by Charles Grant

Relations between the Russia and the West have not been so prickly since the break-up of the Soviet Union. Viewed from the US and the EU, Russia is being obstructive across a whole swathe of issues, such as its blockade of trade with Georgia, its refusal to accept independence for Kosovo, and its opposition to further UN sanctions on Iran.

But although Russian foreign policy seems increasingly driven by a strident nationalism, there may be a method behind it. In Washington and Brussels, influential figures (including Henry Kissinger) think Russia may be seeking a ‘grand bargain’. President Vladimir Putin dropped hints that he might be open to such a bargain when he met think-tankers (myself included) at Sochi in September. “If our partners want something from Russia, they must be specific, and not ask for everything at once,” he said. “If you want to talk about Kosovo, OK, if you want to talk about the Iran nuclear problem, OK, but then don’t talk about Russian democracy at the same time.” He has a point: the US has tended to make wide-ranging demands of Russia without prioritising them.

The EU has a central role to play in any set of bargains between the West and Russia, given its extensive trade and investment links. The EU should seek to work with the Russians on three areas where they have mutual interests, and where a bit of horse-trading could be beneficial.

• Russia and the EU share many long-term interests in energy. Europeans want assurances that Russia will develop new gas fields, since a gap between demand and what Russia can supply is likely to emerge within a few years. The Russians worry that the EU’s moves to liberalise the European energy market may prevent Gazprom from buying pipelines there. Russia will have to abide by the EU’s rules on energy markets, just as the EU will have to accept that Russia does not allow foreign firms to buy key energy assets. Mutual dependency should encourage both sides to compromise.

• Both would benefit from Russia’s full integration into the global financial system. Thanks to the high oil price, Russia’s government and leading companies are sitting on funds worth several hundreds of billions of dollars. They want to put some of the cash into foreign firms. But the EU is becoming concerned about ‘sovereign wealth funds’. It should allow these funds to invest in European firms, so long as they are transparent and operate independently of politicians. And the EU should welcome Russian acquisitions of its companies, so long its rules are respected and European firms gain reciprocal rights.

• Both the EU and Russia have an interest in the countries of their common neighbourhood becoming stable, prosperous and well-governed. The EU should offer to work with Russia to promote peaceful change in Belarus, stability and unity in Ukraine, and a resolution of the ‘frozen conflicts’ in Transdnestria, South Ossetia, Abkhazia and Nagorno-Karabakh. The Russians may baulk at this: they fear encirclement by an expanding NATO and more ‘colour revolutions’, like those that loosened their control over Georgia and Ukraine. EU governments should allay Russian concerns by saying they will not support NATO membership for Ukraine or Georgia in the medium term. But the EU should offer such countries closer ties – and make clear to Moscow that they must be free to determine their own destiny.

The EU has a huge stake in the future of Kosovo; it cannot integrate the Western Balkans until that territory’s status is resolved. It will provide most of the money, soldiers, policeman and administrators to make any peace plan work. Russia has almost no interest in Kosovo, other than as a card to play against the West. The EU and the US believe that the least bad option for Kosovo is supervised independence, which Russia rejects.

But what if Russia was offered something in return? The US decision to deploy missile defence systems in Europe, against an Iranian threat that does not yet exist, was unwise. Russia’s anger over the deployment is genuine. Some former US officials claim that the deployment would break the spirit of promises made to Russia in the 1990s: the US said it would have no significant military presence in the Central European countries that joined NATO.

Russia’s heavy-handed over-reaction to US plans for missile defence – threatening to target missiles on Central Europe – makes it hard for Europeans to oppose those plans. Nevertheless, the Europeans should urge Washington to postpone the deployment indefinitely – so long as Russia accepts independence for Kosovo in return. Russia may shun this sort of bargain. But if its rulers are serious about maximising Russian power, they should negotiate with western leaders over their differences, rather than turn their back on them. (A longer version of this article appears in the November edition of www.prospect-magazine.co.uk).

Charles Grant is director of the Centre for European Reform.

by Katinka Barysch

Angela Merkel can be content with the outcome of the G8 summit in Heiligendamm which she chaired with her by now characteristic mix of modesty, determination and pragmatism. Many people had predicted that the meeting would end in acrimony because of US-European disagreements on climate change and because of mounting tensions between Russia and the West. Instead, Merkel brokered a couple of impressive-looking headline agreements. Moreover, the meeting has proved those people wrong who say that the G8 is an irrelevant talking shop. Heiligendamm showed it is an important tool for global governance.

This meeting will be mainly be remembered for the US U-turn on climate change. In the run-up to the summit, the US officials had said that there was no chance that the Bush administration would sign up to ambitious numerical targets, such as those endorsed by the EU summit in March 2007 (also headed by Merkel). But at Heiligendamm, George W Bush backed, at least in principle, the objective of cutting greenhouse gas emission by 50 per cent by 2050. The US still insists that binding targets will need to involve China, India and other emerging powers. But it is nevertheless significant that he agreed to the start negotiations on a post-Kyoto regime in the framework of the United Nations.

The G8 countries also reconfirmed their aid commitments made at the Gleneagles summit in 2005, namely to write off multilateral debt worth $60 billion, to raise annual overseas development assistance to $50 billion (of which half should go to African countries) and to provide universal access to HIV treatment by 2010. But NGOs said this ‘recommitment’ did not amount to much, given that the G8 countries are already falling behind on their objectives and still oppose annual spending targets. Similarly, although the G8 leaders promised to spend $60 billion over coming years on fighting HIV, malaria and other diseases in developing countries, they did not add a timetable.

The summit agreements are big steps towards longer-term goals, but they leave the most controversial questions to be resolved at a later point in time. Neither was there much progress on other issues on the G8 agenda, such as the Doha trade round, Kosovo, Iran and the regulation of hedge funds.

