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Eastern Europe

Security and Stability in the Southern Caucasus

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More than twenty years ago, the Parliamentary Assembly of the Council of Europe adopted Recommendation 1247 (1994)[1]. The Recommendation read: “In view of their cultural links with Europe, Armenia, Azerbaijan and Georgia would have the possibility of applying for membership provided they clearly indicate their will to be considered as part of Europe”.

This proposition was an invitation to the South Caucasian States to remember, rethink and rebuild their European roots and identity.

At that time, the Russian Federation was still two years away from membership. Russia joined the Council of Europe in 1996. Georgia followed in 1999 and, in January 2001, Armenia and Azerbaijan completed the membership as regards the Caucasus region.[2]

From the political point of view the Caucasus is part of Europe. That has been confirmed not only by the Pan-European Council of Europe but also by its smaller sister, the European Union, e.g. just recently when the summit of the Eastern Partnership took place in Riga with the participation of Armenia, Azerbaijan and Georgia.

We often speak about European family of democratically-minded nations, about European, or Council of Europe standards. But what it is to be European? What is the meaning of Europe in the 21st century? What does it mean with regard to stability and security in a region belonging to Europe?

Seen from Baku, Yerevan or Tbilisi, the Europe of Berlin, Paris, London, Vienna may seem impossibly prosperous and peaceful. Let me remind that Europe of 1949, when the Council of Europe was created, was quite different: war-torn cities, ruined economy and uncertain future.

The Council of Europe was created as a reaction to the horrors of war. What was the remedy? Respect for Human Rights, pluralistic democracy and the Rule of Law. These were the principles enshrined in Article 3 of the Statute.[3] And Strasbourg, long the centre of bitter Franco-German conflicts, was chosen as the headquarters of the Organisation.

I invite you to pause and think for a moment: the guns of the Second World War went silent 70 years ago on 9 May 1945. Four years later, on 5 May 1949, the Statute of the Council of Europe was signed. Now imagine that four years after the Armenian-Azerbaijan cease-fire of 9 May 1994, on 5 May 1998, a regional Organisation for the respect of Human Rights, democracy and the rule of law was created and the town of Shusha was chosen for its seat.  

That is the meaning of Europe. Perhaps not everybody saw that back in 1949, but today there is no doubt: Europe is all about renouncing war, once and for all – also in the minds of political establishment and the public. Europe is all about reconciliation, assuming past history, learning how to live with one’s neighbours, accepting and enjoying diversity.

Europe is by far not yet perfect. There is still a lot to be done, not only in the Southern Caucasus, in Europe and its neighbourhood.

And what about the South Caucasus as part of Europe? Even without detailed knowledge of history, a look at the map is enough – with Nagorno-Karabakh and Nakhichevan, with their interspersed and mixed populations, Azerbaijan and Armenia are tied together like Siamese twins. As late as 2001, it was manifested in the “joint Council of Europe accession option for Azerbaijan and Armenia”, chosen by all Council member States.

When I spoke in 2002 to an audience in the Yerevan State University I used for the first time the metaphor of the Siamese twins. It was not to the liking of everybody. Several weeks later, the Armenian Ambassador to the OSCE mentioned it in Vienna and argued against my message. I found no reason to change my mind: yes, Azerbaijan and Armenia are inseparably linked together, as I pointed out also at the Baku University. trying to separate Siamese twins by the sword will inevitably lead to death for both. Azerbaijan and Armenia have only one future – to live together, as one organism, as two neighbours separated by borders which have lost all meaning in everyday life, as two states within the larger European family.

As Secretary General I was used to organize workshops of young people from still existing conflict regions, e.g. Kosovo, Cyprus, Israel and Palestine in our proximity and of course the Southern Caucasus. In general it was always refreshing and promising how fast young people can overcome prejudices and stereotypes. E.g., when I had invited youngsters from Kosovo and the Middle East, on the first day the Albanians and Serbs from Kosovo told me how surprised they were seeing Israelis and Palestinians talking to each other, while the participants from the Middle East were shocked that the relations between different people living in the same area could be worse than in their part of the world. But after one week they all became friends!

