Issue 26

THE BRETON/GEROL NEWSLETTER

HAPPY NEW YEAR TO OUR LOYAL READERS!

LONELINESS AT THE TOP, TRUMP’S SOLITUDE

One day, as the good old fable goes, right before the New Year, the King realizes that he is alone at the Palace. In some way this story reminds one of the situation in the White House. One resignation follows another and only the famous (or notorious) intuition of the most unusual president in US history continues to amaze the country and the world. Trump's decision to withdraw American troops from Syria angered the Pentagon and Washington allies in Europe and the Middle East. The Justice Department opted to cooperate with the Mueller investigation. The trade war against China started to hurt the US economy. The US government's shutdown showed the President's inability to reach a compromise with Democrats. The ghost of impeachment is back into political vocabulary of Washington. Even the long-awaited visit to US troops in Iraq failed to change anything, but served as a pretext to remind the public that the occupant of the White House managed to avoid military service on doubtful grounds.

It looks that some old fairy tales are more real than one would like them to be.

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SANCTIONS, WHAT FOR?

Economic and financial sanctions have become a major policy tool, especially since the early 1990's. Usually the sanctions are leveled against countries that are deemed militarily powerful. The US has managed to turn many of these sanctions into international ones by using its influence at the UN Security Council.

The question is: were the sanctions against Moscow effective so far or not? The answer is a simple and emphatic no. The proof is the March 2018 presidential election, as imperfect as it was, which Putin won by a large margin. Putin and the direction he charted for Russia still enjoy widespread popularity in his country (though lately some cracks in his popularity are appearing) and, what is more significant and surprising, in many countries around the world from South America to Hungary. 

Red Square Christmas Scene

NATO analysts are currently debating this very issue. Some within the organization tend to believe that sanctions against Russia are counter-productive. The Russian military under various sanctions managed to significantly upgrade its military, flawlessly complete the demolition of the anti-Assad insurgency and, according to the facts on the ground, have ongoing military and economic superiority in the simmering conflict with unstable and largely ineffective Ukraine.

At the same time Moscow has not given up and is still competing with the West in Africa, Asia, and elsewhere in the Middle East. Russia remains a massive nuclear superpower and according to virtually all military assessments remains solidly Number 2 militarily in the world.

There is also an economic angle. The Russian economy is nothing to write home about, but it is holding its own with 2% annual growth. The targeted sanctions have affected the Russian economy to some extent. The mega deals between Russia and China (as well as between Russia and some of its energy clients like Germany and Turkey) have, however, to some degree compensated for the big losses incurred due to these sanctions. China and Russia signed their $400 billion gas deal in May 2014.

The effect of sanctions also contributes a great deal to the Kremlin's narrative that the West, NATO, especially its Anglo-Saxon block along with historically anti-Russian Poland and Baltic states, keep Russia under siege. The result of this is the ongoing pursuit of self-reliance. It is obvious that Russian national sentiment aligns with Russian government goals. The wrath of the average Russian is largely directed at the West, not at its own government.

As the result Russian agriculture, avionics, military industrial complex and obviously energy conglomerates and many others have done well since the sanctions (and Russian counter sanctions) were introduced.

Obviously the less powerful countries (like Iraq under Saddam Hussein or Serbia in the 1990's, and there are other examples) could be crushed by economic sanctions. Even current day Iran may suffer serious hardships. This is not the case with the Russian Federation. 

The failure of sanctions against Russia underlines not only the West's superficial analysis of the Russian realities, its place in the world and processes that were going on this country for the last 100 years, but also betrays an overly simplistic evaluation of such intricate conflicts as the one in Ukraine, Syria and even Russian attempts to meddle in the US elections.

One more point on why sanctions against Russia are misguided is the problem of inevitable double standards as, for example, Saudi Arabia or China have a basically free ticket to commit ever greater violations of international law and expect no more than a slap on the wrist. Canada is a perfect example. Trade with China and Saudi Arabia continues without interruption even as Canadian diplomats are kidnapped in broad daylight and the horror of the Khashoggi hacksaw massacre and its grizzly details still hang in the air.

