Friday, February 20, 2015

No Evidence of Russian Military Hardware Presence in Ukraine – Hollande

News | 20.02.2015 | 19:11
Sputnik – French President Francois Hollande said Friday at a joint news conference with German Chancellor Angela Merkel that he was unable to confirm the presence of Russian military hardware in Ukraine.
“We cannot confirm that Russian tanks had entered Ukraine,” Hollande said.
Earlier on Friday, Ukrainian military spokesman Andriy Lysenko claimed that some 20 Russian tanks, military hardware and ammunition were seen heading from Russia to the Ukrainian territory.
Ukrainian authorities, alongside the United States, have persistently accused Russia of sending its troops and equipment to war-torn eastern Ukraine, without providing any evidence. Russia has repeatedly denied these allegations, stressing that it is not party to the internal Ukrainian conflict.
Any country that violates the Minsk agreements on reconciliation in Ukraine will face sanctions, French President Francois Hollande said.
“Any country that violates the Minsk agreements on Ukraine will face sanctions,” he said.
On February 12, a so-called Normandy format meeting took place in Minsk between the leaders of Ukraine, France, Germany and Russia. The international mediators have agreed on a set of measures aimed at stopping the military confrontation between Kiev forces and independence supporters in eastern Ukraine.
The list of measures stipulated a ceasefire that came into force on February 15, a withdrawal of heavy artillery from the line of contact, and all-for-all prisoner swap among other points.
The Organization for Security and Co-operation in Europe (OSCE) Special Monitoring Mission in Ukraine said that the ceasefire was generally holding, but reported several truce violations in the Luhansk region and the Debaltseve area in eastern Ukraine.

