Saturday, February 21, 2015
I will not pretend that what I have to offer here is free of bias. I believe that anyone who makes such a claim is untrustworthy. I do have bias in respect to the Ukraine conflict, and I think it has to do with my background, namely being a person born in Romania who is of Hungarian ethnicity. I will therefore always feel sympathy towards the view of the ethnic Russian people living in Ukraine, especially given the hard-core nationalist nature of Ukraine's post-Yanukovic government, which saw it as its number one priority, the first day after they ousted him to repeal minority rights. I have to admit that after such a move, there was never much hope of this new regime gaining much sympathy with me, given that I believe that respect for historical minorities and their right to avoid assimilation by the majority population should be a human right which should be observed everywhere.
Unfortunately, I doubt there are many people in the US government or the media who understand the very concept of a distinct ethnic and linguistic identity. They most likely think of Russians as simply people who live in Russia and are Russian citizens. Europe is however a place where a few hundred years ago a concept was born, which led to nation-states being formed, based on ethnic identity. Unfortunately, borders were not necessarily always drawn in observance of this concept. That is why I was born in Romania, and while I have Romanian citizenship, I consider myself to be of Hungarian ethnicity and to belong to Hungarian culture. When there are certain transgressions that happen against the many ethnic Hungarians who live in neighboring countries, such as was the case in Slovakia, when the 2009 language law was passed, people in Hungary were understandably outraged, because they saw it as an attack on their ethnic kin.
It is the failure to understand or acknowledge this concept which is leading us down a path that is increasingly looking like it is taking us closer to a potential global-scale catastrophe, then we have been since perhaps the Cuban Missile Crisis. If anyone doubts that things are now reaching such a danger point, think again. US politicians are currently pandering to public opinion formed in large part thanks to very one-sided and outright unprofessional coverage of the Ukraine crisis for the past year and increasingly showing their tough guy or gal credentials by talking tough on arming Ukraine. I think it will happen sooner or later, at which point we will have crossed the point of no return.
Russia's government will have only one option as an acceptable response which will save it from collapse and that is to provide full and open support to the ethnic Russian minority in Ukraine and that is exactly what it will do. The end result will be a bloodbath fueled by a hardening of positions on both sides of this proxy war.
Missed opportunities to defuse the crisis.
We might all like to think that given the size of Russia's nuclear arsenal, as well as its very important role in global economic stability given its natural resources that it provides to the world, cooler heads will prevail and the best possible people are brought in to come up with a way out of this crisis. I want to point to a list of missed opportunities since the day that Ukraine's corrupt president was ousted, which might have helped steer the situation in a different, less dangerous direction. I honestly don't know whether these opportunists were missed on purpose due to certain desires to actually push for a crisis or due to incompetence, but in fact both possibilities point to incompetence in this case, because if anyone thinks that it is wise to escalate this thing, he/she must be a very incompetent person.
Repeal of minority rights.
The day after Yanukovic fled due to the violence on the streets, the Ukrainian parliament decided as its first act to repeal Ukraine's law on minority language rights, which allowed for the use of a minority language, alongside Ukraine's official language in areas historically inhabited by ethnic minorities. Aside from EU members Romania and Hungary, which expressed concern in regards to the ethnic Hungarians and Romanians living in Ukraine having their basic rights violated by this move, there was a complete failure on behalf of the Western world to react firmly and swiftly to this event, which in my opinion did more than anything to lead to the present conflict we are dealing with today. I believe that a very strong rebuke by the EU and the US of this move by Kiev's new nationalist government would have not only tempered Ukrainian nationalism but also would have given some reassurance to the large ethnic Russian minority that it will not be left at the mercy of the new nationalistic Kiev regime. The move to repeal minority rights was vetoed later on, but only after the new Kiev government in effect realized that it managed to set its own house on fire. By the time the move was vetoed, the East of Ukraine was firmly in the grips of revolt. The Western media tried to emphasize throughout this conflict that it was all because of Russian propaganda, which is an outright shameless lie, which was repeated over and over again by most mainstream outlets. I am not denying that Russian propaganda played a role, but the main cause of the rebellion in the East was in fact the justified fear that Ukraine had a new government that was showing very obvious hostility towards them. Not to mention that Ukraine's president which enjoyed overwhelming support in the East was ousted through undemocratic means by a nationalist mob, spearheaded by extreme right organizations such as Svoboda and Right Sector.
