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Azerbaijan’s response to COVID-19 related economic problems

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The spread of coronavirus (COVID-19) in Azerbaijan began in February. The first case of infection was recorded on February 28 and first death on March 12. As of April 17, Azerbaijan had 1,340 confirmed cases, 15 death and 528 people were recovered. The main source of infections was people who traveled to Azerbaijan from Iran – the epicentre of the outbreak in the Middle East. Despite the fact that Azerbaijan has border and close tourism relations with Iran, necessary measures have been taken in the early stages of the outbreak, which prevented the mass spread of the coronavirus. The first important measure was the closure of the border with Iran as of February 29 after the two Azerbaijan citizens who were returning from Iran tested positive for coronavirus.

As the the number of infections began to increase, other important and strict measures were taken. All land borders with the neighbors were closed and education and related activities have been suspended until April 20, later extended to May 4. Over 10,000 Azerbaijani citizens were evacuatedfrom other countries. Beginning from March 14, certain measures on social isolation began to be implemented, including the cancellation of large-scale events such as weddings, funerals and the closure of cinemas, museums and theaters.  

From March 24 according to the Article 25 of the Law of the Republic of Azerbaijan on sanitary-epidemiological safety the government declared special quarantine regime until May 4. Based on the rules of the special quarantine people above the age of 65 are banned from leaving home. Entry and exit to/from Absheron region which hosts Baku – the capital of the country and the second largest city Sumgayit and transportation between districts and cities was restricted (except the special-purpose vehicles). Along with these measures the operation of all shopping centers and the movement of subway trains (from March 31) in Baku was suspended.

Later, on April 5 the Azerbaijan’s government tightened quarantine rules in order to monitor movements of citizens and to encourage people to stay in their homes and apartments. According to the new rules, citizens could leave their homes only if they going to visit grocery stores, pharmacies, medical facilities and banks. For this citizens have to obtain permission by sending a text message.

Despite the fact that all taken measures are effective in preventing the mass spread of the coronavirus, it has also substantial economic implications. As the special working regime have been implemented in different sectors of economy during the quarantine, it has substantially weakened business activities and the development of different economic sectors. This situation created unemployment problems and financial risks. Taking into account the seriousness of the situation and the damage that workers and companies could face, the government stepped in to support the businesses, their employees and economy as a whole. For this purpose different economic and social measures began to be taken.

In order to coordinate all taken measures to fight COVID-19 on February 27 an operational headquarters under the Cabinet of Ministers was created. In the early March 10 million manat (5,9 million USD) was allocated to the Cabinet of Ministers to ensure that all necessary measures will be implemented on time. On March 19, President Ilham Aliyev announced the creation of the Fund to Support Fight Against Coronavirus and contributed his yearly salary to the fund. Also, additional 20 million manat (12 million USD) was allocated from the President’s Contingency Fund to the newly established fund to increase the effectiveness of the taken measures and to ensure material support to the medical workers providing relevant services. As of April 16, the total donations of different state agencies, companies and citizens to thefund have reached 112,233 million manat (65 million USD).

Also, on March 19 the President issued an order to allocate1 billion manat from the state budget to the Cabinet of Ministers for the implementation of measures to reduce the negative impact of the coronavirus pandemic on the economy, to ensure macroeconomic stability, to support employment and entrepreneurship. For the effective implementation of assigned measures the Cabinet of Ministers adopted an action plan which contains  theprogram of compensation for the damages to the entrepreneurs and their employees beginning April 8. The program covers 300,000 employees, 42,000 employers and about 300,000 private and micro-entrepreneurs. The program stipulates the allocation of 215 million manat (126 million USD) to preserve the salaries of the hired workers and 80 million manat (47 million USD) to support the individual entrepreneurs.

