Neighbouring Giants Edge Closer

Uncle Volodya says, “The European Union encourages contributions from the rich and votes from the poor under the pretense that it is protecting them from each other.”

The world is closing in;
did you ever think
that we could be so close
like brothers?
The future’s in the air,
I can feel it everywhere;
blowing with the wind
of change…

Although German metal band The Scorpions’ “Wind of Change” burst on the rock music scene in 1991, and endures today as Germany’s 10th-best-selling single of all time, it was actually written in 1989 by Klaus Meine, the band’s vocalist. The band was visiting Moscow, and the song was written as a celebration of glasnost, and the end of the Cold War. Tensions eased, and Germany and Russia were friends.

What happened?

The still-not-over Cypriot banking crisis and attendant bailout showed a different side of Germany, as German Finance Minister Wolfgang Schäuble peevishly insisted depositors bear a share of bailing out the failed banks, Frau Merkel dug in for a tough reelection fight in which bailing out wealthy Russians would be a non-starter, and many of the European Union’s leaders chortled that nobody would get hurt but Russian gangsters, money launderers and crooks. Prior to the implementation of what became known as “The Cyprus Haircut”, officials pretended that a levy of bank depositors was not even on the table. They then used a bank-holiday weekend to strike, without discussing it with Russia at all, while analysts claimed Russia did not intervene because it was too weak.

That narrative seemed to sit well with most of the EU, and popular newspapers such as The Guardian regularly vilify Russia in terms of undisguised loathing. Star turns like Luke Harding and Miriam Elder vie for the title of champion liar, while dissidents both within Russia and without are praised as heroes and misunderstood political geniuses. Favourites like Lev Ponomarev and Lyudmilla Alekseeva can always be relied on for a comment that simultaneously spits at Russia’s feet while longingly crooning a love song to western democracies, and there is a tremendous shopping list of political think-tanks and human-rights organizations – all chattering away while supposedly gasping for breath under the thumb of crackdown-King Putin – in Moscow which will gladly sell out its own government in return for a pat on the head from the regime-changers.

The EU and IMF spent €67.5 Billion to bail out Ireland. Your friend and mine, Wolfgang Schäuble, did argue that Germany hoped this money would not be used to recapitalize the banks, but of course it was and nobody made too much of a fuss. How much Irish bank funding actually came from the Eurozone? About 2%; the rest came from the USA, Britain and offshores: in fact, it was mostly the USA’s subprime meltdown that sent the Irish banks into insolvency. Greece got €110 Billion out of the Eurozone, which it promptly wasted. With moist eyes and spread hands, shamefaced, Greece went back for a second bailout, and got it – another €130 Billion. €78 Billion in rescue loans for Portugal. Up to €100 Billion promised to Spain, directly to the banks. And yet Cyprus’s economy was wrecked and it was destroyed as a tax haven, probably forever, over €17 Billion. Why?

Because it was Russia’s tax haven.

In the USA, the reprehensible Magnitsky Act was passed, allowing Russian officials to be placed on a secret list which would then bar them from entering the USA and render any property they own in the USA susceptible to confiscation by the U.S. government. It was attached to the trade bill which abolished the Jackson-Vanik Amendment, which was timely indeed, since the USA would have had to drop the Jackson-Vanik Amendment anyway, under WTO rules. All WTO members must grant all other WTO members Permanent Normal Trade Relations (PNTR), and had the USA kept the Jackson-Vanik Amendment in place, Russia could have used it to apply preferential tariffs on U.S. goods which would have placed American businesses at a disadvantage. But the imperative to retain a stick with which to flog Russia was not to be denied. Russian opposition figures exulted, and promptly began to draw up their own lists of Russian officials in order to lobby U.S. Congresspersons for their inclusion on the Magnitsky List. The passing of the act was met swiftly with bans on importation of American meats, and a law which forbade the adoption of Russian orphans by Americans.

Shortly thereafter, Russian adoptee Maksim Kuzmin (Max Alan Shatto, in the USA) died in the custody of his adoptive parents, Laura and Alan Shatto of Gardendale, Texas. Russian officials were kept at arms-length, and the documentation was not shared with them despite requests for it. They were not allowed to see any of the investigative reports. Russian Children’s Rights Commissioner Pavel Astakhov told reporters the child appeared to have been beaten and that his parents had given him a powerful drug normally prescribed for schizophrenics, and was immediately and loudly denounced as a liar, a buffoon and a lunatic. The injuries on the child’s body were determined by the medical examiner to be just playground scrapes, said American media. It’s easy to say whatever you like when the autopsy report is kept under wraps. However, a few days ago an American paper obtained it under a Freedom of Information application, and released it. Lo and behold, the child’s body was covered with bruises, in some cases bruises on top of older bruises, his rectum was reported to be abnormal in appearance and apparently torn, and he had been prescribed the drug Risperdal, a neuroleptic frequently prescribed for schizophrenia, in a dosage twice what would be appropriate for a teenager between 13 and 17. There was no indication in the reports that the pathologists had found the injuries consistent with self-injury due to a mental condition, but that they had made that diagnosis based on “family history”, meaning that that’s what the parents said. The location of the body beside a swing and slide play set was underlined for emphasis – easy explanation, another unfortunate playground accident; case closed. Meanwhile, the death of Boris Berezovsky in his bathroom, locked from the inside, following the wiping-out of his fortune and the catastrophic loss of a major court case he plainly expected to win inspires a detailed inquest (thanks, Kirill) and no end of slobbering and dark hints in the British press about the likelihood of FSB participation in his demise. No lack of suspicion there – sometimes the British press is like splitting your pants at a party, they’re so embarrassing.

