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Brexit’s geopolitical and financial ramifications

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Following the referendum on UK membership of the European Union (EU), upholding Brexit, world politics is expected to herald a period of immense instability and turmoil. There is likelihood of economic crisis in Europe and UK, even globally.

Unexpected or unintended?

Britain’s exit from EU is now almost final, pending only some formalities and the EU is pushing for early conclusion of the Brexit deal. It is quite clear that British Prime Minister David Cameron had not expected the referendum to lose, thereby forcing him to quit, having found no other credible alternative. The result is primarily the outcome of a political miscalculation by Cameron and allies that caused geopolitical and financial issues. The British capitalist lords are staggering about as they try to pick up the pieces while the situation spirals out of control.

Geopolitical relations in Europe have been destabilized as a direct consequence of the Brexit. Without Britain anchored in Europe, relations between France and a far more powerful Germany will deteriorate. Equally, relations between the EU and the United States—for which Britain provided a bridge—will be thrown into flux.

Martin Schulz, president of the European Parliament, insist there must be no delay in Britain invoking Article 50 of the Lisbon Treaty to formally initiate exit proceedings, so as to limit financial damage and impose a harsh settlement on Britain that will serve as an example to others. Far-right forces in Europe are now demanding referenda in their own countries, including the National Front in France and similar parties in Slovakia, Poland, Italy, the Netherlands, Denmark and elsewhere.

Amid dire warnings of economic catastrophe and the boost the referendum gave to right-wing, anti-immigrant nationalists, millions fear for the future. A petition is circulating that has gained some three million votes for another referendum to be held.

There is widespread shock and anger at the Brexit outcome in the UK, even among some who voted for leaving the EU. The result indicates anger on the art of the Britons in the very project of EU- an integration of basically different entities with varying degree of geopolitics and economic variations.

Meanwhile, the UK itself is in danger of breaking apart. Conservative Party and Labour Party could split, amid speculation of a snap general election. The Scottish National Party is pressing for a second independence referendum and also seeking early talks with Brussels and EU member states. In Northern Ireland, where the referendum vote was polarized along Republican and Unionist lines, the most severe crisis since the formal end of the civil war in 1998 is looming.

Crisis

The historic Brexit that democratically became a reality create Brutish soverign nation once again after decades of being a part of EU, is feared to kickstart another “Great Financial Crisis” of 2008, and threatens to blow up even further, if more European countries exit for EU. The Bank for International Settlements (BIS), has warned of deep-rooted problems in the global economy.

The economic cost of the successful referendum by Britain to cede from EU is aid to be very high globally. The ongoing market sell-off wiped $2.5 trillion from the values of world equities markets on June 24 itself is the most visible manifestation of a much deeper crisis of the global economy. both the International Monetary Fund has warned in effect that the USA and world economy face conditions of stagnation characterized by a long-term reduction in growth rates.

The BIS report said the world economy was threatened by a ‘risky trinity’: debt levels that are too high, productivity growth that is too low, and room for policy manoeuvre that is too narrow.” It cast doubt on the ability to continue to combat crises with monetary policy. However, the BIS had no solution to the ongoing crisis besides further austerity measures. It called for slashing government debt while improving the “quality of public spending… notably by shifting the balance away from… transfers.”

Virtually every global central bank issued a statement saying it would either begin or was ready to implement a further expansion of liquidity measures in response to the share selloff. Markets are increasingly betting that the Federal Reserve will halt, or even reverse, its announced plans to begin raising interest rates. These conditions have weakened productive investment, fueled a global expansion of debt, making it near impossible for central banks to respond in an effective manner to the eruption of new crises.

In the latest such measure, the Japanese government of Prime Minister Shinzo Abe and the Bank of Japan announced the provision of additional funds to the financial system.

The growth of negative interest rates, promoted by central banks seeking to reassure the markets, is a risk with “a long fuse, with the damage less immediately apparent and growing gradually over time. Such rates tend to depress risk premiums and stretch asset valuations, making them more vulnerable to a reversal by encouraging financial risk-taking. All the actions taken by global central banks since the 2008 crisis have only exacerbated the cancerous growth of financial parasitism. At the end of May, close to $8 trillion in sovereign debt, including at long maturities, was trading at negative yields—a new record.” Due to the continuous infusions of cash into world markets, monetary policymakers have found it harder to push inflation back in line with objectives, leading to economic slump.