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IT IS THE ECONOMY…

The confrontation with Russia over access to the Azov sea ports and the creation of an autocephalous Ukrainian Orthodox Church receive relatively important international media attention. The two issues indeed have major long-term implications. They may not however have the same impact on the upcoming March 2019 Presidential election as a less publicized issue, Ukraine’s need for international financial assistance to make it through 2019.

On December 18th the International Monetary Fund (IMF) approved a 14-month Stand-By Arrangement (SBA) for Ukraine. The arrangement amounts to the equivalent of about US$3.9 billion. The approval of the SBA enables the immediate disbursement of about US$1.4 billion. The remainder will be available upon completion of semi-annual reviews. This follows the November 30th approval by the EU of the disbursement of the first €500 million of the new Macro-Financial Assistance (MFA) programme to Ukraine.

President Poroshenko receiving the President of the European Bank for Reconstruction and Development Suma Chakrabarti
Kyiv, December 17th
©President of Ukraine Website

The above announcements are good news in themselves. The underlying message is, however, not so good. Without international financial assistance and because of relatively high payments that are due in 2019, there was a risk that Ukraine might find itself in a default situation during the course of an election year. The EU and the US could not let that happen. It could be ironic, but is rather sad that Ukraine under Poroshenko receives in 2018 a loan in roughly the same amount as Yanukovych received from Russia at the end of 2013. That 2013 loan allegedly made Yanukovych refuse to sign the proposed agreement with the EU, a move that to a large extent precipitated his downfall.

The funds provided by the IMF also come with a considerable number of strings attached. In short, under the guise of “fiscal consolidation”, the Ukrainian government will have to run a very tight ship. It will understandably also have to continue its commitment to structural reforms. There is no dispute on that. It will, however, also have to stick to the policy of raising gas and heating tariffs. In an electoral year, the incumbent President can only hope that the negative social impact of these last measures, especially on low fixed-income segments of the population, will be felt mostly after Election Day, sometime in March. The further implication is that whoever the next President of Ukraine is, he or she may well be left with a rather difficult financial and social situation with a limited marge de manoeuvre.

After the economic decline of 2014 and 2015, the Ukrainian authorities have managed to restore macro-economic stability and produce some modest growth. Yet the poverty level, though currently decreasing, is still higher than in 2014. Per capita income is still only at approximately 65% of its 2013 maximum and, in October 2018, Ukraine was ranked by the IMF as the poorest country in Europe. The further problem is that there are few signs that Ukraine is on the way to reach the “tremendous potential” which the prudent World Bank mentioned in its April 2017 analysis. The difficult business climate, including the nagging issue of widespread corruption and the ensuing lack of appetite of foreign investors still hamper more rapid growth. 

Ukraine’s GDP per person is now estimated at USD 2,640, that of neighbouring Poland at USD 13,812. This has a direct impact of labour migration with working age Ukrainians finding employment in Poland as well as in other neighbouring EU countries and in Russia. The latest statistics confirm this and show a 36% yearly growth in remittances from Ukrainians working abroad. From a short-term financial point of view remittances are helpful. In the long term, a decreasing work force has negative implications for an early qualitative transformation of the Ukrainian economy.

In the meantime, President Poroshenko’s net worth seems to hover slightly above USD 1 billion, but that only makes him the 5th wealthiest Ukrainian oligarch. In fact, as a general rule, Ukrainian oligarchs have in the last few years fared much better than the national economy. In these circumstances, it is rather difficult for the Ukrainian electorate to believe that the current leadership is truly committed to increasing national wealth rather than the private fortunes of the oligarchs.

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CANADIAN FOREIGN POLICY, IN CRISIS?

In general, Canadian foreign policy has operated largely in sync with that of America and Europe, with the Canadian government acting as a loyal partner in the dominant Western alliances of the day.

