Let’s say once more what our corporate media dare not. The big loser in the US war on Russia in Ukraine is Europe. Let’s also apply the wisdom, when we’re in a hole, of ceasing to excavate.
Even if, once we do stop digging, we’re still in a hole …
I’ve just found this gem, on the Naked Capitalism site.
Europe and the Law of Holes
September 3, 2023 – Conor Gallagher
It hardly comes as a surprise anymore, but senior European figures continue to offer up examples of their remarkable ineptitude. There were two glaring examples of it the past week with regards to the EU economic war against Russia.
The first was provided by the perennially lost German Chancellor Olaf Scholz. Transcripts of a call between Scholz and French President Emmanuel Macron were published by the German tabloid Bild, and they include the two leaders discussing their conversations with Russian President Vladimir Putin. Here’s Scholz’s bafflement over the fact Putin isn’t begging for mercy:
“There is something that concerns me more than the talks: he [Putin] does not complain about the sanctions at all. I don’t know if he mentioned them in his conversation with you. But he did not mention them at all to me,” Scholz told Macron, who replied: “He didn’t to me either.”
The German chancellor remarked that Putin was imposing his vision of Ukraine again: “He was sharing all his ideas on how to find a compromise. He was talking about demilitarisation and denazification [of Ukraine].
Maybe Scholz was so confused because he only gets information that’s contained here in ineptitude example number two. High Representative of the European Union for Foreign Affairs and Security Policy Josep Borrell penned a piece titled “Yes, the sanctions against Russia are working.” In it, he argues the following:
Since the start of the invasion of Ukraine, the EU has imposed 11 rounds of ever-tighter sanctions against Russia. Some people claim these sanctions have not worked. This is simply not true. Within a year, they have already limited Moscow’s options considerably causing financial strain, cutting the country from key markets and significantly degrading Russia’s industrial and technological capacity. To stop the war, we need to stay the course.
Borrell goes on to demonstrate that EU imports and exports to Russia are way down. The problem is that his data doesn’t account for third party countries that have taken up the roles of middlemen.
It’s hard to take Borrell and Scholz seriously because Moscow was clear about its plans to circumvent sanctions from the onset of the war. Last year, Russia’s Industry and Trade Ministry drafted a list of friendly countries where Russian companies could potentially set up production to help get around the sanctions. Those 14 countries were Iran, China, Vietnam, the United Arab Emirates, Türkiye, Egypt, Morocco, Azerbaijan, Mongolia, Kazakhstan, Kyrgyzstan, Tajikistan, Armenia and Uzbekistan.
Let’s just take the examples of Türkiye. A large number of Russian companies have opened branches in Türkiye and are cooperating with Turkish counterparts that provide a front for their import activities. The Economic Policy Research Foundation of Türkiye reported that Russians established more than 1,300 firms in Türkiye in 2022, a 670 percent increase from the previous year. This has continued despite strong pressure from the West on Ankara. EU imports from Türkiye in 2021 totaled 78 billion euros; exports stood at 79 billion euros. In 2022, imports jumped up to 99 billion euros and exports grew to 100 billion euros – unprecedented leaps. At the same time, Türkiye’s trade with Russia surged 93 percent in 2022. As the Atlantic Council laments:
Türkiye is now a significant supplier of electric machinery and parts, including integrated circuits and semiconductors. Although Turkish exports of electronic machinery, including critical integrated circuits, fell in the immediate aftermath of Russia’s full-scale invasion, they have since recovered and grown well beyond the pre-invasion average. From March 2022 to March 2023, Turkish electronic exports to Russia jumped by about 85 percent…
Integrated circuits and electronic machinery are not the only strategic good Türkiye continues to supply to the Russian economy. Turkish companies export millions of dollars worth of chemicals, plastics, rubber items, and vehicles, all of which help Russia’s manufacturing sector.
Following heavy pressure from the US, Türkiye said it will no longer allow the shipment of Western-sanctioned goods to Russia, but the extent of its efforts remains unclear. Ankara, for example, has not restricted the transfer of Turkish-made products to Russia, even if they include foreign components.
Ironically, while pressure from the West continues to mount on Türkiye, Ankara and Brussels quietly signed a deal earlier this year to join the EU’s Single Market Programme. The agreement gives Türkiye access to certain advantages reserved for the European Union’s common market, such as European aid for its businesses and innovation programs.
Türkiye receives nearly half of its natural gas from Russia and a quarter of its oil. Erdogan and Putin have discussed expanding their energy relationship, which would allow Türkiye to increase its transfer fees when sending gas to Europe – if they want it. Recent gas deals signed between Türkiye and Hungary and Bulgaria has The Center for European Policy Analysis worried about this possibility:
On the face of things, the deal signed between the Turkish oil and gas incumbent BOTAS and the Hungarian electricity company MVM on 21 August looks very attractive. It arguably ticks the right boxes of supply and route diversification.
In reality, it may be part of a complex and opaque scheme that could see more Russian gas transiting Türkiye to flood Central and Eastern Europe, while blocking real supply diversification. This is a worry and ought to require a response.
