Massenbach-Letter. NEWS 17.02.17

Massenbach-Letter. News * Defense Secretary Mattis issues new ultimatum to NATO allies on defense spending*

  • Trump Puts NATO Allies in the Crosshairs Over Military Spending
  • Flynn + Russia
  • Mexico isn’t Trump
  • Russia’s Businesses
  • Russia and China: A New Model of Great-Power Relations
  • Merkels Fluechtlingspolitik – eine Abfolge im Cicero
  • Trump-Israel & Palestine
  • STRATFOR: A Storm Is Brewing Over Europe

February 15, 2017 | 20:02 GMT

The administration of President Donald Trump has offered former Vice Admiral Robert Harward the post of national security advisor, according to unnamed officials, Reuters reported Feb. 15. The administration has not confirmed the information and there are no reports as to whether Harward has yet responded. Harward was the deputy commander of U.S. Central Command from 2011 to 2013 and served on the National Security Council under former President George W. Bush. If confirmed, he would replace former Defense Intelligence Agency chief Michael Flynn for the post.

Massenbach*Biggest Threat to Mexico’s Economic Well-Being Isn’t Trump,

Say Some of the Country’s Economists.

The U.S.-educated Mexican economists who negotiated the trade pact in the 1980s are worried more about their own country’s protectionist tendencies than about Donald Trump

Standing from left, Mexican President Carlos Salinas, U.S. President George Bush and Canadian Prime Minister Brian Mulroney at the signing of the North American Free Trade Agreement, Oct. 7, 1992

By

David Luhnow

Updated Feb. 10, 2017 5:19 p.m. ET

As a high-school student in northern Mexico in the 1970s, Ildefonso Guajardo marked the start of each new academic year with a ritual. His family would drive three hours to a J.C. Penney store in Texas, and his father would give him $300 to spend on a new wardrobe—clothing that was far cheaper and of better quality than what he could find in Mexico’s closed economy.

“Four shirts, four pants, underwear and socks for the whole school term, all in a day of shopping in Laredo,” recalls Mr. Guajardo, who is now Mexico’s economy minister.

Shopping in Mexico was a lousy experience in those days. The country was emerging from four decades as an economy closed to imports, and most items were still proudly—if poorly—Made in Mexico. A running joke was that Mexican TVs made for great radios—because the image was so terrible.

Partly because of that experience, Mr. Guajardo went on to study economics at the University of Pennsylvania and eventually joined the team of highflying economists who negotiated the North American Free Trade Agreement—the first time in modern history that a poor country and a rich one did away with all trade barriers to compete on even terms.

Nowadays, Mr. Guajardo and the other members of Mexico’s Nafta generation find themselves defending the legacy of the pact at a time when its future is uncertain under the new U.S. administration of Donald Trump. Mr. Trump has assailed the treaty as the “worst trade deal ever” and blames it for enticing some American firms to move factories south of the border. He has vowed to renegotiate it or tear it up.

Despite the threats from the new U.S. president, Mexico’s Nafta team all agree on a somewhat surprising idea: Mr. Trump is not the most serious threat to Mexico’s economic well being. The bigger threat is Mexico itself, with its long history of nationalism and Mexico-first economics.

“What worries many of us is not what Trump will do, but what Mexico will do in response,” says Jaime Serra, who as Mexico’s commerce minister in the early 1990s oversaw the negotiation for Mexico. “We can’t go eye for an eye. We need to stay open and stay committed to our economic path,” he says.

While many Mexicans feel hurt and betrayed by a country they had begun to view as a friend and ally, a trade war is going to take a far bigger toll on Mexico’s export-driven economy than it will on a far larger U.S. economy. “It would be shooting ourselves in the foot,” says Jaime Zabludovsky, a former deputy trade minister on Mexico’s Nafta negotiating team.

Before Nafta, developing countries were told by most economists that they needed to protect their local industry against advanced economies by keeping tariffs higher than in rich countries. Even today, the World Trade Organization allows poorer countries higher tariffs (which is why, if Mr. Trump tears up Nafta, the U.S. is likely to face higher tariffs going into Mexico than vice versa).

After more than two decades under Nafta, it hasn’t all been easy for Mexico. Confronted by efficient American firms, thousands of Mexican companies closed their doors, and millions of farmers abandoned their small plots to head to cities or to migrate to the U.S.

But the pact has helped to transform the Mexican economy, lifting millions into higher-paying factory jobs. It has also forced Mexican firms to raise their quality. Mexico is now the world’s largest exporter of flat-screen TVs. Mr. Guajardo now buys his wardrobe almost entirely in Mexico.

“I buy it not because of a nationalistic pride, but because it’s a good product and it’s price competitive,” he said.

The backlash against globalization in parts of the developed world and Mr. Trump’s rise to the U.S. presidency have stunned the generation of economists who convinced Mexico to become one of the most open economies in the world, with duty-free access for 46 countries around the world.

Even now, the Mexican team that negotiated the Nafta deal stands out for its economic credentials. It included more than a dozen Ph.D.s from top U.S. schools such as the University of Chicago, Yale, the Massachusetts Institute of Technology and Stanford—the cathedrals of free-market thought. Their boss was the country’s Harvard-trained president, Carlos Salinas.

For them, the challenge to the pact from the U.S. has upended the world as they knew it and threatens to undo their life’s work. “It never crossed my mind we’d be arguing with the U.S. government about free trade,” says Mr. Serra, who got his Ph.D. in economics from Yale. Alarmed, many of those in the team who negotiated Nafta now find themselves back in the trenches, advising either President Enrique Peña Nieto or Mexican industry on how to respond.

So far, the Mexican government looks to be sticking with its free-trade principles. The country’s leaders hope to finalize an expanded trade deal with the European Union this year, and they are seeking to lower trade barriers with markets like Argentina to buy grains that are normally sourced in the U.S., in case of a trade war with their northern neighbor.

Mexico is eyeing free trade talks with Australia, New Zealand, Malaysia and Singapore—all countries that were in the now defunct Trans-Pacific Partnership trade deal killed off by the new U.S. administration, a senior Mexican official said. Mexico is also considering asking its fellow members of the Pacific Alliance—a free-trade pact that includes Colombia, Peru and Chile—to expand the group to Asian nations.

