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Everyone a loser in Ukraine-Russia dispute – except EU energy policy

Sunday, January 25th, 2009

The gas is flowing again. The deal signed between Ukraine’s prime minister Yulia Tymoshenko and Russia’s Vladimir Putin in Moscow on January 21 should at last provide some respite for all those who have suffered severe hardship from the suspension of gas supplies in recent weeks.

In the short term everyone has been a loser from this dispute.  Neither Ukraine nor Russia emerge with any credit. The economic strength of many countries in south east Europe has taken a battering in already difficult times.  On the other hand the long-term case for a proactive EU energy policy has received a major boost.

It seems that the Moscow agreement is for 10 years and includes a formula under which Ukraine will pay a European benchmark price, linked to the oil price, calculated quarterly and discounted by 20 per cent for 2009, while Ukraine agrees not to increase the transit charges for exporting Russian gas to European customers. There are tough terms for outstanding payments.

The crisis is over then, at least for now. Or is it? We are all familiar with the cold war rhetoric between Russia and Ukraine, and the archaic, heavy-handed style of Russia’s leadership, but the fierce rivalry between Ukraine’s prime minister and its president has also been a key factor in delaying resolution of the dispute.  We learn that officials from President Viktor Yushchenko’s office are now suggesting that the deal must be reopened later this year, leading to irascible phone calls between Brussels and Kiev.

“A plague o’ both your houses!” That must be the reaction of Bulgarians, Slovaks and others in south-east Europe as they contemplate the hardship inflicted on their populations and the damage which has been done to their economies.

Shakespeare’s curse also sums up the reaction of European Commission President Barroso to the crisis. He held nearly 30 phone conversations with leaders in Moscow and Kiev to seek a solution, but found that agreements were announced, then repudiated the next day.  “This is the first time in my life that I saw agreements that were systematically not implemented. That has never happened with any other partner in the world. There was a complete contradiction between discourse and reality” he said.

The public dispute between governments is more or less in the open, with each player performing in character. We know what to expect. The shadowy role of the corporate sector and the relations between business and politics is much more difficult to penetrate.

Take RosUkrEnergo for instance, the Swiss-registered Ukrainian joint venture owned by Gazprom and two Ukrainian businessmen, which has long been the major distributor of Russian gas within and across Ukraine. There is clearly no love lost between RosUkrEnergo and Naftogaz, the main Ukrainian domestic supplier. Some argue that this was really at the heart of the dispute. It was certainly an element in the Moscow agreement.

There is little doubt that the crisis will have caused serious economic damage to both Russia and the Ukraine. It has lost them millions and undermined confidence in their reliability for production and for transit. It has stimulated the search for more diversified energy supplies and more efficient energy use across Europe.

The cutting off of supplies could not have come at a worse time. This winter is proving uncommonly hard. They were using icebreakers in Berlin’s Oder-Spree waterway to clear the way for coal barges. Hungary and its neighbours report many deaths caused by the cold.  Bulgaria has threatened to reopen its Chernobyl-type nuclear power station which has been closed for two years under an EU-funded arrangement, while Slovakia is planning to bring back the nuclear plant which as part of its accession treaty was closed at the end of 2008.

Serbia said that its power grid was close to collapse as consumers were forced to switch to electricity during the crisis. The EU mobilised the civil protection mechanism for Moldova where 50,000 people were left with no fuel supplies.  All those directly affected were the biggest losers of all. But at least this crisis has identified some of the pinch points for the evolution of European energy policy.

Posted in Energy, Russia | No Comments »

Russia – Ukraine gas dispute: business or politics?

Tuesday, January 6th, 2009

Is it business or politics? The official EU line is that the confrontation between Russia and the Ukraine on gas supplies is a commercial dispute which does not call for political intervention.  This is far removed from the accusations of “pipeline politics” directed at Russia during the 2006 dispute.

Requests by the parties for the EU to act as honest broker have been refused, although the increasing impact on member countries led to a brief Presidency/Commission statement on January 6 which called for settlement of this “bilateral commercial dispute”, while EU officials continued to talk in Kiev and Moscow.  Meanwhile the weather gets colder.

There is no denying the commercial issues which underlie this crisis, relating to gas prices and transit costs. Gazprom has suggested that Ukraine should pay between €250 and €450 per thousand cubic metres of gas where they currently pay €175. Other Europeans are paying €500, through contracts agreed at a time of sky-high oil prices, but it seems that gas prices follow oil prices with a six month time lag and the Ukrainians are no doubt holding out for the big price drop which everyone anticipates this spring. The contract arrangements for managing transit seem totally confused.

