Ian described the proposed EU sanctions on Russia as “not shabby”, but while they are somewhat more serious sanctions than heretofore it’s only somewhat. The most serious ones are the ones on Russia’s financial institutions. Yes it’ll raise costs but will hurt London and Frankfurt including reputationally. It will also have the effect of encouraging Russia’s efforts to build an alternative. And as the FT article points out in the quote you’ve given if pushed they could retaliate and hurt any chances of European recovery quite badly:

The proposal would not initially include a similar prohibition for Russian sovereign bond auctions out of fear the Kremlin could retaliate by ordering an end to Russian purchases of EU government debt, the document states.

Also these measures would have to be agreed by all 28 members which I don’t see happening without a lot of acrimony. For more details if you’re interested see Leaked Russia sanctions memo: the details | Brussels blog :

The arms sanctions are Europe shooting themselves in the foot at the behest of the Americans. They won’t hurt Russia. And indeed could wind up helping Putin’s modernisation drive (see  Russia has little to lose from arms embargo – FT.com)

Still, the Mistrals represent a rare example of Moscow turning to outside help when it comes to kitting out its military. As such, the effect of a western embargo could be limited.

“[Blocking the sale] would be symbolic more than hurtful,” says Keir Giles, a Russian defence expert at Chatham House, a think-tank in London. “Russia is an arms exporter, not an importer. There has already been all this fuss in Russia about imports from abroad.”

Indeed, since the Ukrainian crisis began to ratchet up international pressure on Moscow several months ago, the Russian defence establishment has become even more entrenched in its ambition to reconstitute parts of its defence industry that withered after the break-up of the Soviet Union.

Most of Russia’s $81bn defence budget is spent internally.

Since 2000, Russia has only engaged in 10 military contracts of any size from overseas suppliers: 4 light transport aircraft from the Czech Republic; 2 diesel engines from Germany; 8 drones from Israel; 60 light armoured vehicles from Italy; 3 light helicopters and 4 amphibious landing craft from France to complement the Mistrals; and from Ukraine, 264 engines, 34 transport aircraft and 100 guided missiles.

Moreover as the FT points out (see: EU to weigh far-reaching sanctions on Russia – FT.com) “Many ex-Warsaw Pact countries still rely on Russian-made military equipment”.  So far not so alarming other than as a statement of intent. What I do find alarming because it’s blatant aggression is the idea of targeting Russia’s energy development. That’s telling the Russians that America and Europe holds them in the same contempt they hold Iran. Not wise. If you try to strangle their economy and simultaneously point a dagger at their heart they’re going to conclude not unreasonably that you intend waging a regime change war in the not to distant future. Such a war is unlikely to end well for anyone and anyone who thinks that Russia will not strive to lay waste their enemies heartlands has never talked to a Russian soldier let alone a Russian officer. They take threats to their home and those who live there very seriously and they believe in playing rough. (See: Leaked Russia sanctions memo: the details | Brussels blog):

For many involved in the debate – particularly the Obama administration – the energy sector is a far more important target given its centrality to the Russian economy. The measures under consideration in the document would restrict European sales of high-end energy technologies, which are similar to measures the US is working on. They would be very carefully targeted, however, and would only be aimed at long-term production so that it “should not disrupt current supply and trade in energy products”.

So these putative sanctions are fourfold:

1: Restricting access to EU capital markets by Russian state-owned financial institutions
If you read the proposals you’ll notice that the brunt will fall on London and Frankfurt. Remember that the four largest state-controlled banks in Russia are: Sberbank, VTB, the Russian Agriculture Bank and VEB. Sberbank and VTB are both listed on the London Stock Exchange. I doubt the LSE will be happy to take a reputational hit.  Furthermore it’s not all clear to me how these sanctions are going to be tailored so that they also would hit companies such as Gazprombank, which is 100% owned by Gazprom – which in turn is state owned 50%.

Which brings me to the question of alternative sources, in 2013 Russia issued €7.5 billion of bonds via Russian state-owned banks on EU markets. I don’t believe that refinancing such a relatively small amount  would be difficult if two markets in particular Singapore and Hong Kong  refuse to curb those firms’ access .

