The West and Russia

Cold comfort

The European Union unites in rather mild and belated criticism of Russia’s war in Georgia

DEPENDING where you live in Europe and whom you blame for the Russian-Georgian war, the European Union’s emergency summit meeting on September 1st was a triumph, a failure or just the best that could be expected. Against objections from some Russia-friendly quarters, chiefly Italy’s prime minister, Silvio Berlusconi, the EU condemned Russian actions in Georgia, agreed to step up efforts to help ex-Soviet countries under threat and blocked talks on a new partnership deal.

Even agreeing that was tricky. Britain had been demanding a “root and branch” re-examination of the EU’s relationship with Russia—a critical viewpoint shared with Poland, the Baltic states and Sweden, whose foreign minister, Carl Bildt, has explicitly compared Russia’s tactics with Germany’s in the 1930s. Most of the big European countries are a lot more cautious. They blame Georgia, seen as an irresponsible American protégé, for starting the war but object to Russia’s precipitate diplomatic recognition of Georgia’s two breakaway territories, South Ossetia and Abkhazia, and the lingering Russian military presence in buffer zones. Above all, they are glad that a row with an important trading partner has cooled.

The hope is that France’s president, Nicolas Sarkozy, who is visiting Russia on September 8th, will bring back agreement on a Russian withdrawal in accordance with the ceasefire he brokered. Russia’s president, Dmitry Medvedev, has promised this on at least four occasions. But Russia’s prime minister, Vladimir Putin, has declared that the port of Poti, a long way from the separatist regions, is part of Russia’s self-declared “security zone”. His spokesman, Dmitry Peskov, said that Russian troops (now labelled peacekeepers) would maintain their “temporary presence”. Even so, optimists think that it will soon be business as usual, particularly as Russia starts to count the economic cost of the war, which has sent shares plunging and encouraged capital flight.

Maybe, but what is happening in practice is another story. Even the details of implementing the ceasefire are unclear. One reason is that the document itself is so vague. Veterans of the many ceasefire negotiations during the wars in former Yugoslavia in the 1990s were aghast when they saw the text, which exists in multiple inconsistent versions and lacks the vital specifics of dates and placenames, leaving far too much wiggle room. Russian officials now say that their forces will move back only when Georgia also abides by the agreement as they define it. They are demanding that Western countries observe an arms embargo on Georgia, the “aggressor” party. That leaves plenty of scope for quibbling and delay.

A second problem is the role of the international monitors from the EU and the Organisation for Security and Co-operation in Europe, a Vienna-based international body that supposedly defuses the continent’s conflicts. Will these people be allowed to move freely inside all of what the West regards as Georgia, including South Ossetia and Abkhazia where Russian-backed militias are engaged in purges of the ethnic Georgian population? Russia, at present, says that it is too dangerous to allow this. But if they are allowed in, on what terms will that be? Foreign journalists and diplomats are repeatedly told that they need documents issued by the separatist authorities—or in some cases, as shockingly happened to the French ambassador to Georgia, Russian visas. Georgia and its allies will vigorously resist the application of such rules to international officials.

It is still unclear what Russia really wants in Georgia—or elsewhere. In Moscow, the mood is defiant, unrepentant and uncompromising. Mr Medvedev and a raft of top officials have scoffed at talk of serious punitive action. “Bring it on” appears to be their devil-may-care mantra. Convinced that the days of a unipolar Washington-centric world are dead and buried, Russia believes it has a privileged place at the top table of a fast-changing multipolar world. Any attempt to mete out punishment will backfire. “The G8 will be practically unable to function without Russia,” Mr Medvedev calmly told Italian television. “That’s why we don’t fear being expelled.” On NATO’s freezing of ties with Russia, he remarked: “We don’t see anything dramatic or difficult about suspending our relations…But I think our partners will lose more from that.” Unmentioned but clearly meant was NATO’s reliance on Russia to supply its forces in Afghanistan.

The EU’s mild rebuke and tentative sanctions brought an outright welcome. The freezing of talks on a new deal with the EU, already much delayed, is seen as of little importance. Though junior officials expressed irritation at “biased statements” in the EU declaration, Mr Medvedev hailed the union’s avoidance of real sanctions as “reasonable” and “realistic”. The president seemed to put all disagreement with Russia down to a temporary misunderstanding: it was “not fatal” because “things change in the world.”

