Massenbach-Letter: NEWS 17/07/15

Massenbach-Letter. News

· Ukraine – the dangers of neglecting Europe’s other debt crisis

· Greece for Grownups * GMF: Insecurity in Greece Poses Risk to the Balkans * The Crisis Is About the Euro, Not Just Greece

· Dr. Klaus Naumann : Die deutsche Sicherheitsarchitektur: Eine kritische Bestandsaufnahme * Kasdorf: Langfristziel muss eine europäische Armee sein

· GMF: Insecurity in Greece Poses Risk to the Balkans * CFR: Eurozone Leaders Reach Deal on Greek Debt Crisis

· Die Deutschen flüchten vom Land

· Trade Agreements & Commercial Service Show Us Future with New TPA

· Joint Comprehensive Plan of Action agreed in Vienna on July 14 between Iran and the P5+1 major powers

Massenbach* Ukraine – the dangers of neglecting Europe’s other debt crisis

Politicians and policy makers can only focus on one problem at a time. With all attention concentrated on Greece for the past month there is a real danger that an even greater problem is developing, almost unnoticed, in Ukraine. The economy there is in deep trouble. A further collapse, perhaps triggered by a debt default, could lead to an outflow of refugees that would make the problem of migrants crossing the Mediterranean look trivial. Energy is at the heart of the crisis but could just possibly be part of the solution.

The basic story is well known. Since the Maidan demonstrations in November 2013, the Ukrainian economy has shrunk. A 5 per cent fall last year is variously forecast to be followed by a contraction of between 5 and 10 per cent in 2015. Investment has ground to a halt and in the energy sector big potential projects such as the shale gas developments planned by Shell and Chevron have been halted. The fighting in the east has cut off coal supplies to the rest of the country from the 300 mines in the Donbass region. The Russian annexation of Crimea has cut off gas supplies from the developments managed by Chernomorneftegaz in the Black Sea. Ukraine, as a result, has become even more dependent on imports of coal and gas from South Africa, Australia, other parts of Europe and even ironically from Russia. These supplies do not come cheap and in many cases suppliers will only do business if they are paid in advance and in hard currency.

All this has produced a growing national debt burden that by common consent is now unsustainable. Ukraine cannot afford to service the debts it already has and every monthly repayment is turning into a moment of trauma. The Government in Kiev is reported to be close to defaulting on some or all of the debts – a step that would halt both further lending and the desperately needed flow of new industrial investment that offers the only prospect of halting economic decline. The risk is not just that a default would alienate lenders and investors. It could also push thousands of Ukrainians to migrate across the country’s long and porous borders with Poland, Romania, Hungary and Slovakia. If Europe cannot cope with the limited flow of people crossing the Mediterranean one can only imagine the panic and chaos that would follow an exodus from Ukraine.

Can anything be done? A big conference is being held in Washington this week to encourage new investment in Ukraine. The effort is admirable and a further demonstration of the fact that the US government is taking the situation in Ukraine more seriously than anyone in Europe. But the effort will fail unless the debt issue is resolved and a default prevented.

The IMF and a group of private creditors, mostly US based, have been in intensive discussions around a rescheduling package but to be acceptable all round such a deal needs to be linked to investments that offer a real prospect of financial returns from which the debts can eventually be repaid.

Energy should be at the heart of this. Ukraine has resources that can and should be developed. Even if those situated close to the fighting in the east (such as Shell’s prospective shale gas development around Yuzivska) are still beyond reach because of the physical risks involved other projects are viable. Gas – conventional and unconventional, hydro and biomass are all identified as priorities in a report recently published by the International Energy Agency.

The existing nuclear stations are ageing and need refurbishment and in some cases complete renewal. The electricity grid needs to be modernised and there is enormous potential for investments in energy efficiency. All these projects would create jobs and provide secure supplies to local users (including other industries) while reducing the burden of imports. Over time there is even the possibility of Ukraine becoming a supplier of electricity to other parts of the region. Each of the potential projects would generate revenue and it cannot be beyond the intelligence of investors and the international institutions to design a package in which a share of the revenue is allocated to creditors in return for a rescheduling of the current debt and some limited and focused new lending. Some debt could for instance be swapped for an energy bond. Ukraine badly needs a new business model for its economy and energy has to be at the heart of the answer.