If Nafta is scrapped, tariffs would revert to WTO levels, with U.S. industrial products paying higher levies to enter Mexico than vice versa—about 5% versus 2.5%. A far bigger hit would come for pickup trucks assembled in Mexico and for U.S. agricultural products entering Mexico, both of which would face tariffs of about 25%. And those are not small flows of goods: Mexico sent $18.5 billion worth of pickups north last year and bought some $18 billion in U.S. agricultural products (Mexico is the U.S.’s top buyer of corn and pork).

Even without the agreement, the architects of Nafta say that Mexico should consider keeping its tariffs with the U.S. at zero to keep import costs down and remain globally competitive. They argue that Mexico’s export competitiveness is explained less by the decline in U.S. tariffs than by the decrease in Mexican tariffs, which made imports more affordable as key inputs and increased the competition faced by Mexican companies.

“Imagine a world where Mexico—the poor country—is the one staying open and teaching the world a lesson even as the U.S. closes,” says Luis de la Calle, who helped to negotiate the pact and got his Ph.D. from the University of Virginia.

Even if Mr. Trump passes some kind of 25% border tax on Mexican products, much of that has already been offset by a 20% decline in the peso since last May, when Mr. Trump surged in the polls. A new tax would likely cause the peso to fall further, making Mexico’s exports more affordable and making U.S. imports to Mexico more expensive.

Herminio Blanco, who led the negotiating team and got his Ph.D. from the University of Chicago, tells a story about going to an event at Stanford University to celebrate the passage of Nafta in 1993. He got a standing ovation from all the assembled economists except one: the Nobel Laureate and staunch free-market advocate Milton Friedman. Mr. Friedman told Mr. Blanco that he didn’t stand because Mexico should have lowered its tariffs without waiting for a reciprocal deal from the U.S. “His point was that we shouldn’t lower tariffs only because others are doing it. We should do it because it’s the best idea to enhance competitiveness,” says Mr. Blanco.

Politically, however, not engaging in a tit-for-tat with Mr. Trump might be difficult. The rise of the U.S. president—who regularly railed against Mexico during the campaign—is fanning the flames of Mexico’s nationalism, which has long been a feature of domestic politics, first in opposition to Spain in the struggle for independence and then in opposition to the U.S. after it took about half of Mexico’s land during the 1846-48 Mexican-American War.

That nationalistic impulse had waned during the Nafta years, but is staging a comeback. In recent weeks, several consumer groups have launched boycotts of American products. The Twitter hashtag #NoCompresUSA (Don’tBuyUSA) reached more than three million users in the past week. Tens of thousands of Mexicans have heeded a call to put the Mexican flag on their profile pictures on apps like Twitter and WhatsApp.

This Sunday, several hundred thousand demonstrators are expected to take to the streets to “defend Mexico’s honor” against Mr. Trump (and also to call for a crackdown on corruption at home). They are planning to end the march by singing Mexico’s national anthem. Even Corona, owned by running a new ad campaign that criticizes Mr. Trump’s proposed wall.

“If the U.S. raises tariffs on Mexico, I don’t see how Mexico can’t respond. It would be seen as weakness by the U.S. administration,” says Enrique Cardenas, a Mexican economic historian.

The rise of Mr. Trump has lifted the fortunes of Mexico’s own firebrand outsider, the leftist Andres Manuel Lopez Obrador. The former Mexico City mayor, who leads the polls ahead of next year’s presidential election, is seen by supporters as an outsider crusading against a corrupt political establishment and by critics as a dangerous populist. He is most famous for having refused to accept a narrow defeat in the 2006 election and declaring himself president, complete with a mock swearing-in ceremony.

Mr. Lopez Obrador hasn’t attacked Nafta per se, but he has built his career on attacking the “neo-liberal” opening engineered by the Nafta generation. He vows to focus more on domestic projects and was staunchly opposed to Mexico’s opening of its oil industry to foreign investment in 2013.

The rise of Mr. Trump also has emboldened voices in Mexico calling for the country to shift its economic focus from exports to the domestic economy—to promote Made in Mexico again. Just last week, Mr. Peña Nieto relaunched the “Made in Mexico” brand for high-quality Mexican products, complete with an Aztec eagle logo that was first launched in 1978, during the closed economy. “Today we have to consume what is Mexican,” he said. “Not only because we are [Mexican] but because they are quality products,” he said.

A group of Mexican economists recently penned a draft of an action plan called “In the National Interest.” It calls for a greater role for the state in pushing domestic investment, including rules that would force foreign companies to transfer technology and use local suppliers and a bigger role for development banks.

“We forgot about the role of the state and fell into the historical naiveté that growing competition would lead to greater productivity and growth,” says Rolando Cordera, an economist at UNAM, Mexico’s largest public university. “Under the threat of Trump, we must begin a new path of development that emphasizes investment in the domestic market.”

Such arguments worry the trade pact’s architects. “This is perhaps the greatest challenge of a world without Nafta,” says Mr. Zabludovsky, the former deputy trade minister. “All the phantoms of the past will come crawling back: for intervention, deficit spending, protectionism, import substitution and all the things we thought were behind us. Scary, indeed.”

Mexico has done such an economic about-face before. In the late 19th century, dictator Porfirio Díaz opened the country to foreign investment. By the turn of the century, there was more U.S. investment in Mexico than in the rest of the world put together, according to Enrique Krauze, a prominent Mexican historian. But after the Mexican Revolution of 1910-1917, the country began closing its doors, culminating in the nationalization of the oil industry in 1938. The U.S. helped to create the General Agreement on Tariffs and Trade in 1946 to set rules for postwar global trade, but it took Mexico 40 years to join GATT, the precursor to the WTO.

Mexico’s closed economy ushered in a period of remarkable growth called the Mexican Miracle, bringing millions from the farms to the cities. But economists say that Mexico stayed closed for too long, helping to create a bloated state that eventually ran into repeated financial crises, including the 1982 debt default that eventually forced Mexico to open up.

“Nafta was a great step forward. It went against the grain of Mexico’s history and the historic instinct of nationalism, protectionism, jealousy of the outside world and anti-Americanism,” says Mr. Krauze. He also, however, criticizes the Nafta generation—and Mexico’s recent governments more broadly—for relying on manufacturing exports as a cure-all, neglecting the country’s deeper challenges, from a weak judicial system to a backward-looking, largely forgotten rural south.