Circumstances have changed since 2006 when Gazprom last cut supplies through Ukraine.  The Ukrainians themselves have substantially increased their gas storage capacity and so strengthened their negotiating position. Major consumers such as Italy  and France also have much larger gas reserves (although others such as Turkey do not).

Gazprom itself has to demonstrate its reliability. It is heavily indebted, desperately needs to fund more capital investment and is no longer benefiting from surging prices. In order to fulfil its contracts it is diverting supplies via Belarus to Poland as well as drawing on its own reserves in western Europe.

So is the dispute part of the Great Game whereby Russia seeks to bring to heel the former Soviet republics, using the energy weapon to secure their compliance? Russian Prime Minister Putin can be relied upon to make it as political as possible, using a televised meeting with Gazprom CEO Alexei Miller to approve the suspension of certain supplies to Ukraine. Many press reports have linked the dispute with Ukraine’s wish to join NATO and see it as chapter 2 following chapter 1 in Georgia last August.

I’m not convinced. If this dispute demonstrates anything, it is not only Europe’s dependence on Russia for its natural gas supplies (20 per cent and rising), but Russia’s dependence on its customers across Europe. The affair will certainly expand gas storage capacity in the consuming countries, encourage diversification of supply including LPG, and boost plans for alternative pipelines such as Nabucco, none of which will be much welcomed by Gazprom.

Everyone has an interest in stabilising the situation and replacing the extraordinarily muddled contractual arrangements between Russia and Ukraine with something more durable. That’s where the European Union should be applying its influence. Maybe we’ll get such an agreement by the end of this week.

Posted in Energy, International, Russia, Turkey | No Comments »

Europe prepares for Obama presidency

Monday, November 10th, 2008

After all the excitement of an amazing US presidential election, here we stand in the cold light of dawn, wondering what happens next. What can we Europeans expect of President Barack Obama? As others have pointed out, his first duty will be to serve the interests of those who elected him and not the political priorities of friends and neighbours, so we should not raise our hopes too high.

Yet things do seem very different this time. All the evidence suggests that Senator Obama will be a president who is deeply committed to a multilateral approach and who perceives international co-operation as fundamental to meeting the challenges which the US faces. His July trip around Europe gave a strong indication of his global perspective. The deeply unpopular image of America across the world causes him real distress.

Obama was careful during his campaign to avoid giving too many hostages to fortune, but trade was one exception, as the candidate argued that free trade agreements such as NAFTA were responsible for job losses and that outsourcing of production benefited businesses while damaging the interests of their workers.

A strengthened Democrat majority in Congress will not make it any easier to resist protectionist sentiment and no doubt we can expect some early measures such as support for the US auto industry – a distant echo of President Bush’s support to steel and farming in the early days of his first term. There may well be tax changes as well, which make outward investment less attractive to US firms.

There is a small window of opportunity. Over the coming weeks people will seek to breathe new life into global trade negotiations. The new trade commissioner Baroness Ashton has raised the hope of progress for the Doha Round in what I thought a rather convincing BBC interview and Pascal Lamy has offered to stay on at the WTO in pursuit of an agreement.

So will the November 15 summit in Washington open the way for trade talks as the Brazilians hope, I wonder? And will President Sarkozy speak for free trade during the meeting? Maybe it will be easier in the absence of ex-Commissioner Mandelson!

Climate change is an issue where we can confidently assume that the new president will chart a new course. Take a look at his manifesto on energy and climate change. He espouses emissions trading, wants renewables to provide 25 per cent of energy needs by 2025 and sees further investment in biofuels and new technologies. Nuclear power and energy saving also feature on his wishlist.

Europe should feel comfortable with this agenda, but faces some fundamental challenges of its own, in particular whether it can deliver on the commitments already made, without which its current position of leadership will melt away. The broader challenge is to bring China, India and similar economies more directly into global decisions. Real progress by Europe and the US will be an essential precursor of movement here.

The evolution of US policy towards Russia will be of special interest to Europe, intertwined as it is with the issue of Star Wars missile defence.

Medvedev’s clumsy reference to Russia’s anti-missile missiles in Kaliningrad (or are they anti-anti-missile-missiles?) is hardly likely to change US policy, but I suppose was intended to put pressure on the EU and to drive in deeper any wedge between the US and Europe. After all, Russia already has such armaments in situ. For Polish prime minister Donald Tusk Medvedev’s statement was political and not military.