The types of fiscal austerity measures and labor market restructuring called for by the BIS have been brought forward in every major economy in response to the 2008 crisis. These range from the USA, where state education spending has been slashed by 25 percent, to Greece, Spain, Portugal and, most recently, France, with the implementation of the El Komri labor reforms by the Hollande government, where sweeping social cuts have been combined with attacks on protections for jobs and conditions.

Austerity policies have transferred ever more wealth to the financial elite, who have proceeded to use their cash hoards for speculation and financial parasitism, fueling a vicious cycle of economic stagnation, rising inequality and financial crisis, in turn inflaming international antagonisms and the growth of protectionism.

The global economy cannot afford to rely any longer on the debt-fueled growth model that has brought it to the current juncture, the “persistent and otherwise puzzling” global slowdown in productivity growth. It tellingly attributed the slowdown to the effect of a massive series of booms and busts that have characterized the global economy in recent years as it has become increasingly dominated by financialization and speculative mania, fueled by virtually unlimited cash from global central banks.

Observation

A full scale disintegration of the EU is now a real possibility – yes, only a possibility and not necessarily the reality, mainly because Germany would not let EU disintegrate.

EU Integration was an attempt by the ruling classes of the continent, with the support of the United States, to prevent a new eruption of national conflicts that had twice plunged the world into all-out war. However, “unity” within the framework of capitalism could never mean anything other than the domination of the most powerful nations and corporations over the continent and its peoples.

The fracturing of the EU along national lines that is now taking place is once again driving inexorably towards world war. But the EU cannot be put back together again. The Brexit result has made manifest a broader crisis that is insoluble within capitalism because it is rooted in the fundamental contradiction between the integrated character of the global economy and the division of the world into antagonistic nation states based on private ownership of the means of production.

Europe must be united. However, this cannot be done on a progressive basis through efforts to preserve the moribund institutions of the EU or other bureaucratic mechanisms. The progressive and democratic unification of Europe can be achieved only from below, through a revolutionary struggle for socialism across the continent led by the working class.

The likely economic fallout from the Brexit vote on the rest of the world over could be huge. In addition to the direct trade effect, business investment around the globe is likely to be dampened somewhat due to the heightened uncertainty about the global implications of Brexit and the tightening of financial conditions. Companies now delay investment projects to assess how Brexit could affect them.

One impact on the government is the effect on the value of its holdings in banks. The value of the government’s holding in RBS and Lloyds Banking Group dropped by about £8bn, although it has recovered somewhat since.

The pound has dropped considerably against the US dollar; less so against the euro. That has not had a great deal of impact on the economy so far, although it is likely to stoke inflation in due course. National income is reported in pounds so will not be hit automatically by a weaker pound, although it will suffer in comparison with other countries – the status as the world’s fifth biggest economy may be threatened.

There may already have been an impact on the economy or the public finances but there are no data as yet showing that. Throughout the campaign pro Brexit leaders argued that UK would save money from not contributing to the EU Budget.

However, the impact on global growth and inflation is likely to be relatively small – and almost certainly not large enough to push the global economy into recession. UK import demand would be minimal as the UK accounts for only 3.6% of global imports of merchandize goods.

This could lower potential growth even further and would likely lead to higher wage and inflation pressures.

Chancellor of the Exchequer George Osborne says that companies have already started cutting back on investments following the vote to leave the European Union.

The Brexit shock is likely to intensify the pressure on current and future mainstream governments to address inequality and limit migration.

Of course, Europe, USA and the rest of nations would undertake urgent measures to minimize the impact of Brexit and according to reports the European Union has already begun action in the respect. Investors will have to factor in a higher chance of a stagflationary outcome over the next three to five years: even lower growth or near-stagnation coupled with a significant rise in inflation. This could lower potential growth even further and would likely lead to higher wage and inflation pressures.

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Crossroads or a dead end: Do Germany and Europe face a triumph of indecision?