“A little bit of economic nationalism is fine, without renouncing Nafta or an open economy. Let’s find ways to develop the other Mexico,” he says. “But if we use this to return to an era of economic populism, then it will be a disaster for Mexico.”

https://www.wsj.com/articles/mexicos-nafta-defenders-1486747522

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From our Russian News Desk.

  • Flynn + Russia
  • Russian Businesses in
  • Egypt / Energy
  • Turkmenistan / Energy / TAPI
  • Afghanistan
  • China

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EU gets wake-up call as Gazprom eyes rival TAP pipeline

Russian gas from Turkish Stream could flow to the EU via the TAP pipeline. Gazprom plans to use Pioneering Spirit, the world’s largest construction vessel, to build Turkish Stream gas pipeline’s offshore section.

[Gazprom]

<img src=’http://www.euractiv.com/wp-content/uploads/sites/2/2017/02/Pioneering-Spirit.jpg&#8216; class=’img-responsive‘ style=’width:100%‘ >

Russian gas from Turkish Stream could flow to the EU via the TAP pipeline. Gazprom plans to use Pioneering Spirit, the world’s largest construction vessel, to build Turkish Stream gas pipeline’s offshore section.

[Gazprom]

Gazprom’s bid to tap into a pipeline meant to wean Europe off Russian gas threatens to undermine a pillar of European energy policy and slow plans to develop rival deposits in the eastern Mediterranean.

As the European Union struggles against the “iron embrace” of Russian pipelines, it has made opening a new Southern Gas Corridor to carry gas from Azerbaijan by 2020 a priority.

<img src=’http://www.euractiv.com/wp-content/uploads/sites/2/2016/05/Southern-gas-corridor-Azertag-Azerbaijan.jpg&#8216; class=’img-responsive‘ style=’width:100%‘ ><!– Could not decode json –>

Southern gas corridor on time, BP executive says

The Southern Gas Corridor, a project of pipelines to bring new gas supplies to Europe, is running on time and on budget, a BP senior executive said today (12 May).

EurActiv.com

The 10 billion cubic metre (bcm)-capacity Trans Adriatic Pipeline (TAP) is the project’s end piece, joining up with the Trans Anatolian Pipeline at the Turkish border, then crossing Greece and Albania to reach Italy.

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TAP pipeline open to other shareholders, including Iran

The Trans Adriatic Pipeline (TAP), which will carry Azeri gas to European markets, and is seen as Europe’s alternative to its reliance on Russia, is open to new shareholders, including Iran, a spokeswoman for the project said yesterday (8 April).

EurActiv.com

Construction work on TAP gives EU officials the first non-Russian gas pipeline to supply Europe since Algeria’s Medgaz link nearly a decade ago, paving the way for diluting Gazprom’s large one-third share of Europe’s gas market.

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SOCAR: It is impossible to stop the Southern Gas Corridor

To imagine that a project like Turkish Stream could ruin the Southern Gas Corridor is complete nonsense. Unlike the Gazprom project, the Southern Gas Corridor is about billions of dollars already being invested, Vitaly Baylarbayov, deputy Vice President of SOCAR told EurActiv in an exclusive interview.

EurActiv.com

That at least was the plan, until Gazprom’s deputy head Alexander Medvedev last month said the company was considering pumping gas through the link under an auction system giving equal access to any would-be supplier.

Medvedev questioned Azerbaijan’s ability to fill the pipeline, saying Russia could step in to plug any shortfalls once the link is expanded. “It won’t lie empty,” he said.

“That would be very bad,” one EU official said. “It would be totally contrary to everything we have agreed with partners.”

The EU worries Gazprom has abused its dominant position to overcharge central and eastern European states, some of which are nearly wholly reliant on Russian gas.

It foiled Russia’s South Stream project to pump gas to south-eastern Europe under the Black Sea by insisting on anti-trust rules banning suppliers from owning pipelines, without giving other vendors access.

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Putin: We haven’t given up the South Stream project

On a visit to Hungary, Russian President Vladimir Putin made a U-turn, announcing that his country has not given up the South Stream pipeline project, which he had himself declared dead in December.

EurActiv.com

Taken together with separate Russian plans to double its Nord Stream pipeline to Germany, EU nations must fend off “this iron embrace from the North and from the South”, another EU official said.

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Sweden ready to provide port for Nord Stream 2 construction

The Swedish government said on Monday (30 January) that it would not hinder Russia’s Gazprom in its plan to use a southern Swedish port as a base for constructing a gas pipeline project that has raised security concerns.

EurActiv.com

While the first phase of TAP’s capacity will be filled by the BP-led consortium developing Azerbaijan’s Shah Deniz II gasfield, TAP says any gas supplier can bid for another 10 bcm of capacity through so-called Open Season auctions.

Some of TAP’s shareholders – including Italy’s Snam and Belgium’s Fluxys – said they would welcome Gazprom’s entry, and EU sources admitted there may be little they can do to keep Gazprom from bidding when the pipeline is expanded after 2020.

“We see the Southern Gas Corridor foremost as a major source of diversification: new gas, new route, new supplier,” European Commission Vice-President Maroš Šefčovič told Reuters.

EU sources said Russian gas flows via TAP may jar with the terms set by its financial backers, such as the European Investment Bank. The bank said it is carrying out due diligence.

At most, officials say they could extend an exemption from EU anti-trust rules to TAP in order to keep Gazprom out, but Brussels would require the firms and governments concerned to initiate the move.

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TAP pipeline secures exemption from Third Energy Package

The Trans-Adriatic pipeline (TAP), representing the European section of the Southern Gas Corridor (SGC) which will bring gas from Azerbaijan, has obtained an extension of the validity period of the project’s exemption from third party access to its pipe.

EurActiv.com

Intervening may also run counter to the bloc’s goals of promoting an unregulated gas market. And it risks triggering a backlash from Moscow, whose plan to join TAP still hinges upon the construction and expansion of a major gas link to Turkey.