Along with supporting businesses the governmentallocated 400 million manat (235.2 million USD) to support social protection of citizens. Within the framework of the social package 190 manat ($112) lump-sum was planning to be paid to 200,000 unemployed citizens in April and May (then number was increased to 600,000). Another 50,000 unemployed people will get 300 manat aid per month. For the employees who had the salary higher than the monthly average the upper limit of social aid is set at 712 manat. Social protection measures also include the creation of 50,000 paid public jobs, the increase of monthly preferential electricity consumption limit for citizens by 100 kilowatts per hour in April and May, allocation of 40 million manat (23 million USD) for the training of students from low-income families and 280 million manat (164 million USD) for the vital passenger transportation. According to the taken measures in social sphere 20 million manat worth unemployment insurance payments will be expanded to 20,000 people. .

The government of Azerbaijan also began to implement the credit and guarantee support program which enables businesses to get loans with preferential terms. The total amountof funds allocated for this program is 1,5 billion manat (882,3 million USD). Through this program the government will provide state guarantee for 60% of new issued loans which amounts to 500 million manat (294 million USD). The highest percentage for the guarantee loans will be 15% and half of the percentage payments will be subsidized through the budget funds. The program will also support entrepreneurs with the existing loan portfolios who work in the coronavirus affected sectors. The government will subsidize 10% of the interest expenses of these loans for one year and for this purpose 1 billion manat (588 million USD) were allocated. All the measures related to the provision of preferential loans to businesses also support stability of the banking sector as without the government’s support the banking sector have risks to lose revenues that they acquire from the operations of these businesses. 

The economic support program of the government also envisages tax benefits, privileges and holidays for businesses entities. The tax payers engaged in catering activities will have simplified tax reduction and exemption from income tax. The import and sale of the products necessary for food and medical security and the raw materials that used in the production of these products will be temporarily exempt form Value Added Tax (VAT). Zero rate of the VAT will be applied to the services provided for the prevention of the pandemic. Tax concessions also include the extension of the deadline of income tax payments of 2019, provision of simplified tax exemptions to the micro-enterprises, the exemption from the property and land taxes until the end of the year, the exemption from the current tax payments for the specific industries, the exemption of the taxpayers from income tax for the relevant amount and period.

With the implementation of all these economic and social programs Azerbaijan became the country that allocated the biggest share of GDP to eliminate pandemic related economic problems among the post-soviet countries. All the budgetary funds that were allocated to support economic development, businesses and social protection of citizens reached 3 billion manat (1.8 billion USD)which is  12% of the state budget revenues and 3,5% of GDP. Creating favorable economic condition in the post-pandemic period is as important as supporting the economy in the period of the pandemic. Therefore, all programs under implementation and the huge amount of government funding will support the stability of economic development in the long-term period. 

Orkhan Baghirov is a leading research fellow in Baku based think tank named Center of Analysis of International Relations. He is PHD candidate in Public finance and fiscal policy. His areas of research include regional and international economic relations.

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Eastern Europe

Peace, Problems and Perspectives in the Post-war South Caucasus

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The Second Karabakh War ended with the signing of the trilateral declaration between Armenia, Azerbaijan, and Russia on November 10, 2020. The declaration, which stopped the war and laid the foundation for solving other thorny issues between Armenia and Azerbaijan, including the liberation of the remaining territories under occupation (Aghdam, Kalbajar, Lachin) as well as the unblocking of all economic and transport communications in the region, may have heralded the dawning of a different period in the history of a long war-ravaged region of the South Caucasus. This is evidenced by the announcement of new cooperation initiatives such as the “six-party cooperation platform” and the establishment of the “Zangezur corridor,” which aims not only to link Armenia and Azerbaijan, but also to play a wider role in enhancing the region’s standing by providing interconnectivity across diverse geographic and geopolitical zones. This process has already involved Russia and Turkey and will potentially facilitate links between Central Asia and Europe. There is much going on in the region in this regard and talks about the probability of building a Pax Caucasia in the South Caucasus are more than mere hype.

