Russian rouble hits record low as suffocating sanctions loom

Russian rouble hits record low as suffocating sanctions loom

Russian rouble hits record low as suffocating sanctions loom

By Ian Bond, 02 September 2014
From The Telegraph

Link to press quote(s):

http://www.telegraph.co.uk/finance/financialcrisis/11071388/Russian-rouble-hits-record-low-as-suffocating-sanctions-loom.html

The challenge to the West: Restoring European deterrence

The challenge to the West: Restoring European deterrence

The challenge to the West: Restoring European deterrence

Written by Ian Bond, 03 September 2014

Mutually Assured Destruction, with its overtones of Dr Strangelove, was never a popular strategy in Western societies: the idea that NATO and the Warsaw Pact could wipe out human life many times over seemed immoral to many people. The acronym ‘MAD’ did not help. But MAD kept Europe peaceful, if nervous, through most of the Cold War.

The world of 2014 is very different from that of the 1950s, when John von Neumann, mathematician and game theorist, came up with the both concept and the term Mutually Assured Destruction. NATO leaders at their summit in Wales on September 4th and 5th, and EU foreign ministers when they meet on September 29th, need to think about an expanded concept of deterrence, covering military, economic and other measures, and how to use it to restore stability in Europe.

Deterrence depends on having both the capability and the will to inflict unacceptable damage on a potential enemy. The West certainly has the capability. In the military field, despite the huge increase in Russia’s defence budget under President Vladimir Putin (in real terms, it almost tripled from 2000 to 2012), the US and its NATO allies could defeat Russia in any conventional war. The US alone is numerically superior to Russia in every category of major weapons system except for main battle tanks, not to mention its technological dominance.  Russia could reduce the US to radioactive dust, as TV anchor Dmitri Kiselyov, later promoted to head the Russia Today state news agency, said in March 2014; but the US still has more than enough warheads to do the same to Russia.

Economically, the EU can inflict enormous damage on Russia. More than half of Russia’s state budget revenue derives from sales of oil and gas. EU countries buy 84 per cent of Russia’s oil exports and 76 per cent of its gas exports. Even small reductions in purchases would hit the Russian economy hard, and would make it more difficult for the Russian government to pay for increased defence and social spending.

The problem is that Western leaders have repeatedly shown since the beginning of the Ukraine crisis that they do not have the will to use the means available to stop gross violations of international law by Russia. Putin is exploiting the resulting security vacuum on NATO’s and the EU’s eastern border. And Western irresolution also risks encouraging other states to think that they can seize territory by force without any significant Western reaction – think of China in the South and East China Seas, where the credibility of US security guarantees is increasingly questioned, as Rem Korteweg wrote in a recent CER policy brief.

NATO’s deterrent posture worked during the Cold War because Soviet leaders really believed that successive US Presidents were prepared to launch massive nuclear strikes on the Soviet Union in response to Warsaw Pact attacks on NATO forces in Europe. Just in case there was any doubt, NATO exercised its procedures for using nuclear weapons regularly. Soviet leaders knew that, and the knowledge kept them honest: they wanted at all costs to avoid a European conflict that might escalate to a nuclear exchange. Western leaders had similar fears about the Warsaw Pact. Among the results of this shared fear were various hotlines and confidence-building agreements designed to ensure that the two sides never stumbled into war.

Once the Cold War was over, this sort of thinking seemed out of place: what Western leader would sit down with his Russian counterpart to discuss co-operation on Afghanistan, or investment in Russia’s oil and gas sector, while simultaneously threatening to obliterate Russia in the event of conflict? The result was that when Russia invaded Georgia in August 2008, three months after the Alliance had promised Tbilisi NATO membership (albeit at some unspecified future date), the Allies did nothing to help Georgia. Deterrence had broken down: and Putin no longer believed, or feared, that the West would impose an unacceptable cost for his adventurism.