What the summit did do, however, is provide a very useful snapshot of global politics at a time of leadership changes in many of the key countries.

Well done Angela!
Merkel has cemented her role as Europe’s leading political figure, and she has now added a global dimension. Previous achievements had already earned her a reputation as a skilled mediator and negotiator. Her tireless pre-summit diplomacy on climate change appears to have paid off. Her strategy was also smart. Knowing that failure to reach a climate deal would be blamed on the US (and not damage her popularity at home), she was in a strong position. She had played down expectations of a deal ahead of the summit while still leaning heavily on President Bush. Although the G8 agreements owe much to Merkel’s political skills and convictions, they are also evidence of a longer-term trend towards a more self-confident Germany which is not afraid to shoulder global responsibilities.

The new George W
Bush’s apparent U-turn on CO2 targets was partly motivated by the fear to antagonise or embarrass Merkel – a sign that she has successfully mended US-German relations after the falling-out over Iraq. Bush also wants good ties with Merkel as part of his broader efforts to strengthen US-EU relations. Some observers spotted a belated turn towards multilateralism. Having long been dismissive of multilateral organisations, Bush has now agreed that the UN should be the framework for post-Kyoto negotiations. On other issues too, Heiligendamm saw a more co-operative and conciliatory US president. He was friendly to Vladimir Putin, despite the latter’s aggressive hectoring ahead of the summit. He also promised that the US would cough up half of the $60 billion committed to healthcare initiatives in Africa.

Russia is back
Putin’s belligerence in the run-up to the G8 had fuelled fears that Heiligendamm would be the chilliest East-West encounter since Russia officially joined the G8 in 1998. Putin had threatened to re-direct Russian nuclear missiles towards Europe if the US went ahead with stationing parts of its missile defence system in the Czech Republic and Poland. Having failed to drive a wedge between the US and the Europeans, Putin then suggested that the US should station missile defences at Gabalan, a Russian-operated base in Azerbaijan. Security experts say that the proposal, first muted in 2004, is unattractive to the US not only because it implies shared control over a key US military installation, but also because Gabala is too close to Iran to intercept a potential attack from there. If Putin knew that the US answer would be No, his prime aim must have been to set the agenda – to first raise tensions and subsequently defuse them. Such behaviour is becoming typical of a resurgent Russia. Putin’s shrewd mixture of harsh statements followed by statesman-like conciliation is also meant for home consumption, ahead of the parliamentary election in December and the presidential changeover in early 2008.

Bye bye Blair
Heiligendamm was Blair’s last international summit but one (he will still attend the European Council on June 21st and 22nd). It should have been a grand finale for him, given that it made progress on climate change and poverty alleviation, his two top foreign policy priorities. But any sense of triumph Blair may have felt must have been dampened by the absence of public recognition. Blair has always argued that his decisions to send troops to Iraq and not criticise Bush in public were paying off in terms of the private influence in Washington. Diplomats say that Blair worked hard to mediate between Merkel and Bush before and during Heiligendamm. But in the end it was Merkel who received the credit for having persuaded Bush. At least Blair’s imminent departure from the political scene allowed him to talk openly about differences with Putin.

Welcome Sarkozy
For Nicolas Sarkozy the G8 meeting was the first opportunity to mingle with the leaders of the world’s biggest countries as French president. With parliamentary elections imminent, Heiligendamm was the perfect opportunity for Sarkozy to show his skills as statesman. He did so by putting forward a compromise proposal for the final status of Kosovo (rejected by Putin) and by calling for more international attention to Darfur (vaguely accepted). Sarkozy’s conciliatory language after a long private meeting with Putin raised concerns that he would follow Jacques Chirac’s uncritical stance on Russia. But Sarkozy made big efforts to distance himself from his polished predecessor by talking very openly, by not trying to steal Merkel’s show and by being nice to Bush.

A bigger club
The other G8 members – Italy, Canada and Japan – played a more marginal role, whereas some non-G8 countries got a lot of attention. Leaders from emerging Asia, Africa and South America have long taken part as observers in G8 meetings. It is now clear that the eight current members cannot fix any global priorities – whether climate change, Doha, global imbalances, terrorism or poverty – without the co-operation of other emerging powers. China’s economy is already much bigger than those of Italy and Canada, and China is also on course to overtake the US as the world’s number-one emitter of greenhouse gases. Both China and India have more than twice as many people as the US or all the European G8 members together. And the legitimacy of many G8 initiatives will depend on African or Latin American countries having a say.

Nevertheless, the Heiligendamm meeting decided against broadening the club’s membership. Instead, a new ‘Heiligendamm process’ will regularly bring together ministers from the G8 and the five ‘outreach countries’ (China, India, Brazil, Mexico and South-Africa), to discuss issues ranging from energy to intellectual property rights.

Some say that taking in China would destroy the democratic credentials of the G8 (although that argument is a lot less potent given Russia’s slide towards authoritarianism). Others fear for the club’s effectiveness. Merkel said, for example, that if the poorer nations had already been part of the G8, a compromise on climate change would have been impossible. But neither are the newcomers in a hurry to become full members. India and China – while keen to make their voices heard – insist that their status as developing countries does not allow them to shoulder the same global responsibilities as the current G8 countries.

Heiligendamm showed that the G8 is not just a talking shop as some of its critics have alleged. There was real drama as the sherpas haggled over the final communiqué until the last minute. And the results are important milestones in long-term fights against climate change and poverty. But the meeting also showed clearly that to remain relevant in the future, the G8 will eventually have to include China, India and other emerging powers.

Katinka Barysch is chief economist at the Centre for European Reform.