Merkel the neo-Brezhnev takes on Vladimir Putin

Angela Merkel really is a remarkable politician. I really mean that. As much as I criticize her, she's not only managed a long run as German Chancellor that theoretically could continue for a long time. She's successfully turned the European Union, founded to remove the problem of German nationalism from the European scene, into a weapon of German nationalism against most of Europe.

She began her Chancellorship in a Grand Coalition (GroKo) with the Social Democratic Party (SPD) as a junior partner. In her second term, she had a center-right coalition with the liberal Free Democratic Party (FDP), which is now no longer represented in the Bundestag and is in serious danger of going out of business. In her current third term, she's in a new GroKo with the SPD, which faithfully supported the worst of her eurozone policies even when they were theoretically the main opposition party for four years.

And she's managed all of this with what is truly a high-risk European policy and a hardline rightwing economic philosophy, even though her Christian Democratic Party has long been committed to a less enthusiastic version of Germany's long-time social-democratic structures and policies. She's given enough ground on eurozone issues to prevent an immediate collapse of the euro currency, but has steadfastly refused to reverse austerity policies that doom the euro if they continue.

Now, she's upping the risk level again by sending signals that she's ready to promote economic sanctions against Russia, as Carol Matlack et al report in Germany's Merkel Gets Tough on Russia Bloomberg Businessweek 04/17/2014:

Behind the scenes, Berlin is making plans for the next phase of sanctions, says a high-ranking German official who declined to be identified in keeping with government policy. The measures under consideration would be wider-ranging and more harmful to Russian business than the limited asset freezes and visa bans already in place, this official says. A possible next step: targeted measures such as curbs on critical high-technology and military exports to Russia. In one of the most extreme scenarios being discussed in Europe and the U.S., Russia could be locked out of Swift, the Belgium-based international money-transfer system, as happened to Iran in 2012. That would cripple Russia’s banking system. ...

The Europeans could tie the Russian economy into knots very quickly—and more effectively than the U.S., whose trade with Russia is only about one-tenth that of the EU. Hammering out a sanctions package will be tricky, though. The most obvious risk is that Moscow could curb the flow of Russian oil and gas, which accounts for about one-third of Europe's supply. Germany is particularly vulnerable, because its gas imports have risen since Merkel ordered a shutdown of the country’s nuclear plants. German industrial giants such as chemical group BASF (BAS:GR) also depend heavily on Russian fuel. [my emphasis]

I've rarely seen it mentioned that the oil-and-gas trade between Europe and Russia is a factor that creates an incentive for stability, of a wide field of mutual dependency that creates pressure on government to not allow political tensions over issues like the Ukraine, which is not part of the NATO alliance, to escalate into mutually damaging retaliatory measures.

In itself, this is a good thing. It's the "in itself" part that gets tricky because politics and economics are never completely separate and distinct areas of policy. it's worth remembering that pre-First World War pacifists, at least the non-socialist variety and some of the socialist kind, too - put great hope in the expanding of trade ties between nations as creating greater and greater barriers against major wars. It has more recently been part of the hype for neoliberal "globalization" and "free trade" treaties that empower corporations and weaken democracy.

It is not only the West that has used oil-and-gas trade for political purposes in the Russia-Europe relationship, though. Nat Parry reports in Beneath the Ukraine Crisis: Shale Gas Consortium News 04/24/2014

Russia's state-owned Gazprom, controlling nearly one-fifth of the world’s gas reserves, supplies more than half of Ukraine’s gas annually, and about 30 percent of Europe's. It has often used this as political and economic leverage over Kiev and Brussels, cutting gas supplies repeatedly over the past decade (in the winters of 2005-2006, 2007-2008, and again in 2008-2009), leading to energy shortages not only in Ukraine, but Western European countries as well. This leverage, however, came under challenge in 2013 as Ukraine took steps towards breaking its dependence on Russian gas. [my emphasis]

But the problem for Germany with playing economic hardball with Russia is that it's likely to hammer the European economy at a point where Europe is on the verge of general deflation, with Sweden already there. Here are two PBS Newshour reports on that aspect:

Is Russia making a ‘costly’ mistake in its Ukraine campaign? 04/25/2014

European business community concerned over new Russian sanctions 04/26/2014

Wolfgang Münchau warned about the likely negative effects of sanctions on the eurozone economy in a couple of recent Spiegel Online columns, Warum EU-Sanktionen Putin in die Hände spielen 19.03.2014 and Der Schaden ist da - auch ohne Sanktionen 26.03.2014.