Political corpse

But not, it seems, as far as talks with the Georgian leadership is concerned. “President [Mikheil] Saakashvili no longer exists in our eyes,” said Mr Medvedev. “He is a political corpse.” Russia’s foreign minister, Sergei Lavrov, advised Europe to decide its policy towards Russia based on its own “core interests” (ie, without America) in a speech larded with snide remarks about American arrogance and unilateralism. “The phantom of the Great Game wanders again in the Caucasus,” he said. If America and its allies chose to side with what he called “Saakashvili’s regime” it would be a “mistake of truly historic proportions”.

That fits with earlier Russian demands for a change of Georgian leadership. Russia has said that its prosecutors are collecting evidence in South Ossetia with which to indict Mr Saakashvili as a war criminal. Many of Georgia’s Western friends would be delighted if someone with an easier personality (and greater readiness to listen to advice) were in charge. But they want that to happen as part of Georgia’s normal internal politics, not as a putsch dictated by Moscow. As the box on the last page of this section points out, Georgian politicians now think the same.

The double-act between Mr Medvedev and Mr Putin creates extra scope for manoeuvre. Mr Medvedev promises to calm things down. Then Mr Putin stirs them up again, accusing in all seriousness the Bush administration of staging the war to boost John McCain’s election chances.

Part of the motive for the war may have been to distract attention from problems inside Russia, such as inflation, corruption, squabbling inside the circles of power and the failure to distribute fairly the proceeds of the oil and gas bonanza of past years. As the oil price falls towards $100 a barrel, the focus on that will sharpen.

It is hard to avoid the conclusion that the most unpleasant side of Russian politics is leaking to its near neighbours. Over the weekend, Mr Medvedev said that protecting the lives and dignity of Russian citizens abroad was an “unquestionable priority”, as well as protecting the interests of Russian businesses there. He also spoke of “countries with which we share special historical relations” where Russia has “privileged interests”. Though Mr Medvedev stressed the need for friendly relations, he also implied that such countries might not have the option of following policies that Russia deemed unfriendly (such as wanting to join NATO or host American bases). It would have been hard to find anything more likely to make the fears of Russia’s neighbours seem justified, to stoke Western support for them and to undermine those who think that Russia will soon return to “normal”.

Diplomatic support for Russia has been scanty, even among close allies. No country, Russia apart, has given the two statelets formal diplomatic recognition. Belarus and Tajikistan say they will do so, but the former, which is being squeezed by Russia over energy supplies, spoke in notably lukewarm terms and only after Russia’s ambassador to Minsk decried the government’s “incomprehensible silence”.

Perhaps most significant has been the critical reaction from the intergovernmental Shanghai Co-operation Organisation, which Russia has been building up as a counterweight to American influence. A statement from its meeting last week supported Russian peacekeeping efforts but stressed the importance of territorial integrity and the peaceful resolution of conflicts. This was a clear snub that showed a startling lack of support for Russia’s actions both from the four Central Asian members of the SCO and from China.

Chill from China

China’s leaders have enjoyed unnerving America by flirting with Russia, but this has always stopped well short of any hint of confrontation. Although China’s state-run media has avoided criticising Russia, and has highlighted the West’s discomfort at Georgia’s defeat, China’s official position on Russia’s recognition of the breakaway regions has been surprisingly chilly. A Chinese spokesman said his country was “concerned” and called for “dialogue and consultation”. That reflects both China’s pragmatic desire for good economic relations with the West, and also its dislike of both separatism and interference in other countries’ internal affairs. With Tibet, Taiwan and restive Muslims to contend with, China takes a dim view of anybody chopping up other countries and declaring the results to be independent states.

The same thinking has marred Russia’s image in normally friendly countries such as Greece and Cyprus (which bristles about the Turkish-backed “pseudo-state”) and Spain (which is twitchy about Basque and Catalan separatism). All this suggests a degree of miscalculation in Moscow. Over the past decade, the future of South Ossetia and Abkhazia was a useful bargaining chip. Now it has been cashed in, without much benefit.

Cooking up new Russia policies will take time. The result may well not be to the Kremlin’s taste. “We are back to square one,” says Alexander Stubb, Finland’s foreign minister. Many Western countries are now reassessing their relations with Russia in ways that range from the need for higher defence spending to a reduction in dependence on Russian energy. Mr Sarkozy says that France, which holds the EU presidency, will launch a big new defence initiative in October.

The EU is better at giving carrots than wielding sticks. It will find it easier to provide generous support for the reconstruction of Georgia than do anything that might be seen as punishing Russia. Even so, timid as this response may seem, it is also something of a watershed: for the first time the EU’s 27 countries got together and agreed on sharp public criticism of Russia.