The same pattern has been repeated in Ukraine. Western leaders have been too ready to say that there is no military solution to the conflict. There is – the Russian army is busy imposing it in Donetsk and Luhansk. The West has become the victim of unilateral deterrence on Putin’s terms: it has limited its action against Russia to measures that will not impose unacceptable costs and will not invite significant retaliation, and Putin has not been deterred at all by small, tit-for-tat steps. Estimates for how much Germany, Europe’s biggest exporter to Russia, may lose from the sanctions imposed so far range from 0.04 per cent of GDP to around 0.25 per cent (the latter figure coming from the business lobby with most at stake in Russia).

On one level this is understandable: European economies are fragile, so even small losses of business in Russia are unwelcome; and if Russia turned off the gas taps, a few Central European countries would freeze next winter. As for military deterrence, Russia is a nuclear power (and just in case anyone had forgotten that, Putin has warned in two recent statements that Russia is one of the most powerful nuclear nations and that it will surprise the West “with new developments in offensive nuclear weapons”); so why would anyone seek to change its behaviour by military means?

But the breakdown of deterrence is a serious threat to the European order which NATO has defended and the EU has helped to build and has benefited from. NATO and EU treaty obligations end at their eastern borders; their security interests in stable and prosperous neighbours do not. Though NATO talks of rapid reaction forces supported by pre-positioned equipment and supplies in Central Europe and the Baltic States, this is designed to protect existing allies, not countries like Ukraine and Georgia. Even in exposed countries like the Baltic States, there will be no permanently-stationed NATO forces. Germany and others worry that such forces would breach the NATO-Russia Founding Act of 1997. In this, NATO stated “that in the current and foreseeable security environment” it would carry out its missions without resorting to “additional permanent stationing of substantial combat forces”. Though the security environment has changed beyond recognition, the fear of provoking Russia has not.

The breakdown of deterrence has emboldened Putin to go ever further into Ukraine, while President Obama and others have been at pains to assure him that there is no risk that Russia will have to confront NATO forces there, or even Ukrainian forces with NATO armaments and equipment. An independent, democratic country that has had its problems but always had internal ethnic peace is gradually being dismantled by Russia. And the West, far from supporting Ukraine’s efforts to defend itself, is encouraging it to agree a ceasefire on the aggressor’s terms.

Restoring deterrence in Europe now will be much harder than maintaining it would have been even six months ago. But the longer Western leaders wait, the worse the consequences will be. Putin’s recent speeches, with their references to Russia’s obligation to defend not only Russian citizens abroad but ethnic Russians and “those who feel that they are part of the broad Russian world”, as he said to Russian Ambassadors on July 1st, point to the danger that he will interfere in other countries besides Ukraine. Why, after what has happened (or not happened) in Ukraine, should Putin believe that NATO countries will really deliver on their security guarantees to the Baltic States? Latvia and Estonia have substantial ethnic Russian minorities; no doubt Russian intelligence services could stir up enough of them to provide a pretext for some sort of peacekeeping intervention. Would there be unanimity in the North Atlantic Council for going to war to defend Riga or Tallinn?

The NATO Summit in Newport should borrow some fire from the Welsh dragon and come up with a package of military assistance for Ukraine to make Russia reconsider the costs and benefits of invading Ukraine. The Ukrainians need training, logistics, intelligence and equipment if they are to push Russian forces and their local proxies back. There are Central European allies who still have former Soviet equipment of a kind that Ukrainian troops will be familiar with; they should send it to Ukraine, perhaps as part of a lend-lease scheme. Germany has decided to send arms to the Kurds, to help them defeat the terrorists of the Islamic State; it should also arm the Ukrainians to help them withstand the Russian invasion, as should the UK. France should (belatedly) stop the delivery of its Mistral assault ships to Russia; it is unconscionable to arm the aggressor while refusing to help the victim.