Another year I brought together again young Israelis and Palestinians, Greeks and Turks from Cyprus and … Armenians and Azerbaijanis. I asked them to sit together in regional groups and work on conflict resolution. But not on their own conflict, but on one of the other regions, the ones from the Middle East on the Cyprus conflict, the Cypriots on the Nagorno Karabakh issue and the Caucasians on the Middle East case. All of them elaborated reasonable suggestions, for Cyprus a blue print of the Kofi Annan plan – but one year before the Secretary General of the UN came out with it, for Armenia and Azerbaijan a compromise which seemed for me to be acceptable for the partners and a very interesting approach for the Middle East.

What did young Armenians and Azerbaijanis suggest to Israel and the Palestinians? The essence was, don’t argue about the past, don’t waste time by blaming each other for mistakes of the past – just start where you are now. This is of course the only way to solve the Middle East conflict – if you are going to the past you end up with the Holy Books as land register, arguments used by the extremists of both sides.

But then I asked my young friends from the Southern Caucasus – why shouldn’t we apply the same principle for your region. You do not need to deal with the past looking for problems. There are current problems enough. Of course, they are rooted in the past, and several of them belong to what I would call the Soviet legacy.

There is the problem of Georgia, with two separatist entities, protected and supported by Russia. Hundreds of thousands refugees from these entities are staying in the rest of Georgia, dismantled of their property, separated from their homes, now nearly since a quarter of a century. The result of the attempt of former Georgian president Mikhail Sakashvili to solve one of the conflicts with military means is well known. The situation with Southern Ossetia became worse than before when there was a kind of status quo for ethnic Ossetians and ethnic Georgians.

Azerbaijan is still suffering from the Nagorno Karabakh conflict. A large part of the country beside Nagorno Karabakh is occupied by Armenian forces, more than 1 million people had to flee from these 7 Azerbaijani districts and are living now as IDPs, far from their destroyed homes. I visited refugees in 2004 and about 9 years later. I realized that Azerbaijan did a lot to provide for a life of dignity for these people. They have suffered enough; they should not endure alone the consequences of an unsolved conflict. Due to the conflict Azerbaijan has to spend more than 4% of its GDP for the army. Another consequence of the Armenian-Azerbaijani conflict is that the province of Nakhichevan is separated from Azerbaijan by Armenian territory and cannot be reached on land.

But Armenia is suffering from the conflict too: The economies of both sides have been hurt by their inability to make substantial progress toward a peaceful resolution. Also here more than 4% of GDP goes to the military. The border to Turkey has been closed by Ankara in support of Azerbaijan as retaliation to the conflict with Azerbaijan. Between Yerevan and Ankara is also the open question of the recognition of the genocide of 1,5 million Armenians in the Ottoman empire. Allegedly up to half of the population has left the country due to the circumstances. The situation seems even worse in Nagorno Karabakh where 180,000 ethnic Armenians lived before the armed conflict and according to well-informed sources only one third is left. Due to the conflict Armenia is to a large extent dependent on Russian support.

Talking about stability and security in the region one should not forget that Russia despite its involvement in Georgia and in the Armenian-Azerbaijani conflict has its own problems in the Northern Caucasus, being confronted with islamist extremism.

The international community succeeded in my view only to freeze the conflicts. The OSCE is involved in mediation efforts in several unresolved conflicts:

The conflict in and around Nagorno-Karabakh – through the Minsk Group (co-chaired by France, the Russian Federation and the United States) and a Personal Representative of the Chairman-in-Office on the Conflict Dealt with by the OSCE Minsk Conference.

In the post-2008 conflict in Georgia – the OSCE, together with the UN and EU, co-chairs the international Geneva Discussions in the wake of the conflict in Georgia. It also, with EUMM, co-facilitates the meetings of the Dvani/Ergneti Incident Prevention and Response Mechanism (IPRM) dealing with matters that affect the daily life of populations on the ground

You see what I mean when I say one does not need to deal with the past looking for problems. There are current problems enough. Priority should be given to solve the current problems the population of the whole region is suffering from. I admit that I don’t have a perfect recipe. But what I certainly know is that there is no military solution for any of the conflicts. The key words are dialogue, cooperation and reconciliation.