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US discourages Greece from Turkish Stream

The United States wants Greece to focus on the Western-backed TAP pipeline project rather than the rival Gazprom-favoured project Turkish Stream, a US special envoy said.

EurActiv.com

‘Clever strategy’

By accessing TAP, Gazprom is seeking to defend market share by flooding Europe with cheaper piped gas than would-be challengers, including from the east Mediterranean and North Africa, industry sources say.

“The hub around Israel, Cyprus, Egypt could compete, but if Russia can saturate the TAP, it won’t be easy,” a senior Italian industry source said.

<img src=’http://www.euractiv.com/wp-content/uploads/sites/2/2016/06/Yuval-Steinitz-and-Recep-Tayyip-Erdogan.jpg&#8216; class=’img-responsive‘ style=’width:100%‘ ><!– Could not decode json –>

Offshore gas seen as game changer in Israel-Turkey relations

The relations between Turkey and Israel have been marred since diplomatic relations broke down six years ago, after Israeli forces raided a Turkish ship bound for Gaza, killing 10 Turkish activists. But huge offshore gas discoveries in the Israeli and Cypriot economic zone have become a game changer.

EurActiv.com

Last year Gazprom pursued another pipeline scheme – the Interconnector Turkey Greece Italy (ITGI) Poseidon, first backed by the EU as an alternative to Russian imports – for its own use.

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Gazprom revives ‚Poseidon‘ Adriatic link

Gazprom has revived a project that would see an offshore pipeline built to bring Russian gas from Greece to Italy. The new project is named “Poseidon”.

EurActiv.com

“In the geopolitical game around Turkey and the EU, Russia is trying to keep all its options open,” said Kirsten Westphal of the SWP Foundation in Berlin. “That is clever … because it makes it hard for others to take decisions on projects.”

Regional instability has already chipped away at the bloc’s grand plan of pooling gas from Azerbaijan, Kurdistan, Iraq and Iran into a huge 100 bcm/year delivery system.

While BP says additional volumes from Shah Deniz II could be pumped into an expanded TAP, analysts are sceptical as domestic gas demand soars and oldfields fail.

But Azerbaijan’s state firm SOCAR, whose gas is contracted for TAP, dismissed concerns Shah Deniz could run dry.

<img src=’http://www.euractiv.com/wp-content/uploads/sites/2/2016/09/Absheron-and-Shah-Deniz-gas-fields.jpg&#8216; class=’img-responsive‘ style=’width:100%‘ ><!– Could not decode json –>

New discoveries improve the Southern Gas Corridor’s prospects

Azerbaijan said natural gas produced in the Absheron offshore gas field in the Caspian Sea could be exported through the Southern Gas Corridor. Until now it was planned that only gas from Shah Deniz 2, another offshore field, would be sent to Europe.

EurActiv.com

“Gazprom is not SOCAR’s rival in TAP,” a source at SOCAR told Reuters, saying half of the pipeline capacity would be reserved for Azeri gas.

Background

<img src=’http://www.euractiv.com/wp-content/uploads/sites/2/2015/03/tap_route_map.jpeg&#8216; class=’img-responsive‘ style=’width:100%‘ />

Russia can use Trans-Adriatic pipeline, Commission confirms

A Commission official confirmed yesterday (5 March) that Gazprom can use the Trans-Adriatic pipeline (TAP) to move gas, if the Russian export monopoly builds the “Turkish Stream” pipeline and brings gas to Greece.

EurActiv

http://www.euractiv.com/section/energy/news/eu-gets-wake-up-call-as-gazprom-eyes-rival-tap-pipeline

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Policy= res publica

Freudenberg-Pilster* Angela Merkel: Die Flüchtlingspolitik-Eine Abfolge

In: Cicero 2015-2017.

****************************************************************************************************************** Politics: From Vision to Action

Barandat* Defense Secretary Mattis issues new ultimatum to NATO allies on defense spending

U.S. Defense Secretary Jim Mattis says the NATO military alliance is central to ties between America and Europe and remains of importance to the United States. Mattis says that NATO is a ‚fundamental bedrock‘ of transatlantic ties (Reuters)

BRUSSELS — Defense Secretary Jim Mattis issued an ultimatum Wednesday to allies in the North Atlantic Treaty Organization, warning that if they do not boost their defense spending to goals set by the alliance, the United States may alter its relationship with them.

“I owe it to you all to give you clarity on the political reality in the United States and to state the fair demand from my country’s people in concrete terms,” Mattis said. “America will meet its responsibilities, but if your nations do not want to see America moderate its commitment to the alliance, each of your capitals needs to show its support for our common defense.”

The statements came during a closed-doors meeting with defense ministers from other NATO countries and were provided to reporters traveling with the defense secretary to Brussels. It marks an escalation in Washington’s long-running frustration that many NATO countries do not spend at least 2 percent of their gross domestic product as they have pledged. President Trump often made that point during his upstart run for the White House, at various times calling the alliance “obsolete” while grousing that its 28 members need to pay “their fair share.”

Mattis, a retired Marine general, recalled Wednesday that when he was NATO’s supreme allied commander of transformation from November 2007 to September 2009, he watched as then-Defense Secretary Robert Gates warned NATO nations that Congress and the American people “would lose their patience for carrying a disproportionate burden” of the defense of allies.

That impatience, Mattis said, is now a “governmental reality.”

“No longer can the American taxpayer carry a disproportionate share of the defense of Western values,” Mattis said. “Americans cannot care more for your children’s security than you do. Disregard for military readiness demonstrates a lack of respect for ourselves, for the alliance and for the freedoms we inherited, which are now clearly threatened.”

https://www.washingtonpost.com/news/checkpoint/wp/2017/02/15/mattis-trumps-defense-secretary-issues-ultimatum-to-nato-allies-on-defense-spending/?utm_term=.1765398c7c3b&wpisrc=nl_check&wpmm=1

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– Trump Puts NATO Allies in the Crosshairs Over Military Spending

Germany, long criticized by U.S. administrations as a reluctant warrior, starts to ramp up its defense budget

U.S. Army personnel on Monday unload equipment at an air base in Romania as part of a response to Russia’s actions in Ukraine. This week top officials attend a meeting of the North Atlantic Treaty Organization in Brussels and a security conference in Munich.