At the same time, the EU should overcome its fear of short-term economic losses and Russian retaliation, and defend its long-term values and interests with sweeping and painful sanctions. Russia’s economy is in as bad a state as that of the eurozone and even less able to adapt to shocks. Even a modest reduction in Europe’s purchases of gas, oil and coal from Russia would have a major impact on Moscow’s finances.

The Union should follow through on the implicit threat in the conclusions of the European Council on August 30th to sanction “every person and institution dealing with the separatist groups in the Donbass”. EU legislation defines as terrorist offences “intentional acts… that may seriously damage a country or an international organisation where committed with the aim of… seriously destabilising or destroying the fundamental political, constitutional, economic or social structures of a country or an international organisation.” By that definition, the groups in the east are terrorists, and the EU should treat them and their backers as such. And it should exclude from European markets any company, Russian or foreign, which does business in Crimea without the permission of the Ukrainian government.

The EU should also take up British prime minister David Cameron’s reported proposal that Russian banks should be shut out of the SWIFT inter-bank payments system. This was one of the most effective sanctions applied to Iran to get it to suspend its nuclear weapons programme. Though Russian officials have talked about setting up a national system outside SWIFT, this would not be easy, and the short-term damage to Russia’s trade and corporate borrowing, as well as the disruption to the lives of high-net worth Russians with large overseas assets, would be severe.

Whatever steps the West takes, Russia will without doubt retaliate. But if the West does nothing, it cannot expect that Russia will allow Ukraine to go back to the status quo ante, or that Putin will be satisfied with annexing Crimea. EU economies will still suffer from the destabilisation of Ukraine, the disruption of trade with it and through it, and conceivably from large refugee flows if fighting continues (the UN High Commissioner on Refugees has reported that this year 20,000 Ukrainians have arrived in one (unnamed) Baltic state alone); and the West will be in an even weaker political position to face Putin’s next provocation.

Putin, as he has shown, is prepared to sacrifice a lot in order to dominate Ukraine, including an unknown number of Russian troops already killed in action. As he famously admitted in 2000, he received a negative character assessment in KGB training for his “lowered sense of danger”; but it is quite likely that at least some of his advisers have a better understanding of the damage Russia could suffer if the West ramps up the economic and military pressure. Germany’s intelligence chief reportedly told members of the Bundestag in July that splits were appearing among Putin’s backers, between oligarchs and security services.  Good. To widen those splits, the EU and NATO have to show that they are also prepared to make sacrifices for the sake of the European order. Deterrence can only be restored if the aggressor believes that the defender is ready to tolerate pain as well as inflicting it.

Ian Bond is director of foreign policy at the Centre for European Reform.

EU's new foreign policy chief Federica Mogherini - soft on Russia?

EU's new foreign policy chief Federica Mogherini - soft on Russia?

EU's new foreign policy chief Federica Mogherini - soft on Russia?video icon

The Voice of Russia
By Ian Bond, 02 September 2014
From The Voice of Russia

Link to media:

http://voiceofrussia.com/uk/news/2014_09_02/EUs-new-foreign-policy-chief-Federica-Mogherini-soft-on-Russia-9705/

Analyse: Nu kræver østlandene deres del af magten i Europa

Analyse: Nu kræver østlandene deres del af magten i Europa

Analyse: Nu kræver østlandene deres del af magten i Europa

By Agata Gostyńska , 30 August 2014
From Politiken

Link to press quote(s):

http://politiken.dk/udland/ECE2381400/analyse-nu-kraever-oestlandene-deres-del-af-magten-i-europa/