At the same time, Canadian foreign policy-makers have long championed the idea that Canada should always behave cautiously and pragmatically in its deeds and rhetoric, and shy away from overly divisive or belligerent actions that could compromise the country’s reputation as a calm, conciliatory, friendly nation, or threaten the stability of its economy.

This type of predictable and safe order was thrown out of whack mainly by factors like the election of a highly unpredictable, eccentric and politically incorrect president in 2016, Russia's annexation of Crimean peninsula and its not so covert support of the Russian speaking separatists in the Eastern Ukraine (a conflict that has already claimed 12,000 lives) and the rapid ascent of China into a global economic superpower, fueled by unprecedented political, military and economic growth.

President Putin and PM Trudeau at the Peace Forum
Paris, November 11th

By electing an idealistic, young Prime Minister Justin Trudeau, who right from the beginning sounded more like the president of the student union of an Ivy League university than a leader of a major country, Canada found itself increasingly confused by the events around the world. Justin Trudeau and his Foreign Minister Freeland are more at home by repeating a collection of positive soft messages on subjects of gender equality, ethnic diversity, tolerance and economic prosperity. Canada found itself face to face with Trump who pulled out NAFTA, brushing aside any attempts by Canada to reason with him. The deal was renegotiated mainly on American terms. The Canadian reaction to the complex and not at all black and white conflict of Russia and Ukraine elicited a predictable, but not very subtle response by Canada. In utter disregard of geopolitical realities Canada backed Ukraine unconditionally to the point of rejecting a sustained high-level political dialogue with Russia. This simplistic and unproductive approach betrays either complete lack of understanding of that part of the world or pure domestic reasoning aimed at securing the significant Ukrainian vote. Every Western country, especially the Europeans, understands perfectly well that the Russian-Ukrainian rift is extremely complicated. This is what happens when empires collapse: not only phantom pain, but real pain can linger for decades or even longer.  Europeans and Americans are more realistic about the importance of Russia as a major world power which borders 15 other countries and one of the 5 founding permanent members of the UN Security Council. Russia is not a country you should ignore. History's verdict is clear on this point. Eventually Canada will have to accept this reality. Besides, Canada is rather capable of practicing similar realism when it comes to countries like China, Saudi Arabia and even the United States. We do not live in an idealistic utopia. No matter how you slice, Russia may be part of the problem, but it also has to be part of the solution to major world crises.

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PUTIN EXPLAINS HIMSELF, ONE MORE TIME

Before the Presidential Press Conference
Moscow, December 20th
©President of Russia Website

This has become a tradition. Once a year Vladimir Putin holds a marathon press conference and pretends that he talks directly to his nation. Actually he talks to journalists, mostly the Russian ones and occasionally to their foreign colleagues. This time his performance had been designed predominantly for internal use.

He had to clarify actions, that was clearly uncomfortable for him, such as an unpopular pension reform that increased the age of retirement. He realized that his rating in Russia went drastically down and the very fact of him being in power for so long finally makes the nation annoyed. That is why he stressed that his administration and government had radically changed in recent years by including more young educated and progressive people who will bring with them the rapid growth of technology and a digitally oriented economy. Putin said that Russia must break into a "new economic league" in terms of size and quality adding that "if we don't set ambitious goals, nothing will be achieved."

Internationally Putin’s rhetoric sounded rather unchanged. He insisted that Russia had been unfairly blamed for its involvement in the US and other elections. Putin had plenty of harsh words for the West and for Ukraine's government. He noted however that Moscow welcomed president Trump’s decision to withdraw American troops from Syria. Putin signalled his country’s readiness to improve relations with Great Britain.

Was this Putin’s annual press conference the last one in his almost twenty-year long rule? Some skeptics would answer positively. We believe however that Putin had not said his last word yet.