We should keep in mind that on the issue of historical minority rights, the EU has a terrible record of ignoring the issue and accepting some very harsh policies among some EU members as was the case with the 2009 Slovak Language Law, which imposed very harsh fines of as much a an average yearly salary (5,000 Euros) for not observing the rules of the law, which prohibited the use of any other language aside from Slovak in certain circumstances.
The EU has France as one of its founding members. France refuses to even recognize the existence of historical minorities on its territory, therefore EU laws and regulations evolved over time in a manner that had to accommodate this policy. This is why I believe that allowing countries such as Estonia to become members of the EU and NATO was a huge mistake, which endangers our very existence. There is no telling when a nationalist trend will sweep that small nation and they will decide to mistreat the Russian minority which makes up a quarter of that country's population. At that point, Russia will once again be put on the spot, because it cannot just ignore ethnic Russians being mistreated, while we are bound by treaty to defend Estonia. In other words, the world has become hostage to Estonian nationalism potentially going a bit too far and causing ethnic tensions which would pit two nuclear powers against each other, with no way for either side to back down. If this lack of foresight on behalf of our leadership does not worry the public, I don't really know what would do it at this point.
This is also one of the reasons I believe that Ukraine is not a good fit for EU or NATO membership, therefore the EU association agreement should have never been offered, which would have spared us all from this mess.
The Odessa massacre.
In May, there was a confrontation in the city of Odessa between pro Kiev activists and ethnic-Russians protesting against the new government and for autonomy for themselves. The clashes ended with tragedy, where a group of ethnic Russians took refuge in a government building, which was torched most likely due to Molotov cocktails being thrown back and forth, leading to 39 people being burned to death.
Given that no one was ever brought to justice for this crime, even though it is quite obvious that extreme right-wing organizations are to blame, it is never too late to condemn at the very least Kiev's inaction in punishing this act of hate, which led to the death of so many people. But to date, this crime & failure to bring those responsible to justice was never condemned by Western officials.
I encourage all who are capable of keeping an open mind to take a step back and realize what this would look like from the point of view of the ethnic Russian minority living in Ukraine. The Kiev government did not punish anyone for this hate crime committed against them. Kiev's western backers, likewise did not condemn this atrocity but in fact just kept going with more condemnation of Russia for its support of ethnic Russians in Ukraine. I don't know of any propaganda message that Moscow could have ever possibly come up with which could have had a stronger effect in solidifying the opposition of ethnic Russians to being subjected to the new Ukraine government and its obviously not very sympathetic backers from the West, than these actions.
Kiev's military offensive in the East.
While the Western media and officials wasted no time in condemning former Ukrainian president Victor Yanukovic for using violence as a means to stay in power in the face of the challenge posed to his rule by a violent mob, no major criticism was ever attempted at Kiev's military offensive last summer. Back then Kiev was going up against an insurgent force that was very obviously under-equipped, yet the government went ahead and deployed heavy weapons, including against civilian targets, causing much death and destruction in the mainly ethnic Russian East of the country. I fail to see how people can expect to see an outcome where Ukraine can be one again, given the death, suffering and destruction that has occurred in the Donbas region in the past months. It is like demanding and expecting a spouse to return to a household where much abuse has taken place.
If there is one thing we can be sure of and everyone should have understood from the outset is that Putin cannot afford to allow the separatists to be defeated militarily. He will go as far as he has to in order to prevent that from happening. The West tried to push Russia into abandoning their ethnic kin through sanctions and arguably through the suppression of oil prices, but as we can see, it is not happening and will not happen. Any further attempts to do so will only lead to a further escalation of not only the war in Ukraine but also of the economic conflict, which the US might not feel directly at the moment but the EU sure does as it loses tens of billions of Euros worth of exports and billions worth of revenue in the tourism industry as Russians cho ose to stay home.
The Economic Pain.
When the anti Yanukovic protests started in Kiev in the aftermath of his choice to pick Russia's offer over that of the EU, I am certain that the main driver of the protests was a desire by ordinary Ukrainians to take a path towards a better life. Given that in 2013 Ukraine was the fifth poorest country on the continent, their desire for a new path is understandable. Unfortunately, they failed to take into consideration the country's current economic ties. Russia is Ukraine's biggest trading partner even now after a full year of conflict, with about a quarter of Ukraine's exports going to Russia and one third of imports coming from Russia as well.