Ian Bond speaks to Monocle Daily Radio

Ian Bond speaks to Monocle Daily Radio

Ian Bond speaks to Monocle Daily Radiovideo icon

Monocle Daily
By Ian Bond, 28 August 2014
From Monocle Daily

Link to media:

http://monocle.com/radio/shows/the-monocle-daily/734/

Learning from Herman: A handbook for the European Council president

Learning from Herman: A handbook for the European Council president

Learning from Herman: A handbook for the European Council president

Written by Agata Gostyńska , 21 August 2014

When member-states reconvene on August 30th in Brussels to decide on the remaining top EU posts, they should agree on candidates who not only have the right party affiliation, nationality or gender, but who can also respond to the EU’s mounting challenges. This applies to the President of the European Council, whose role is to forge a consensus among EU leaders — a difficult task these days. But the appointment of a successor to Herman Van Rompuy has so far been overshadowed by political squabbles around Federica Mogherini, the Italian foreign minister and candidate for the post of High Representative.

Many still believe that the job of the European Council president is nothing more than European ‘master of ceremonies’. This is wrong. The sovereign debt crisis elevated the European Council to the primary forum for EU discussions on economic governance. It also increased the importance of its permanent president. Van Rompuy has had his hands full ever since, trying to reconcile the divergent interests of debtor and creditor countries. The bar has been set high for Van Rompuy’s successor, who is expected to take over on December 1st. One of Van Rompuy’s last tasks will be to find a candidate able to get the European Council working as a team. Van Rompuy would do well to look in the mirror, draw up a list of his strengths and weaknesses, and seek a successor with some of his own best characteristics.

Efficient chairman. Despite a reputation for having the “charisma of a damp rag”, as Nigel Farage once put it, Van Rompuy made European Council meetings more efficient. He used concise conclusions to set out a strategic direction for the EU. The strategic agenda which EU leaders endorsed in June is a case in point. It identified priority areas which the EU should focus on in the course of the next five years. But the European Council has not always remained at the strategic level. It suggested deleting two articles from a draft regulation on the creation of unitary patent protection, despite in theory exercising no legislative powers. Not everyone liked Van Rompuy’s agenda management either. He pushed for the most sensitive and technical issues to be discussed over meals. This has been a headache for advisers, who had limited contact with their leaders at mealtimes. But trying to build consensus in the informal setting of a meal may have helped to overcome impasses, for example on the question of imposing a ‘haircut’ on holders of Greek bonds in order to reduce its debt. As there are still decisions to be made about euro governance and a settlement with the British to negotiate, a new president should keep Van Rompuy’s tactics up his or her sleeve.

Sensitive to concerns of euro ‘outs’ and ‘pre-ins’. Van Rompuy is an economist by profession, and this helped him to keep the European Council in the driving seat in discussions on the Economic and Monetary Union (EMU). Deliberations among all 28 EU leaders have limited any shift in the centre of gravity towards decision-making in the format of eurozone only. Van Rompuy, who initially gained a reputation for leaning too much towards Franco-German views, has developed a sensitivity towards the concerns of member-states that are not in the eurozone. In particular, the ‘pre-ins’ who are yet to adopt the common currency have a vital interest in long term arrangements in the eurozone. Member-states such as Poland therefore welcomed the decision to have the president of the European Council also chair euro summits as a small step towards greater transparency in the eurozone. But one might wonder if this arrangement can continue if Van Rompuy’s successor does not come from a euro ‘in’ country. It could well serve as an invitation to the French to renew their advocacy of the eurozone-only format.

Moderate on macroeconomics. The eurozone failed to register growth in the second quarter of the year and Italy slid back into recession. This will almost certainly bring the debate on ways to provide economic stimulus back to the EU leaders’ level. A new European Council president will find it very difficult to bridge divergent views on eurozone matters; anyone with strong views on either side of the stimulus debate will not get the job. The best that Van Rompuy can do is to focus on candidates who do not come from a major debtor or creditor country and are not closely associated with a particular view on macroeconomic policy.

