EU Has Misconceptions About the Origin of Ukrainian Conflict

LONDON, October 21 (RIA Novosti) – The ASEM summit in Milan cruelly exposed the illusions EU leaders hold about the Ukrainian conflict, and not for the first time

Ever since the February coup in Ukraine, the EU’s leaders have held to two assumptions: First, that the crisis in Ukraine is a conflict between Ukraine and Russia, and second, that they can bend Russia to their will by applying pressure on it to achieve the outcome they want in Ukraine. This outcome would entail the complete restoration of Kiev’s undiluted political control over the whole country, including the rebellious regions in the east (even the EU leaders quietly acknowledge that Crimea is lost to Ukraine forever).

These two assumptions blind the EU leaders to reality. Since they insist on seeing the conflict as one between Ukraine and Russia, they deny the reality that the regime in Kiev that they are supporting came to power through a violent, unconstitutional coup, which is behind the current conflict.  As a result, they refuse to see that this is not a conflict between Ukraine and Russia but an internal conflict between Ukrainians, between the people of eastern Ukraine who opposed the February coup and the ultra-nationalist, Russophobic regime in Kiev and the political system it has created.

The other reality the EU leaders seem ignorant of Russia itself and its role in the world. Not only is Russia far stronger economically than they seem to realise (witness its success in absorbing the recent oil price fall) but their entire approach shows that they have still not adjusted to the comparative relevance of the Chinese and Asian economies in terms of Russian oil and gas consumption. They act as if it is still only the West that matters. That Russia is not dependent on their goodwill for its economic survival and has other partners to trade with is something they seem unable to face.

The assumption that the conflict can therefore be “solved” in the manner the EU wants, by pressuring Russia, is therefore doubly misplaced. Russia didn’t cause the conflict in Ukraine and is not responsible for its outcome; it cannot simply switch it off at the EU’s bidding in the way EU leaders appear to think it can, even if it wanted to. At the same time, the sanctions the EU has imposed to pressure Russia, while causing Russia real problems, cannot damage Russia in the way they think. Europe’s moves are much more likely to anger Russia and consolidate popular support for the Russian government than bend it to their will. In the meantime it is becoming clearer by the day that by adopting sanctions, the EU leaders seriously underestimated the harm they would do to their own economies.

This persistent failure of the EU leaders to face reality has set the scene for a fiasco.

With their own economies coming under increasing pressure and with Ukraine itself continuing to suffer due to its deepening crisis, the EU leaders, especially Angela Merkel, need to resolve the Ukrainian conflict quickly.  They seem to have persuaded themselves that a combination of sanctions, falling oil prices and their collective presence in Milan would somehow force the Russians to retreat in the way they wanted.  They seem to have disregarded warnings from Moscow that this would not happen and that Moscow would not change its policies in order to get sanctions lifted.

What happened therefore came as a shock. Not only did the Russians not retreat as expected but as Dmitry Peskov, the Russian Presidential spokesman said, they sought instead once more to educate the EU leaders about what’s really going on in Ukraine, explaining that the conflict is an internal one and not one between Ukraine and Russia. Since this is a reality the EU leaders refuse to face, the lesson was extremely unwelcome.

The EU leaders were left clutching at a comment by President Putin that he did not want to see the situation in eastern Ukraine become another frozen conflict and that Russia does not dispute or seek to undermine Ukraine’s integrity. These words in fact simply reflect what has been Russia’s position all along – that since this is an internal Ukrainian conflict, it is for the Ukrainians themselves to settle their differences between themselves through negotiations and that the outcome is for them to decide. However, the EU leaders refuse to see this, instead persisting in the fantasy that the conflict is one between Ukraine and Russia, with Russia committing “aggression” against Ukraine, and misunderstood these banal words as Russia somehow “backing off” from its phantom aggression.

The only practical result that appears to have come out of the summit is that Ukrainian customs officials and guards will resume working at their posts on the Russian border. This was actually agreed on by the Russians as long ago as July 2, 2014 at an earlier summit in Berlin and is therefore nothing new. Both Ukrainian officials and OSCE monitors have been observing the border for months and have seen no evidence of the heavy traffic of Russian troops and military equipment the Ukrainians and the West claim is happening.  The fact that there is no evidence for it does not however shake the EU leaders’ belief that it is going on. Given their stubborn belief in something for which they have no proof, it is difficult to see how a further deployment of Ukrainian customs officials and guards and of more OSCE monitors on the border is going to make any difference.

The Milan summit is a textbook case of a conflict that is being unnecessarily prolonged because of a refusal to face facts.  It is still in theory possible to resolve this crisis diplomatically through a settlement brokered by the Russians and the Europeans. However, for that to happen, the Europeans need to completely change their understanding of the crisis. Since it seems they cannot do this, the conflict will continue, and will not be settled diplomatically but by events on the ground.  It is a certainty when that happens that the result will not be the ones the Europeans like, but by refusing to face facts, they are losing the ability to influence the outcome.

The Milan summit witnessed a similar fiasco in the gas negotiations, again because the Europeans came to them with a completely wrong set of assumptions.  That however is something to discuss later, once the latest round of tripartite gas negotiations between the Ukrainians, the Russians and the Europeans are over.