By

Julian E. Barnes in Brussels and Anton Troianovski in Berlin

Last month, Germany began deploying an army battle group to Lithuania, the first of the North Atlantic Treaty Organization troops to arrive to bolster the defenses on the alliance’s eastern border with Russia.

It isn’t an overwhelming display of force. The initial German contingent is 460 troops, supplemented by a few hundred soldiers from Belgium, the Netherlands, Luxembourg and Norway.

Some current and former American officials derided the unit as a “Frankenbattalion,” calling it an example of Germany’s failure to shoulder its fair share of the NATO burden. While Germany defended its plan and the U.S. has dropped its official complaints, it illustrates the tensions coursing through the alliance as the Trump administration prepares to push Europe for more defense spending.

“We have been complaining since 1949 that European allies aren’t doing enough,” said Jim Townsend, who served in the Pentagon during the Obama administration. “But for Germany it has been particularly problematic in the last 10 years.”

NATO is at a crossroads. Having helped keep the peace in Europe for more than 70 years, the 28-nation alliance is being sharply challenged by Russian aggression in Ukraine, and by President Donald Trump, who has called the organization obsolete and argued it should focus on counterterrorism.

This week, top officials from the new U.S. administration come to Europe for a NATO meeting in Brussels and a security conference in Munich where questions of the group’s missions and finances will be on sharp display. How member countries resolve their differences will go a long way toward determining NATO’s future and usefulness.

Mr. Trump has signaled he will put new muscle behind America’s long-standing demand that Europe spend more on defense. “We only ask that all of the NATO members make their full and proper financial contributions to the NATO Alliance, which many of them have not been doing,” Mr. Trump said in a speech last week at MacDill Air Force Base in Tampa.

On Tuesday, NATO Secretary-General Jens Stoltenberg announced that NATO allies in Europe and Canada raised their defense spending by $10 billion last year, a 3.8% increase that is bigger than allied officials initially expected.

The U.S. spends $664 billion annually on its military, or 3.61% of GDP, tops in both categories of any NATO country. Spending by other NATO members ranges from nothing, by Iceland, to $60.3 billion by the U.K.

Germany, the economic powerhouse of Europe, spends around $40 billion, or 1.2% of its gross domestic product, on defense. The U.S. has been pushing for Germany to hit 2% of its GDP on defense spending for more than a decade.

German soldiers arrive in Karmelava, Lithuania, on Feb. 1, part of a NATO mission to bolster the defensive capabilities of the three Baltic states.

More recently, Chancellor Angela Merkel has been trying to push her pacifist-minded country to close the gap. In November, the German Parliament made the biggest increase in military spending in more than a decade, raising the defense budget 8% to €37 billion ($39 billion), and German government officials say they will push for more increases in the coming years. Alliance officials note if Germany was to meet NATO’s 2% of GDP goal, it would require tens of billions of dollars in extra spending each year.

Administration officials, including Vice President Mike Pence and Defense Secretary Jim Mattis, will come to Europe this week to deliver a message of reassurance, but also to note that defense spending must rise.

German Defense Minister Ursula von der Leyen—perhaps the German politician most supportive of increased military spending—visited Washington on Friday to detail her country’s defense work and called demands for a larger defense budget appropriate.

“It’s a fair demand,” she said during her trip to Washington. “If we want to jointly master the crises in the world, namely the fight against terrorism, and also put the alliance on solid footing, then everyone has to pay their share.”

Some German policy makers say the U.S. appears to be overly focused on the 2% number, given Germany’s engagement on the ground from Afghanistan and Iraq to Mali and Kosovo.

U.S. officials said they aren’t worried about spending for spending’s sake but see a real military gap—in personnel and materiel.

Core to Europe’s defense is the U.S. contribution. The U.S. has 35,000 military personnel in Europe, mostly in Germany, including two Army infantry brigades. The U.S. has bolstered its force with a heavy tank brigade with 3,500 troops and 87 tanks. It also maintains tanks and artillery at sites around western Europe.

That said, NATO plans for the defense of Europe rely heavily on Germany, which will be required to have six heavy infantry brigades ready to reinforce Poland or the Baltic states in the event of a conflict with Russia, according to Western officials briefed on requirements. NATO is pressing for more tanks, long-range artillery, ground-based air defense systems, aerial refueling planes and other equipment from Germany, officials said.

Some German lawmakers have questioned if the alliance is mistakenly preparing for yesterday’s battles.

“I do believe that we need to do more in terms of equipment for the army,” said Rainer Arnold, the top defense-policy expert in parliament for the center-left Social Democrats. “But we must be careful about believing that Europe will be defended in a great tank battle—that doesn’t conform with today’s military technology.”

Mr. Arnold said the 2% goal is “a utopia,” because Germany would struggle to spend such a large sum, and many of its neighbors would react warily if Berlin dramatically increased defense spending.

NATO officials say the new requirements are a necessary calibration to respond to the threat from Russia. Alliance officials say they are making investments in drones and cyberdefenses, but the Russian military buildup must be immediately countered with the kind of heavy military equipment that will ensure Moscow realizes any incursion would ultimately fail.

To a certain extent, all of NATO’s European allies have been caught by surprise as the threat has moved from counterinsurgency and low-intensity combat to preparing to defend against Russia. For years NATO urged European allies to tailor their forces to the kind of peacekeeping missions they were conducting in Kosovo or the kind of fighting and training missions they conducted in Afghanistan.

Germany had more than 2,000 Leopard 2 battle tanks in its arsenal during the Cold War and 800,000 military and civilian personnel in its armed forces after the Berlin Wall came down. Successive rounds of cuts whittled the military down to 177,000 service members, a maximum of 56,000 civilians, and a goal of just 225 Leopard 2 tanks.

NATO pushed European countries to model their forces on the British, de-emphasizing tanks and focusing on light deployable forces. Now the alliance has shifted gears demanding the country once more build up its heavy forces. Germany has already started to follow suit, moving last year to add thousands of new military positions and refurbish scores of decommissioned tanks.

The U.S. military’s focus on Germany as the potential game-changer is in part because of the size of its economy, but it is also because of the quality of its equipment.

U.S. military officers often speak with unhidden jealousy about German Panzerhaubitze 2000, viewed as perhaps the most advanced artillery system of its kind.

