Eurasia Note #19 - Ukraine: Just Bizniz for Some

Claiming to defend a country, while looting it, has a touch of depravity

Western embassies and NGOs make Ukraine less, not more, stable.
Corruption and money laundering extends to the international political class.
Defending the integrity of borders while undermining Ukraine internally is a fraud.
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See also:
Eurasia Note #17 - Talk of War and Exit (Jan 21, 2022)
Eurasia Note #18 - Dissent Rocks NATO (Jan 23, 2022)

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Tbilisi, Jan 27, 2022

Are Western allies genuinely trying to protect Ukraine?

On the road to the airport in Tbilisi is a weather-beaten portrait of George W Bush. It is a reminder of Saakashvili's days, when the U.S. arrived, made all kinds of intimations, pushed Georgia into a new confrontation with Russia, then left.

In Moscow they call this an English exit, when a party guest would vanish without formalities or so much as goodbye. Millennials call it ghosting.

There was no explicit promise to Georgia or Ukraine of membership, it was not put in writing — nor was the assurance to Soviet leader Mikhail Gorbachev in 1990 to restrain NATO from the former Warsaw pact. It was all deniable. Hologram diplomacy.

And Ukrainians failed to ask the hard questions: if you really let us into the European Union, how will you stop any Russian who wants to traipse over the border? It’s the same porous border story that hamstrung Turkey.

Had the question been asked, however, it would have revealed the geographical limits to the EU's hospitality. The incumbents headquartered in Brussels are leary of newcomers, as Poland learned when its bountiful produce and even its pots of fruitful jam earned the ire of Germany, fearful of competition from the rich Galician soils.

A payoff is no substitute: a bung of other people's money in the form of an IMF loan — that lights up the screens of the foreign exchange dealers as it whisks to Cyprus or the Caymans — does nothing to reform a country or encourage good governance. Instead of putting sanctions on Russia, holding them over EU entrants would combine carrot and stick.

If the EU really is, as some argue, the political bride of NATO, the couple speak with forked tongue. A Ukraine or Georgia in the EU would have less need to depend on or fear Russia as their primary vulnerability is economic. One must conclude that NATO has other objectives than the security and prosperity of Europe's eastern states.

Landlords

Read the Western press and it’s 1914 again, a continent of dry tinder awaiting a spark. In practice a closer parallel is Potsdam, 1945, where the U.S. and the USSR divided Europe. The following week the U.S. bombed Hiroshima and Nagasaki — a message aimed squarely at Moscow.

Even the Ukrainians say the Russians are not about to invade. Ukrainian Defense Minister Alexey Reznikov said on Tuesday he had received no information indicating the possibility of an incursion.

Despite hysteria in the Western state-corporatist media, there is little objective evidence that conflict is imminent. Andriy Yermak, an adviser to Ukrainian President Volodymyr Zelenskyy, said the Paris talks on Weds were a “strong signal of readiness for a peaceful settlement.” The Russian envoy Dmitry Kozak said “we agreed that the cease-fire must be maintained by all the parties in line with the accords.” Russia and Ukraine signed the Minsk agreements in 2014 and 2015. 

So who is pushing the narrative? NATO’s biggest booster, town crier or beadle — “hear ye, hear ye” — is Britain and politicians like Tobias Ellwood MP, army reservist with 77th Brigade, whose elusive brother Jonathan died in the 2005 Bali bombings and who himself has been a hero at the scene of subsequent terrorist events.

Historically, Britain wants to isolate Germany — from Africa in the 19th century, from Russia at all times, and in the future from China’s Belt and Road. Other objectives may be to stop Nord Stream 2 and to ferry American and Middle Eastern liquefied natural gas to Europe.

Former chancellor Angela Merkel who grew up in East Germany maintained peaceful relations with Russia, though acquiescing in sanctions. It hasn’t taken long after her departure for talk to turn to war — even though objectively little has changed in Ukraine.

Various players continue to use the Ukraine crisis for their own ends. French president Emmanuel Macron elevates the European Union, and his own profile ahead of April elections. Macron plans to speak with Russian president Vladimir Putin by phone on Friday. NATO serenades Finland and Sweden to join its embrace. Britain dreams of sending an increasingly Thin Red Line back to Balaklava.

For the first time in this wave of the Ukraine crisis, Europeans took the lead on their own landmass. The U.S. has sidelined the EU in talks with Russia but French and German representatives secured an agreement to uphold the 2014 ceasefire in talks on Weds at the Elysee Palace.

Previous talks in Geneva, NATO HQ in Brussels and at the Organization for Security and Cooperation in Europe in Vienna were led not by Europeans but American diplomats, albeit not of the first rank.

Brendan Simms, Director of the Center for Geopolitics at Cambridge University, told Deutsche Welle: "The EU needs to turn into one state, with one president and one parliament, to become an important geopolitical player.”