Obama is a man who will take his time. Once in office he will no doubt weigh up the efficacy of the anti-ballistic missile system, its budgetary cost and its political implications. The Pentagon is asking for $65.5 billion for development at a time of severe budgetary pressures. Any improvements in US-Iran relations would also come into the picture. If there is a change in US policy it will be rationally thought through and set in a wider context than just providing comfort for Russia.

The Europeans are keen to seize the initiative on a reform of global economic management at the November 15 Washington summit and produced a detailed set of proposals when they met in Brussels on November 7.  The current mood in the US will certainly be responsive to tougher regulation, maybe going further than the European Commission, for instance, would want. How far a new president will respond to giving more power to international organisations such as the IMF remains to be seen. Once again the Democratic dominance in Congress will be an important factor.

Finally there are those issues such as the Middle East conflict and the war in Afghanistan. While Europeans hope for a more proactive US role in the peace process they can also expect the new president to demand greater support against Al-Qaeda. This may be the most challenging element in transatlantic relations over what promises to be a period of far-reaching change.

Posted in Climate change, Defence, Energy, Finance, International, Russia, Trade | 1 Comment »

EU relations will test Russian intentions after Georgia invasion

Monday, September 8th, 2008

The OSCE seems to have serious doubts about Georgia’s role and there are even suggestions that the conflict was provoked by Vice President Cheney in order to boost McCain’s cause in the US elections.

Rash initiatives by the Georgian government in South Ossetia were almost certainly the trigger for the Russian action, but a trigger which Moscow had long been anticipating. The campaign was surely a far-reaching and thoroughly planned operation to damage the regime of President Mikhail Saakashvili, to assert Russia’s right to dictate political developments in its near abroad and to block NATO expansion in Ukraine and the Caucasus.

The tensions had been building for some time, apparently including a mounting level of cyber attacks on Georgian official websites similar to those previously experienced by Estonia, and reprisals against Russian sites by so-called “hacktivists” who specialise in DDOS – Distributed Denial of Service, where websites are sabotaged by swamping.

It is the scale of Russian actions in Georgia which may prove deeply counter-productive for Moscow. It seems likely to strengthen the US presence in the region and will raise the level of scepticism about Russia’s good faith in its international dealings. It will no doubt give quite a boost for those who wish to build new oil and gas pipelines which bypass Russia. Much will depend on how quickly the Russians withdraw from occupied Georgian territory and engage with OSCE and EU. There is no denying, though, that NATO expansion now looks much more challenging than it was before August 8. European members of the Alliance will have no enthusiasm for extending the guarantees of Article 5 to the Caucasus.

The European Union has acted quickly with its ceasefire proposals, some strong words and convening of a special summit in Brussels, where deep divisions of opinion were papered over and a united Franco-German position carried the day.

Europe is at pains to stress that the EU makes common cause with the Americans, but its rhetoric has been much more cautious. Sanctions have been rejected and dialogue sustained. If President Sarkozy and his colleagues can make real progress in their talks with the Russian leadership, even to the extent of launching a programme to resolve the “frozen conflicts” of South Ossetia and Abkhazia, then that would be a very considerable achievement

Russia needs the EU quite as much as the EU needs Russia, if only to counterbalance and moderate American policies in the region. While keeping the pinch of salt to hand (and remembering the black belt), it’s interesting to see what President Medvedev had to say to Euronews in defending the Russian position and expounding on the EU-Russia relationship.

Posted in Defence, Energy, Russia | No Comments »

EU relations will test Russian intentions after Georgia invasion

Sunday, June 29th, 2008

August is the traditional month for invasions. Foreign politicians are on holiday, much of the harvest has finished and there’s time to consolidate before winter sets in. So this time it was Georgia.

None of us who were around at the time will forget the August day in 1968 when Soviet bloc troops invaded Czechoslovakia to scupper the Prague Spring. On that very evening Mstislav Rostropovich and the USSR Symphony Orchestra gave a deeply moving performance of Dvorak’s cello concerto at a London Promenade Concert – a very poignant memory.

So has nothing changed? Russian troops moved into Georgia on August 8 2008, 40 years almost to a day later. But it’s not at all clear whether this was the launch of a more aggressive Russian foreign policy and reversion to an earlier model, or a justifiable response to Georgian military action in South Ossetia, an echo of the NATO campaign in Kosovo with different characters, as the Russians would claim. Truth is always the victim in these circumstances.