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In late November, German Chancellor Angela Merkel made a number of rather controversial statements. On November 26, Germany, together with France, issued a brief “road map” for EU reform. Within the next two years this plan is to be discussed by the “Conference on the Future of Europe,” tasked with working out proposals and drawing up a strategy for “structural reforms” aimed at making the European Union “more united and sovereign.” Until recently, analysts interpreted such a tonality in European documents as the leading European countries’ readiness for a future, if not without NATO, then alongside it nonetheless. In early November, French President Emmanuel Macron described NATO as being “brain dead,” and urged Europe to reassess its foreign policy, including its relations with Russia. However, in her November 27 address to the Bundestag, Angela Merkel said that the EU would not be able to protect itself without NATO and, therefore, should work to keep the alliance in place. Merkel is known for her political pragmatism, but will it be enough to smooth out the growing contradictions regarding the future of the European Union?

It was none other than Angela Markel who, at the close of the May 2017 NATO summit, the first one attended by President Donald Trump, said that Europe could no longer rely on the United States. Since then, she has repeatedly voiced the Europeans’ fears that since the end of the Cold War, America’s geopolitical interests in Europe have consistently been undermining Europe’s global competitiveness. Many representatives of the European and even American in the Atlantic establishment have even discussed the possibility of nominating the German chancellor as an alternative leader of the Western civilization to the increasingly isolationist America. This has made Germany the main target of strong criticism by Washington and accusations of sabotaging NATO’s decision to increase the country’s defense outlays to 2 percent of GDP by 2024, thus setting a bad example for other EU countries.

At the same time, Merkel has always been well aware of Germany’s inability to act as a world leader all by itself. As a result, continued European integration remains a major political priority for Berlin.

Until recently, Berlin’s strategy was clearly aimed at strengthening the EU’s global role. What is also clear, however, is that US non-participation would effectively deprive NATO of its combat capability, because in terms of security Europe is almost completely dependent on America. This, in turn, objectively undermines any attempts to strengthen the EU’s independence even in matters pertaining to the European continent, let alone the world. Over the course of the past two years, the task of strengthening the “sovereignty of Europe” has been topmost on the minds of the EU leaders, with Germany being a prominent advocate of the idea of an “independent and strong Europe,” including in matters of security and defense. Indeed, it was Germany, in tandem with France, which, a year ago, pitched the idea of creating a full-fledged EU army.

In her “impassionate speech in defense of NATO” Angela Merkel emphasized that “NATO is more vital now, more even than during the Cold War.”

Merkel’s demonstrative return to the rhetoric of transatlantic unity could also be a tactical ploy now that the US Congress continues to threaten sanctions against companies building the strategic Nord Stream 2 gas pipeline. While the December 3-4 NATO summit in London was officially held to mark the 70th anniversary of the organization, many Western commentators still predicted a “tense” meeting, primarily because of Donald Trump’s well-known criticism of the military alliance, and, above all, of many of its European members. Meanwhile, the influential US publication Foreign Affairs does not rule out the possibility of Trump being removed from office already before this year is out.  In this context, public support for NATO comes as a confirmation of the bloc’s commitment to the strategic ties traditionally existing between Europe and America, which are still popular among the Washington establishment. Finally, such a show of firmness could have been just another tactical move by Berlin in the run-up to the December 9 “Normandy Four” meeting in Paris.

At the same time, Merkel’s increasingly controversial position on EU-NATO relations may also be dictated by strategic reasons.

 First, there is a growing sense of general uncertainty in Germany, whose economy has barely avoided falling into recession and showed a 3rd quarter growth of just a measly 0.1 percent. It looks like the economic boom of the past few years is now over. Second, Germany remains caught between an objective need to pursue a more “more thorough” defense policy – so that it is “taken seriously” both in Europe and the world – and fears that any dramatic military buildup could only stoke up fears of a revival of the “German diktat.” Without openly disputing Emmanuel Macron’s idea that Europeans need to regain their “military sovereignty,” Angela Merkel demonstrates either duality or indecision: just a few days ago, she promised to increase the country’s defense spending to 2 percent of GDP, which Trump insists on, but not before the start of the 2030s, by which time her term in office will have long expired.