The military aspects are addressed succinctly by Andrei Raevsky of The Saker. The risks include what would be a Ukrainian kamikaze attack on Crimea or an outrage against the cityfolk of Donetsk. [1]

Stagnation

The economics are equally telling. Europe’s biggest country after Russia is also its poorest, on official measures. Statistics being damned lies, much income goes unreported — chunks of the economy are informal and anyone with access to a patch of land can supplement their diet. [2]

Ukraine’s association agreement with the European Union includes a “Deep and Comprehensive Free Trade Area,” in the word salad of Brussels. Happily for farmers the Chernozem or black earth region yields processed tomatoes, grape and apple juice, and honey that flow to Europe, along with grains and cereals, making use of duty free quotas agreed after the 2014 coup or color revolution. Iron, steel, chemicals and machinery are its among its other exports that climbed to a record $68.2 billion in 2021.

Yet growth is less than half what it should be. At 3 per cent and inflation of 10, foreign direct investment is low at 3.7 per cent of GDP in 2019, according to the World Bank and, net, there’s an outflow.

Countries heavy in raw materials, especially petro-states like Russia, usually suffer the “resource curse.” Their economies are not diversified, lack the small business sector that creates 80 per cent of jobs, and consequently lack a deep and wealthy middle class. Often ruled by clans and cliques this makes them vulnerable to corruption and instability.

Unlike Russia, Ukraine has a strong and diversified small business sector, accounting for 80 per cent of jobs and 65 per cent of sales, spanning industry, agriculture and trade. This is the model that drives the economy of much of Western Europe. [3]

Yet Ukraine has failed to capitalize. The vast majority of small firms say bank loans are inaccessible or prohibitively expensive. The retail bank sector is unstable, often corrupt. The central bank interest rate has come down from the high teens to 10 per cent but commercial rates are lofty.

Powerful borrowers often do not repay their loans, including politicians benefiting from parliamentary immunity. Non-performing loans in all Ukrainian banks stood at 41 per cent in Jan 2021, according to the National Bank of Ukraine. They get away with this because of corruption in judiciary, security and law enforcement. That would include the general prosecutor — who was famously replaced on the “orders” of Vice-President Joe Biden in Mar 2016.

Middleman

Ukraine’s economic difficulties make the high cost of gas a challenge and, though it insists it has diversified suppliers, it remains a transit route for Russian gas. Germany also needs more gas as it abandons the use of coal and nuclear power.

Yet while it hums and haws over activation of the Nord Stream 2 gas pipeline — which the U.S. State Department says “will not move forward” if Russia “invades Ukraine one way or another” — Germany apparently is doing a little bizniz on the side.

President Vladimir Putin last month said Germany was profiting by routing Russian gas back to Ukraine and Poland at inflated prices.

“Why? Because we supply gas to Germany under long-term contracts and the price is three-to-four, [even] six-to-seven times cheaper than on spot [markets]. Just reselling 1 billion cubic metres one can earn $1 billion,” Putin said.

“Instead of shipping gas to Poland and then to Ukraine ... wouldn't it be better to ship it further to Europe and impact the spot price?”, he added. [4]

U.S. natural gas prices jumped 6 per cent on Weds as looming cold weather and the prospect of sending liquefied natural gas to Europe suggests the market is more constrained than previously thought.

European prices, which hit record highs in December, could go significantly higher if there is conflict, Goldman Sachs said this week.

Riches

Given the condition of Ukraine’s economy, Russia doesn’t need the burden. It has plenty economic problems of its own. Yes, Russia could annex Donbas but it has no reason. What it can’t allow is NATO missiles five minutes’ cruising time from Moscow — especially not in a country that has proved politically unstable. See Moneycircus, Jan 21: Eurasia Note #17 - Talk of War and Exit.

Germany’s former naval chief recognised this when he committed career suicide rather than stay silent. Vice-admiral Kay-Achim Schönbach said last week that Crimea “will never come back,” and that what Putin “really wants is respect... and it is easy to give him the respect he demands." See Moneycircus, Jan 23: Eurasia Note #18 - Dissent Rocks NATO

He went on to accuse Western politicians of naïveté towards China — saying they would do better to regard Russia as a bulwark.

The bigger picture is control of the world’s largest landmass: Eurasia, from the Atlantic ocean to the Pacific, and the Arctic to the Mediterranean. It embraces most of the world’s productive capacity, most of its underground resources.

More narrowly, the eastern part of Europe and Central Asia, roughly defined as the former Soviet Union, holds more than one-third of the world’s reserves of oil, gas, uranium, bauxite and gold.

With such riches in play, it is hardly surprising that the question is who will control this region: Russia and Germany, or Russia and China, or The Investors, the supra-national, rootless former colonial, banking, shipping and slaving families and their corporate holdings through the premier asset managers Vanguard, State Street and BlackRock.

Read on for corruption, at the international level, that make Ukraine a centre for money laundering.