The OSCE seems to have serious reservations about Georgia’s role in the whole affair and there are even suggestions that the conflict was provoked by Vice President Dick Cheney in order to boost McCain’s cause in the US elections.

Rash initiatives by the Georgian government in South Ossetia were almost certainly the trigger for the Russian action, but a trigger which Moscow had long been anticipating. Its campaign was surely a far-reaching and thoroughly planned operation to damage the regime of President Mikhail Saakashvili, to assert Russia’s right to dictate political developments in its near abroad and to block NATO expansion in Ukraine and the Caucasus.

The tensions had been building for some months, apparently including a mounting level of cyber attacks on Georgian official websites similar to those previously experienced by Estonia, followed by reprisals against Russian sites by other so-called “hacktivists” who specialise in DDOS – Distributed Denial of Service, where websites are sabotaged by swamping.

It is the scale of Russian actions which may prove deeply counter-productive for Moscow. It seems likely to strengthen the US presence in the region and will raise the level of scepticism about Russia’s good faith in its international dealings. It will no doubt give quite a boost for those who wish to build new oil and gas pipelines which bypass Russia. Much will depend on how quickly the Russians withdraw from occupied Georgian territory and engage with OSCE and EU. However on NATO membership for Ukraine and Georgia the Russians may well have made their point. To offer NATO protection for these two countries under Article 5 would be to play for very high stakes.

The European Union has acted quickly with its ceasefire proposals, some strong words and convening of a special summit in Brussels, where deep divisions of opinion were papered over and a united Franco-German position carried the day.

Europe is at pains to stress that the EU makes common cause with the Americans, but its rhetoric has been much more cautious. Sanctions have been rejected and dialogue sustained. If President Sarkozy and his colleagues can make real progress in their talks with the Russian leadership, especially to the extent of launching a programme to resolve the “frozen conflicts” of South Ossetia and Abkhazia, then that would be a very considerable achievement

Russia needs the EU quite as much as the EU needs Russia, if only to counterbalance and moderate American policies in the region. While keeping the pinch of salt to hand it’s interesting to see what President Medvedev had to say to Euronews in defending the Russian position and describing Russia’s relationship with the EU.

Posted in Energy, Finance, Russia | No Comments »

Eurovision Song Contest: the centre of gravity shifts to the East

Wednesday, May 28th, 2008

Allemagne quartorze points, Royaume-Uni 14 points, la Russie 272 points, Ukraine 230 points, la Grèce 218 points. So it was a runaway victory for the Russian entry in the Eurovision Song Contest, held in Belgrade on May 24, and oblivion for most west European entries. The centre of gravity moves further east. See you in Moscow in 2009!

Some (western European) commentators see the modern contest as a great conspiracy of political block voting, with the Nordics, the Balkans, the East Europeans voting for their neighbours and so swinging the results.
 
But it seems the reality is much more complicated. It reflects the complex ethnic mix in so many European countries. The fact that Estonia, Latvia, Lithuania and Ukraine each gave the full 12 points to the Russian entry (as did Israel) reflects the size of the Russian ethnic population in these countries rather than any political block vote.
 
Likewise for the former Yugoslavia, with its intermixing of Serbian, Bosnian and Slovenian populations. Bearing in mind that you cannot vote for your own national entry, what more natural than to vote for your ethnic identity? Douze points for the cousins. By the same token, Turkey always does well from the German voters, mirroring its population of 2.6 million of Turkish extraction, although I see that this year Greece took Germany’s 12 points and Turkey only 10.
 
If you managed to miss three hours of the actual final, then you can treat yourself to a (brief) taster of any of the finalists – and maybe decide that the outcome was not so unfair after all. There’s an amalgam of western pop and eastern music which can work rather well – and is maybe part of a changing European identity – an eastwards shift in our cultural centre of gravity.

Posted in Culture, Integration, Russia, Serbia | No Comments »

Serbia’s election: elation in Brussels turns to frustration

Tuesday, May 20th, 2008

Elation in Brussels at the unexpected success of Boris Tadic’s pro-European Democratic Party in Serbia’s general election has quickly turned to frustration as the Socialist Party, with 20 seats in the new parliament, decides whether to throw in its lot with the nationalist Radicals led by Vojislav Kostunica. Tadic’s party won the most seats, but not enough to form a government on its own. (Former ambassador to Belgrade, Charles Crawford, has forthright views on Mr Kostunica).