2: Embargo on trade in arms
So what? The arms embargo seems to me to be utterly pointless and will even hurt the defense preparedness of the EU’s eastern members. And for what? For nothing as the FT explains (see Russia has little to lose from arms embargo – FT.com):

All of which matters little when it comes to US, EU and Nato efforts to dent Moscow’s military or economy as punishment for its activities in eastern Ukraine.
Russia’s three biggest defence partners – absorbing 61 per cent of Russian exports between 2009 and 2013 – are India, China and Algeria, according to SIPRI data.

Since 2000, the trio have bought $58bn of Russian arms, the think-tank estimates. The US has bought $16m.

$16m? $16m isn’t even chump change.

3: Restricting trade in dual use goods
I’m not convinced that Russia has no alternative suppliers. I think it entirely likely that China will give  big “fuck you” to America and gleefully plunder all the patents it want to. It’s been their standard modus operandi up to now why should they change?

4: Restricting trade in ‘sensitive technologies’ with respect to the energy development sector
See point 3 above.

Finally the fact that these sanctions are forward looking is a major caveat, because it gives Russia time to diversify away in the direction of China in fact the measures on arms, tech and dual use both because they’re very imprecisely drafted and subject massive caveats could very easily undermine the EU and strengthen first China and then Russia.

I think with this Ukraine situation we’re seeing something very alarming which is a complete utter and absolute inability of Western policy makers to even begin to understand the goals and objectives of such powers as Russia and China. If you recall

Governments, politicians, and media in the “western” world seem incapable of understanding geopolitical games as played by anyone elsewhere. Their analyses of the newly proclaimed accord of Russia and China are a stunning example of this. If you recall what happened on May 16th last they announced:

1: A “friendship treaty” that would last “forever” but was not (yet) a military alliance

2: A gas deal, in which the two countries will jointly construct a gas pipeline to export Russian gas to China. China will lend Russia the money on very good terms with which to build its share of the pipeline the quid pro quo was that Gazprom made some not particularly onerous price concessions to China.

Remember all that? On May 15th the Western establishment media printed ream  after ream after ream of complete absolute and utter shite about how such an accord was impossible. Then it happened and the Western establishment media printed ream  after ream after ream of complete absolute and utter shite about how it wouldn’t make much geopolitical difference. Yes it will, it will make a massive difference because it’s perfectly clear to anybody except apparently the American government and its collaborators in Europe that Russia and China are highly averse to the  United States’ and European suggestions that America and its allies should get directly officially involved in the Ukrainian civil war and ultimately that they become militarily involved. Ukraine is not Syria it’s far far far more important than that and Russia will go to war over it if they have to. If Russia goes to war because the Americans and their assorted catamites in European capitals force a war upon them they do so knowing that they have China’s backing and support both overt and covert when they do so. America is in no position to fight a multi-front war in Ukraine, Northern Europe, and Asia.

If you think about it it’s pretty clear that what China and Russia want is a Renversement des alliances with Russia and  Germany becoming close partners leading ultimately to a Berlin – Moscow – Paris axis. And what China wants is to simultaneously tame the USA and reduce its role in East Asia ideally they’d like to do this while simultaneously strengthening China’s economic links with the US. It also wants the US to help it prevent Japan and Korea becoming nuclear armed powers. Could such a renversement work? Yes but getting there won’t be easy. Let’s take the Russian-German alliance first.

The advantage to Germany of including Russia within the Western European sphere would be:

1:  The consolidation of its customer base in Russia.

2: Securing German access to long-term energy supplies and other raw materials not least of which is wheat.

3: Incorporation of Russian military strength as an instrument of German long-term strategic planning. An alliance between these two fundamentally conservative powers would be to the benefit of both and would have the advantage for Germany of enabling it  to hasten NATO’s demise and the creation of a post-NATO European order in which Germany takes its natural role as a leading state. Impossible? No, not at all impossible, there’ll be one hell of a push back, within Germany and the Poles and the Baltic republics will throw tantrum after tantrum about it but ultimately does anyone in Berlin really give a toss about what the government in Warsaw thinks when there’s such a clear and sparkling opportunity for Germany? The same applies to German consideration of what the three Baltic pygmies want if it comes to the point of screwing the Baltics or screwing their own interests the Baltics – not for the first time in their history are going to be kicked down and then kicked again to keep them down.

