Thursday, August 7, 2014

Russia’s Eurasian vision



The escalating conflict in Ukraine between the Western-backed government and Russian-backed separatists has focused attention on a fundamental question: What are the Kremlin’s long-term objectives?

Although Russian President Vladimir Putin’s immediate goal may have been limited to regaining control of Crimea and retaining some influence in Ukrainian affairs, his longer-term ambition is much bolder.

That ambition is not tough to discern. Mr Putin once famously observed that the Soviet Union’s collapse was the greatest catastrophe of the 20th century. Thus, his long-term objective has been to rebuild it in some form, perhaps as a supranational union, like the European Union (EU), of member states.

This goal is not surprising. Declining or not, Russia has always seen itself as a great power that should be surrounded by buffer states. Under the tsars, Imperial Russia extended its reach. Under the Bolsheviks, Russiabuilt the Soviet Union and a sphere of influence that encompassed most of Central and Eastern Europe. Now, under Mr Putin’s similarly autocratic regime, Russia plans to create, over time, a vast Eurasian Union (EAU).

While the EAU is still only a customs union, the EU’s experience suggests a successful free-trade area leads over time to broader economic, monetary and, eventually, political integration.

Russia’s goal is not to create another North American Free Trade Agreement; it is to create another EU, with the Kremlin holding all the real levers of power. The plan has been clear: Start with a customs union — initially Russia, Belarus and Kazakhstan — and add most of the other former Soviet republics. Indeed, now, Armenia and Kyrgyzstan are in play.


Once a broad customs union is established, trade, financial and investment links within it grow to the point that its members stabilise their exchange rates vis-a-vis one another.

Then, perhaps a couple of decades after the customs union is formed, its members consider creating a true monetary union with a common currency (the Eurasian ruble?) that can be used as a unit of account, means of payment and store of value.

As the eurozone experience proves, sustaining a monetary union requires banking, fiscal and full economic union. And, once members give up their sovereignty over fiscal, banking and economic affairs, they may eventually need a partial political union to ensure democratic legitimacy.

Realising such a plan may require overcoming serious challenges and the commitment of huge financial resources over a period of decades.

But the first step is a customs union and, in the case of the EAU, it had to include Ukraine, Russia’s biggest neighbour to the west. That is why Mr Putin put so much pressure on former Ukrainian President Viktor Yanukovich to abandon an association pact with the EU. It is also why Mr Putin reacted to the ouster of Mr Yanukovich’s government by taking over Crimea and destabilising eastern Ukraine.

Recent events have further weakened market-oriented, Western-leaning factions in Russia and strengthened the state-capitalist, nationalist factions, which are now pushing for faster establishment of the EAU.

In particular, tensions with Europe and the United States over Ukraine will shift Russia’s energy and raw-material exports — and the related pipelines — towards Asia and China.

Likewise, Russia and its BRICS partners (Brazil, India, China and South Africa) are creating a development bank that is to serve as an alternative to the Western-controlled International Monetary Fund and the World Bank.

Revelations of electronic surveillance by the US may lead Russia and other illiberal states to restrict Internet access and create their own nationally controlled data networks.

There is also talk of Moscow and Beijing creating an alternative global payment system to replace SWIFT (Society for Worldwide Interbank Financial Telecommunication), which the US and Europe can use to impose financial sanctions against Russia.


Creating a full EAU — one that is gradually less tied to the West by trade, financial, economic, payment, communication and political links — may be a pipe dream.

Russia’s lack of reform and adverse demographic trends imply low potential growth and insufficient financial resources to create the fiscal and transfer union that is needed to bring other countries in.

However, Mr Putin is ambitious and, like autocrats in Central Asian nations, may remain in power for decades to come. And, like it or not, even a Russia that lacks the dynamism needed to succeed in manufacturing and industries of the future will remain a commodity-producing superpower.

Revisionist powers such as Russia, China and Iran appear ready to confront the global economic and political order that the US and the West built after the collapse of the Soviet Union. However, now, Russia is pushing ahead aggressively to recreate a near empire and sphere of influence.

Unfortunately, sanctions that the US and Europe are imposing on Moscow, though necessary, may reinforce the conviction among Mr Putin and his nationalist advisers that Russia’s future lies not in the West, but in a separate integration project in the East.

