Tuesday, 6 January 2015

GERMANY and US SANCTIONS ON RUSSIA

US-led Sanctions and Germany’s EU Integration Model at Risk
Germany’s dilemma in 2015 is that it must resolve the contradictions between its path of forging a new patron-client integration model on the one hand, and dealing with the combined pressures of sanctions on Russia and the Greek crisis with possible spillover impact on the rest of the euro zone. Is the German economy able to withstand the pressures of continued austerity that has retarded growth and led to high unemployment across Europe, especially in the southern and eastern periphery, while at the same time withstand the additional pressure of diminished trade with Russia because of continued sanctions on which the US insists the EU participates? Making matters more complicated, there is a question whether the export-driven German economy and the EU are able to withstand the political pressures of Euro-skepticism coming from both the rightist and leftist political parties in Europe that question the German-imposed integration model as beneficial for all EU members. 

Sanctions on Russia and the January parliamentary elections in Greece have caused some considerable downside pressure on the euro’s value, despite the record-low energy prices. If Greek voters elect SYRIZA that promises to end fiscal austerity and neoliberal policies across the board that the International Monetary Fund, European Central Bank and EU have been imposing, then Germany and the EU have a problem. Regardless of whether Greece leaves or stays in the euro zone, the cost to Germany and the EU economy would be about the same, as I noted in an article on the subject when the Greek crisis started in 2010. German government officials, bankers and the establishment media have warned the Greek people about voting for a government opposed to foreign-imposed austerity that would cause instability across the EU economy.

German Message to the US
The combination of a weak EU economy made even weaker by political uncertainty that Athens and the US-led sanctions against Russia has forced the government of Chancellor Angela Merkel to send some strong messages against those opposed to austerity and those in the US and some in Europe favoring sustained and even stronger sanctions against Russia. At stake here is not a temporary setback for the German economy that would probably not achieve GDP growth above 0.5% in 2015, but the patron-client integration model that would presumably guarantee German economic hegemony over the periphery of Europe, that is all of southern and eastern Europe.  

On 4 January 2015, German deputy Chancellor Sigmar Gabriel expressed a concern that most EU governments widely share about Western sanctions on Russia. "The goal was never to push Russia politically and economically into chaos…Whoever wants that will provoke a much more dangerous situation for all of us in Europe." Germany’s warning dramatized the reality of Russia’s nuclear capability, but also the futility of sanctions which not only destabilize Russia in every respect. 

Beyond Russia’s nuclear capability and the fact that sanctions have not worked in so far as forcing Putin to accept US demands regarding the Ukraine, the timing of sanctions came when the EU economy was struggling to revive against incredible obstacles of austerity. The convergence of the sanctions and the real possibility that Germany would have to make concessions to Greece so that the euro zone is preserved has had an impact on the currency trading at the lowest level in nine years. EU prospects for growth are limited considerably until both the Greek question is settled after the election of 25 January 2015 and sanctions over Ukraine are also settled through a negotiated settlement with Moscow. 

The Germans were never at ease with the US-led sanctions against Russia, but they went along and tried to convince public opinion this was the right thing against the “evil tyrant Vladimir Putin” who violated Ukraine’s territorial sovereignty by annexing Crimea and meddling in the nation’s internal affairs. Even before the sanctions went into effect, the German government had expressed reservations, largely because German businesses strongly opposed any action that would harm their interests amid a period of weak economic performance across Europe.
Beyond the tangible economic interests and Germany’s market share loss in Russia, there was and remains the issue of the effectiveness of sanctions on a country that has the ability to diversify its trade relations and has proved throughout history that it can endure hard times. The German message to Washington was that the US has the luxury of imposing sanctions on a country with which it does not have extensive trade relations, while forcing northwest Europe to pay the price of those sanctions.  

German Global Economic Competitiveness
Enjoying GDP $3.2 trillion (PPP), Germany can become more competitive in the 21st century if it adopts the patron-client model of integration that it has been pursuing in the last five years and one that is not much different than what the US has been pursuing in its economic relations with Mexico and Latin America. As a creditor nation, Germany sees that it is in its interest to maintain a strong euro which at the same time maintains the patron-client model by keeping the periphery EU countries economically weak and dependent on northwest Europe, and especially on Germany. Sanctions against Russia, especially if they drag out as they have for Iran, pose a threat even greater than Greece leaving the euro and defaulting on its public debt part of which Germany would have to write off regardless of the election outcome. 

