Thursday, October 09, 2008

FT op-ed piece

Do not let Russia ‘Finlandise’ western Europe

By Edward Lucas

Published: October 8 2008 19:32 | Last updated: October 8 2008 19:32

When I first published The New Cold War last February, many contested my title. But what once seemed eccentric now looks mainstream. Relations between the west and Russia have entered a period of extraordinary mistrust and mutual disdain. Indeed, after the conflict in Georgia, the description “cold war” risks looking like an understatement. Russia has shown that it is prepared to use military force against another country; the west has shown that it will not fight and will merely respond with a token protest. Some in the European Union, such as Nicolas Sarkozy, president of France, may see the Kremlin-dictated truce that stopped the fighting (though not the ethnic cleansing, which continues apace) as a triumph. From Russia’s point of view, the lesson of the Georgian adventure is simple: we got away with it.

News last week that a Russian nuclear bomber simulated an attack on a city in northern England, combined with the biggest military manoeuvres since the collapse of the Warsaw Pact and the dispatch of a Russian naval squadron to the Caribbean, raise two pressing questions: what is Russia up to and what should we do in response?

The easy but mistaken answer to the first question is that Russia is simply flexing its muscles in response to the west’s misguided meddling, such as its decision to expand Nato and set up a missile defence scheme in Russia’s backyard. Unlike in the 1990s, we now have to respect, and accept, Russia’s interests. A shopping list based on that thinking might include: sacrifice Georgia, cancel Nato expansion (or better still, dissolve the alliance), scrap missile defence, arm-twist the Baltic states and Ukraine into giving their Russian population special status, allow Russia to buy anything it wants in western Europe – and all will be well.

But supposing Russia’s aim is the re-creation of a “lite” version of the Soviet empire, based not on military might but on economic dominance and pipeline monopolies; and that it wants the “Finlandisation” of western Europe. That involves the use of money, above and below board, to cultivate friendly lobbies. One example is this week’s dramatic €4bn ($5.5bn, £3bn) Kremlin bail-out of Iceland. Another is the former German chancellor Gerhard Schröder chairing a Russian-German gas pipeline consortium. The “Schröderisation” of Europe is matched by divide-and-rule tactics. The result: most big countries of “old Europe” care more about ties with Russia than about their supposed allies in eastern Europe.

Attempts to isolate Russia in response would be wrong: keeping communication with the regime may help slow its paranoia and adventurism. It also sends a signal to the burgeoning Russian business class. The financial crisis has prompted some powerful figures such as Alexander Lebedev, the ex-KGB financier, to criticise openly the Kremlin’s bellicose rhetoric and repressive internal policies.

But we can also make it harder for Russia to do the things that endanger us. The overwhelming need is to rethink energy policy. At the moment, the push inside the EU is for greater liberalisation. That would be fine, if we were not dealing with highly politicised monopolists as our energy suppliers. If the European Commission can bring Microsoft to heel over its outrageous behaviour with Windows software, it can do the same with Gazprom: not just as a tool of Kremlin foreign policy, but also as a flagrant price-fixer and competition inhibitor (for example in its refusal to allow third-party access to its pipelines). Any EU company that operated like Gazprom would find itself in the dock within days.

Even more important is restricting the flow of dirty money (not only from Russia) into our banks and markets. Instead of being bean-counters without a conscience, accountants must be guardians of financial probity, with a demanding test for clients whose business model is based on rent-seeking and cronyism. Some of the energy trading companies with close Kremlin ties based in Europe are little more than conspiracies to loot from the Russian taxpayer, gaining oil and gas cheaply and selling it dearly.

The same goes for bankers. If they conceal the beneficial ownership of these phoney companies they are an accomplice to theft. Perhaps one of the benefits of the credit crunch will be a more sceptical response to financiers who maintain that their critics are Luddites. The west has done well to impede the crudest kind of money-laundering. It is no longer possible to turn up at an Austrian bank with a suitcase full of cash, open an account, and make some transfers. We should apply the same principle to asset-laundering: using western capital markets to sell shares and bonds in phoney companies.

These measures will not stop the regime in its tracks. But they will show its backers that their geopolitical ambitions come at a cost: provoke us enough and it will be bad for business. That lesson has not yet got through.

We need to hurry. It will not be too long before financial centres such as Dubai, Shanghai and Mumbai are competing so effectively with London that clients that we find too dodgy will go elsewhere. What our financial centres sell, above all, is respectability. We have priced it too cheaply in the past few years. It is time to be choosier, while we still have some left in stock.

The writer is author of ‘The New Cold War: How the Kremlin Menaces both Russia and the West’. A new edition is published next week


Pavel.S said...