The problem: Germany has only about 90 of the artillery in service, having sold off 16 to Croatia and 21 to Lithuania. According to U.S. officials, German troops must share large artillery pieces for training, because they don’t have enough to go around.

German officials said artillery pieces are sometimes unavailable because of maintenance needs and that the military is now expanding its stock, with 12 new Panzerhaubitze 2000s slated to be delivered this year.

The U.S., by contrast has 5,923 artillery pieces, including 969 of its most advanced system, according to the International Institute for Strategic Studies. This year the U.S. will be moving a part of that arsenal, a brigade worth of artillery, to storage bunkers in Europe.

U.S. Secretary of Defense Jim Mattis, right, escorts German Defence Minister Ursula von der Leyen prior to their bilateral meeting at the Pentagon Feb. 10.

The small number of troops deployed to Lithuania raised questions among some U.S. officials about whether the German military is large enough.

Lithuanian officials said they aren’t worried and pointed to the swiftness of the German deployment, which arrived ahead of the British and Canadian forces headed to Estonia and Latvia.

German officials argue a multinational battalion is a better deterrent: Russia would know it would cross not one ally but many if it made a move in Lithuania. Allied ambassadors backed the German plans, and the U.S. stopped pushing the issue, saying it was settled.

Officials are hoping for a change in Germany’s pacific public attitude about military action, shaped by the shadow of World War II. Polls show growing concern about Germany’s security in the wake of the Ukraine crisis and high-profile terror attacks. The German military’s Center for Military History and Social Science found half of Germans in a poll last year wanted the defense budget to be increased, compared with just 19% in 2013.

In November, the German military premiered a $7 million, 82-episode reality show on YouTube called “The Recruits,” which follows the exploits of a group of 12 trainees as they navigate basic training on the Parow Naval base on the Baltic Sea.

Members of the Bundeswehr, the German armed forces, prepare to ship a recovery tank, used to move other tanks that have broken down, to Lithuania.

The slickly produced show doesn’t obscure the challenge for Germany. In one episode, Petty Officer Second Class Carl Scholwin, who has spent 10 years in the military, laments that service members in his country “don’t get the recognition that they really should get.”

Asked later by The Journal about what it is like to return from a mission abroad, he said: “In Germany, you get left by the roadside. You’re not really noticed.”

https://www.wsj.com/articles/trump-puts-nato-allies-in-the-crosshairs-over-military-spending-1487088613

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Middle East

President Trump said he “can live with” a one-state solution to the Israeli-Palestinian conflict, bucking decades of U.S. policy

Wednesday, February 15, 2017 1:02 PM EST

Mr. Trump said the United States would no longer insist on a Palestinian state as part of a peace accord, backing away from a policy that has underpinned America’s role in Middle East peacemaking since the Clinton administration.
“I’m looking at two states and one state,” Mr. Trump said, appearing in a joint news conference at the White House with Prime Minister Benjamin Netanyahu of Israel. “I like the one that both parties like. I can live with either one.”

https://www.nytimes.com/2017/02/15/world/middleeast/benjamin-netanyahu-israel-trump.html?emc=edit_na_20170215&nl=breaking-news&nlid=42724716&ref=cta&_r=0

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*Massenbach’s Recommendation*

A Storm Is Brewing Over Europe

STRATFOR: Geopolitical Weekly

February 14, 2017

By Adriano Bosoni

Storm clouds are once again gathering above the eurozone. In coming months, its continuity will be threatened by events in Europe and the United States. Germany, the largest political and economic player in Europe, will try to keep the bloc together.

But the crisis could be too big for Berlin to handle, especially since some of the actors involved see Germany as a part of the problem rather than the solution.

U.S. President Donald Trump recently described the European Union as "a vehicle for Germany." He and members of his administration argue that Germany’s industry has benefited significantly since the introduction of the euro in the early 2000s. The boon to Germany, the argument goes, is that the common European currency is weaker than the deutsche mark would be; the result is more competitive German exports. Trump was not the first U.S. president to criticize Germany’s trade surplus, the biggest in the world. But he was the first to suggest the United States could take countermeasures against German exports.

Some of Germany’s own eurozone partners have also accused the country of exporting too much and importing too little, a situation that leads to low unemployment in Germany and to high unemployment elsewhere in the currency area. Their charges, however, do not focus on the value of the euro (which is set by the European Central Bank) but on Berlin’s tight fiscal policies, which restrict domestic consumption and limit Germans‘ appetite for imports. The European Commission and the International Monetary Fund have asked Germany to increase investment in public infrastructure and raise the wages of German workers.

Addressing the German Question

Indeed, the European Union is a vehicle for Germany, but for reasons that go well beyond trade. Many of Europe’s current political and economic structures were designed to resolve the question of Germany’s role in Europe. Situated at the center of the North European Plain, the largest mountain-free territory in Europe, Germany has no clear borders. This means that its neighbors in the east and the west can easily invade, a fact that has traditionally given German leaders a sense of constant insecurity.

In addition, before the country’s unification in the 1870s, the Germans had little in common other than language. Their location at the heart of trade routes in Central Europe and their access to many navigable rivers allowed the Germans to develop multiple economic centers. The Holy Roman Empire, which ruled over German lands, lasted for 10 centuries precisely because the emperor had limited influence on the affairs of the hundreds of political entities that made up the empire. Seeing a strong, united Germany in the 21st century makes it easier to forget that the country has traditionally had strong regional identities and powerful centrifugal tendencies that worked against national unity.

Germany’s Geographic Challenge

Between the mid-19th and the mid-20th centuries, German leaders sought to solve the country’s geopolitical challenges through war, with disastrous consequences for Germany and for the rest of Europe. After World War II, Germany built a federal system where wealth is distributed between states, under the supervision of the federal government. This was coupled with a corporatist economic model that incorporates the economic elites into the leadership structure and strong social safety nets that prevent social upheaval. This entire social-political structure relies on an economic model that is heavily dependent on exports.