During the Presidential Press Conference
Moscow, December 20th
©President of Russia Website

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THE GRAND LADY OF HUMAN RIGHTS

91-year old Lyudmila Alexeeva, a central figure in the Russian human rights movement for more than 40 years, passed away on December 8th in Moscow. Although she never stopped publicly challenging Kremlin authorities about human rights violations, she had agreed in recent years to serve on Russia's presidential council of human rights. This allowed her to have direct exchanges with the President himself without damaging her impeccable human rights credentials.

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THE WRITER FROM THE GULAG

Natalya Solzhenitsyn at the unveiling of the monument to her husband
Moscow December 11th
©President of Russia Website

On December 11^th, President Putin attended the unveiling of the monument to Alexander  Solzhenitsyn, on the occasion of the centenary of the famous writer’s birth. Solzhenitsyn’s widow, with whom Putin has met on a few occasions, was also in attendance. Solzhenitsyn’s writings have now become mandatory reading in Russian schools. One should not see too much into this, but only observe that the Russian perception of the Stalinist era is far more complex than is generally described in Western media and certainly not without its paradoxes.

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PERSON OF THE MONTH: ANNEGRET KRAMP-KARRENBAUER

©Wikimedia Commons

Annegret Kramp Karrenbauer, a strongly Catholic conservative career politician, has been elected as the successor to Angela Merkel as leader of Germany’s Christian Democrats. Kramp-Karrenbauer won by just 25 votes following an almost photo finish in the second round run-off against her main opponent, the multi-millionaire businessman Friedrich Merz.

When she won, she cried, and said she would accept the post, and thanked the party for its support and trust in her, insisting she would give new impetus to the party as it seeks to claw back the millions of voters it has lost to right wing populists and the Greens in recent years.

Dubbed a mini-Merkel , a title she is determined to discard, Kramp-Karrenbauer was not officially endorsed by the chancellor, but was clearly her favourite.

In fact, Merkel made a point of praising Kramp-Karrenbauer for her contribution to the CDU’s electoral success during her own speech to the party.

The result is seen as making it more likely that Merkel will be able to see out her fourth term until 2021. She has expressed her determination to stay on as chancellor for the remaining three years of her term in office. Polls show 56% of Germans support her decision.

In due course, if political difficulties persist and make France’s Macron a one-term president, Kramp-Karrenbauer could well be the next major European leader in the post-Brexit environment. In that respect, as Merkel, she would be the main European interlocutor on the international scene.

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ARMENIA

Acting PM Pashinian at the Kremlin
Moscow, December 27th
©President of Russia Website

As expected there was a landslide victory of acting Prime Minister Nikol Pashinian's of My Step alliance in the December 9 snap parliamentary elections. On December 16^th the Electoral Commission Chairman published final official results showing that Pashinian's alliance won just over 70.42 percent of the vote. 

The former ruling Republican Party of ex-President Serzh Sarkisian failed to clear the 5 percent threshold needed to make it into the 101-seat parliament. Final official results show the Republican Party won just 4.7 percent of the vote. It acknowledged its loss on the basis of a preliminary vote count and has said it would not challenge the results.

About 49 percent of eligible voters cast a ballot. My Step's closest rival, the Prosperous Armenia Party (BHK) of businessman Gagik Tsarukian, won just over 8 percent of the vote. The liberal, pro-Western Bright Armenia, a party led by former Pashinian ally Edmon Marukian, was in third place with just over 6 percent. Another rival of Pashinian's alliance, the Dashnaktsutyun party, also failed to clear the 5 percent threshold needed to secure parliamentary seats. It won just 3.9 percent of the vote.

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RUSSIA-JAPAN

There have been lately very regular meetings between Russian President Vladimir Putin and Japanese Prime Minister Shinzo Abe. In September in Vladivostok , Putin had said that he was ready to sign a peace deal with Japan "without any preconditions" to end hostilities from World War II. "We've been trying to solve the territorial dispute for 70 years. We've been holding talks for 70 years," Putin said at the time. Putin added: "Let's conclude a peace agreement, not now but by year's end without any preconditions," Putin said, referring to Prime Shinzo Abe.