Assertive towards the European Parliament. On paper, the European Council president should only report to the members of the European Parliament (MEPs) after EU leaders' meetings. But Van Rompuy understood the importance of nurturing relations with MEPs, who together with the EU Council exercise EU legislative powers. Yet he avoided setting any precedents which might give them even more power. He firmly resisted calls by the President of the European Parliament, Martin Schulz, for a seat at the European Council. Now that the European Council, by endorsing Jean-Claude Juncker as Commission president, has effectively accepted the Spitzenkandidaten process, the European Parliament is hungry for more influence. The European Council, and its deliberations on EU economic governance, is next on the menu. But the Parliament has its own legitimacy problem: fewer and fewer people vote, and support for Eurosceptic movements is on the rise. It is a bad time for the Parliament to demand more power. The next European Council president should, like Van Rompuy, keep the MEPs at arm’s length. Instead, he or she should champion a debate on how to plug national parliaments better into EU policy-making.

Good mediator with a small ego. Van Rompuy proved to be an efficient honest broker. In 2013 he managed to reconcile the interests of net contributors to and beneficiaries of the EU budget, and strike a fair deal on the long-term financing of the Union. But seeking consensus among EU leaders is a difficult balancing act, even for a president who is held in high regard and who has the ability to keep personal ambitions in check. The European Council in December 2011 illustrates it. Ultimately, Van Rompuy could not prevent David Cameron, the British prime minister, from vetoing a revision of the EU treaties to introduce stricter discipline on member-states’ budgets. Cameron arrived in Brussels with a wish list, on which he would not compromise. Van Rompuy's successor will have to deal with failures he cannot be blamed for and broker deals without claiming credit for them.

Critical but understanding of the British. If Van Rompuy were asked what made his job particularly challenging, he would probably point to the ‘British question’. In his Bloomberg speech in January 2013, David Cameron announced a radical redefinition of the UK’s relationship with the EU. Should the UK seek a renegotiation of its membership after the next general election, in May 2015, the European Council will be the primary forum for deciding whether to revise the EU treaties and consider Cameron’s wish list of reforms. The contenders for Van Rompuy’s job should have a good understanding of the dynamics of Britain’s engagement with Europe, and where to look for common ground with other member-states.

Finding a candidate that matches this profile will not be easy. It will be even harder because of competing demands for ‘balance’. The European Council will be expected to give one of the two top jobs to a representative of the Party of European Socialists (since Juncker is from the centre-right European People’s Party). The centrist Alliance of Liberals and Democrats for Europe, despite losses in the May elections, would like a reward for their pivotal role in the EU legislative process. There will be criticism if none of the top posts goes to a woman. And Van Rompuy will also have to deal with the insistence of the Central European countries that they are no longer junior partners and should hold one of the top posts. The EU, beset by crises, has no time to train a novice, so Van Rompuy’s successor should ideally be a current or former European Council member.

Names that would fit most of the criteria and are probably on Van Rompuy’s list already include Donald Tusk (Poland), Helle Thorning-Schmidt (Denmark), Valdis Dombrovskis (former Latvian prime minister) and Andrus Ansip (former Estonian prime minister). Dombrovskis and Ansip have now been nominated by their countries to be Commissioners. This does not rule out the possibility that one of them could emerge as a late compromise candidate, but it suggests that the Latvian and Estonian governments do not expect them to be chosen.

That would leave Tusk and Thorning-Schmidt. The fact that neither comes from a euro ‘in’ country counts against them. Some member-states may fear that it would be harder for them to insist on keeping the eurozone discussions at the level of the 28 rather than the 18. These concerns are not shared in London. And David Cameron feels that Thorning-Schmidt would be more responsive to British concerns than Tusk.

Tusk’s advantage is that Poland is committed to adopt the euro in the future, whereas Denmark has a permanent opt-out. His appointment would also recognise Poland’s rapid economic and political progress since joining the EU. Tusk enjoys friendly relations with Angela Merkel. On the other hand, the German chancellor values him as a reliable counterpart in neighbouring Poland, and as such she may prefer that Tusk stays at home for now. Merkel also wants to keep the UK in the EU. She will support a candidate who can best tick the ‘British question’ box. These two points tip the balance towards the Danish candidate.