To a large extent, the European institutions were imposed on Germany. A weak and occupied West Germany saw membership in the European Economic Community (the European Union’s predecessor) as a way to peacefully return to the international community after two world wars. The political and economic integration of Western Europe was actually a French idea encouraged by a great deal of U.S. pressure. After Germany’s reunification in 1990, the creation of the eurozone followed a similar pattern. Paris saw the introduction of a common currency as a way to bind France and Germany so close together that another war between them would be impossible. At the time, the idea of another Franco-German war did not seem as far-fetched as it does now, and to a large extent losing the deutsche mark was the price that Germany had to pay for reunification.

Solving Problems and Creating New Ones

Europe’s economic and political integration enabled Germany to achieve some of its main geopolitical goals. It reduced the likelihood of another war on the North European Plain by creating a co-leadership of the Continent with France. Even after the French economy started to show signs of decay, Berlin made sure to keep Paris involved in continental decision-making. European integration also opened markets from Portugal to Romania, and from Finland to Cyprus, for German exports. All of this was possible while Germany’s membership in NATO kept Berlin’s defense expenditures modest.

But the euro’s arrival deprived some of Germany’s main trade partners of the ability to devalue their currencies to compete against their neighbor in the north. At the time the bargain seemed fair, since countries in Mediterranean Europe were suddenly able to issue debt at Northern European interest rates, which they did enthusiastically. Access to cheap debt made many countries in the eurozone delay the introduction of structural reforms in their increasingly less competitive economies.

The euro may not have been a German idea, but Berlin made sure that it did not threaten its interests. The European Central Bank was modeled after the Bundesbank, with its mission of low inflation (a German obsession after the hyperinflationary 1930s) and with no explicit mandate to foster economic growth. The eurozone was created as a monetary union without a fiscal union. No mechanisms to transfer resources from Europe’s wealthy north to its relatively poorer south, or to share risk among their financial sectors, were introduced. To accept greater risk sharing, countries in the north require their southern partners to completely surrender their fiscal policies to technocrats in Brussels. This is something that countries like Greece could be pressured to accept but that is unacceptable for countries such as France or Italy.

A Perfect Storm in the Making

These shortcomings became apparent during the past decade. Europe’s economic crisis, and the austerity measures that followed it, led to the emergence of nationalist, populist and anti-establishment political forces across the Continent. Some are critical of the European Union, while others want to get rid of the eurozone. The economic decline of France and Italy left Germany without reliable partners to redesign either one of them.

Every year of the past decade has been a test of the eurozone’s resilience, but 2017 could be the year when the bloc’s very survival in endangered. France will hold presidential elections in two rounds in April and May. Opinion polls say the National Front party, which has promised to hold a referendum on France’s membership in the eurozone, should win the first round but be defeated in the second. The Brexit referendum and the U.S. presidential election, however, have shown that polls sometimes fail to detect the deep social tendencies driving populist movements.

Moreover, a recent scandal involving France’s main conservative presidential candidate, Francois Fillon, has damaged his image. Should the center-right fail to reach the second round of the elections, millions of conservative votes will be up for grabs. Some would probably migrate to centrist parties, attracted by their promise of economic reform. But many would go to the far right, seduced by proposals to increase security, impose tougher rules on immigration and restore France’s national sovereignty. A win by the far-right candidate — a direct threat to the eurozone’s survival — cannot be ruled out.

In Italy, things are even more complex, as two of the three most popular political parties want to leave the eurozone. Italian lawmakers are using the need to reform the country’s electoral law as a pretext to delay elections. But even if Parliament ends its mandate in early 2018, Italy’s threat to the eurozone will be delayed rather than averted. Unlike France, where the two-round electoral system was designed to prevent extremist parties from reaching power, Italy’s proportional system means that Euroskeptic forces stand a real chance of entering the government. And no matter the outcome of the election, Italy’s massive public debt (which, at roughly 130 percent of GDP, is the second-highest ratio in the eurozone after Greece) will remain a ticking bomb for the currency area.

The mere announcement of a referendum on eurozone membership in France or Italy could be enough to precipitate the collapse of the currency area. A run on Southern European banks could happen before the referendum even took place if people feared that their savings could be converted into national currencies. People in countries such as Italy, Spain or Portugal could transfer their savings to havens in Northern Europe, hoping to be given German marks instead of Italian lira, Spanish pesetas or Portuguese escudos.

To make things more complicated, the Greek saga is not over. Greece’s creditors are debating whether the terms of the bailout program are realistic and whether Athens should be granted debt relief. Ten years into the Greek crisis and three international rescue programs later, Athens remains a danger for the eurozone. The main concern is not Greece’s debt per se, because most of Athens‘ debt is in the hands of institutional creditors such as the IMF, the ECB and the European Union’s bailout funds, which means that a Greek default can be contained. The problem is that a Greek exit from the eurozone could lead to a contagion effect that could hurt the likes of Italy, Spain or Portugal. Some have argued that the eurozone would actually be stronger without Greece in it, but the price of finding out whether that’s true could be too high.

Should France or Italy be taken over by Euroskeptic forces, or should Greece precipitate yet another crisis in the eurozone, Germany’s instinctive reaction would be to seek accommodation with its partners in the currency area to protect the status quo. But depending on the magnitude of the crisis, officials in Berlin could be forced to make preparations for a post-eurozone world. This could involve returning to the deutsche mark or, as some German economists have proposed, creating some kind of "northern eurozone" with the likes of Austria and the Netherlands.

But a strategy that makes sense from a financial point of view could be risky from a geopolitical perspective, since any moves to distance Germany from France hide the germ of a future conflict between the two. No matter what Berlin does, it has to ensure that political ties with Paris remain as strong as possible. Germany holds general elections in September, and events in the previous six months would have a direct impact on the electoral strategies of the main political parties.

A Fragile Eurozone

The threats to the eurozone would be easier for Germany to tolerate if things were quiet in the United States. But Trump’s protectionist rhetoric is encouraging nationalist forces in Europe. France’s National Front leader, Marine Le Pen, has even bragged that the U.S. president is actually copying proposals she made five years ago.

The coming storm in the eurozone does not necessarily have to destroy it. The U.S. government could decide to avoid a trade war with its allies in Europe. Moderate forces could win the general elections in France and Italy, and Greece and its creditors could find yet another last-minute agreement. But the fact that the eurozone has reached a point where the entire system can collapse because of an election, a bailout negotiation or measures taken by a foreign government speaks volumes of its fragility.