Third, Germany’s domestic political prospects are getting increasingly dim as Merkel’s CDU party is losing voters in local elections to other parties, including the “far-right” “Alternative for Germany.” There is growing discontent within the CDU, including its senior members, who are blaming Merkel for the loss of the party’s ideological “face,” all of which undermines the Christian Democrats’ popularity among German voters. There is a struggle currently going on for leadership both in the CDU and at the very top of the country’s political hierarchy. Finally, the media is raising alarm about Germany’s “foreign policy paralysis.” And this at a time when the country is facing a mounting wave of foreign policy challenges and, according to Die Zeit, “can no longer shy away from defending its own interests.” Thus, “expectations of a change of power” within the country coincide with a period of “foreign policy transition when the longtime orientation to America has exhausted itself and a new one is not foreseen.” Merkel’s critics say that, stunned by the situation of a “double political transition,” Merkel “is no longer able and, obviously, does not want to take the initiative.”  

The political “stupor” that Berlin has found itself in is negatively reflecting on the European Union, where no reforms are possible without German endorsement. The situation is aggravated by the inevitable “return of geopolitics” to the EU agenda. Many in Europe fear that Brexit could deprive the EU of its “strategic weight,” with the European Commission’s new head, Ursula von der Leyen, saying that Europe needs to learn to speak the “language of power,” and describing the Commission’s present lineup as “geopolitical.” It looks like maintaining “political unity” is topmost on the EU’s mind. The new European Commission has yet to show how far it is prepared to go in an effort to fend off attacks by “populists” in a number of its member states, and counter the general tendency for the fragmentation of the Union. More recently, Emmanuel Macron confirmed EU fears about his claims to supremacy in the community by almost single-handedly blocking negotiations on the start of a new expansion phase, much to the chagrin of many German politicians. This could seriously complicate the distribution of roles both in the “European tandem” and in the EU as a whole.

In mid-November, The Economist outlined his vision of the two most likely scenarios of the future European Union.

In the first, mildly positive, one the EU muddles its way towards a multi-tier structure in which overlapping and concentric circles of states can better co-operate. Different “coalitions of the willing” within the EU emerge to do different things. Militarily adventurous states like France and Italy complement NATO with midsized interventions close to Europe. By the 2030s, Europe emerges as a more hard-nosed figure, with a patchwork of shared interests. Though not comparable in military or technological power to America or China, it is a relevant broker between them, The Economist writes.

In the second, more negative, scenario the EU’s relative decline is sharper. Anemic growth sidelines long-term geopolitical and industrial considerations at the expense of short-term fixes and narrow national advantage-seeking. Outside challenges turns states inward and against each other. The EU enters the 2030s in one piece, but divided and less relevant, its high relative living standards fraying as Europe falls behind economic rivals and its population ages and shrinks, The Economist concludes. What is common in both these scenarios is the factor of European division over interests that need to be defended, and also the strategy and resources that need to be utilized, as well as the increasingly difficult task of reaching a consensus on shared goals.

Relations between Europe and Russia offer a good example of a crisis of goals and interests. According to some experts, even in NATO “all members, except Poland and the Baltic countries, see no signs of Moscow planning an offensive.” Besides, it was certainly not Russia, who initiated the scrapping of the INF Treaty, which had for decades benefited the Europeans, even more than it did others. On the eve of the NATO summit, the British media proposed an alliance to “build bridges” with the largest eastern neighbor.  Paradoxically, a trade and economic union, which is exactly what the European Union happens to be, still sticks to the Cold War logic. The fact that “the situation is more complicated” is better understood in Paris. As for Berlin, it seems that it would like to see Europe “tormenting itself” over a dilemma, which is as far-fetched as it is intractable. What is more important for the EU – to avoid “undermining NATO”? Moreover, America’s pivot to Asia began already before Trump, and in the long haul “appears irreversible.” Or maintain its status as a subject of global politics? Right now, they view Germany as a threat, someone whose activity or passivity could potentially lead to equally unfavorable results, at least for the pan-European project. And they prefer not to hear those calling for an expansion of the pan-European dialogue.

Europe finds itself in a situation of either stalemate or zugzwang. A potentially stronger EU objectively threatens the future of NATO. Conversely, attempts to reformat, revive NATO could undermine the prospects of making the EU more independent. Meanwhile, critics accuse Merkel and her government of preferring not to deal with issues “where there is no consensus” in order to avoid “disagreement.” Germany would have to choose “between the US and France.” In the present context, this means a choice between America and Europe. It seems that, sooner, rather than later, such a choice will become practically inevitable both for Berlin and for the European Union as a whole.