Earlier this year, Türkiye said it had signed a 13-year agreement to allow the Bulgarian state gas company Bulgargaz to access gas via its infrastructure. Additional details were kept under wraps and Bulgaria hastened to describe the agreement as containing trade secrets.
Nevertheless, information leaked to the media in July showed that the agreement will in fact allow Türkiye to use Bulgarian companies and the Bulgarian transmission system as a springboard to access all European markets, including Hungary’s.
Russian Foreign Minister Sergey Lavrov said on Thursday that Moscow is ready to increase gas supplies to Türkiye, which will allow Ankara to set up a gas hub for sales to other countries.
At the very end of Borrell’s piece, he does mention Russia’s efforts to circumvent sanctions but simply brushes it aside, declaring that “EU Special Envoy David O’Sullivan will play an important role.” Well, O’Sullivan took his post as International Special Envoy for the Implementation of EU Sanctions back in January and so far has not been able to wave a magic wand. Nevertheless, Borrell remains undeterred, concluding with the following: “In short: Russia’s decision to attack Ukraine has obviously pushed the Russian economy towards isolation and decline.”
While Russia has managed to reroute trade with the West through third countries, it has also shifted to stronger economic ties with China, Southeast Asia, the Middle East, and especially India. Russia’s economy grew 4.9 percent in the second quarter and is set to expand 1.5 – 2.5 percent this year.
The same cannot be said for Europe’s leading economy. While Scholz is spooked that Putin seems so unconcerned with sanctions, he is now lamenting the state of the German economy but continues to refuse to admit that the disastrous Russia policy has anything to do with it. According to the chancellor, it’s simply a result of the world economy slowing down:
“When the global economy weakens, we feel it particularly strongly. But the reverse also applies: if the global economy picks up again, we also benefit,” he stated.
The chancellor, however, is optimistic about long-term prospects. He said that Germany has “the best pre-requisites to ensure we’ll still be playing in the top league technologically in ten, 20 and in 30 years’ time.” He also rejected calls for higher debt-financed federal spending to boost economic growth.
All the economic news out of Germany is bad, but it is also not the kind that will simply rebound with the global economy. In reality, it was Berlin’s decision to sever itself from Russian energy that made its entire industrial export model uncompetitive. Just this past week Bloomberg reported the following:
German businesses are increasingly curbing investments and eyeing production abroad amid high energy prices at home. Over half of surveyed companies say the energy transition is having negative or very negative effects on their competitiveness, according to a report by the German Chamber of Commerce and Industry.
And now Berlin is saying it can no longer subsidize power prices for energy-intensive industries. From the Financial Times:
Scholz said the best way to deal with the problem of high gas and electricity costs was to increase renewable energy capacity and expand Germany’s power grid. Germany plans to derive 80 per cent of its electricity from renewables by 2030. But [Markus Steilemann, head of the VCI, the chemical industry lobby], insisted that until there was enough cheap renewable capacity available, the government must step in to help energy-intensive sectors such as chemicals. The idea was a “must-have for preventing deindustrialisation”, he said.
Siegfried Russwurm, head of the German Industry Federation, is saying the government is delusional:
Those who believe the energy transition could become the nucleus of a new economic miracle underestimates the fact that investments will largely only replace existing assets and, for the most part, at much higher cost. “This certainly won’t bring us additional economic growth for the time being. An economic upswing doesn’t come on its own. So, there’s no all-clear for Germany as an industrial location. On the contrary: Germany faces a mountain of major challenges….
Russwurm sees huge challenges ahead in restructuring the country’s energy supply. “The BDI expects the government to quickly come up with a concept that can be implemented and that ensures a secure, long-term supply of electricity at internationally competitive costs. The many state-induced burdens such as taxes, surcharges and network fees must be reduced to make electricity more attractive than fossil fuels,” demanded Russwurm. Equally urgent is the need to build the necessary infrastructure and expand the supply of electricity. The delta between ambition and implementation is growing by the day.
No matter. The German government is determined to keep digging itself ever deeper in Ukraine. Scholz said on Wednesday that Germans support his “carefully weighed” Ukraine policy and that Berlin will soon be sending more “immediately effective” weaponry to Kiev.
This is simply more evidence of Scholz’s talent for ignoring reality. Public opinion surveys in Germany repeatedly show that voters are upset with the economic toll the war in Ukraine is taking on the country. Polls show that a record high of 71 percent of the German public are not satisfied with the work of the federal government. 55 percent think that more should be done diplomatically to end the war in Ukraine. Already last year, half of the public thought that sanctions were hurting Germany more than Russia. An opinion survey released last week showed 64 percent of Germans think a change of government would make the country a better place.
The next German federal election isn’t until 2025.
While Borrell is likely to slink off soon to whatever retirement he has planned, and Scholz will almost certainly find a cushy landing spot (he’s paid his dues to the banks and the Americans), who’s going to clean up their mess? Whoever gets stuck with that task will not only have to stop digging but also deal with the equally important second law of holes: When you stop digging, you are still in a hole.
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