There have already been reports and testimonies about Azerbaijan’s intention to move on, post-Second Karabakh War, and adopt a maximally cooperative and magnanimous approach towards Armenia following the latter’s defeat in the war. This was apparent in the many concessions made by Azerbaijan in the post-war period, such as providing a ten-day extension (from November 15 to November 25, 2020) of the deadline for the Armenian Armed Forces and the Armenian population that had settled in Kalbajar during the occupation to leave the region, and the return to Armenia of 69 Armenian nationalsdetained in Azerbaijan and 1400 bodies. Moreover, as a gesture of good will, Azerbaijan helped with the transfer of humanitarian aid to Armenian residents in Karabakh; facilitated the transfer of goods through Azerbaijan’s main territory; allowed Armenian citizens to continue using the parts of the Gorus–Kafan highway that pass through the newly liberated Azerbaijani territories; and last, but definitely not least, for the first time in three decades the transportation of Russian natural gas to Armenia through Azerbaijan became a reality.

However, this cautious optimism about the nascent prospects of peace and cooperation in the region is facing a number of challenges. These include Armenia’s flouting of Article 4 of the November 10, 2020 declaration that demanded the withdrawal of all remaining armed groups from Azerbaijani territories; purposeful misrepresentation by Armenia of militia members captured by Azerbaijan as a result of counter-terrorist operations since November 10 as prisoners of war (PoW) and resultant attempts to exert pressure on Azerbaijan; and the newly intensified debate on who might have launched Iskandar M missiles against the Azerbaijani city of Shusha during the 44-day war. The latter issue in particular seems to boggle the mind after the Azerbaijani National Agency for Mine Action (ANAMA) recently discovered the remnants of an Iskandar M ballistic missile in Shusha. According to the Missile Technology Control Regime (MTCR), the export version of this missile is the Iskandar E, which the Russian Federation exported only to Armenia. The Iskandar M, the remnants of one of which were discovered in Shusha,is in the sole possession of the Russian Federation. The story behind this discovery definitely has a dark side that needs to be clarified, as the absence of plausible answers may generate dangerous speculation. Either way, this issue, along with the others discussed above, is also inhibiting a seamless transition to the post-conflict rehabilitation period.

In addition to the above, the danger posed by the landmines planted in the previously occupied Azerbaijani territories is very acute. According to some estimates, Armenia spent$350 million on planting landmines in and around the Nagorno-Karabakh region. ANAMA is currently undertaking operations towards clearing the areas contaminated with landmines and unexploded ordnance (UXO) and initial estimates suggest that the neutralization of UXO, missiles, and the remaining ammunition in the combat areas could require 5–6 years, while it might take some10–13 years before the mined areas are completely cleared. Although Azerbaijan is also receiving help from its friends, partners, and international organizations, including Turkey, Russia, and the United Nations, in the form of staff training, delivery of mine-clearing equipment, and financial assistance, this is obviously not yet sufficient for tackling this very difficult and precarious work.

The issue is further exacerbated by the fact that, in response to all the gestures of goodwill by Azerbaijan aimed at turning the page on hostility and embarking on building a cooperative relationship with Armenia, the latter still refuses to give Azerbaijan maps of the landmines planted in its formerly occupied territories. Worse still, as noted by the Assistant to the President of the Republic of Azerbaijan – Head of the Department of Foreign Policy Affairs of the Presidential Administration at the briefing held for the diplomatic corps on the occasion of the “International Day for Mine Awareness and Assistance in Mine Action” (April 5, 2021),on the one occasion when Azerbaijan was able to obtain maps of purported mined areas from Armenia, these maps turned out to contain false information, as ANAMA was unable to find anything based on the coordinates therein. “This could mean that Armenia purposefully misled Azerbaijan,” Mr. Hajiyev noted. Apparently, there is still no progress whatsoever in terms of persuading Armenia to cooperate on the issue of landmines. However, this is hugely important, as refusal to collaborate on such a crucial issue may diminish the already meagre prospects for achieving lasting peace and cooperation between the erstwhile enemies in the wake of Azerbaijan’s one-sided concessions to Armenia.