None of this, of course, solves the problems created by the continuing separatist conflict in the east. The political situation can only be resolved when Russia gets tired of funding a conflict that it is not winning and tired too of the relative isolation that sanctions bring. The west is clearly not ready to fight for eastern Ukraine. But we do need to act to stop the country entering a downward spiral that could end up with a failed state of 45m people less than 350 miles from Budapest and only 250 from Warsaw.

http://blogs.ft.com/nick-butler/2015/07/12/ukraine-the-dangers-of-neglecting-europes-other-debt-crisis/?

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Russia’s Middle East gamble

Author Vitaly Naumkin Posted July 9, 2015

The dynamic changes in the Middle East have been a source of new challenges and threats to Russia, but they are also offering new opportunities. The challenges and threats include the ongoing buildup of jihadist groups; the greatly increased erosion of an established system of nation-states — especially, but not exclusively, in the Mashreq countries; and growing tensions between the Sunni and Shiite regimes and movements, as well as among various Sunni factions, against the backdrop of intensified competition for leadership among the key Sunni states.

The possibility that the traditional definition of statehood that emerged in the 20th century may collapse is a cause of particular concern for Russia, which values stability. But Russia’s approach to any potential changes in the configuration of the region’s nations essentially assumes that it is up to the people living there to decide, on the basis of an inclusive dialogue and without any outside interference, in what countries, within what borders and under what government they want to live, and that such decisions are going to be implemented with due regard for the rules of international law. However, any potentially negative implications of the break-up of the existing system of nation-states for Russia likely will be mitigated by the fact that it has managed — largely through its effective and creative diplomatic efforts — to maintain good diversified relations (whether equally distant or equally close as the case may be) with the infighting regional players in an environment that has been anything but easy for Russia.

In this regard, of note are recent statements by certain leaders of the Kurdistan Regional Government (KRG) of Iraqi Kurdistan who have plainly said that Iraq’s statehood is unviable and an independent Kurdish state should be established in the north of Iraq. True, some analysts in Moscow argue that such bold pronouncements are to an extent the product of a desire to curry favor with the electorate in the run-up to the elections in Iraqi Kurdistan scheduled for Aug. 20.

Notably, Masrour Barzani, avoiding even the slightest hint at some kind of shared Kurdish prospects, refers to future independence only within the borders of Iraqi Kurdistan. Understandably, the Kurdish politician even hypothetically cannot see Syria’s northeast as part of the future state for the following three reasons:

  • Given Ankara’s loathing of the Democratic Union Party (PYD) and its military arm, the People’s Protection Units (YPG), linked to the Kurdistan Workers Party, such prospect would radically poison relations between Turkey and the leaders of the KRG.
  • There are quite a few problems that mar relations between the authorities of the Kurdish autonomy and Syria’s Kurds.
  • Much is still to be done by the autonomy itself to quell the differences among various rival social and political forces, something that is even hindering the consolidation of the peshmerga forces.

Notably, the potential for redrawing the map of the Middle East is increasingly discussed even in those countries in the region whose leaders strongly support preserving the territorial integrity of such states as Iraq and Syria that have been challenged primarily by the transnational Islamic State (IS) led by self-proclaimed Caliph Ibrahim (Abu Bakr al-Baghdadi). According to Jordanian analyst Maher Abu Tair, “The Syrian regime is about to fall, and its fragments will reach us; the Iraqi state is on the verge of collapse; and what is left of the West Bank and Jerusalem is struggling to survive."

On the one hand, the need to counter the threat facing all the states in the region unites them; on the other, it prompts them to come up with unilateral initiatives. Some of those initiatives point to a growing rivalry among the region’s principal Sunni regimes — Saudi Arabia, Turkey, Egypt and Jordan. (There is no one in the Shiite world who could compete with Iran for leadership.) It is in this context that one should view, for instance, Amman’s recent attempts to substantiate its claims for the role of a regional power, simultaneously appealing to the legacy of Sunni caliphatism and Arab nationalism. On June 9, King Abdullah solemnly presented the dark red flag of the Hashemites to Jordan’s Arab Army.

In the king’s words, “The Hashemite flag’s colors and motifs combine elements of history, legitimacy, religion and Arabism found in the Hashemite family and the Great Arab Revolt." I believe that the intentionally demonstrative move by the Jordanian monarch that brings back to life the concept of the Great Arab State and the historical Arab Caliphate is meant to achieve several objectives, including delegitimatization of the transnational IS and its caliph, thereby reminding everyone that the Arabs and Muslims have a far more worthy and legitimate — ethnically and religiously — candidate who could play the role of a unifier of Arab Levant and the Muslims.