The United States has announced a $1 billion aid package for Georgia. The International Monetary Fund has agreed to lend the country $750m. Underlining Georgia’s importance as an energy corridor, America’s vice-president, Dick Cheney, visited the region this week. He hopes to get Azerbaijan to commit gas exports to the €8 billion ($11.5 billion) Nabucco project, which extends a gas pipeline to Europe from Georgia and Turkey. But Nabucco’s chances are looking increasingly slim. This week Russia stepped up its energy diplomacy, agreeing on a deal with Turkmenistan and Uzbekistan on a new pipeline via Russia that would entrench the Kremlin’s hold on east-west gas supplies. Though the EU is Russia’s largest customer, individual countries’ dependency (see chart) has undermined the union’s collective bargaining power.

America is also supporting Georgia’s demand for a tough non-recognition policy towards South Ossetian and Abkhaz independence. Companies doing business in the two self-proclaimed countries will find that their managers and shareholders cannot get American or European visas, officials say. But will big European countries such as Germany go along with that? Outsiders will be scrutinising closely the atmosphere at the annual German-Russian intergovernmental meeting in October—an occasion normally marked by warm rhetoric about the two countries’ mutual interdependence.

The mood in NATO is noticeably more hawkish than in the EU. A senior official says that the days when it was regarded as “taboo” to discuss any military threat from Russia in the alliance’s contingency planning are all but over. When NATO defence ministers meet in London on September 18th, a big question will be how to defend existing members, chiefly the Baltic states, which are small, weak and on Russia’s border. Estonia, Latvia and Lithuania joined the alliance in 2004, when such questions were dismissed as too theoretical to worry about (or alternatively too provocative to consider). Now they are unavoidable.

Minorities as ammunition

The potential flashpoint, as with the war in Georgia, is a legacy of the Soviet Union (see table). Russia says that the language and citizenship laws in Estonia and Latvia discriminate against Russian-speakers. The hundreds of thousands of people (mainly from Russia) who moved to these countries during the Soviet occupation did not automatically become citizens when Estonia and Latvia regained independence. Many were naturalised in the 1990s, and a steady trickle continue to pass the language exams and apply for citizenship. But an alienated minority of stateless people, and tens of thousands who carry Russian passports, are a potential nightmare for the Baltic states and their friends. Disturbances in the Estonian capital, Tallinn, last year over a clumsy government decision to move a Soviet war memorial inflamed feelings that have not yet subsided.

Lithuania’s problems are different (it has a small Russian minority which gained automatic citizenship in 1991). But it is a transit route for Russian troops to the exclave of Kaliningrad. That offers plenty of scope for provocation. Russia has cut off oil supplies, ostensibly because the pipeline is decrepit (but has refused a Lithuanian offer to pay for its repair). And populist parties led by politicians with strong Kremlin links are doing well in the run-up to a general election in October.

Getty ImagesDiverging footsteps

The Baltic armed forces are tiny and are configured to support NATO efforts in faraway countries such as Afghanistan, not to defend the region against a real attack from Russia. NATO’s military presence consists only of a handful of fighter aircraft (currently four from Germany) based at an air base in Lithuania. It also has a cyber-defence centre in Estonia, and all three countries have NATO-standard radars that can look deep into Russia.

Beefing that up without feeding Russian paranoia will be tricky. “Don’t expect a fanfare,” says the NATO official. “We will do it in a low-key, professional way.” The Baltic states themselves will be expected to spend more on defence—no easy task as a sharp economic slowdown bites.

Another question for NATO is how much help to offer in restoring Georgia’s armed forces. Although Western military advisers have been surprised, and even scandalised, by the poor showing of the Georgian army, which retreated in poor order, dumping huge quantities of donated American equipment and ammunition, Georgia itself is optimistic about rebuilding it.

The other country most threatened by Russia is Ukraine. Mr Putin said in April that it risked dismemberment if it tried to join NATO, and opinion inside the country is deeply divided on the issue. Politics is unstable too: this week Ukraine’s president, Viktor Yushchenko, threatened to call a snap election to defend himself against what he termed a “putsch” by parliament, which wants to strip him of his powers. The West will tread gingerly into that, though NATO may step up its fairly uncontroversial defence training activities.

Yet NATO is barely less divided than the EU. It is not just that European countries blocked the American plan to give Ukraine and Georgia a clear path to potential membership at the alliance’s summit in April. Turkey, the most important NATO member in the Black Sea region, is torn between the competing claims of strategic partnership with America and its strong trading links with Russia (which supplies most of its gas). Although Turkey has helped to train Georgia’s armed forces (evidently not very successfully), it did not share radar and other military data with Georgia during the series of pinprick attacks by Russia that preceded the full-scale war.