This is what was happening in Europe, earlier or later. France and Germany have led the way. Shortly after Azerbaijan and Armenia joined the Council of Europe, the remaining border control facilities on the Bridge of Europe, connecting the neighbouring cities of Strasbourg in France and Kehl in Germany were completely dismantled and two new bridges were built.

This was my first message – Europe is all about reconciliation, tolerance and enjoyment of diversity. I am deeply convinced – with political will and courage, within only one generation the South Caucasus can be a completely different place.

My second message is about caring of the interest of the people. Fighting poverty, improving education and health services should be given priority to military expenditure.

My third message is about cultural and regional co-operation.

Here again, I wish to speak the exact words I spoke in Baku, in Tbilisi and in Yerevan: Regional and transborder co-operation have given a remarkable contribution to the reunification and prosperity of Europe, we believe they can do much more so in the Caucasus region. This works not only between France and Germany. We can see that in another troubled region of Europe, the Western Balkans. Former enemies in SEE formed a Regional Council as well as CEFTA. By far not all problems have been solved including very serious ones such as the dispute over Kosovo. Nevertheless Serbia and Kosovo can both participate in these activities.

However, the political courage, the difficult compromises, the reconciliation efforts – this is all for the region to accomplish. But Europe can help. The events in Ukraine have demonstrated that we would need a genuine Pan-European security system – including Russia. Such a system should have a conflict management instrument which can be applied without further discussions. And such a system should cover of course the Southern Caucasus too.

I am convinced that peace and reconciliation in the Southern Caucasus is feasible. In Baku as well as in Yerewan I expressed my wish to go one day by train from one capital to the other. And perhaps, like Strasbourg, one day the town of Shusha will become the symbol of reconciliation.

 


[1] http://assembly.coe.int/nw/xml/XRef/Xref-XML2HTML-en.asp?fileid=15281&lang=en

[2]http://www.coe.int/en/web/portal/47-members-states

[3]http://conventions.coe.int/Treaty/Commun/QueVoulezVous.asp?NT=001&CM=8&DF=27/05/2015&CL=ENG

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Eastern Europe

Shifting Geography of the South Caucasus

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nagorno karabakh

One year since the end of the second Nagorno-Karabakh war allows us to wrap up major changes in and around the South Caucasus. Most of the changes discussed in the scholarly works so far focused on the role of Turkey and Russia. The shifting geography of the South Caucasus, however, has been disregarded.

In many ways, the war accelerated the pre-existing trends, but also initiated new developments. The first and foremost change concerns geography. The South Caucasus has been historically dominated by neighboring states. Whether it is the Sasanian and Byzantine empires in late antiquity or later Ottoman and Persian states, the region was exclusively subject to one or two powers. The idea is that the region was mostly closed to the outside, non-regional influence. The trend continued in 19th-20th centuries when the South Caucasus was exclusively dominated by Russian power. The end of the Soviet Union changed this geopolitical reality when several powers were able to penetrate the region. Yet the pace of the change was relatively slow – Russia was still able to minimize the extent to which the neighboring or non-regional countries were able to act in the South Caucasus: Turkey, Iran, US, EU, and to a certain extent, China have been influencing the region to a limited degree.

But the second Nagorno-Karabakh war accelerated this process. The South Caucasus’ borders are increasingly shifting. No single power or even a duo of countries can dominate the region. It reflects geopolitical changes in the world where the emerging multi-polar world ushers in a different set of rules. Exclusive geopolitical control is no longer viable and the 2020 war showed exactly this.

There is also yet another dimension of the unfolding geographic change. The war also solidified that the Caspian basin and South Caucasus are inextricably linked to the greater Middle East. Russia and Turkey are basing their strategies in the region on developments in the Middle East and the Black Sea region. Not since the end of the Soviet Union has the South Caucasus been such a critical point for the powers around it. In a way, this re-emergence of close contacts between the South Caucasus and the Middle East is a return to normalcy which was disrupted in the early 19th century by Russian annexation of the South Caucasus. Indeed, in pure geographic terms the region is better connected to Turkey and Iran than to Russia, with which it shares the impassable Caucasus Mountain range.