From our partner International Affairs

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The threats to Hellenism from the circumstances of the gradual decline of the West

Giannis Mitsios

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What has been happening in the international arena lately, and in our European neighborhood in particular, is indicative of the great fluidity in international relations and its complexity. The general features of our time are the new conditions of equilibrium and imbalance, for both the global protagonists, but above all, for the West now in a phase of degeneration and gradual decline.

For the first time since the end of the Cold War and the global sovereignty of the US, there has been a marked retreat of Western hegemony. The G7, the seven major economic powers of the planet (USA, Canada, Japan, Germany, Britain, France and Italy), recently met In France. At the annual meeting of French ambassadors, Macron stated: “The era of the West’s supremacy is coming to an end because of huge geopolitical shuffles”.

What we call the westernization of the world began in the late 18th century and persisted until the late 20th (around 1880 to 2000). The 21st century is undoubtedly in the East. But, that does not mean that the West will back down. A few years ago, the G7 countries accounted for 70% of world GDP, while today they do not exceed 30%.
India has outpaced France’s economy this year, with more population than all the G7 countries combined: 1.3 billion people, 65% of whom are under 35 years of age. China, with its new “one belt-one road” silk road, will connect Asia by land through Russia to Europe, while its investment-markets around the globe pose the greatest threat to the US and the Western system.

In addition to the G7, the G20 club covers most of the global economic and geopolitical issues more credibly as its members include Russia, China, India, Brazil, Korea, Indonesia, Mexico, Saudi Arabia, Australia, even Argentina and Turkey that have economic issues.  And, the group of BRICS countries (Brazil, Russia, India, China and South Africa) are paving their own way.

Unrest in the Western camp

But beyond the economic dimension and rise of the forces of the East, Europe, and the Western world in general, has political internal issues to resolve, new threats such as demographic issue and immigration but also issues of cooperation, alliances, identity and cohesion.  The US with Trump’s tariff policy (trade war with China and the imposition of duties on European products) are hurting Europe economically and politically. They are weakening it, and that has and will have consequences for NATO.

The European camp is in a state of turmoil and anxiety for tomorrow’s EU. Brexit is on the threshold and the consequences of a possible withdrawal will be equally harsh for the EU itself, especially for the German economy. The EU’s annual growth rate is anemic at 1.2%, which in combination with the global economic slowdown may fall below 1% in 2020.

The German economy is in a pre-crisis phase, and voices of anxiety are increasingly all the more along with the rates of anti-systemic political forces. Christian Democrats and Social Democrats are retreating everywhere, creating conditions for future political instability. Draghi’s latest moves to cut interest rates from the European Central Bank have been unpopular in Germany.

As for the other countries: Spain has not formed a government since May. In Italy, fears for Salvini have united ideological enemies into a new government whose stamina will be revealed soon. Finally, in France, Macron cleverly tries to balance this European and international scene, but with problems.

Adverse international environment for Hellenism

As for us, we are confronted with Turkey’s threats and the pervasive violations of international law in Cyprus. The sanctions are ignored, the British are backing Turkey, the Americans are not daring to come into direct conflict and the rest of the countries are whistling indifferently. A solution to co-exploit the deposits in the Eastern Mediterranean would primarily serve the interests of large companies.

In this suffocating context of the coming months, Hellenism is called upon to organize its defenses and its alliances. Strengthen its forces, both material and spiritual, and prevent any immediate threat that might appear on the Thrace-Aegean-Cyprus axis. We have a combination of refugee-migration, Turkish blackmail for energy-sharing, and the strategic choice of the Turks to neutralize the Greek presence in the eastern Aegean Sea and in Kastellorizo. This combination is a threat to Hellenism.

At the same time, it is a powerful reminder to the country’s elite and its political system callingfor a change in their perceptions: serenity, political correctness, deliberate and vigilant analysis of the application of international law, compliance with agreements, hollow rhetoric about multiculturalism, open boarder practices.

Let us not forget that the surrender to the sirens of foreign interests is catastrophic. A small, obedient, and huddled Greece is convenient for them. We have an obligation to become more assertive and to defend legitimate national rights. This means a strong economy, a strong national mindset and a persuasive deterrent.