Both the Democratic Party and the Radicals are courting the Socialists. This was the party of Slobodan Milosevic, but it has greatly changed since his days, much as other communist parties of eastern and central Europe have done. Solana has indicated the EU’s acceptance of a socialist party role in a pro-Europe coalition and many members of the party see a commitment to a pro-EU government as a passport to full membership of Europe’s socialist mainstream.

I’ve no doubt there are those in Europe and the US who would dearly like to influence the outcome, but there’s probably little that can be done other than continuing to stress the benefits of integration within the European family.
 
The signing of the Stabilization and Association Agreement (SAA) with Serbia at the end of April was an important step. But presumably a new Radical-Socialist government would renounce the agreement because a majority of EU countries has recognised Kosovo. They would certainly refuse to co-operate in finding and arresting Mladic and Karadzic which itself would block implementation of the SAA.
 
To judge by the exchange of vitriol in the aftermath of the elections, we are in for a period of bitter in-fighting and uncertainty . The prospects of a rapid move towards Serbian EU accession seem to have faded considerably unless a pro-Europe coalition can be formed after all. The outcome will be a watershed in the future of the Balkans
 
It’s not only Serbians who can’t agree. It seems that NATO and the European Union are still unable to talk to one another in Kosovo, although this is quite clearly a joint operation between the two bodies. According to a recent paper from the Centre for European Reform, the Turkish government will not allow a proper relationship to develop. CER have put forward its own ideas for bringing the two organisations together, with the Anglo-French relationship at the heart of its proposals.

Posted in Elections, European politics, International, Kosovo, Russia, Serbia | No Comments »

McCreevy queries revisions to Germany’s VW law

Friday, April 18th, 2008

I see that the corporate status of Volkswagen is in the spotlight again.  Last year the European Court ruled that limitations on voting rights in VW’s statutes infringed EU rules on freedom of capital movement, so the German government has now notified Brussels of proposed legislative changes to satisfy the Court judgment.

For Commissioner Charlie McCreevy these changes are not enough and letters have been exchanged.
 
It’s another of those battles where a member country wants to protect a national champion,  except that in this case the predator is also German: family-owned Porsche AG, which already holds 30.9 per cent of VW’s shares and is determined to push its holding above 50 per cent, which in most companies would mean a takeover. However, the VW law requires an 80 per cent vote in favour to adopt major decisions. That, I suppose, is the sticking point for the Commission.

The German government relinquished its own shareholding some years ago, but the Land of Lower Saxony still holds 20.3 per cent, and is thus able to block any takeover – and resist any moves to transfer the business away from Wolfsburg.
 
So what is Porsche’s interest? To bring all VW and Porsche models as it were into the same corporate garage, ensuring that VW remains German and, by the way, using the fuel-efficient Golfs to balance out the turbo-charged 911s when EU vehicle emission rules are tightened up under climate change legislation.

VW has survived attempts in the past to break up its voting structure, as when former Commissioner Frits Bolkenstein tried to push through a radical takeover directive and had to abandon his objectives in the face of widespread opposition. His successor McCreevy decided last year not to press ahead with one-share-one-vote legislation, but the VW case raises different issues of government control and the Commission is bound to pursue this one.
 
The Commission has another challenge on its plate, which is the bid by Austria’s OMV (30 per cent government owned) for Hungary’s MOL (independent quoted company). The Hungarian parliament last year adopted the so-called Lex MOL, a measure which would allow directors to block a bid for any utility company of national strategic importance.
 
This might seem a simple case of blocking capital movement within the EU, just like the VW case. Mr McCreevy is currently examining the legislation under this heading. But the closer you look, the more complex the issues become, enmeshed in the manoeuvring for control of energy markets across central and south-eastern Europe and the Balkans.

Heaven knows who is on whose side! Russia’s Gazprom was said to support OMV’s bid, and a Russian businessman bought a substantial slice of MOL stock on the Budapest stock exchange last summer which he then obligingly passed to OMV, yet OMV portrays itself as Gazprom’s competitor in the region and supporter of the Nabucco pipeline project, a gas transit route from central Asia through Turkey to Europe which would bypass Russia and offer an alternative to Gazprom’s South Stream pipeline.
 