Even if the doomsday scenario is averted in 2017, the relief may last only until the next election. In Europe, as in the United States, there are millions of voters who feel that the alleged benefits of globalization have not reached them, and who believe that their economic problems could be solved by putting an end to the free movement of people, goods and services — the very principles upon which European integration was built.

The rhetoric from the U.S. government and the rise of nationalist forces in Europe pose a fundamental threat for an export-dependent economy like Germany’s. They also threaten the continuity not only of the eurozone but, depending on how events unfold, also of many of the political and economic strictures that Europe built after the war. The supranational eurozone is a half-built house in a neighborhood where national sovereignty has been eroded but not completely erased. The irreconcilability of this dilemma could take the currency bloc from its current fragmentation to outright dissolution.

https://www.stratfor.com/weekly/storm-brewing-over-europe?id=be1ddd5371&uuid=1aa7c174-1924-4e85-bbae-b6e9d689de4c

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At last: IISS

Russia and China: A New Model of Great-Power Relations

Survival February–March 2017 … Moscow has found itself in the position of demandeur visà-vis Beijing, creating an increasingly imbalanced bilateral relationship … managing their bilateral relations effectively; they take a pragmatic, behind the scenes approach to resolving disputes and publicly stress the positive elements in the relationship. These ‘relationship management’ efforts have helped to mitigate the potential tensions created by Russia’s relatively weaker position post-2014, leading China not to abuse its stronger position …

There are limits to the Russia–China relationship, however. China will not make Russia the centrepiece of its foreign policy, which is increasingly global and multidimensional. Furthermore, the relationship with the US will remain far more central to China’s global and regional interests, both strategic and economic. While historic Russian mistrust of China has abated in recent years, elites in Moscow prize their foreign-policy independence and thus continue to search for additional partners in the Asia-Pacific, including some of China’s regional rivals. Ultimately, both countries’ leaders are unsentimental pragmatists, and when their strategic calculus differs, there are limits to how far they will go to sacrifice for the other …

2014, however, were a watershed moment for Russian foreign policy … the Ukraine crisis stripped Russian policymakers of alternatives to getting closer to Beijing. Russia’s China policy is no longer about reconciling with an important neighbour; instead, China is now Moscow’s only viable strategic option …

Current trend lines are pointing toward a much closer, albeit highly unbalanced, Russia–China relationship. Russia is much more enthusiastic about ties with China and has significantly less freedom of manoeuvre than before; China is sympathetic and interested in cooperation but has no intention of making Russia the focal point of its foreign policy …

Russia is a peripheral market … This asymmetry – and Russia’s unmet expectations – could create challenges for the relationship … gas relationship between Russia and China necessarily has strategic implications, its significance to the two sides is fundamentally different.

The Russian government would like it to be understood as a key strategic bond between the two countries … For China, the gas relationship with Russia is much more mundane. China does not ‘need’ Russian gas … and is under no pressure … Therefore, the gas relationship does not provide balance to an otherwise asymmetrical relationship; it is an element of the broader asymmetry. Russia needs to export the gas much more than China needs to import it …

The emerging cooperation between the Belt and Road Initiative (BRI) and the Eurasian Economic Union (EEU) is also indicative of the new Russia–China modus operandi … Moscow was initially cautious in its reaction to the BRI, worrying about the implications for Russian interests and about potential encroachment from a country that has far more to offer economically to the five post-Soviet Central Asian countries …

China could have tried to implement the BRI in EEU member states on a purely bilateral basis. Instead, Beijing agreed to a significant political gesture, first proposed by Moscow, during а presidential summit in May 2015: a joint statement agreeing to ‘join up’ the BRI and the EEU. In the statement, Russia declared its support for the BRI, while China did the same for the EEU. Moscow made this proposal for three reasons. Firstly, it recognised its own relative economic weakness. Russia simply cannot build the kind of infrastructure projects on the scale that China is planning as part of the BRI. Nor can it match the foreign direct investment that China seems prepared to offer to Russia’s neighbours. Russia itself would like to benefit from BRI projects on Russian territory. As a result, bandwagoning became a logical choice. Secondly, Russia has decided that the strategic complementarity of the two countries’ political regimes and foreign policies outweigh any concerns about Chinese involvement in post-Soviet Eurasia. China eschews direct involvement in the politics of the region, and China and Russia share threat perceptions about ‘colour revolutions’, that is, alleged Western attempts at fomenting popular revolt in order to install more pliable governments. China (unlike the West, in Russia’s view) would never attempt to overthrow sitting governments or pursue a democratisation agenda.

China also has no intention of challenging Russia’s role as the primary security provider in post-Soviet Eurasia. Finally, Russia views the potential of economic development spurred by the BRI as beneficial to regional stability in Central Asia, where economic privation has contributed to popular unrest in the past …

EEU member states also agreed to begin negotiating an agreement on a trade- and economic-cooperation framework with … the Shanghai Cooperation Organisation. … Russia and China have learned to manage their relationship effectively … today’s Russian and Chinese leaders do not seek to export their political systems. They are ‘anti-revolutionary’ in that they oppose (some imagined, some real) Western efforts to foment revolution in those countries where governing elites are opposed to Western policies … they released a Joint Declaration on Promotion and Principles of International Law in June 2016, which stated that they support ‘the principle of non-intervention in the internal or external affairs of States, and condemn as a violation of this principle any interference by States in the internal affairs of other States with the aim of forging change of legitimate governments’. Additionally, the two countries promote norms, particularly on cyber issues and human rights, which reinforce internal control and limit external oversight or capacity to influence events across borders …

Russia and China will not form some sort of ‘authoritarian International’ to spread an alternative political model or block all Western projects. On issues where either country shares interests with the West, it has and will continue to cooperate. And neither country wants the other to have direct influence over its ties with other important partners, including the US. China sees the US as both necessary for its economic development (far more important than Russia) and the only potential adversary that poses an existential threat …

http://scharap.fastmail.net/public/Russia%20and%20China-Survival.pdf

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see our letter on: http://www.massenbach-world.de/41259.html

*Herausgegeben von Udo von Massenbach, Bärbel Freudenberg-Pilster, Joerg Barandat*

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UdovonMassenbachMailJoergBarandat

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