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Russia–EU Relations in 2020: Opportunities, Limitations and Possible Trends

Dr. Andrey KORTUNOV

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Any attempt to predict the development of Russia–EU relations in the upcoming years must certainly acknowledge the fact that relations between the two sides have remained remarkably stable since 2014, and the momentum of current dynamics (or, instead, the momentum of no dynamics) will most likely continue. 2019 marked European Parliament elections, the “overhaul” of the European Commission and other EU governing bodies, as well as the formation of a new balance of political power on the continent. It may be safe to assume that 2020 will be a quieter and altogether less nerve-wracking year for the European Union, although certain states (for example, Poland or Italy) may very well have some surprises in store. Additionally, a shift towards tackling the most critical issues associated with Brexit is a distinct possibility.

Most experts believe that the political system in Russia has a sufficiently large “safety margin” to pass through 2020 without being exposed to any significant destabilization risks, and the accumulated financial “safety cushion” will allow the country’s leadership to guarantee socioeconomic stability despite possible fluctuations in the global economy or world energy prices, or any changes to the international sanctions regime against Moscow. A real political challenge to the authorities may appear later, probably no earlier than the parliamentary elections of September 2021. Accordingly, it is unlikely that any new domestic factors will pop up before the end of 2020 that may trigger a significant shift in the EU’s approach to Moscow or Russia’s approach to Brussels.

Uncertainty Factors

Nevertheless, the features and orientation of internal processes in the European Union and Russia will undoubtedly influence their bilateral relations. In our opinion, the main uncertainty factor for the European Union rests in the level of political unity and the ability or inability of the new European Commission to successfully withstand centrifugal trends in the EU, as well as pressure exerted by populists in individual EU member states. Clearly, the new offensive launched by populists and deepening internal contradictions within the European Union will tempt Moscow to use the organization’s disunity to achieve “separate” agreements with its traditional European partners. At the same time, many in Europe will inevitably lay principal responsibility for confusion and vacillation in the European Union at Moscow’s doorstep. A strong and cohesive European Commission will restrict the possibility of the Kremlin pursuing “selective involvement” with convenient European partners.

On the other hand, it is highly unlikely that a weak and disjointed European Union will dare to launch a serious internal discussion of the prospects of its Moscow strategy beyond the five “Mogherini principles” that were formulated four years ago, given its concerns about further undermining the already fragile foreign political unity of its member states. It is common knowledge that the ongoing sanctions regime against Russia is less of an instrument of exerting influence on Moscow than it is one of the few remaining symbols of “European unity.” A weak European Union will be forced to prioritize maintaining the existing status quo and minimizing potential change-associated risks.

For Russia, the main uncertainty factor, it would seem, is still the level of socio-political tension in the country, and how authorities respond to it. If tensions continue to grow during 2020 (which can be expressed, for instance, in an increase in the number and size of rallies, picketing, demonstrations and other manifestations of street political activities) and the authorities tighten the screws in response (dispersing rallies by force, carrying out pre-emptive arrests and searches, holding trials and imposing harsh sentences), the European Union will be forced to somehow respond. This will inevitably create additional obstacles to the dialogue between Brussels and Moscow, energizing the forces that have no desire whatsoever to pursue discourse with Russia.

If the overall level of tension turns out to be relatively low and the response of the authorities relatively mild, then a prerequisite for the Russia–Europe dialogue will be more favourable. In addition to everything else, a low level of tension will serve as an additional argument for those forces in the European Union that consider Russia’s socioeconomic and political systems to be sufficiently flexible and adaptive, to remain stable for the foreseeable future. If this is the case, then it makes no sense for the European Union to repeatedly postpone dialogue with Moscow in the hope that inevitable radical political changes will take place.

The following external factors affecting relations between Russia and the European Union in 2020 will likely be most significant:

1. The outcome of the 2020 United States presidential election. Victory for the Democrats would mean that erstwhile transatlantic solidarity will be at least partly restored, and the United States and the European Union will be able to coordinate their policies towards Russia better.

Moscow will once again face a “consolidated West,” which will inevitably restrict Russia’s room for political manoeuvre. On the other hand, should Donald Trump emerge victorious, this will likely further deepen contradictions between the United States and the European Union, which will allow Moscow to solidify its current tactical advantages in its relations with the “disjointed West.”