There's no doubt there is some nasty stuff going down in Ukraine. In a previous post, I referred to a statement by Vyacheslav Ponomaryov, a pro-Russian local leader who ousted the mayor of Slaviansk in eastern Ukraine and has take over the role hiself.

Antonie Rietzschel, Separatisten-Anführer Ponomarjow: Seifenfabrikant fordert den Westen heraus Süddeutsche Zeitung 28.04.2014.

Matt Spetalnick and Thomas Grove report for Reuters on an incident involving Ponomaryov in Ukraine rebels free Swedish hostage; Obama seeks unity against Russia 04/27/2014:

The Organisation for Security and Cooperation in Europe (OSCE) has sent unarmed monitors to try to encourage compliance with the peace deal. The pro-Russian rebels seized eight European monitors three days ago and have been holding them at their most heavily fortified redoubt in the town of Slaviansk.

One, a Swede, was permitted to leave on Sunday after OSCE negotiators arrived to discuss their release. A separatist spokeswoman said the prisoner had been let go on medical grounds, but there were no plans to free the others.

The captives, from Germany, the Czech Republic, Denmark, Poland and Sweden, were paraded before reporters on Sunday and said they were in good health. ...

"The public parading of the OSCE observers and Ukrainian security forces as prisoners is revolting and blatantly hurts the dignity of the victims," Foreign Minister Frank-Walter Steinmeier said in a statement.

"It is an infringement of every rule of behaviour and standards that are made for tense situations like this. Russia has a duty to influence the separatists so that the detained members of the OSCE mission are freed as soon as possible." ...

Vyacheslav Ponomaryov, the rebel leader who has declared himself mayor of Slaviansk, has described them as prisoners of war and said the separatists were prepared to exchange them for fellow rebels in Ukrainian custody.

According to Antonie Rietzschel, Separatisten-Anführer Ponomarjow: Seifenfabrikant fordert den Westen heraus Süddeutsche Zeitung 28.04.2014, the three Ukrainian members of the captured OSCE group were displayed in their underwear with bloody faces:

Am Sonntag führte er dann die gefangenen Beobachter wie Trophäen der Presse vor - die drei ukrainischen Soldaten, die die Gruppe begleiteten, sogar in Unterhosen und mit Klebeband gefesselt. Mit blutverschmierten Gesichtern mussten sie die Fragen der Journalisten beantworten.

[On Sunday, he [Ponormaryov displayed the imprisoned observers as trophies to the press - the three Ukrainian soldiers who accompanied the group even in their underwear and bound with tape. With blood-smeared faces, they had to respond to the questions of the journalists.]

A Reuters video accompanies the article, Separatisten in Slawjansk führen gefangene Offiziere des ukrainischen Geheimdienstes vor:

A less grisly English-language Reuters video report on the press of the main members of the OSCE team, Detained observers make public appearance in Slaviansk 04/27/2014:

See also: Benjamin Bidder, Geiselnehmer Ponomarjow: Der Bürgerkriegsmeister Spiegel Online 28.04.2014

Viktor Fund reports (In den Rücken geschossen Frankfurter Rundschau 28.04.2014) that around 12 cities have been taken over by pro-Russian forces, which is apparently what happened with Ponomaryov in Slaviansk.

Still, ugly as the scene in Ukraine may be, the eurozone could pay a high price for a policy of confrontation.

Ray McGovern notes in Killing the Putin-Obama 'Trust' Consortium News 04/28/2014 that it "was obvious from the start ... that Russia holds very high cards in this area and that the Europeans will not damage their own flagging economies by approving stronger economic sanctions that would inflict real 'punishment' on Russia."

But that doesn't necessarily mean Merkel won't proceed. She seems to enjoy playing the role of the Brezhnev of the European Union. And she may well hope that a Cold War-ish confrontation with Russia will solidify her position as leader of the Warsaw Pact EU.

Tags: angela merkel, austerity economics, eu, euro, european union, ukraine