This also means that the role of the South Caucasus in the thinking of Iran and Turkey, and by extension Russia, has grown. Considered if not as a complete backwater region in the calculus of large powers, the South Caucasus has nevertheless experienced a lack of attention. This was especially true for Iran, which now struggles to retain its weakening position in the region.

It is true that Iran was never a dominant power in the South Caucasus. Unlike Russia or Turkey, the traditional power brokers, it has not had a true ally. Tehran was certainly part of the calculus for states in the region, but it was not feared, like Ankara or Moscow. And yet, the South Caucasus represents an area of key influence for Iran, based on millennia of close political and cultural contacts various Persian empires had with the South Caucasus.

The 2020 war changed Iran’s calculus in the region as the Islamic Republic’s interests were largely unheeded. Iran has now to adjust to the changed geopolitical landscape and it can be even argued that the recent escalation it had with Azerbaijan over the detained trucks, drills, and alleged Israeli influence, was an effort to wedge itself back into the geopolitics of the South Caucasus.

Yet there is little Iran can realistically do to boost its position in the region. The South Caucasus will certainly feature higher in Tehran’s foreign policy agenda than before. But Tehran does not have an ally in the region, nor does it have financial means to strengthen its soft power. Iran can support Armenia in its efforts to balance the triumphant Azerbaijan.

The lifting of US-imposed sanctions could augment Iran’s projection of financial and diplomatic power in the South Caucasus. Still, a more realistic approach for Tehran would be to build closer cooperation with Russia. Both loath growing Turkish influence and the Islamic Republic does not object to growing Russian influence as much as it does resent the West’s and Turkey’s presence. Surely, interests with Russia do not align always, but for Tehran, Moscow is a traditional power in the South Caucasus which is about maintaining a status quo. Turkey, on the other hand, disrupts it seeking greater influence.

There has been a certain retrenchment of the Western influence in the South Caucasus. While it does not signify a definitive decline in West’s fortunes, it is nevertheless important for Washington and Brussels to formulate a more robust approach toward the region. Decreasing the tensions with the Turkey could be one of the steps. Increasing economic engagement with the region would be another. Delay could be damaging. Georgia, which serves as a door for the West to the Caspian basin and on to Central Asia, could be the biggest loser if Washington shifts its foreign policy away from the region. An alternative could be a Russian model of peacebuilding and regional order where Georgia, Armenia, and Azerbaijan will face a lack of foreign policy options if the West’s unwillingness to commit to the region continues to grow. Author’s note: first published in caucasuswatch

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Russia: The Neighbor From Hell

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Photo: Kuźnica Białostocka, Poland. Migrants' encampment area. Army, Border Guard and Police on the border. Credit: Polish Territorial Defence Force

From Belarus to Ukraine to Georgia, an arc of instability has emerged, offering opportunities for malign activities by foreign powers. This has proved too tempting for Vladimir Putin’s Russia, which openly pursues an activist foreign policy seeking gains for the Kremlin at whatever cost to its neighbors. For the West, it is time to consider the wider Black Sea region as a whole and to develop a strategy. 

The migrant crisis unfolding on the Belarusian-Polish border is the most pressing and serious emergency. For some months, the Belarus dictator Aliaksandr Lukashenka and his security services have been funneling thousands of Middle Eastern migrants toward the EU border. Officially, Russia has distanced itself from the crisis, with President Vladimir Putin on November 13 denying claims he had helped to orchestrate a crisis.  

Russia is often disbelieved by neighbors with unhappy experiences of its statecraft. In this case, too, there are reasons to doubt Putin’s words. Firstly, the Belarus migrant drama bears an uncanny resemblance to the events of 2016, when the Kremlin unleashed a sudden wave of developing world migrants across Finland’s and Norway’s Arctic borders. Secondly, few believe Lukashenka’s regime on its own is sufficiently organized to orchestrate events of complexity spanning two continents.  