PM Abe and President Putin at the G20 Summit
Buenos Aires, December 1st
©President of Russia Website

It does look like Putin's deadline will be met. There may be some incremental progress, but the extreme sensitivity of territorial concessions on either side makes the negotiations over the disputed Kurill Islands a virtually unresolvable problem. Although the dispute formally prevents the signing of a Peace Agreement, even 73 years after the end of World War II in the Pacific, Japan and Russia are fully committed to the further development of their economic relationship, somehow as if sanctions did not exist.

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A NEW PRISON FOR RUSSIA

Butyrka Prison

Moscow's notorious Butyrka detention center will be shut down by its 250th anniversary, the deputy chief of the Federal Penitentiary Service (FPS) Valery Maksimenko has announced. He said on December 17th that Moscow city authorities had made an offer to the FPS to build a new detention center for 2,000 inmates near Moscow instead of Butyrka and another detention center in the Moscow Krasnaya Presnaya  neighbourhood. According to Maksimenko, Moscow authorities could build the new jail with cells which offer seven square meters of space per inmate, which is close to European standards, in one or two years.

Many prominent Russian and Soviet men and women as well foreign nationals were among those held or killed at Butyrka. Russian anti corruption lawyer and whistle-blower Sergei Magnitsky spent almost a year in Butyrka before he was transferred to another detention center in Moscow, where he died in November 2009. Before the Bolsheviks came to power in 1917, one of the inmates was Feliks Dzerzhinsky, the founder of the Cheka, the secret police organization that preceded Dictator Josef Stalin's NKVD, the KGB, and post-Soviet Russia's FSB.

Prominent inmates include Sergei Korolyov, the  Soviet rocket and spacecraft designer, writers and poets Vladimir Mayakovski, Isaak Babel, Osip Mandelshtam, Yevgenia Ginzburg, Varlam Shalamov, as well as Alikhan Bukeikhanov, the founder of the first independent Kazakh government, and many others.

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BRIEFLY NOTED

AZERBAIJAN

Azerbaijan joined an agreement with OPEC to lower oil out planning to produce 760.000 barrels instead of current 784.000. This move was in the planning for some time and has been confirmed as part of the Azerbaijan's annual budget framework.

MOLDOVA

President Igor Dodon entered another conflict with the Constitutional Court of his country and parliament. He refused to sign a law proposed by right wing parties banning Soviet era holidays such as Victory Day of May 9 and others. Parliament in its turn introduced a temporary ban on Mr. Dodon's fulfilling his presidential functions. The Government's structural crisis in Moldova's political system became a chronic phenomenon.

ESTONIA

Tallinn's Christmas Fair was voted the best fair in Europe. 200.000 European citizens took part. 30 thousand voted for Tallinn. Second and third places were taken by Budapest and Strasbourg. Politics aside, Tallinn remains a top foreign destination for Russian tourists.

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THE AUTHORS

Ilya Gerol, former foreign editor of the Citizen in Ottawa, syndicated columnist in Canadian, US and European media specializing in international affairs. His particular area of expertise includes Russia, Eurasian Economic Union, Eastern and Central Europe.  Ilya Gerol has written several books, one of them, The Manipulators, had become a textbook on relations of media and society.

During his career in the Canadian Foreign Service, Gilles Breton had three assignments at the Canadian Embassy in Moscow. His first posting there began during the Soviet period, in 1983. His last was from 2008 to 2012 as Minister-Counsellor and Deputy Head of Mission. He also served as Deputy Director responsible for Canada’s relations with Russia from 2000 to 2008. As an international civil servant, he was Deputy Director of the OSCE Office for Democratic Institutions and Human Rights in Warsaw from 1994 to 1997.

Gilles Breton also currently serves as Chairman of the National Board of the Canada-Eurasia-Russia Business Association. The views expressed in this newsletter exclusively reflect the opinion of the authors.