If Denmark’s euro ‘out’ status makes Thorning-Schmidt unacceptable to some member-states, Van Rompuy should be ready to twist some more arms, like that of Enda Kenny, the Irish taoiseach. He comes from a euro ‘in’ country, and enjoys good relations with the British. Ireland has completed the financial assistance programme and has a liberal economic outlook, but needs policies that will boost growth. This may make Kenny acceptable to both the southern and northern blocs.

One final complication for Van Rompuy: he will have to secure unanimous support for his successor. The EU treaties allow a vote on the European Council president, but leaders will probably resist this way of breaking the impasse. A lack of unity would damage contenders’ credibility at home and in Brussels, a risk that active politicians are unwilling to take. So brokering a consensus among the 28 over his successor is likely to be the final and biggest test for Van Rompuy’s conciliation skills.

Agata Gostyńska is a research fellow at the Centre for European Reform.

A top diplomat for Europe: Who will replace Catherine Ashton?

A top diplomat for Europe: Who will replace Catherine Ashton?

A top diplomat for Europe: Who will replace Catherine Ashton?

With contributions by Ian Bond, Denis Corboy, William Courtney, and Craig Dunkerley, 13 August 2014
From The National Interest

Dealing with Russia: Law, jaw and war

Dealing with Russia: Law, jaw and war

Dealing with Russia: Law, jaw and war

Written by Ian Bond, 08 August 2014

It has been a bad few days for Vladimir Putin. That makes it a particularly dangerous time for Ukraine and for the rest of Europe. The EU has imposed more sanctions on the Russian economy, Moscow has retaliated with an agricultural boycott and Russia appears ready to escalate the crisis: Russian troops are amassing on the Ukrainian border. The West needs to be clear about what it wants from Moscow and take international legal measures against Russia to pursue its objectives. It should also do more to help Ukraine defend its borders. But for the moment Western leaders should put aside the megaphone (particularly when the accompanying stick is disproportionately small) and pick up the telephone to the Kremlin.

The KGB reflexes of Putin and those around him will see a Western conspiracy in recent events. The reality is that two important court cases coincidentally finished within days of each other, both of which went against Russia; and the shooting down of Malaysian Airlines flight MH17 on July 17th, which no one could have predicted, left the EU and US little choice but to impose tougher measures.

Since spring, the EU had been threatening so-called ‘tier three’ sanctions on whole sectors of the Russian economy, while changing its mind about what would trigger them. In the aftermath of the attack on the airliner and Russia’s inadequate response, the EU finally moved. On their own, the new sanctions on some financial transactions, defence trade, and transfer of energy-related technology are still at the lower end of what could be done. But they will put additional pressure on Russia's economy which is falling into recession. There are indications that – as the EU had hoped – fear of the impact of sanctions has started to cause splits in Putin’s circle, between the ex-KGB personnel and those with the largest financial interests.

Russia has retaliated with a boycott of Western agricultural imports, but it remains to be seen how effective these are at weakening Europe’s growing resolve. If Europe’s initial ‘tier three’ sanctions are not sufficient to change Putin’s mind, the EU should consider expanding their scope to include, for instance, the purchase of Russian oil. Moreover, European member-states should discourage France from delivering two ‘Mistral’ warships to Russia. Paris has said it will deliver the first, but may suspend delivery of the second ship, depending on Putin’s actions. To increase pressure on France, other EU member-states should set the right example, as did Germany when it decided on August 4th to cancel a defence deal with Russia. So far, EU sanctions have not been retroactive; existing defence deals or City contracts are not affected. EU leaders should re-consider this.