2.The state of U.S.–China relations. Further exacerbation of the trade, economic, political and military confrontation between the United States and China, as well as the movement of the international system towards rigid bipolarity, will create additional restrictions for interaction between Russia and Europe, for instance, in implementing multilateral “Eurasian” projects. Russia will be oriented towards an increasingly close alliance with China, while Europe will be forced to follow in the wake of the policies of the United States. Conversely, if the confrontation between Washington and Beijing softens, this will allow Moscow and Brussels to avoid many of the restrictions that a rigid bipolar configuration entails.

3. The situation in the Middle East. Unexpected and significant negative dynamic in the Middle East (escalation in Syria or Lebanon, an acute crisis in Egypt or Saudi Arabia, a conflict between Iran and Saudi Arabia or between Iran and Israel, or a new large-scale outflow of refugees from the region) may prove to be essential incentives for deepening Russia–Europe cooperation, especially if the situation worsens against the background of the United States continuing to roll back its commitments in the region. The preservation of the current status quo also means that Russia and the European Union will be able to maintain their current (low) level of interaction in the region. However, certain escalation scenarios (for instance, Damascus launching a large-scale offence on Idlib, with one of the parties to the conflict using chemical weapons) will create an additional problem for Russia–EU relations. Any aggravation of the problem of migration from the Middle East to the European Union will be construed as part of Moscow’s hostile strategy towards Europe.

4. The global economic situation. The global economy may enter another stage of the cyclical crisis in 2020, or even fall victim to a systemic global financial crisis similar to that of 2008–2009. The future systemic crisis will likely be more dramatic than the previous one, since the principal actors in the global economy are less inclined today to cooperate than they were ten years ago. The new crisis will undermine the economic foundations of Russia–EU relations and give rise to more pronounced protectionist and nationalist sentiment in both the European Union and Russia. In a crisis, the opportunities for positive interaction between Moscow and Brussels will be limited. Conversely, economic acceleration in the European Union and Russia will increase the interest of both parties in expanding cooperation.

Probable Risks

The current trends in Russia–EU relations carry a number of risks that should be mentioned when predicting possible scenarios for the further deterioration of these relations:

The general deterioration of European security due to the expiration of the INF Treaty; the degradation of confidence-building measures; and the start of an arms race, including hi-tech weapons (understanding that the military-political situation in Europe cannot change drastically in 2020, and military spending in European countries is not expected to rise sharply);

The continued competition for influence in the post-Soviet space, including Eastern Europe, the South Caucasus and Central Asia (the collapse of the political coalition in Moldova in the autumn of 2019 is a negative sign); and the further divergence of stances on the Donbass settlement will have a particularly negative effect on relations;

The intensification of sub-regional competition between Russia and the European Union (this competition appears to be particularly dangerous in the Western Balkans, given the possibility of an acute political crisis in one or more of the countries in the region);

The intensification of the information war in Europe (in particular, the European Union may approve a “blacklist” of Russian media outlets, while Russia may significantly expand its own list of “undesirable” European organizations); we cannot rule out the possibility that investigations may be launched in some EU states in connection with accusations of Russia interfering in their elections and supporting separatists and political extremists.

The harsh confrontation between Russia and some EU member countries in pan-European organizations (PACE, OSCE); 2020 will be a challenging year in the history of these organizations, which will be put under immense political pressure;

The further politicization of energy cooperation between Russia and the European Union (for instance, the emergence of new issues in completing work on Nord Stream 2; and the blatant refusal of some EU states to prolong gas contracts with Russia);

The clash between Russian and European interests in some regions of the world, including Africa and Latin America; and competition between Russia and Europe for preferential relations with Turkey might posit a particular issue.

Unfortunately, “black swans” may very well throw a spanner in the works – the unfortunate incident in Salisbury in March 2018 and the events in the Kerch Strait in November of the same year are prime examples. Such events may again lead to a deterioration of relations between Moscow and Brussels, regardless of who is to blame. A distinctive feature of Russia–EU relations today is that significant progress should be visible along the entire line of interaction between the parties, while a single negative event in any of these areas is enough to provoke a new crisis. This makes the process of restoring even limited cooperation extraordinarily fragile and unstable. And this a situation will continue throughout 2020.