Turkey is pushing its own regional initiative, involving Russia and the Caucasus countries but not America. That might help settle another lingering conflict, between Armenia and Azerbaijan. But Georgia regards anything that excludes the United States as unacceptable. For now, the hottest issue for Turkey is whether to allow America to send more warships through the Bosporus straits into the Black Sea, something that Russia vigorously opposes.

Having caught the West napping (or at least on holiday), Russia scored a pleasant victory over a weak and unpopular adversary. But now it has to deal with the consequences: war fever at home plus alienated allies and stronger critics abroad. Will Russia’s leaders respond to this by raising the stakes, in the hope of showing their opponents’ underlying weakness? The West’s leaders worriedly hope not.

American jobs

Postpone the optimism

New payrolls figures show that American unemployment continues to climb

NOT long ago economists and policymakers in America clung to hopes that the economy, after lurching through the depths of a financial crisis earlier this year, would rebound in the second six months. Such hopes look all the more forlorn now. On Friday September 5th a depressingly downbeat August employment report was released. The unemployment rate leapt to 6.1% from 5.7% in July. It now stands only just below the 6.3% peak that it reached in the last slump, in mid-2003.

The details provide a complicated picture. Non-farm jobs fell by 84,000 (or 0.05%), with losses concentrated in manufacturing (down 61,000), retail (down 20,000) and construction (down 8,000). Government, education and health services all gained jobs. Employment for prior months was revised down by a total of 58,000. When figures were published for the annualised rate of growth for the second quarter, showing surprisingly robust 3.3%, some dared to believe that a pronounced slump was averted. Now it looks more likely that such a slump was merely postponed.

If there is a silver lining to the payroll report it is that, despite eight straight months of declining payroll employment, the pace of contraction has yet to approach that which is typically seen in recessions. On average, since December, 76,000 jobs have been lost each month, equivalent to a monthly decline of 0.06%. From March 2001 to February 2002, the average decline was 169,000, or 0.13%. The better position today may be explained, in part, by the relative strength of exports, without which manufacturing would be shedding jobs at an even faster pace. No doubt the speed with which monetary and fiscal stimulus was brought to bear has also helped. Another factor may be that, during the economic expansion, employers were not quick to hire workers, which left little obvious fat for them to cut now.

Oddly, unemployment has risen about as rapidly as it did in 2001-2002. In part, that is because the labour force continues to grow briskly, dumping new job-seekers on to the market. It may also be because of measurement. The Bureau of Labour Statistics computes non-farm payrolls each month from a sample of establishments that covers about a third of the workforce. It calculates the unemployment rate from a much smaller sample of households.

According to that household survey, employment plunged by 342,000 last month, a far worse picture than that shown by the payroll survey. But such monthly changes must be taken with a grain of salt. The household number diverges both because of a smaller sample size (which creates more volatility) and a differing definition of employment. For example, the payroll survey counts someone who holds two jobs twice; the household survey counts him once. The household survey counts the self-employed, the payroll survey does not. In the past 12 months household employment, recalculated to fit the payroll survey’s definition, is actually up by 320,000, while payroll employment is down by 403,000. So, despite the rise in the unemployment rate, the household survey actually paints a slightly more positive picture of underlying job growth.

Those nuances will not matter much to politicians who must now respond in the heat of a campaign. The weak economy probably plays to the advantage of congressional Democrats and the Democratic presidential candidate Barack Obama, who have been pressing for a second stimulus package focused more on government spending than on tax rebates. The latest news may weaken Republican opposition to such a package both in Congress and by John McCain.

The news, unhappily, also makes the job of the Federal Reserve a bit simpler. Its inflation worries in the past month have receded because of welcome news (the big drop in oil prices) and because of less welcome news, such as the higher unemployment figures. That makes it all the more likely that the Fed will not raise interest rates from the current 2% before the end of the year. The latest news may also mollify hawks on the policymaking Federal Open Market Committee who have been uncomfortable with interest rates being so low. Richard Fisher, the president of the Dallas Fed and a regular dissenter in favour of higher rates this year, sounded a bit gloomier about the economy in a speech on Thursday. “I think it is very likely we will suffer anaemic growth for the current and perhaps the next couple of quarters,” he told the Greater Houston Partnership. “Having sailed the economy along for years in a tranquil following sea, we are now navigating Force 10 conditions.”