Potentially at least as important is the judgement of the Permanent Court of Arbitration in The Hague in favour of a group of former shareholders in the Russian oil company, Yukos. Yukos was once Russia’s largest private company until the Russian government drove it into bankruptcy and transferred its assets to state-owned Rosneft as part of Putin’s trial of strength with Yukos’s former owner, the oligarch Mikhail Khodorkovsky. On July 18th, the court issued a damning commentary on the Russian government’s business practices, and ordered it to pay more than $50 billion – about 2.5 per cent of Russia’s GDP – in compensation to the former shareholders. In an unrelated case, on July 31st, the European Court of Human Rights, which had already found in 2011 that Russia had violated Yukos’s right to a fair trial and protection of property, awarded another group of former Yukos shareholders €1.9 billion – the largest amount ever awarded in a human rights case.

The significance of the arbitration case is that if Russia refuses to pay up within 180 days (which is almost certain), the shareholders can ask foreign courts to seize Russian state-owned assets. This is because 150 countries (including Russia itself) are parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and therefore bound to enforce such judgements. Sovereign property, such as embassy buildings or naval vessels, is exempt from seizure, but property used for commercial purposes by state-owned companies is not. Given the extent to which the Russian government still owns or controls the economy, there will be plenty of targets; cases could go on for many years, and have a chilling effect on potential investors in Russia.

International legal mechanisms are the best weapons the EU has to deal with a state where the rule of law is weak; it should use them effectively. That will not be simple: member-states are sometimes slow or fickle when implementing EU sanctions legislation (inconsistent application of the anti-money laundering directives being a clear example). The Commission and other member-states need to do more to lean on countries that would rather profit from Russian misbehaviour than prevent it.

Where the Commission has power, it should be forceful in exercising it. This is particularly true in relation to trade and energy. Russia has begun to retaliate against EU sanctions by blocking exports of agricultural produce from European countries on spurious health grounds – a familiar tactic. The Commission should make full use of the World Trade Organisation (WTO) dispute settlement mechanism. This can be a slow process, but using it consistently whenever Russia violates its WTO obligations is the best way to put political and economic pressure on Russia to abide by the rules.

In the energy field, the Commission opened an anti-trust case against Gazprom in 2012. It sought to force the Russian gas company to divide its European pipeline business from its gas production business and let third-party gas suppliers have access to the pipeline; to allow the re-export of gas supplied by Gazprom; and to deal with unjustifiably high gas prices in countries (particularly in Central Europe) where Gazprom is a monopoly or near-monopoly supplier. The case should not be postponed until the next Commission takes office in the autumn. The Commission should also keep the pressure on the six member-states plus Serbia who are involved in the South Stream project (which would bring Russian gas to South Eastern Europe, bypassing Ukraine) to ensure that their contracts with Gazprom comply with EU competition law and regulations. In December 2013, the Commission found that all the contracts helped Gazprom to maintain its anti-competitive practices. If the Commission can force Gazprom to change its practices, it could have a major impact on both energy prices and energy security, particularly in Central and Eastern Europe. So far, Bulgaria has suspended work on South Stream as a result of the Commission's action; but Austria and Hungary are pressing on.

Beyond looking for ways to bring Russia into line with international rules, the EU needs to step up its support for Ukraine. Ukraine’s armed forces have made significant progress in taking back territory in the east, but they still do not control the whole length of the border with Russia. There is plenty of evidence, including from careless social media posts by Russian soldiers, that Russian troops are on the Ukrainian side of the border and that Russian forces are shelling Ukrainian positions from inside Russia. Like the annexation of Crimea, these are grave breaches of international law, and the EU should give Ukraine political support if, as then-foreign minister Andriy Deshchytsia said in April, it takes Russia to the International Court of Justice. But the EU and the member-states should also consider what practical help they can give Ukraine to secure the border. The US has announced that it will supply engineering vehicles, transport and surveillance equipment for the border guards; the EU should take similar steps.

