well. “It’s not that we remember better or worse,” reflects Franck, surrounded by mementos of the Bayerishe Viertel residents whom the Third Reich either expelled or murdered, “but that each generation has its own claim.”
Perhaps. From what I know, Russian Far East is getting denuded of Russians. The Russian government has to give many sops to keep the Russians from migrating to its western region. If there is surplus labour in western Russia, probably the situation in far east would stabilise too.JE Menon wrote:Russia does not have a shortage of cheap labour. Gainful employment is more the issue, I suspect.
Ukrainians of Russian heritage may go into Russia in fair numbers though.