In addition, this is an implicit challenge to Saudi Arabia (the Hashemites have not forgotten the times when they ruled Hijaz) and Turkey (it was Turkey that was targeted by the Great Arab Revolt), which claim the role of the main advocate of the Sunni interests. Sharif Hussein bin Ali initiated that revolt against the Ottoman Empire on June 5, 1916, in the ill-advised belief that London would honor the promise given by Henry McMahon in his correspondence with Sharif Hussein and establish a pan-Arab state in Mashreq under his aegis. (Sharif Hussein proclaimed himself king of the Arab nation in Mecca on Nov. 2.) Incidentally, Russia believed at the time that the Arab forces were also fighting for its interests since it was waging a war on the Ottoman Empire in the Caucasus.

The developments in that part of the region pose a challenge to the Sykes-Picot system that was established at the time and whose crisis is frequently mentioned these days. However, the crisis of statehood has also engulfed countries that were outside the arrangement that defined the region’s territorial and state boundaries (Libya and Yemen). The Russian Empire, on the one hand, took part in the division of the Ottoman legacy as one of the conquerors of the Ottoman Empire, but, on the other hand, it was Russia, or rather its Soviet government, that published the secret pact in November 1917 making it known to the whole world, and then went on to offer a hand of friendship to the new Turkey, Ataturk’s secular state.

The processes under discussion are in many respects closely intertwined with Russia’s historical links with the region. Any Russian who cares to watch a video on YouTube of the ceremony of the Hashemite flag being presented to the Jordanian army command will see behind the monarch a person wearing a chokha with silver pectoral bandoliers, a distinct dress that is very well known to all residents of Russia. This is a commanding officer in the personal Circassian guard of King Abdullah. Since the 19th century, Jordan has been home to a large community of Circassians as well as their ethnic kin, Kabardinians and Adyghes (roughly 170,000 people), some of whom have served faithfully as royal guards for several generations. Members of a smaller Chechen community of about 20,000 people also have had distinguishing military careers, such as Gen. Ahmad Alauddin Arslan, the only person with the distinction of being twice named Hero of Jordan.

While there are individuals with roots in Russia’s Northern Caucasus among those fighting IS, there are also several thousand individuals with similar ethnic backgrounds fighting on the side of IS. Such polarization is not surprising; in fact, there are also many Jordanian nationals among IS militants who oppose their fellow countrymen (Jordanians and Palestinians) fighting against the jihadists, while all of them belong to the same Sunni branch of Islam.

This directly affects Russian interests as even those whose ancestors left the Caucasus many decades ago have maintained strong ties with their ancestral land.

Financial interests also tie Russia to the region, one example being the recent entry into force of an unprecedented partnership agreement between the Russian Direct Investment Fund (RDIF) and the Public Investment Fund of Saudi Arabia, a sovereign wealth fund the Saudis use to invest $10 billion in projects in Russia. The RDIF has also partnered with another of the kingdom’s sovereign funds, the Saudi Arabian General Investment Authority.

Against the backdrop of a worsening regional crisis, the leading regional players have been trying to diversify their system of international relations with global powers as best they can, presenting Russia with new opportunities.

http://www.al-monitor.com/pulse/originals/2015/07/russia-challenges-risks-iraq-kurdistan-saudi.html?utm_source=Al-Monitor+Newsletter+[English]&utm_campaign=8ca753f619-July_10_2015&utm_medium=email&utm_term=0_28264b27a0-8ca753f619-93106913#

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The Crisis Is About the Euro, Not Just Greece

Greece GDP per capita nearly tripled in the 15 years prior to it Greece adopting the euro. It has been a disaster since then. Maybe the crisis is about the idea of the euro, not just about Greece.

When Greeks went to the polls last week, did anyone really imagine that they were going to vote to accept German terms to end the current round of the Greek financial crisis? In the middle of an economic depression, would Greeks really vote to cut pensions for the poorest Greeks, along with the middle class, to further cut social services and to raise taxes across the board, for the promise that — for the moment — they can remain members of the Eurozone?

How would voters across the United States have responded back in the darkest moments of the 2008 financial crisis if our political leaders who were considering a massive bailout of our financial system had put the question to vote: Shall the U.S. Government and Federal Reserve Bank provide a couple of trillion dollars to bail out AIG, Citibank, Goldman Sachs, and other global banks who lost their shirts on complex financial bets… Of course we would have voted no. And so did the Greeks.

Greek Prime Minister Alexis Tsipris knew this. He knew that the Greek demos

05-19-15 BAKS Vortrag Naumann WorkshpWeissbuch Mai2015.pdf
iran-deal-text.pdf

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