In June, EU foreign ministers agreed on the contours of a possible civilian mission to give Ukraine support on rule of law issues such as policing and the administration of justice. The EU should also discuss with the Ukrainian government whether military training would be beneficial. The performance of the Ukrainian army and national guard has improved considerably since Russian irregular forces first appeared on the Ukrainian mainland in March, but unless Russia stops arming, training and supporting rebel forces, the Ukrainians will find themselves at a disadvantage again. Ukraine is a sovereign state on Europe’s borders; the EU has every interest in ensuring that Kyiv can defend its territory.

At the same time, although the Ukrainian government has denied it, there is evidence that its forces have used artillery and the 'Grad' missile system, designed for use against concentrations of forces in open ground, against populated areas including the city of Donetsk. International human rights organisations have rightly been critical of this, but it is not clear that the Ukrainians have either the equipment or the training needed to clear rebel forces out of towns in any other way. The West should offer Ukraine alternatives to stop it from using inaccurate and indiscriminate weapons like 'Grad' in circumstances for which they were not designed. It would also remove a possible pretext for Putin to intervene in Ukraine on humanitarian grounds.

So far, Putin’s response to pressure (in the form of sanctions) and conciliation (such as the April 17th agreement brokered by the US and EU with Russia and Ukraine) has been to escalate. He is almost certainly more willing to accept the risk of full-scale conflict over Ukraine than any Western leader. But he is also more likely to miscalculate and cause a larger scale conflict in Europe if he is isolated – if Western leaders stop talking to him, and address him only through public statements.

There should be a moratorium on declarations of what Russia ‘must’ do. Instead, Western leaders should step up their personal contacts with Putin, however unproductive these may seem. An interesting piece of research by Jason Karaian of 'Quartz' shows that since February this year Putin has spoken to Angela Merkel more than 30 times; François Hollande 15 times, while Barack Obama and David Cameron have only spoken to him eight and seven times respectively. But now is the moment to pick up the phone and try to talk him out of taking any rash steps.

Without giving any ground on key international principles, or offering deals about Ukraine without Ukrainian approval, Western leaders should start to talk to Putin relentlessly, as often as he will take their calls, challenging his narrative. If he claims that Ukrainian forces are committing atrocities against Russian speakers, he should be asked to provide proof, or confronted with the contrary information from human rights monitors. If he denies that Russian forces are firing into Ukraine, he should be presented with the data to show the opposite. If the West knows that Russian armaments have crossed the border into Ukraine, the evidence should be laid out for him personally. Consistent efforts by European leaders to communicate with Putin are even more important now that the threat of a Russian military invasion in eastern Ukraine has increased.

Given the extent of the information war being waged by Russia's state-owned media, Western public broadcasters should also do whatever they can to provide for the Russian population an accurate, non-polemical account of what is happening in their neighbouring country.

It may be impossible to penetrate the information bubble around Putin – he may indeed have begun to believe the same propaganda that is shown on the Russian media. But if it is possible to set out an alternative version of what is happening, that might also give Putin the chance, if handled carefully, to use the traditional Russian myth of the good Tsar and the bad 'boyars' (nobles), and to blame his subordinates for freelancing.

Winston Churchill was certainly not afraid of a fight, but even he said that “jaw-jaw is better than war-war”. No one in the West wants to risk war with Russia. But in that case, the EU and the US need to put even more effort into influencing Putin’s decisions through international law and constant dialogue.

Ian Bond is director of foreign policy at the Centre for European Reform.

Russia bans food imports in retaliation for Western sanctions

Russia bans food imports in retaliation to sanctions

Russia bans food imports in retaliation for Western sanctions

By Charles Grant, 07 August 2014
From Wall Street Journal

Russia and the West's dangerous clash: Time for NATO & EU expansion East?

Russia and the West's dangerous clash: Time for NATO & EU expansion East?

Russia and the West's dangerous clash: Time for NATO & EU expansion East?

Written by Ian Bond, with Denis Corboy, William Courtney and Kenneth Yalowitz , 30 July 2014
From The National Interest

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