US President Barack Obama says this is not the beginning of a new Cold War. Current trends may soon suggest otherwise. 



Nouriel Roubini is Chairman of Roubini Global Economics and Professor of Economics at the Stern School of Business, NYU.

[Another article, more personality/character analysis.]

What I learnt from Vladimir Putin



Is Russian President Vladimir Putin, like most political leaders, predisposed to spinning the truth for his own benefit? Or does he go far beyond that, governing Russia and dealing with his neighbours and the rest of the world with reckless mendacity, abetted by a supine national media? Sometimes, in answering questions such as this, we can draw not only on what we have heard and seen, but also on personal experience.

I first met Mr Putin in October 1999 in Helsinki, when I was attending a European Union-Russia summit as the EU’s external affairs commissioner. Former President Boris Yeltsin cancelled his attendance at the last moment; he was “indisposed”. In his place, he sent the new acting Prime Minister, Mr Putin, whose behaviour confirmed the wisdom of the observation that you can take the man out of the KGB, but you cannot take the KGB out of the man.

Preparing for the meeting in the early morning, the EU team heard that there had been an explosion in Grozny, Chechnya’s capital, killing several people. When Mr Putin arrived, we asked him about it. He claimed to know nothing, but promised to find out by lunch what had happened.

At our lunchtime discussion, he reported that the explosion had been caused by Chechen terrorists who were running their own arms bazaar. By this time, we knew the deaths had been caused by a Russian military assault; it subsequently came to light that a wave of Russian ballistic missiles (probably Scuds) had killed more than a hundred people.

Mr Putin had looked us in the eye and lied, almost certainly aware that we knew he was lying. The communique that day made no mention of Chechnya, but enunciated the usual “blah blah” about shared values, belief in democracy, human rights and the rule of law, as well as the need for strategic cooperation.

I can recall countless instances of — how can I best put it? — Mr Putin and his colleagues economising with the truth on a spectacular scale. On Chechnya, they regularly reported either that they had received no complaints from the EU about humanitarian relief or that they were complying with the United Nations code on relief efforts; they were duplicitous on both counts.

Similar dissembling characterised negotiations on trade, partnership agreements, the enlargement of the EU to Eastern Europe and access to Kaliningrad.


Against this background, I find it difficult to believe any of Mr Putin’s account of what has been happening in Ukraine — a view shared by many seasoned observers in Poland and the Baltic states.

Mr Putin does not want to preside over a country with a declining population and a footprint that is largely Asian. He wishes, like a modern tsar, to recreate the historic Slav state of Russia, incorporating Ukraine, and to rebuild, albeit in a different form, the Kremlin’s lost empire. The Eurasian Union — Russia, Belarus and Kazakhstan — is to be its heartland.

To this end, Mr Putin has always resisted Ukraine’s historic turn to the West, about which the EU itself has been standoffish in the past. It was prepared to recognise Ukraine’s “European vocation”, but it did as little as it could to encourage this outcome.

When Ukrainians earlier this year ousted their corrupt president, Viktor Yanukovych, after he backed out of an association agreement with the EU, Russia set out to destabilise the country. Crimea was annexed on the spurious grounds that it had once been part of Russia — a justification that, if applied elsewhere, could underwrite the violent redrawing of boundaries in much of Europe.

Then came Russia’s fomenting of and participation in armed separatists’ effort to take over parts of eastern Ukraine, which led directly to the downing last month of Malaysian Airlines Flight 17 and the death of all 298 people on board. Though probably an accident, it was an accident that happened only because of Russia’s duplicitous and lethal meddling.

So, though I am saddened by the Putin regime’s behaviour, I am not surprised by it. I do hope to be surprised by the EU’s recognition that what has happened in Ukraine requires Europe to stand up for international decency and the rule of law. There should be no more happy talk about shared values. This is a time for steely principle.

That will not be welcomed by Europe’s far right, from Hungary’s Jobbik party to France’s National Front. They love Mr Putin.

But Ukraine has proved a step too far for some of his erstwhile admirers, such as Mr Nigel Farage, the leader of the United Kingdom’s Independence Party. If Mr Farage had had some first-hand experience dealing with Mr Putin, he might have reached an accurate assessment much sooner.



Chris Patten, the last British Governor of Hong Kong and a former EU commissioner for external affairs, is chancellor of the University of Oxford.

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