International conventions prohibit anti-personnel landmines (APL), the most dangerous form used against civilians. Every year, reputable organizations in the field, such as the International Campaign to Ban Landmines (ICBL),report thousands of people dying or being injured owing to landmines. Post-Second Karabakh war, Azerbaijan has already reported the deaths of dozens of its citizens as well as military servicemen, including Russian peacekeepers, who have died or been maimed as result of anti-personnel landmine explosions. If the correct maps of the mined areas are not given to the Azerbaijani side in due time, the numbers of casualties will increase, adding to the already daunting global statistics of human deaths due to landmines. It is hoped that Armenia will not realize too late that civilians should not be at the receiving end of the regime’s frustration and resentfulness over the war that was lost.

Thus, there are clearly visible challenges of the post-conflict period that need to be overcome. The complexity of the outstanding issues demands transparency, cooperation, and mutual compromise if there is a genuine wish to move away from the horrors of the past. This should be undertaken by all the stakeholders that signed the November 10, 2020, agreements that ended the Second Karabakh War, because unilateral efforts may likely be insufficient to ultimately break the vicious cycle of hostility and war.

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South Caucasus: Prospects and challenges

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During an online conference on the current situation in the South Caucasus, hosted by Rossiya Segodnya news agency, the executive director of the “Eurasian Development” center Stanislav Pritchin and Alexander Karavayev, a researcher with the Russian Academy of Sciences’ Institute of Economics, presented their joint report on the “Settlement of the Armenian-Azerbaijani conflict and the development of the South Caucasus: prospects and challenges.”

Earlier, Russia’s Foreign Minister Sergei Lavrov met with his Azeri and Armenian colleagues on the sidelines of the meeting of the Council of Foreign Ministers of the CIS to discuss humanitarian and economic issues related to Nagorno-Karabakh. They noted that the Russian-mediated ceasefire agreement in Nagorno-Karabakh, signed on November 9, 2020, was the first document in many years to tackle systemic issues of settlement and offer a primary plan for normalizing relations between the conflicting sides.

During the online conference, Stanislav Prichin and Alexander Karavayev outlined potential areas of cooperation in various fields and identified the role of external actors, primarily of Russia and Turkey, in realizing the existing potential. They also analyzed the prospects of economic development in the South Caucasus.

Stanislav Pritchin said that the idea of writing the report came right after the signing of the peace accord in Nagorno-Karabakh. In addition to the usual collection of information, several roundtables were held, attended by Russian experts, and Armenian and Azerbaijani specialists were polled and asked the same questions. Naturally enough, Baku and Yerevan had diametrically opposite views of the results of the ceasefire agreement, with  Azerbaijan seeing them as a reflection of the changes brought about by its military victories, while Armenia views them as a major defeat that forced it to make major concessions. There was even talk about the resignation of Prime Minister Nikol Pashinyan and his government. Pashinyan has so far managed to stabilize the situation, with early parliamentary elections slated for this coming summer, which will most likely keep him in power. Polls also showed that even if Pashinyan’s party loses out, Armenia will still be forced to comply with the terms of the agreement simply by virtue of its position. Indeed, Yerevan has been quick to give the Akdam, Geybaldar and Lachin regions back to Baku.

Speaking of risks and challenges, the expert noted that we are primarily talking about domestic political risks both in Armenia and Azerbaijan, as well as external ones – exacerbation of contradictions between outside players and, finally, the danger of a new conflict flaring up directly between Yerevan and Baku. … First of all, Armenia finds itself in the former group of risks. A  survey of experts done in February showed that 67 percent of respondents  believed that Nikol Pashinyan would not stay in power, while only 33 believed he would. The situation in Azerbaijan is calmer: they expect Armenia to fulfill all the terms of the trilateral agreement. By the way, Azerbaijan has a lot of work to do to restore the region’s infrastructure and resettle the refugees, which will prove a heavy burden on the country’s budget.

As far as external risks go, the gravest concern is the regional rivalry between Russia and Turkey. Seventy-two percent of the Armenian experts surveyed believe that this is fraught with destructive consequences, and only 28 said that Russian-Turkish interaction will help stabilize the region. The overwhelming majority of Azeri experts have no problem with the Russian and Turkish influence on the peaceful settlement in Nagorno-Karabakh. The role of the OSCE Minsk Group in the settlement of the Karabakh problem is assessed differently in Armenia and Azerbaijan. While the Armenians pin hopes on the Group, the Azerbaijanis do not see any benefit from it.