The German government wants to continue the hard currency regime through austerity measures that Chancellor Merkel has imposed on the rest of the EU in the last five years, while at the same time stimulate economic growth under the neoliberal model of privatization, low wage and flexible labor policies favoring businesses at the expense of workers. So far this strategy has succeeded in driving down living standards across much of Europe that hurts the export-driven German economy and accounts for its current GDP growth slump. German politicians and business people are arguing the reason for their economic problems is the US-led sanctions on Russia that have undermined EU economic growth prospects. Even before the EU sanctions, German-Russian trade had dropped by 15% and it is expected that it took another major hit in the second half of 2014.

The value of German-Russian trade was 76.5 billion euro in 2013. Although Russia ranks 11th as a destination for German products and services, more than 6000 German firms have investments in Russia and ten percent of all German firms do business with Russia that absorbs about 37 billion euro worth of goods and services. Because Germany is Russia’s third largest trading partner, the sanctions both by the West and Russia against the West threatens to undermine German-Russian economic ties. While it is true that Russia needs German investment and technology, it is also true that Germany is energy dependent on Russia that some Europeans see as the aggressive imperialist taking advantage of its military might, while others see it as victim of an aggressive militaristic US-NATO foreign policy intended to bring it to its knees.  

Political elites across Europe find themselves challenged by leftist and right wing political parties that are vehemently anti-German and anti-austerity. Although Chancellor Angela Merkel enjoys greater popularity than any of her EU counterparts, she is the most unpopular leader in the rest of Europe. Meanwhile many Europeans see Putin as a strong patriot defending Russia and the Russian minorities against the predatory West. In today’s age of web info and multiple sources of information it is difficult to hide the covert role of the West ultimately trying to secure cheap labor, agricultural products and minerals in Ukraine. 


The German economy has the most to lose as a result of the Greek public debt crisis just as it has a great deal to lose from the Ukrainian crisis. This is the reason that Gabriel, the German ambassador to the US, finance minister Wolfgang Schaeuble and others have been sending messages about the futility of sanctions, and in essence delivering exactly what German banks and big industry want from the Merkel regime. That all of Europe is suffering at a time that the US is enjoying robust growth leaving its EU partners behind is troubling because eventually this will impact the US economy as well.


The Limits of Sanctions Against Russia
The interdependence of EU and Russia goes to the core of what German officials are addressing, but at the same time the US-led policy of debilitating Russia to oblivion and expecting the European to pay the price for US containment policy. The realization that Moscow will never submit to a US client or dependency state on the West, no matter the severity of sanctions drove the German government to issue such a warning. After all, the issue here is not Putin negotiating because the US imposed sanctions. When the USSR dissolved, there were 15 separate republics, and that was in itself sufficient weakening of Russia. Nevertheless, the issue for Western hardliners is to have Russia submit to everything the US demands. This includes everything from having its neighbors submit to economic integration with the West to closer political and strategic relationships that would reduce Russia to a lesser regional power than it is today.  

Vice Chancellor Gabriel’s warning to hardliners in the US is also a reminder that regime change in Russia is impossible through sanctions. After all, Russia today is already integrated into the world capitalist system and has significant ties with China and much of Asia. China will never permit the US to determine the Eurasian balance of power, and on this issue it has the support of most Asian countries. This is not because China, India, Turkey, Iran, or any other country has any great love for Russia as an ally, but because it is not in their best interests to permit US hegemony in Eurasia. 

Although Japan has clearly sided with the US on sanctions against Russia, behind the scenes it wants a political settlement as much as Germany, because it does not want rival China to derive all the benefits from Russia’s isolation. The economy of Japan is debt-ridden and in desperate need of stability instead of the kind of instability that Ukraine invited to the global scene. Even if regime change were to take place, the idea that Russia would become a satellite of the West is simply absurd as much for China as it is for Germany and Japan.

One reason that the Bolshevik Revolution took place is precisely because Czarist Russia had been reduced into a financial and economic dependency of northwest Europe, although it had the resources and potential to be richer and more powerful than Europe. It is one thing to have regime change from Communism to capitalism that took place when Gorbachev permitted for the transition to take place, and entirely another to have a capitalist country of Russia’s actual and potential power become a satellite of the West.

There is also another very important issue to consider here, namely, the nature of regime transition, if that were to take place as many right wingers in the US are hoping. First, would such a transition be peaceful as it was from Communism to capitalism or violent as it was from Czarist Russia to Bolshevism? Second, would the new regime be more or less friendly to the West, would it be more or less nationalistic? Third, if sanctions continue, do they not simply solidify the existing regime because people rally around the leader of the nation who is viewed as patriotic against foreign interference?

Fourth, what are the chances that the main beneficiaries from an existing hardened Putin regime or a new one would not be China while EU would suffer immense economic lose ground even more amid a lingering recession? Fifth, President Jimmy Carter recently noted that US economic sanctions against North Korea are targeting people in the lower echelons and not the elites. This is a human rights tragedy attributable to misguided US foreign policy. If sanctions continue against Russia, is the US and EU punishing Putin and the elites as they claim, or the ordinary people of Russia?