Russia’s rapid dispatch of advanced combat aircraft and paratroopers (two of whom died in the exercise) to the Belarus-Poland border and Putin’s contemptuous dismissal of Germany’s Chancellor and the EU’s senior head of government Angela Merkel (she was told to call Lukashenka herself) were open signals of approval for the Belarusian position. Only when Lukashenka mused that he might cut off gas supplies to Europe was he publicly slapped down by Russia. It was also notable that Russia and Belarus recently agreed on further steps in their on-again-off-again Union state. 

To the south, in eastern Ukraine, the clouds are also gathering. Fighting is worsening with Russia’s separatists in Donbas, and ceasefire violations are spiking. US briefings now suggest around 100,000 military personnel and large amounts of armored equipment are located within reach of the border; military movements are being organized at night. Not only does this follow the deployment of large Russian formations for exercises in the Spring, but it also matches a threatening drumbeat of anti-Ukrainian rhetoric from Russian leaders including Putin, who have questioned the country’s right to an independent existence. The Kremlin has increased funding for the Donbas and pledged humanitarian support to the rebel-controlled regions thus facilitating trade between Russia and parts of Donetsk and Luhansk. 

The bottom line is that Russia is putting Ukraine back on the agenda and — as some predicted — forcing the Biden administration to take notice, despite its desire to park Russia and focus on China. Putin and his aides remain determined to build a near-exclusive sphere of influence in its neighborhood and Ukraine is the crown jewel in its geopolitical thinking. If Russia is finally seeking a settlement to its seven-year-long forever war, that would require agreement from Ukraine to effectively hand control of eastern regions to Russia and its local agents, plus a commitment to stop the country from joining Western military and economic institutions. There is no sign that Ukraine will agree to such constraints on its sovereignty. 

Further south in the South Caucasus, Georgia, the West’s only partner in the region, is suffering a continuing crisis following the municipal elections in October and the former president Mikheil Saakashvili’s stealthy return to the country. He is now in prison on a hunger strike. Russia lurks here too. It might not be orchestrating the crisis, as in Belarus, but it does benefit. Russian media has been actively addressing the events in Georgia and playing on recurrent tensions between the country and its Western partners, especially the European Union (EU). As always, chaos — sometimes resulting from direct Russian interference, and sometimes not — makes it harder for candidate countries to meet the membership terms of Western clubs while emboldening those European countries sympathetic to Russia and skeptical of expansion. This makes it harder for organizations like the EU to engage Georgia.

Russia’s grand strategic aim is to maintain its power in neighboring states. That means keeping the West at bay, and political instability serves that purpose. Belarus, Ukraine, and Georgia are distant, but the Kremlin is always present. In some cases, it resorts to military pressure to gain momentum, in other cases it sits and waits, but the pattern signals a clever use of opportunities as they arise, exploiting the space given by a West signaling decreasing willingness to engage in the wider Black Sea region. 

Seen from the long-term perspective, the 1990s and 2000s were a period of a slow but steady decline of Russian influence in what then constituted the former Soviet Union. From the Kremlin’s point of view, the present period is much more productive, with concrete gains and the reversal of the West’s military and economic expansion. For Putin and his ministers, it seems likely that the US considers defending Ukraine, Georgia, and even involvement in the Belarus-Poland border crisis costlier than the potential benefits of having these countries within America’s geopolitical perimeter.

The ground is now prepared to seek a reversal of the West’s geopolitical gains and cast aside the wishes of the people of Ukraine and Georgia. The push against aspiring liberal democracies is now gathering pace, timed to coincide with a wider geopolitical shift, namely the recalibration of US foreign policy to east Asia. 

Author’s note: first published in cepa

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Eastern Europe

Five Important Principles for a Successful Mandatory Funded Pension for Ukraine

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The government’s plans to launch a mandatory funded pension scheme (the so-called second pillar) has provoked a lot of debate about future of pensions in Ukraine. Over the past quarter century, second pillars were introduced in several of Ukraine’s neighboring countries. Contrary to common belief, such schemes are not immune to politics, as they change and evolve constantly. So, it would be important to ensure a design for the program that can be preserved and perpetuated in Ukraine’s specific economic, social and political context.