The Russo-Chinese “friendship treaty” has concentrated certain minds in Berlin, Frankfurt, AND MUNICH wonderfully. They see a glittering prospect slipping away and alarm at this has strengthened the position of those who say that Germany’s long-term survival depends not on NATO where it’ll never be anything more than a subservient satrapy but on working closely with its natural allies in Moscow.

I’ve outlined above What the Chinese want so the question arises is there a corresponding desire in the US? If you look at the prevailing ideology amongst Washington politicians and think tanks you might be tempted to think that the prospects are nil but that’s less the case when you look at what’s in the interest of the major commercial structures who need access to Asia far more than Asia needs access to them.

Both China and Russia in other words want to encourage Germany and the US to move in directions useful to  them and this “friendship treaty” is one of the tools they’re using to accomplish this. They have everything to gain and absolutely nothing to lose and given that they have absolutely not lose and everything to gain the question becomes one of how the debate in Berlin and Washington will play out in the medium to longterm. For obvious reasons I’m most interested in Europe’s future and so for me of the two debates it’s the debate in Germany that’s the most important. So I’ll deal with the emerging debate in the US first just to get it out of the way.

Jacob Heilbrunn  had an article in the LA TImes you can read it in full here The German-American breakup – LA Times I’m going to quote just a part of it:

What’s more, leading German politicians are calling for reassessing negotiations with Washington over a transatlantic free-trade agreement that could be vital to the economic futures of both Europe and the United States. And Interior Minister Thomas de Maiziere announced that Berlin would terminate a no-spy agreement it has enjoyed with the U.S. and Britain since 1945 and begin monitoring them in Germany. As Stephan Mayer, a spokesman for Merkel’s party, put it, “We must focus more strongly on our so-called allies.”

So-called? Such statements, unthinkable only a few years ago, accurately reflect a broader antipathy toward America among the German public, which largely sees Snowden as a hero, particularly for his revelations about the extent of American surveillance in Germany.

Ever since the Bush administration launched the Iraq war in 2003 — which then-Chancellor Gerhard Schroeder vehemently opposed — many Germans have come to view America as a militaristic rogue state, more dangerous even than Russia or Iran. Indeed, a recentInfratest Dimap poll indicates that a mere 27% of Germans regard the U.S. as trustworthy, and a majority view it as an aggressive power. Indeed, a recent
Infratest Dimap poll indicates that a mere 27% of Germans regard the U.S. as trustworthy, and a majority view it as an aggressive power

Emphasis mine. Heilbrun concludes by saying:

“If Obama is unable to rein in spying of Germany, he may discover that he is helping to convert it from an ally into an adversary. For Obama to say Auf Wiedersehen to a longtime ally would deliver a blow to American national security that no amount of secret information could possibly justify.”

I think that Heilbrun is being both optimistic and pessimistic. Pessimistic in that his cri de coeur isn’t going to be listened to in Washington and pessimistic in that from what I can make out in conversations with German friends and colleagues the process of German relations moving from being allied to America to being an American adversary is well underway. Including – particularly, in those sections of the German establishment who have heretofore been America’s most loyal allies. The article is worth reading in its entirety (see Druckversion – Germany’s Choice: Will It Be America or Russia? – SPIEGEL ONLINE – News – International ) but it’s more than a little telling that Der Spiegel is printing things like this:

During an interview in his heavily secured office, Ambassador Emerson* says he comes from the financial industry, an industry in which a rule applies that is also valid in politics: “Satisfaction is expectations minus results.” Emerson’s apparent implication is that Obama was already fighting a losing battle when he came into office — the Germans’ expectations were simply too high.

Emerson doesn’t deny that a few things have gone wrong in recent years. But at the end of the day, he adds, the decision to maintain close ties between Germany and the West should be obvious. Which country has a free press? The United States or Russia? Which president takes a stand and is willing to discuss the limits of intelligence activity with the entire country? Obama or Putin? “We share the same values,” Emerson says, and that must be emphasized again and again.