It is utterly absurd for US policymakers to assume that the people of Russia who have been suffering as a result of US-led sanctions blame their own government instead of the US trying to encircle their country and deprive it of what it deems historic allies on its own border. Gabriel touched on this issue indirectly, warning that there are those who are trying to use the Ukrainian crisis to destabilize Russia instead of solving the crisis between Kiev and Moscow. He made it very clear that Germany does not want to see Russia on its knees as some in the US and Europe, because that is not in Germany’s best interests.

As a major trading partner of Europe, Russia has already made very large trade and investment agreements with non-Western countries at a time that EU needs more markets. Western sanctions combined with a 40% decline of Russian currency accounts for a weak economy. The Russian economy cannot be a consumer of EU products and services, thus driving another blow to EU recovery simply because US and some European ideologues want to impose hegemony over all of the former Soviet republics and reduce Russia into a weak regional power.

The significance of Gabriel’s statement, something that other German officials have expressed as well, is in its agreement with what Putin has been saying about the West trying to weaken Russia and using the Ukrainian crisis as a pretext to do so. After all, the West has spent millions in the last three years in Ukraine to make sure it breaks away from the Russian orbit of influence. The so-called Ukrainian crisis became one only because the EU and US made very bold attempts to reduce Ukraine into an economic, political and strategic satellite that would clearly pose a threat to Russian security, while at the same time disregarding the rights and interests of the Russian minority within the country.

Putin and all post-Soviet governments are hardly models of democracies, and there is no doubt about a regime that walks a fine line between authoritarianism and cult of personality. Nevertheless, Russia is committed to their national economic integration with the capitalist system, although Russian capitalism is based on a small group of politically-linked individuals owning most wealth. This social structure is symptomatic of capitalism that the US and Western Europe helped to promote in Russia, but only changed their tune when Putin asserted economic nationalism must take precedence over foreign interests, at least foreign interests the government did not approve. 


Germany and the end of the "Embourgeoisement Thesis"


Germany has set its goals on achieving the patron-client integration model within the Euro zone that has transformed the single-currency economy into the rich creditor and poor debtor members. A fundamental reason that countries wanted to join the EU and the euro zone was the promise of economic improvement through an integration model that would lift the weaker nations via financial help from the stronger ones. This would then translate into the promise of upward socioeconomic mobility for the majority of the population and the realization of stable pluralistic societies. In short, the EU model was rooted in the EMBOURGEOISEMENT THESIS (something more or less like the American Dream). Instead, the recession of 2008-present, and Germany's insistence on impoverishing the entire periphery area from southern to Eastern Europe has grossly undercut the embourgeoisement thesis.

In April 2013, Chancellor Merkel denied that there is such a thing as "German hegemony over Europe", but she insisted that EU countries must cede more national sovereignty to overcome the debt crisis. The irony of Merkel's comments made in an audience with the Polish Prime Minister was that Poland like the rest of Europe fears Germany has learned no lessons of its 19th and 20th century quest for hegemony and it is now trying once again to achieve the same goals under the protective bloc mechanisms of the EU. As some scholars are trying to determine if the post-Communist world structure has any resemblance to pre-1914, it may be useful to also consider the controversial book by Fritz Fischer, World Power or Decline? This is not to suggest that contemporary Germany resembles pre-1914 or that the modern world power structure does either, but there are some very useful parallels to consider.

There are those who argue that Germany has gone back to 19th century ideology rooted in Ludwig von Rochau, Grundsätze der Realpolitik angewendet auf die staatlichen Zustände Deutschlands (1853). If indeed some Germans among the political, economic and social elites believe that the imperative of nature on which the existence of states depends is fulfilled in the historically given state through the antagonism of various forces, then it is the realities of the current regional and global political economy that are responsible for it, and not any commitment to ideology. Assuming that the law of the hegemonic forces in society is similar to or a reflection of the laws of nature in its hierarchical patterns, then one must assume that if France, Sweden or any other country was in Germany's dominant economic position, and the international climate permit it, that country would follow the same path as the Angela Merkel government. In short, the structural patterns of the political economy domestically, regionally, and globally are far significant in how Germany is behaving than any ideology that is used subsequently to justify/explain those patterns.
To compete with China and all of the BRICS nations (Brazil, India, Russia and South Africa) as well as with the US and Japan, Germany had to abandon the 'embourgeoisement thesis' that promises incorporating more workers into the lower middle class. 