Neither of the two types of pension schemes – solidarity and fully funded – is better than the other. In fact, they work best when they complement each other, as each is exposed to different risks. Thus, an effective reform will need to be centered around enabling synergies between the two schemes.

While the funded system is proposed as a risk mitigation strategy for the solidarity system in Ukraine, it also carries important implementation risks. To make Ukraine’s pensioners more secure, the Ukrainian government will need to map out all such risks and address them along the path to launching the new system. From global experience assessed by the World Bank, there are five key principles that should guide the preparatory work.

1. Strong regulatory and fiduciary framework. This is a key precondition for safety of the pension assets. First, no funded system should start without a regulator that is well-equipped and able to effectively enforce all legal provisions. Bill 5865 in Rada introduces a proper regulatory framework and powers of the regulator. This bill should certainly form part of the reform package. Second, it will also be important to establish proper segregation of assets and records between the activities of the existing voluntary plans and the new mandatory scheme. And third, several governance issues pertaining to non-state pension funds (especially the ultimate fiduciary responsibility of their boards, risk management and internal controls) will need to be addressed to have these funds prepared for their new role and be seen by the public as effective and trusted custodians of their pension assets.

2. Sustainable financing. The funded system can be introduced either as a complementary scheme to the current solidarity system or as a substitutional system. The current government proposal is a hybrid: on the benefit side, it is complementary, but on the revenue side, part of the solidarity system contributions is proposed to finance the new funded scheme. Such an approach may limit the effectiveness of the new system fiscally and socially, aggravating the risk of falling benefits in the solidarity system. This may result in no net improvement in the future combined retirement benefits from this reform. Instead, to maximize the impact of the new funded system, it will need to be funded from new contributions, without tapping into the same fiscal space that provides for the wellbeing of current pensioners. Ideally, these new contributions should come from employee wages, so there is personal attachment to the pension account – a signature element of individual responsibility in such programs. Such employee contributions could further be co-financed by the employer and/or by the government, as an incentive to contribute more for retirement.

3. Efficient administration. The mechanism of money and information flows in the new system should be carefully designed and tested, so that the administrative costs of the new system are minimized. No single Hryvna should be lost on its way from employers to an individual account, as it passes through the government machinery of revenue collection. For this, every detail of the process needs to be elaborated and all risks mapped and mitigated.  It can be shown that a 1% annual charge on pension assets over someone’s full work career reduces around 20% of their pension benefits by the time of retirement. Therefore, cost reduction is key – and it has been shown that centralizing core administrative functions is an effective cost reduction strategy. Finally, simple provisions need to be introduced for individuals who do not actively choose a fund. This would pave the way to establishing a “default” fund with a life-cycle investment strategy. Importantly, a gradual implementation approach should help minimize various operational risks. So, Ukraine should start with a simple design that can be easily understood by the general public – and add more complex elements to the system over time.

4. Overall pension system design. The new funded scheme will be only a small supplement to the current system. With a 4 percent contribution rate, it will take an individual about 25 years of contributions for the account value to reach their corresponding annual wage in that year in the future. This is a rather insignificant amount, considering that this accumulated amount equivalent to one year’s wage will have to be spread over the remaining life of an individual after retirement. Therefore, better coordination with the solidarity system, especially its system of minimum income guarantees, is required

5. Well-defined role of the state. Explicit legal provisions about what government can and cannot do will put the system on the right track. The state plays several important roles here: ensuring proper regulations and fair competition in service provision; facilitating a “default” fund; providing co-financing from the general budget to stimulate participation; enabling core record-keeping infrastructure and standards of member services; facilitating markets for financial instruments to promote diversification of investments; providing well-coordinated general minimum income guarantees at retirement, through the solidarity system; and so on. So, having a clear implementation plan and well-defined transitional arrangements will be instrumental to the success of this reform.

A lot of work needs to be done to ensure that Ukraine’s future pensioners have an adequate pension that will allow them a dignified retirement. Therefore, learning from the successes and mistakes of other countries, the government should target a realistic timeline to build the second pillar – with well-coordinated preparatory work yielding a consensus on key design elements (incorporating all the above principles).

Originally published in UKRINFORM via World Bank

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