The winds of change appear to offer no promise in that direction, and there are indications Russia realizes it and is resolved to waste no more time upon it.

Newly-minted Chinese President Xi Jinping just wrapped up a visit to Russia – his first visit to any country as head of state (thanks to Ken McCauley for the links and the idea, and to Robert, who came up with it almost simultaneously). China has agreed to buy 24 Sukhoi SU-35 fighter jets and 4 Lada Class submarines, China’s biggest defense buy from Russia in a decade.

But there was more, much more. A gas deal that could see China become the single largest importer of Russian gas. An agreement to double oil supplies from Russia as well as handing China’s state oil company a stake in Russia’s oil fields. There was some talk that Russia objected to the deal based on China’s contempt for intellectual property, but in fact Russia and China just concluded a Memorandum of Understanding on patent prosecution and intellectual property in 2012 which suggests greater trust between the two since China was caught copying Russian fighter technology it had purchased from Ukraine. This in turn suggests China is maturing as a trading partner and gaining an understanding of how such relationships work, and while I daresay “China first” is still the official policy, is beginning to grasp that even such a juggernaut cannot stand long without allies.

What might this mean?

In 2011, Russian gas exports demonstrated that its biggest customers by far were Germany (at over 30 Billion Cubic Meters, Bcm) and Ukraine (at over 40 Bcm). Ukraine, of course, sells gas forward to Europe, chiefly Austria, the Czech Republic, Italy, Germany and southeastern European countries, which accounts for about 21% of the 150 Bcm Russia supplied Europe in 2010.

China’s appetite could start out absorbing almost a quarter of that amount, and eventually reach almost half, at 60 Bcm annually. Although of course Russia would continue to sell to Europe if it wanted to buy, any haughty noises about not wanting to buy from Russia because of its human-rights abuses or its crackdowns on opposition, or any of the little pet memes the European Union likes to peddle regularly to make itself feel morally superior might be met with a shrug and an “OK; see you around, then”, followed by a diversion of the allegedly-unwanted share to China and other Asian markets. I sincerely hope the EU would posture at that point and gibber about shale gas from Poland making up the difference, I would just love to hear that, because shale gas is another bubble that gas-independence talkers like to hope will float them away to la-la land. Dream on. Normally I am not so vituperative toward the EU, but they really annoyed me with that Cyprus thing.

The visit of the Chinese president was punctuated with Chinese military exercises in the South China Sea, involving some of its newest warships, while Russia staged a rapid-reaction exercise in the Black Sea, ordered by its president as he flew home from a BRICS summit in South Africa; the latter exercise is reported to have involved 30 navy ships and hundreds of armored vehicles. For its part, the BRICS summit reaffirmed the solid partnership that exists between countries that together are driving 50% of the world’s economic growth according to the World Bank, and accounts for 45% of the world’s workforce. The partnership strives for a multipolar world rather than the U.S. vision of a unipolar global order led by the “last remaining superpower”. This year, talks focused on a BRICS development bank which would offer an alternative to the IMF and World Bank, and more trade in local currencies to circumvent the Euro and the Dollar.

Closer strategic ties between China and Russia spell bad news for the western alliance, somewhere down the road. And it didn’t have to be that way. Russia has offered its hand to the west more than once, and had it made known in no uncertain terms that it would never, never be accepted as an equal partner. At best, it might make the status of trusted lackey, provided it continued to reform itself in accordance with western ideation and to “choose” its leaders according to western diktat. It would have to develop a thick hide in order not to become aggrieved by the limitless scorn poured upon it for its “slow progress”, and to say “Yup, yup, I’m a failure” at every juncture so as to cater to the western personal image of infinite superiority and rightness. In short, it could forget about national pride, and learn that when visiting western countries it would be advisable, if asked the origin of the accent, to pretend to be Polish or Czech or something not so permanently tainted as Russian. You don’t have to take my word for it; on the average day, you can find enough examples in The Guardian without even looking any further; despite its loathsome Russophobia and smirking superiority, it is widely read, it’s funny how often that happens.

Regretfully, I think, Russia is drawing away, cutting its ties and abandoning its aspirations for the west’s friendship. Mr. Putin described the Chinese president’s visit as boding “long-term, historic results”. I believe effort will be redoubled to that cause, and that Russia – officially, at least – has decided its future lies with Asia and the BRICS rather than the west.

Don’t say you weren’t warned.