The status of the Russian peacekeepers, who will stay on in the conflict zone for the next five years, is an important issue. Their mandate will automatically be renewed if it is not objected to by either side. As of now, 42 percent of Azeri experts believe that five years from now the mission of the Russian peacekeepers will be over. Just as many believe that they will still be needed, and 16 percent said that it will depend on the situation. In Armenia, 85 percent of respondents answered that five years from now the presence of Russian peacekeepers will still be needed.

The dispute between Armenia and Azerbaijan over Nagorno-Karabakh remains the biggest sticking point, with Azerbaijan considering this territory as its own, which is confirmed by the relevant resolutions of the UN Security Council issued in the wake of the Soviet breakup. The Armenians, conversely, believe that even after the conclusion of the November trilateral agreement, Nikol Pashinyan does not recognize Azerbaijan’s right to Nagorno-Karabakh. A survey of the two countries’ experts showed that in each of them the absolute majority – more than 80 percent – thinks that within the next five years the status of Nagorno-Karabakh will not acquire a mutually acceptable legal form. Pritchin also considers the problem of border delimitation in disputed territories as being intractable.

Wrapping up the political section of the report, Stanislav Pritchin outlined three possible scenarios of political development in the South Caucasus: negative, neutral and optimal. In a negative scenario, one or more parties opt out of the trilateral accord. According to the neutral scenario, some of the provisions of this agreement will be implemented, while some will not. The positive scenario sees the implementation of all provisions by all the signatories to the deal. The majority of experts in Armenia (about 80 percent) and a significant number (over 40 percent) of those in Azerbaijan, gravitate towards the second, neutral variant.

The economic part of the report was presented by Alexander Karavayev, who emphasized that it is for the first time in 30 years that a post-Soviet state is restoring its territorial integrity, including in economic terms. Not only did the territory of Nagorno-Karabakh suffer from the ethnic conflict of 1991-92, but it was not developing economically and did not have any investment status. The development took place only at the microeconomic level; there were no large-scale recovery programs sponsored by the state, including those aimed at luring major foreign investors. Karavayev warns that given the enormity of the tasks at hand one should not expect any quick results – we are talking about a decade, no less.

The Azeri leadership has outlined the first stage of restoration to run until 2025. In 2021, US 1.3 billion will be allocated for the reconstruction of energy facilities, the construction of roads, trunk infrastructure, including the creation of transit transport communications across the territory of Armenia and Nagorno-Karabakh. To fill them with goods, Armenia, as the party that has suffered the most from the conflict, must see the prospects for making up for the losses. This could be achieved through exports, primarily of raw materials, such as copper ore and rare earth and precious metals (molybdenum, gold, etc.). In practical terms, the export of raw materials from Armenia to Mediterranean ports would be facilitated by modernizing the old Soviet railway via the Nakhichevan autonomous region to the Turkish port of Iskenderun, where there is a terminal of the Magnitogorsk Iron and Steel Works. Alexander Karavayev warned, however, that the implementation of large-scale economic projects would attract big investors and competition between them could stir up contradictions between large regional players. He still believes that “the game is worth the candle.”

The main conclusion that can be drawn from the report is that the signing of the trilateral agreement has opened a “window of opportunity” for the gradual normalization of political and economic relations between Armenia and Azerbaijan, including the settlement of the situation in Nagorno-Karabakh.

From our partner International Affairs

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A Grey Swan: Is There a New Conflict in Donbass?

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The prospect of a new exacerbation in Ukraine’s Donbass region has worried market players. It is difficult to talk about the strong influence of bellicose statements on the currency and stock markets. However, investors have again started talking about “geopolitical risk”. The key concern stems from the fact that the resumption of a large-scale armed conflict will inevitably lead to new sanctions against Russia. Moreover, the scale of such restrictions is difficult to predict, which gives rise to the uncertainty of expectations. Should strict sanctions be viewed as a baseline scenario? What is to be expected from the development of the situation?