Nabucco is a favourite project of the EU, as Commissioner Piebalgs has confirmed and is enthusiastically supported by the US, although ironically it would seem to depend on tapping Iranian gas supplies to become viable, which of course does not go down well with the Americans.
 
Needless to say, Russia is no enthusiast for Nabucco, but no doubt delighted that Hungarian prime minister Gyurcsany recently signed an agreement in Moscow supporting the South Stream pipeline – a move which cynics said was designed to boost his pension following defeat in the recent referendum in Hungary, rather in the style of a former German Chancellor who became a Gazprom executive.
 
OMV’s bid was notified to the European Commission under the Merger Regulation in January 2008. An in-depth investigation was announced in March, with a decision currently foreseen for July 22. Separating the economic from the geopolitical aspects of this case will be no easy task for the Commission’s competition team and you can be sure that colleagues from DGs for energy and external relations will have plenty to say.

Posted in Energy, European politics, International, Russia | No Comments »

Russia’s presidential elections: Europe’s window of opportunity?

Tuesday, March 4th, 2008

It’s just like a nest of Russian dolls: lift off the Vladimir Putin doll to reveal Dmitry Medvedev.  Remove Medvedev to reveal  . . . Vladimir Putin. Russia’s March 2 presidential elections went pretty much as predicted and no doubt as planned, although the Communist Gennady Zyuganov polled nearly 18 per cent of the vote, which was more than expected.
 
The Council of Europe observers did not like what they saw, but they remarked that even if the run-up to the election had been more democratically acceptable, the result would have been the same. Indeed, there’s little doubt that the results did reflect the will of the people of Russia.
 
I think we should not underestimate just how deep were the traumas of the Yeltsin period, when the Soviet empire collapsed, the country was plunged into a deep economic crisis and large parts of the economy were handed over to a small coterie of people who became immensely wealthy overnight while much of the population suffered deep poverty.

The eight Putin years were surely a reaction to all that, while the economy was boosted by steadily rising oil and gas revenues. The Novosti Agency has a Russian take on the achievements and failures of the Putin years.

Maybe the Russian elections should not be considered in too negative a light. They do open a new window of opportunity for relations between Russia and the EU and maybe bilaterally with individual EU countries as well. The key question is whether the transfer of the presidency from Putin to Medvedev will mark a new direction of travel for Russian relations with its neighbours.
 
We’ll soon see whether Putin’s sabre-rattling was just pre-election bombast and whether Medvedev will take a different approach after he takes office on May 7.

The new president has said that he will take responsibility for foreign policy. His background is different from Putin’s – he is from the post-KGB generation and is aware of the need to stimulate business and improve social services. As chairman of Gazprom he will also be conscious of Russia’s vulnerability if the flow of foreign investment into the country’s oil and gas industries is not dramatically stepped up over the coming years to meet rising energy demand at home and the increasing dependence of EU consumers on Russian gas exports.
 
The Russians do seem to be treading more carefully these days. Although Gazprom supplies to Ukraine were again hit on March 3 owing to the dispute over unpaid bills, the Russians have been keen to stress that supplies to the EU will not be affected and have kept the Commission informed.
 
But let’s not have any illusions about the link between business and politics. Remember Kosovo? One of Medvedev’s last foreign trips before the elections was to Belgrade on February 25, where  he discussed arrangements with the government whereby Gazprom will build 400km of the South Stream gas pipeline across Serbia and will also acquire a controlling stake in NIS, Serbia’s biggest gas company. Coming hot on the heels of Hungary’s approval of the South Stream project, this is a further boost for Russian access to energy markets in the Balkans and southern Europe.

As for Russia-EU relations, the most difficult challenge will be to secure Russian ratification of the Energy Charter Treaty.  On the other hand, Commissioner Mandelson has been quite upbeat about negotiations for Russian accession to the WTO.  The Council of Europe is also waiting anxiously for the Russian Duma to approve Protocol 14 of the European Convention of Human Rights, to open the way for a wholesale reform of the procedures of the European Court of Human Rights and so help to clear the backlog of more than 80,000 cases pending. The EU is being urged to take a tough line with the new administration in Moscow.

Posted in Russia | No Comments »

The Kosovo crisis will test Europe’s capabilities.

Friday, November 16th, 2007

Europe is once again facing an external crisis which will require the most skilful handling. It concerns the future of Kosovo, seedbed of the Balkan wars some 15 years ago. On November 17 a general election in the province reinforced the demand for independence – unilateral if necessary. December 10 is the deadline for the international community to take a decision on the province’s future.