The Last Straw?

This may be true in theory, but in practice Europe and America are drifting farther and farther apart. This is even evident to people like Friedrich Merz, whose job description includes keeping the divide as narrow as possible. Merz is the chairman of the Atlantic Bridge, a group that has promoted friendship between Germany and the United States for more than 50 years. At the moment, Merz is busy promoting the trans-Atlantic free trade agreement. “The agreement would be a sign that Western democracies are sticking together,” he says.

But even a conservative advocate of the market economy like Merz is often baffled by what is happening in the United States. Merz welcomes all forms of political debate, but when he sees how deep the ideological divides are in the United States, he is pleased over Europe’s well-tempered form of democracy. Responding to the new spying allegations last Friday, he said: “If this turns out to be true, it’s time for this to stop.”

America Has Become Unattractive

To put it differently, it has become uncool to view America as a cool place. Only a few years ago, for example, the post of head of the German-US Parliamentary Friendship Group in the Bundestag was a highly coveted one, filled by such respectable politicians as former Hamburg Mayor Hans-Ulrich Klose. Today it is less desirable. After the most recent parliamentary election, Philipp Missfelder, the head of the youth organization of Germany’s conservative sister parties, the Christian Democratic Union (CDU) and Bavaria’s Christian Social Union (CSU), decided to resign from his post Coordinator of Trans-Atlantic Cooperation and assume the position of CDU treasurer in the state of North Rhine-Westphalia instead. For Missfelder, managing party finances took a priority over a once attractive trans-Atlantic post.

(* incredible though it might seem Emerson the Ambassador to Germany can’t speak a word of German.  The Americans’ casual contempt for their allies in appointing somebody without any German as Ambassador to a major strategic diplomatic post has not passed unnoticed in German political circles – mfi).

When somebody like Friedrich Merz says “it’s time for it to stop” not you will note that “it’s time for us to have a frank discussion” just a flat out ““it’s time for it to stop” then you know that not only are American-German relations in crisis but that even if they manage a temporary reconciliation the structural dynamic between the two countries is irreparably altered. What’s important is that the problem is structural. The individual missteps borne of American complacency and arrogance aren’t important although they’re interesting in and of themselves what’s important is that the breach is structural and thus irreparable.

The basic structural problem is that America is no longer a viable hegemon. It’s been visibly in geopolitical decline for quite some time now and American politicians and policy makers are utterly incapable of coping with this fact. Most of them can’t even accept it let alone handle it competently by minimising American losses. So they keep on flailing about trying do the impossible which is to restore the status quo ante and repair the irreparable. American hegemony or “leadership” to use the term American politicians and policy makers prefer is over.

But the American inability to cope with this simple fact is what makes America so very dangerous because it leads Americans to believe that they can engage in the sort behaviour appropriate to a hegemony at the height of its power without even the possibility of adverse consequences to  themselves. This is why there are so many calls by America to “act” and to “lead” the American policy elite is labouring under the impression that America is still “indispensable” to use Albright’s expression. Very reluctantly the German political elite – and Chancellor Merkel’s party and their allies are coming to realize that the greatest threat to their survival is no longer from the East but from the West.

They’re coming reluctantly but ineluctably to realize that American actions are going to be increasingly at variance with underlying realities, with European well-being,  with European prosperity, and even with European survival and are likely to be increasingly erratic. The United States has committed the one unforgivable crime it has become “unreliable”. And so the Germans  are looking for an alternative and the logical and natural alternative is a European concert of nations that includes Russia. It will be slow and hesitant for the first few years but it’s the way Germany is moving. There are all sorts of issues to be decided such as if German geopolitical survival means they can no longer trust Washington how are they going to trust Moscow? How sweet does the deal they offer Russia have to be? It has to be sweet enough that the Russians will find it in their interests to abide not only by its letter but by its spirit.

The debate has moved on from how to repair relations with Washington that was yesterday’s problem today’s problem is how to cosy up to Russia. That is what’s being discussed in Berlin, Frankfurt, and Munich in intra-elite German policy discussions and those discussions are taking place because of the irreparable breach of trust with the United States that the American government and policy elite initiated.