Potential Opportunities

At the same time, we can identify several most promising areas of Russia–EU cooperation where, under favourable circumstances, certain practical results may be achieved as early as 2020:

Progress in settling the conflict in the east of Ukraine. The recent domestic political scandal in the United States in connection with Ukraine further obstructs Washington’s constructive involvement in resolving the crisis. The Ukrainian crisis is objectively less critical for the United States than for Europe, and certainly for Russia.

On the other hand, the new leadership in Kyiv is more focused than its predecessors on achieving a peaceful settlement to the situation in the Donbass. By all accounts, Moscow is ready to (or could) demonstrate more flexibility than before in its approach to Ukraine’s implementation of the Minsk agreements. If progress is achieved at the upcoming Normandy Four summit in terms of implementing the Steinmeier formula, then opportunities will appear as early as the first few months of 2020 to involve the European Union in the peace process, including post-conflict reconstruction programmes in the Donbass.

Expanding interaction in the “shared neighbourhood.” Neither Russia nor the European Union are interested in further escalation in the area. The example of several post-Soviet states, for instance, Armenia, shows that the balance of influence between Russia and the European Union does not necessarily have to be a zero-sum game.

Deepening interaction on Iran-related issues. The positions of Russia and the European Union on topics such as the Iranian nuclear and missile programmes and Iran’s role in Syria and the Middle East are not identical, although they are close. Given the current escalation in relations between Iran and the United States, as well as between Iran and Israel (this trend will most likely continue in 2020), Russia and the European Union can and should coordinate their actions more closely concerning Iran.

Launching full-fledged dialogue between the European Union and the Eurasian Economic Union. In 2020, this dialogue can be moved from the current technical to political level. It could include coordinating multilateral cooperation in Central Asia, implementing the European “connection” concept and possibly even discussing progress in implementing China’s “Belt and Road” project.

Developing a new “energy/environmental plan” for Europe. There is reason to hope that politically difficult problems related to Nord Stream 2 and the future of gas transit via Ukraine will be partially resolved in 2020. If this does happen, then it may be possible to try to “depoliticize” the European energy agenda. This could include, for instance, climate change, prospects for energy cooperation between the European Union and the Eurasian Economic Union, issues of standards, energy security and energy efficiency, training personnel and the exchange of experience.

Making Europe’s Russian sanctions regime more flexible. We should not expect the European Union to lift the sanctions against Russia in 2020, even if progress in settling the Ukrainian crisis is achieved. However, the European Commission might set itself the more modest task of modifying the mechanisms of applying the sanctions. History shows us that sanctions, especially bilateral sanctions, do not work if the sides do not have the option to respond to even small behavioural shifts promptly. In mid-2016, Frank-Walter Steinmeier proposed modifying the EU’s sanctions mechanism, and this idea has maintained its relevance for the last three and a half years.

Preserving pan-European areas. Despite the growing divide in Europe along the East-West axis, common European areas of science, education and culture can still be maintained. If progress is achieved in other areas in 2020, then the connecting role of humanitarian areas should be strengthened further. For instance, the parties could spearhead a joint plan to liberalize the visa regime or introduce visa waivers for students, scientists, scholars, artists and cultural figures.

Developing a new “road map” for the development of the OSCE. 2020 will mark the 10th anniversary of the Astana declaration, the 30th anniversary of the Charter of Paris and the 35th anniversary of the Helsinki Final Act. Structured dialogue on military and political issues was launched in 2016, and it turned out to be one of the most productive formats of East-West communication in Europe. The OSCE still needs political support from both the European Union and Russia.

Of course, we should not assume that activating some or even most of the abovementioned areas of cooperation in 2020 will result in a “reset” of Moscow–Brussels relations. The current “strategic disconnection” between Russia and Europe is not caused by their differences on specific issues (even issues as serious as Ukraine and Syria), but rather by their profoundly opposing views on the fundamental problems of global politics, its contents, driving forces, priorities and the desired model of the future world order.

Until these differences are overcome, relations between Moscow and Brussels will remain primarily focused on rivalry. Consequently, the next common task for Russia and the European Union is to cut the costs and reduce the risks that are inextricably related to such rivalry. However, achieving even modest progress in this area in 2020 and creating an atmosphere of positive dynamics would be a significant outcome of the year that concludes a challenging decade in global politics for both the European Union and Russia.

From our partner RIAC

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