Alexander Mercouris is a London-based lawyer. The views expressed in this article are the author’s and may not necessarily represent those of RIA Novosti.

Top 10 Foreign Holders Of US Debt: China, Japan Still In The Lead

China, the largest foreign creditor to the U.S., bought more Treasuries in October than any other foreign investor, a sign that the U.S. is still considered a global safe haven despite the 16-day partial government shutdown and threat to default that month.

China boosted its holdings by $10.7 billion, or 0.8 percent, to $1.305 trillion, according to Treasury Department data released Monday. China overtook Japan as the largest creditor to the U.S. in September 2008, with holdings hitting a record high of $1.314 trillion in July 2011. So far this year, Beijing has increased its holdings 6.9 percent and is on track for the biggest gain since its stake in Treasuries rose 30 percent in 2010.

Japan boosted its position in Treasuries by 5.7 percent through October and is on track for its sixth annual rise in holdings of the debt.

Amid the debt ceiling crisis in October, China’s Vice Finance Minister Zhu Guangyao urged Washington to take decisive steps to avoid a debt crisis and ensure the safety of Chinese investments. Japan’s finance minister, Taro Aso, made similar public comments, as have Singapore’s prime minister, the chairman of Switzerland’s central bank and many other officials.

It now appears that a U.S. default was not as big a concern for U.S. creditors as markets originally feared. Foreign investors overall added $24.4 billion in U.S government-debt holdings.

Below are the top 10 largest holders of U.S. debt at the end of October.

1. China, mainland: $1.305 trillion

2. Japan: $1.174 trillion

3. Caribbean Banking Centers: $290.7 billion

4. Oil Exporters*: $236.6 billion

5. Taiwan: $184.5 billion

6. Belgium: $180.3 billion

7. Switzerland: 174.3 billion

8. UK**: $158.4 billion

9. Russia: $149.9 billion

10. Hong Kong: $136.3 billion

 

* Oil exporters include Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya and Nigeria.

** UK includes Channel Islands and Isle of Man.

Brazil and China in R$60B Currency Swap

By Lucy Jordan, Contributing Reporter

BRASÍLIA, BRAZIL – Wary of dependence on the dollar, Brazil and China on Thursday agreed to a R$60 billion currency swap, shoring up their economies and increasing liquidity in the wake of continued instability in Europe and the United States.

President Dilma Rousseff and Chinese Prime Minister Wen Jiabao shake hands during a meeting in Rio last week, photo by Blog do Planalto/Wikimedia Creative Commons License.

“It is a measure that reinforces the economies of both countries,” Brazil’s Minister of Finance Guido Mantega said in a statement. “It is as if we had a reserve of additional resources for times when the international economy is stressed.”

Under the initiative China will be able to access up to R$60 billion from the Brazilian Central Bank for bilateral trade, or to bolster reserves as needed. Brazil will have equal access to 190 billion yuan from China.

The initiative was discussed by BRICS nations at last week’s G-20 summit in Los Cabos, Mexico. It is designed to strengthen ties between the group, which has been lobbying for greater influence at the international table, and to enable them to better withstand the global economic crisis.

The five countries also discussed creating a pool of reserves to dip into in times of need. Together, the BRICS countrieshave the largest volume of reserves in the world, at US$4.5 trillion.

Antony Mueller, a professor of economics at the Federal University of Sergipe, said that BRICS were keen to find a way to reduce their reliance on the dollar. “Emerging economies, and the BRICS in particular, seek for a way to lessen their dependence on the dollar for international trade,” he said in an email Friday. “Both the real and the yuan do not (yet) qualify as international currencies. Therefore, these countries … establish bilateral currency arrangements.”

China, keen to promote the yuan as a global reserve currency, has established a raft of currency swap agreements with countries including Japan and Thailand in recent years. Brazil is the largest economy to date to sign such an agreement.

The leaders of the BRICS nations pose for a photo during the G-20 summit in Mexico last week, photo by Blog do Planalto/Wikimedia Creative Commons License.

The deal was made during a meeting between President Dilma Rousseff and Chinese President Wen Jiabao, in Rio for Rio+20. Brazil and China also signed accords designed to boost investment, trade and cultural exchange.

The two countries inked agreements to increase exports of Brazilian aircraft made by Embraer to China, and to establish a factory in China for the construction of aircraft manufacturer’s jets. There will also be increased cooperation in aerospace technologies, with the launch of one joint satellite this year and a second in 2014.

The agreements come in the wake of recent tensions over trade between the two nations, which has hitherto been dominated by Chinese demand for Brazil’s unrefined commodities and Brazilian consumption of cheap Chinese goods. In an effort to bolster domestic manufacturers, Brazil has recently raised taxes on many imports, a move that will disproportionately affect Chinese producers.

Professor Mueller warned that such bilateral trade agreements were suboptimal. “In a wider historical and global perspective bilateral agreement for trade and finance are ‘third-best solutions,’” he said, “The first best being free trade and a global currency with the second-best solution being wide regional free trade areas (such as EU and Euro).”

Accounting for seventeen percent of Brazil’s international trade, or some US$77 billion, China overtook the U.S. in recent years to become Brazil’s biggest trading partner. Mantega said that trade would continue to expand. “China is growing fast and wants to stimulate consumption,” he said. “There’s no limit to how much trade can grow.”