Unfortunately main business in Russia – is the Kremlin, controlling all largest and most affluent Russian companies and banks. So, Russian business activities in foreign market under order of the Kremlin, as well as in Soviet times. It’s very difficult to make these people play by the rules, adopted in the west. But you're right, isolation will hurt only. It has already harmed when ordinary Russia citizens, who don’t share the Kremlin’s position and criticizing it can’t get a visa to UK, because the Foreign Office decided to punish the Kremlin for the murder of Alexander Litvinenko by such way.

Cobalt75 said...

(am I entering this twice? I did not intend for that)

How funny that the west and some of its mouthpieces have forgotten about bombing Belgrade. What rules is NATO playing by in that case? Or even Iraq? Or the war against the Islam?
I do not recall Russia bombing Tbilissi, but US bombed Belgrade and Novy Sad, among others. Now they fear a nuclear Iran - but it is the US that has dropped nuclear bombs on civilian targets twice. Basically US is afraid that others might behave like it does. But that is no base for arguing you case.

In Georgia, overall, a good and timely response by Russia - Saakashvili and other "democratic leaders" parachuted by NATO ought to learn: Russia will protect those minorities on her borders that seek her help and she will protect her interests. And to think, at the Congressional hearings on the conflict in Georgia, some US Senators were upset that Saakashvili dared attack even though "US has repeatedly told him not to". Sounds like US wants to shift the blame on this defeated and nervous man. Is it at all convincing that he would attacks without the blessings of peace-loving men like Bush, Rice, and Cheney? What an ally US has been! Trained the Georgian troops they did; for years. But take some responsibility? At least it seems that Iraq has taught them something about reaping responsibility. Now Georgia has learned a lesson as well, and it is a smaller country in September 2008.
Besides some US Senators, now many in Europe do not buy the official script of the conflict in Georgia and have began to see Saakashvili as a war criminal and not a stable person with whom they can have relations. Meanwhile, energy projects between Russia and key EU states are moving ahead, Russia is now lending money to Iceland.

Meanwhile we will ask and demand that Russia cooperate with US on Iran while we do not want to cooperate with her on security issues that she finds very important? That sounds like one of McCain's recent foreign policy quips - and he is SUCH an expert on it, he should blog right here. Can not the American people realize that one cannot achieve both? Bush has been such fun on Leno and Letterman, and has made US lose and waste its influence. It would be better for him to cooperate with some major power, unilateralism is not all "bad" of course, but at the right time and for the right reasons. Obama, while repeating McCain's stale barks on Russia, is willing to talk with Iran. That is an improvement.
As for "punishing" Russia for Litvinenko (and please let's leave that political sleeze-ball alone already), it is clear that Russia needs UK much less than was imagined by Mr. Brown.
By the way, Th. Hobbes has an interesting take on "punishments" - they come from established and recognized authoritiy. Between Russia and UK there are only revenges. Let US and UK simmer in their frustrations, perhaps later UK will not rush to give refuge to all sorts of people.

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Pekka said...

Mr Lucas
You write "Do not let Russia ‘Finlandise’ western Europe".

I am interested to hear Your opinion in what way is Finland, the member state of European Union, "finlandised" in these days.

England declared war during WWII against Finland 6.12.1941 in order to please generalissimus Stalin.


Pekka Nykänen

Randy McDonald said...

I remain confused as to how Russia, a state with a considerably smaller and less healthy population and a considerably smaller and more unbalanced economy, could possibility Finlandize the European Union.

Giustino said...

The problem that Europe deals with is that, for the last century, Russia has lurched from one revolution to the next. The leaders of today are later denounced or overthrown. So what is the value of Medvedev's name on a sheet of paper? Perhaps it will be of historical value, only. Europeans try not to rock the Russian boat, but it will get rocked anyway. It is truly problematic for policy makers, that's for sure.

Putin complains that a unipolar world makes people feel less safe. Does anyone feel safer after Russia's actions in Georgia in August? How many countries have recognized the statelets of Abkhazia and South Ossetia? Not even the Belarusians have recognized their independence. Does that mean that every country in the world, other than Nicaragua and Gaza, is a puppet of the United States. According to the paranoid Russian worldview, it might be so.

Kristopher said...

The Nicaraguan recognition of South Ossetia -- now there's a feature story begging to be written.

Anonymous said...

I agree with giustino especially after what the russians did in Georgia!

Bart Harris

Rein Kuresoo said...

An answer to Pekka:

Was it not Tarja Halonen, who said recently, that the attitude of Baltic states towards Russia is too stiff and Finland strives to maintain good relations with all its neighbours?