Between the declining economic relationship with its main economic partner and the conflict with the ethnic Russian separatists in the East, Ukraine's economy has suffered huge damage in the past year. The economy most likely shrunk by about 7.5% in 2014. Worst of all, its currency the hryvnia is in complete free-fall. It traded at around eight hryvnia to the dollar in 2013, while it is currently at twenty seven. This means that the 1,200 hryvnia minimum monthly wage which was worth about $150 in 2013, is now worth just $45. With inflation running in the 25% range and wages remaining stagnant, life which was already quite miserable before the Maidan revolution is now looking very bleak indeed. Ukrainian wages now resemble something one might expect to see in most sub-Saharan African countries.
The country's economy is set to shrink to under $100 billion, compared to $178 billion in 2013 and GDP per capita will officially drop bellow the level of Europe's current poorest member Moldova, at just under $2,200 per capita, which is down from $3,900 in 2013. Meanwhile, its debt/GDP ratio will go from 40% in 2013, to over 80% by the end of this year. S&P which is where I got this data from, forecasts a relatively strong rebound in 2016, which should see 2015 as the low-point for Ukrainians, but personally, I doubt that will be the case. Ukraine is set to tie itself to the EU economy, which is more or less in stagnation mode for almost a decade now, which means that demand for Ukrainian made goods will be limited, while Russia will continue to de-leverage its economy from its ties with Ukraine.
Just to offer an example, Gazprom's chief announced last month that it will end its reliance on Ukraine as a gas transit route one way or another within the next few years (link). Ukraine currently receives about $3.5 billion in gas transit fees every year, which it will lose in just a few years. There will be many other shocks coming Ukraine's way due to its diminishing ties with Russia. In addition to that, there will be the shock therapy it will have enforced on it by the IMF in coming years, which it will be in no position to resist. I believe that in the best-case scenario, it will take at least a generation for Ukrainians to once again enjoy the miserable living standards they had in 2013.
The EU & Russia
There has been much media coverage of the effects of this conflict on the Russian economy. There is not much I can add to what has already been said, except perhaps point out that the main hit to Russia came from the lower oil prices, which may or may not be the result of Western actions meant to pressure Putin. The price of oil cannot stay this low indefinitely, because it will eventually cause global shortages within the next few years as more and more companies opt to cut investment. Reality is that many oil companies, especially in the shale oil and oil sands were not doing very well to begin with, even when oil was at $100/barrel. If prices remain at current levels beyond this year, we are likely to start seeing massive defaults on the almost $200 billion that shale oil companies borrowed in the past five years or so. So, while things may be tough for Russia right now and the pain might last into next year, Russia will survive and will recover. Its leaders may even come away with some important lessons out of this and recognize that they need to start creating the environment needed to allow for honest private enterprise to develop and prosper within a less corrupt environment and with clear laws in place to govern business.
The EU may have only suffered minor economic pain thus far, but I believe it is the bigger loser in all this for the long-term. The EU needed to have a strong relationship with Russia, because it needs its natural resources. While all the talk lately has been about diversifying away from Russia, the reality is that the EU cannot do that at an affordable price. There are simply no viable alternatives, while the current alternative sources, such as Norway and Netherlands are set to start declining. The decline that is forecast for Holland alone by 2030, is equivalent to the loss of the 63 billion cubic meters that the EU was going to receive via South Stream before it obstructed it. Norway's gas production will also decline significantly by 2030 as well. The EU is therefore in no position to accept a significant decline in Russian gas imports. Its only long-term alternative is to drastically increase LNG imports, which tends to be far more costly. I think this is the last thing the EU, which failed to grow its economy since 2007 needs going forward. It is obviously already un-competitive compared to other major competitors, so more expensive energy is not what it needs to settle for.
So was Maidan worth it for anyone? We can no longer ask this of ordinary Ukrainians given measures such as the "Truth Ministry", which was introduced in December. We have no way of knowing how they feel one year on. I don't think the Russians are happy about it. Westerners continue to be caught up in the spirit of hostility towards Russia, and are yet to see and feel many of the consequences as a result. It seems we think it was worth it, but it is clearly the result of public opinion being formed by a very aggressive mainstream media campaign which wants to present things this way. But, if we actually take the time to look at the consequences, there seems to be no winner in all of this.