Politically, people believe they really have no choice but to reluctantly accept neoliberal policies and austerity. Given the end of the Communist bloc and failure of Communist regimes, what do the mainstream "middle of the road voters" do but follow whatever capitalism offers no matter how dreadful for their lives. The US sanctions imposed on Russia pose a major stumbling block for Germany’s integration model, largely because of timing, namely the extreme uncertainty linked to Greece and the periphery EU members. There are limits to what Germany is able to do to influence Greek politics, as there are limits to the degree it is able to openly confront the US on the sanctions issue.


Western Sanctions Benefit China
Will Russia become more integrated with Asia and leave very little room for Europe, or will Germany and other European countries enjoy the benefits of expanding trade and investment relationship with Russia? In short, can Germany and the EU permit the US to undermine the EU economy, while forcing it to spend more on defense and suffer instability owing to a renewed East-West confrontation?  Russia cannot possibly be conquered, it cannot be reduced to a Western satellite, and it cannot be reduced to a weak regional power as some in the West imagine. According to polls, 68% of Russians see their country as a superpower, and 84% approve of Putin as their leader. The rise in Putin’s approval rating is traced to the US policy toward Ukraine, considering that he was at 61% approval in November 2013. The US has single-handedly managed to elevate Putin, an otherwise corrupt quasi-authoritarian figure, into hero-politician status, and in
return gain absolutely nothing while hurting the EU economy.


The recent German objections over the Western sanctions against Russia come as the US contemplates a new set of sanctions because the existing ones have not worked at all. The strong but private opposition to US-led sanctions comes from the largest German-based multinational corporations including banks, electronics and auto makers is not the only pressure on Washington that has convinced its own companies to respect the sanctions. US companies do not have nearly as much at stake in Russia as their EU counterparts. While the US has moved to lift sanctions on Cuba to benefit its own companies ready to invest in the island, it is imposing a policy of sanctions that further weakens the EU so that the US would derive a political benefit with the Europeans having nothing to show for their sacrifices.

Beyond the issue of who benefits and who is hurt by sanctions, there is also the issue of goals in the immediate future and long term. Europe has a long history of friendly and hostile relations with Russia and knows that confrontation has never achieved the desired result even in cases where the Europeans won wars as in the case of Crimean War in the mid-1850s. In other words, there is the realization that Russia has legitimate security issues, it is a major military power with vast natural resources, and in the 21st century it has more options before it than ever because China is the world’s number one economic power backing Moscow.  It ought to alarm the US that sanctions will never work and will have detrimental results for East-West relations. Just as the beneficiaries of the US disastrous war in Afghanistan was China, so is the case with US-led sanctions on Russia.

The Chinese navy has purchased giant Soviet-made Zurb class hovercraft from bankrupt Ukraine and Greece. The purchase of the hovercraft from Greece and Ukraine potentially places NATO in a much more vulnerable position should China wish to become an aggressor. However, this demonstrates the futility of sanctions diplomacy. China’s foreign minister Wang Yi pledged his government’s backing of Russia in case the country sinks deeper in crisis. Having signed a number of very significant energy deals with China, Russia continues to expand its ties with Beijing and other Asia countries, drifting farther from European dependence. 

Conclusion
A recent article in Japan Times disclosed that the US has been working behind the scenes to find a political solution to the Russia-Ukrainian conflict responsible for the sanctions both ways and international instability. I have stated in a number of articles that because China has moved ahead of the US economically and it is likely to continue doing so in the next few decades, US policy now rests on destabilizing measures in various countries from the Middle East and North Africa to the former Soviet republics. While this may be a last resort strategy and indicative of desperation, it is a policy that serves the narrow corporate interests, especially those linked to defense. However, such a policy comes into conflict not only with US real and potential enemies, but with its own allies, while it only strengthens China.  

German government high level officials are well aware that in many cases US policy is the detriment of German interests. The Council on Foreign Relations reported in June 2014 that US-German relations had reached new lows over the US spy scandals.  The sanctions issue and the pressure the US has been putting on Germany to adopt a more liberal monetary policy toward the euro (ease up on fiscal austerity across EU) are actually far more serious to the German political and economic elites than spying.

Regardless of serious differences, the two countries are inexorably linked in the Western political, economic and strategic zone that remains the last sentinel of Western Civilization against the rising Asian global dominance. Germany can differentiate its policies from the US and nuance them when necessary, but it has no choice but to stay a loyal ally, even when the NSA continues to spy on high level German officials. At the same time, however, Germany has invaded Russia twice in the 20th century and twice it has lost. Cordial political and economic relations between Germany and Russia present the best prospects of becoming and remaining a global power. This is something that 19th century statesman Otto von Bismarck appreciated and one reason he tried to neutralize Russia so that Germany could enjoy continental hegemony. The 21st challenge for Germany is to balance its national interests with those of the euro zone and its long-standing ally the US, so that it can remain a global power.      

 
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