Ceasefire violations in Donbass were already evident in winter. The ceasefire has been in effect since July 27 last year. However, on March 31, in the Contact Group on Conflict Resolution, the Ukrainian side raised the issue of a new ceasefire statement. In fact, this meant that Kiev considered the existing agreement invalid, citing cases of shootings and military losses. Moscow criticised this initiative. All this is happening against the background of the concentration of Ukrainian troops in the conflict zone. Russian troops are also moving to the state border. Statements by Ukrainian officials, who cited a conversation between ministers, about US support in the event of a war with Russia, added fuel to the fire.

A military exacerbation may well be viewed as one possible scenario. At least it is not devoid of precedent. During the August 2008 war in in Georgia, Mikheil Saakashvili launched a military campaign, citing the support of the United States, among other things, as one of his motivations. Later it turned out that such support was only conditional, but confidence in it could become a trigger for radical decisions. There is also the experience of the recent war in Nagorno-Karabakh. For a long time it was believed that it would be difficult for both sides to win in the conflict. As a result, Azerbaijan won a victory using new tactics: with the help of unmanned aerial vehicles. Ukraine also plans to use Turkish drones, although they have not yet appeared in large quantities in service in the Armed Forces of Ukraine. Kiev may also believe that a new conflict will have a high cost for Russia. Even in the event of the defeat of the Ukrainian Armed Forces, Moscow is unlikely to go beyond the existing boundaries of the DPR and LPR. New sanctions will be imposed against Russia. Perhaps the Ukrainian leadership also hopes for good luck. Even tactical successes in Donbass will strengthen the Ukrainian position.

However, this scenario is still extremely risky for Kiev. In recent years, Russia has shown that it is ready to take decisive action. Force can be used without undue hesitation. Moscow understands that the West will side with Ukraine in any scenario. But political support is one thing, and military intervention is quite another. The United States and its allies are unlikely to agree to such an intervention. Even the supply of lethal weapons will have its limits. Without a doubt, they increase the combat readiness of the Armed Forces of Ukraine. However, they are unlikely to allow it to achieve qualitative and quantitative superiority, even on the scale of the alleged theatre of military operations. The Russian army has undergone a high degree of modernisation. It is capable of rapidly concentrating well-trained and well-armed small units, units and large units. The threat of sanctions will also fail as a deterrent. There’s no doubt they will damage the economy. However, Moscow is unlikely to be stopped if it comes to a military conflict. In addition, Russia has a certain amount of space to vary the degree of its involvement. It can range from active support of the forces of the LPR and DPR to direct involvement in the conflict and the defeat of the Armed Forces of Ukraine in the conflict zone.

Apparently, the Ukrainian leadership does not intend to bring the matter to a direct clash. It is escalating the situation, trying to attract the attention of Western partners and gain points for the future. Most likely, the Kiev authorities initiated the current manoeuvres of their own accord, and they are not the result of the “insidious game” of the West. However, the American and EU diplomats may well use such manoeuvres to put pressure on Russia. The main threat is the loss of control over the situation, should the symbolic whipping turn into a real conflict.

In the end, full-scale military operations in Donbass in the near future are not the baseline scenario. Russia is a strong adversary; the risk of big losses for Ukraine are great. Accordingly, it is hardly worth considering a scenario of a sharp tightening of sanctions against Russia. No radical aggravation—no radical sanctions.

At the same time, politics likes surprises. Erroneous assessments, the personal ambitions of leaders, the peculiarities of group decision-making with their “shift to risk”, random incidents and much more can give rise to an extreme scenario. War in this case is a “grey”, rather than a “black swan”. It is unlikely, but its parameters are quite clear. Low chances of winning a war can be offset by high expectations of its consequences. Is it not an attractive scenario to give Russia a military slap in the face during an election year? However, in Moscow, such a scenario is also, apparently, expected. With appropriate organisational conclusions.

From our partner RIAC

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