The conflicts of the early 1990s in the wake of Yugoslavia’s collapse remain an awful memory, an indictment of Europe’s inability to deal with a major crisis on its own doorstep. Some 100,000 people were killed and millions displaced. Those TV reports from Mostar, Sarajevo and Srebrenica will stay long in the memory. How could we let it all happen, and be so impotent?

It was only the intervention of the United States which ultimately brought a kind of peace to the region, culminating in the NATO action against Milosevic for his programme of ethnic cleansing of the Kosovar Albanians.

Europe has responded to the challenge. I believe that the EU can take much of the credit for bringing stability to the region over last 10 years. It has deployed its economic and peace-making capabilities effectively, has shepherded Macedonia (sorry, FYROM) through threats of civil war and has used the prospect of partnership and ultimately EU membership to bring about political and social change across the region.

But the forces which drive politics in the Balkans are dark and deep. Serbs will tell you that Kosovo is to them what Jerusalem is to the Jews. For them any prospect of Kosovo independence brings talk of war, while in Kosovo itself there are threats that the guns will come out if independence is not granted.

The US favours independence, while the Russians are fiercely defending the Serb position and demand a UN solution (where they have a veto). Can the Europeans stand together in their positioning? They have made a commitment to do so, but clearly there are differences of opinion. The Brits and French may recognise an independent Kosovo, but others are worried about what their own ethnic minorities might be tempted to do. How about the Turks in Cyprus, the Albanians in Greece or the Basques?

A proposal from the EU envoy for Kosovo, Wolfgang Ischinger, that a decision on the status of Kosovo should be shelved, has received short shrift from both sides.

It seems that the Commission is playing the partnership/membership card as strongly as it can. Commissioner Olli Rehn signed a Stabilisation and Association Agreement with Serbia on November 7, with its promise of financial assistance and closer links with EU on the path to membership. This could be ratified by member countries in January, but one can imagine certain delays if the Serbian government kicks up rough over Kosovo.

Russian President Putin is the hero of many Serbs, who see him as their champion over the Kosovo issue, some even hoping that the Russians would consider military intervention on their behalf. As Putin increases the rhetoric and employs gestures such as the stand-off on over-flying of Siberia to demonstrate that Russia is a great power again, Balkans policy will be a here-and-now indicator of his real thinking.

I must say, the future of energy supply is an escalating issue in EU-Russia relations, especially in light of the reciprocity provisions in the latest energy proposals. The Commission reckons that half of Europe’s gas will come from Russia by 2030 – double the current proportion, while state-owned Gazprom is looking for partners like Eon to strengthen its position in the European market. A fascinating study by Capgemini warns of trouble ahead.

We talk as if Russia holds all the cards on energy supply, but I was struck by estimates indicating that without massive new investment Russian oil production would begin to decline as from about 2015 while domestic demand is continuing to grow. So where is the investment to come from? This will surely be a key factor in the future of EU-Russia relations.

Kosovo is NOW. Turkish membership is a much longer game. I must say, the Commission’s autumn report on Turkey’s progress to membership is more positive than we had been led to expect. There is recognition of the way in which the Turkish army’s threatened intervention had been handled and the integrity of the July elections, as well as the continued growth of the economy, which has been so impressive.

The Commission is playing a difficult hand, trying the keep the show on the road while acknowledging the political reluctance in many member states to see Turkey as an EU member.

Olli Rehn is forthright in defending membership. Quite right too. Turkey has transformed itself over many decades in preparing for EU membership, while for the EU having an Islamic state as a member will be of profound importance in relating to the rest of the Moslem world and a rejection of the Clash of Civilisations postulated by Huntingdon.

A big concern for the Commission is that the Turks themselves will turn against membership, frustrated by the negative messages from those like President Sarkozy, who is now proposing a group of Wise Men to map the way ahead for Europe. See this interview with Turkish Secretary General for EU Affairs Mustafa Oguz Demiralp for more.

Just a word on the 2004 enlargement, which was a key justification for the revision of the treaties because it was assumed that an EU of 27 would require new mechanisms to work efficiently. But maybe not: Helen Wallace’s recent analysis of the impact of enlargement on EU policy-making indicates that the Nice formula has worked rather well since 2004. Far from creating gridlock, she says, it has been business as usual.

Posted in Energy, Integration, Kosovo, Russia | No Comments »

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