New UN Security Council Resolution on Ukraine

Alexander MEZYAEV | 20.02.2015 | 14:09

The United Nations Security Council unanimously adopted the resolution № 2202 on February 17.
The Council called on all parties to fully implement the “Package of Measures for the Implementation of the Minsk Agreements” adopted on 12 February 2015 in Minsk, Belarus.  Firmly convinced that the resolution on the situation in eastern regions of Ukraine could only be achieved through a peaceful settlement to the current crisis, the Council welcomed the declaration by the heads of state of the Russian Federation, Ukraine, France and Germany in support of the “Package of measures” and their continuing commitment to implement the agreements.
The “Package of measures”, contained in Annex I of the resolution, called for a number of actions.  Those included an immediate and comprehensive ceasefire in certain areas of the Donetsk and Luhansk regions of Ukraine and its strict implementation as of 15 February 2015.
It’s very important that the resolution endorses the “Package of measures” and welcomes the “Declaration of presidents”. This is an important achievement of Russia, the author of the document.
These are the main provisions of the Package:
1) Immediate and comprehensive ceasefire in certain areas of the Donetsk and Luhansk regions of Ukraine and its strict implementation as of 15 February 2015;
2) Creation of a security zone to separate the belligerents;
3) Establishment of minimum security zone for each type of weapons; 1
4) Withdrawal of heavy weapons away from the security zone 2 to be implemented in 14 days;
5) Ensure effective monitoring and verification of the ceasefire regime and the withdrawal of heavy weapons by the OSCE;
6) Launch talks (the text says - a dialogue), on day 1 of the withdrawal, on modalities of local elections in accordance with Ukrainian legislation and the Law of Ukraine; 3
7) Adopt promptly, by no later than 30 days after the date of signing of this document a resolution of the parliament of Ukraine specifying the area enjoying a special regime under the Law of Ukraine “On interim self-government order in certain areas of the Donetsk and Luhansk regions, based on the line of the Minsk Memorandum of September 19, 2014”;
8) Ensure pardon and amnesty; 4
9) Ensure release and exchange of all hostages and unlawfully detained persons based on the principle “all for all”; 5
10) Ensure safe access, delivery, storage, and distribution of humanitarian assistance to those in need, on the basis of an international mechanism;
11) Definition of modalities of full resumption of socio-economic ties: 6
12) Reinstatement of full control of the state border by the government of Ukraine throughout the conflict area; 7
13) Withdrawal of all foreign armed formations, military equipment, as well as mercenaries from the territory of Ukraine under monitoring of the OSCE;
14) Disarmament of all illegal groups;
15) Carrying out constitutional reform in Ukraine; 8
The plan was duly submitted as an international legal instrument to be approved by the main body responsible for international peace and security. The international part is very significant. Actually every provision presupposes international monitoring – from withdrawal of foreign armed formations to restoration of banking system and holding elections. The bodies responsible for the implementation of international part of the Minsk accords are the Organization for Security and Cooperation in Europe and the Trilateral Contact Group. 9
The mission is not easy to accomplish. The international involvement into the Ukrainian armed conflict has greatly intensified. President Putin has already made a statement on US arms supplies to Ukraine. There is information to confirm the fact that other countries are involved too. The scandal related to the arms supplies to Ukraine from the Czech Republic is in full swing. 10 According to some sources, the plans on arms supplies to Ukraine from Bosnia and Herzegovina are underway. 11 Croats take part in combat actions on the side of Kiev. 12
As I have written before, the inclusion of the Package and the Declaration into the text of the Resolution is not just a technical thing, it’s a matter of great significance. The draft resolution was submitted to the United Nations Security Council members as early as on Sunday, February 15, to be adopted immediately, but there was a delay to put off the endorsement till Wednesday, February 17. Vitaly Churkin, the Permanent Representative of the Russian Federation to the United Nations, said a number of delegations tried to emphasize some provisions of the document at the expense of others. Under the circumstances, the inclusion of original texts of the documents into the Resolution 2202 was an effective diplomatic move which evoked obvious resentment of the part of Ukraine. It was clearly seen during the session devoted to the debates on the draft resolution, as well as afterwards. At the session Yury Sergeev, the Permanent Representative of Ukraineto the United Nations, did his best to shift the blame for the conflict on Russia.
Actually right after the signing and publication of the United Nations Security Council’s Resolution № 2202 Ukraine tried to tear up the agreements by asking for deployment of United Nations forces on its territory.
On February 19, the National Security and Defense Council of Ukraine approved the decision to ask the United Nations and the European Union to deploy a peacekeeping mission in Ukraine to ensure peace and security. Later in the day, Oleksandr Turchynov, the National Security and Defense Council’s secretary, said "It was decided to ask the United Nations and the European Union to stage a peacekeeping operation in Ukraine."The decision dovetails with the common position of Ukraine’s upper circles of power. It is confirmed by the words of Turchinov who said the Ukrainian foreign ministry had already prepared a relevant request. He also expressed hope that the Verkhovna Rada (parliament) of Ukraine would support this move. 13
These “initiatives” are in direct violation of Minsk agreements which envision the creation of people’s militias in the Donetsk and Luhansk people’s republics while the OSCE is responsible for separating the sides.
The adopted United Nations Security Council Resolution № 2202 should be considered as an element of diplomatic and international legal peacemaking operation launched by German Chancellor and French President when they visited Moscow on February 12. There is ground to believe that in reality this operation started in December 2014 when French President Francois Hollande paid a flash-like visit to Moscow with President Vladimir Putin to meet him in the airport. Perhaps the peacemaking operation was forcibly stopped by those who perpetrated the terrorist act against the French weekly Charlie Ebdo. No matter that, the operation is underway.
1Pull-out of all heavy weapons by both sides to equal distance with the aim of creation of a security zone on minimum 50 km (31 mi) apart for artillery of 100mm calibre or more, a security zone of 70 km (43 mi) for MRL and 140 km (87 mi) for MRLs Tornado-S, Uragan, Smerch and Tochca (Tochka U) tactical missile systems.
2The pull-out is to take place:
-​ for Ukrainian forces, from actual line of contact and
-​ for armed formations of particular districts of Donetsk and Luhansk oblasts of Ukraine, from the contact line in accordance with the Minsk Memorandum as of 19 September 2014.
3Based on the Law of Ukraine "On temporary Order of Local Self-Governance in Particular Districts of Donetsk and Luhansk Oblasts", questions related to local elections will be discussed and agreed upon with representatives of particular districts of Donetsk and Luhansk oblasts in the framework of the Trilateral Contact Group. Elections will be held in accordance with relevant OSCE standards and monitored by OSCE/ODIHR.
4Pardon and amnesty are to be provided by way of enacting a law that forbids persecution and punishment of persons in relation to events that took place in particular districts of Donetsk and Luhansk oblasts of Ukraine.
5The process of release and exchange of all hostages and illegally held persons, based on the principle of "all for all" has to end – at the latest – on the fifth day after the pullout (of weapons).
6The modalities of a full restoration of social and economic connections first of all include social transfers, such as payments of pensions and other payments (income and revenue, timely payment of communal bills, restoration of tax payments within the framework of Ukrainian legal field). With this aim, Ukraine will restore management over the segment of its banking system in the districts affected by the conflict, and possibly, an international mechanism will be established to ease such transactions.
7The process of restoring control of the state border to the Ukrainian government in the whole conflict zone has to start on the first day after the local election and end after the full political regulation (local elections in particular districts of Donetsk and Luhansk oblasts based on the law of Ukraine and Constitutional reform) by the end of 2015, on the condition of fulfilment of Point 11 – in consultations and in agreement with representatives of particular districts of Donetsk and Luhansk oblasts within the framework of the Trilateral Contact Group.
8Constitutional reform in Ukraine, with a new constitution to come into effect by the end of 2015, the key element of which is decentralisation (taking into account peculiarities of particular districts of Donetsk and Luhansk oblasts, agreed with representatives of these districts), and also approval of permanent legislation on the special status of particular districts of Donetsk and Luhansk oblasts in accordance with the measures, is to include: freedom from punishment, harassment, and discrimination of persons connected with the events that took place in particular districts of Donetsk and Luhansk, right of language self-determination, participation of local self-government in the appointment of the heads of prosecutors' offices and courts in the particular districts of Donetsk and Luhansk etc.
9The group’s composition includes the representatives of the Donetsk and Luhansk people’s republics, former President of Ukraine and Ukrainian representative Leonid Kuchma,
Russian Ambassador to Ukraine and Russian representative Mikhail Zurabov and Swiss diplomat and OSCE representative Heidi Tagliavini.
11Comment by Foreign Ministry Spokesman Alexander Lukashevich on possible Bosnian-Herzegovinian ammunition supplies to Ukraine:
12Comment by the Foreign Ministry on the involvement of Croatian mercenaries in hostilities in Ukraine:

NATO, not Russia, threatens Baltics: Moscow

News | 20.02.2015 | 00:06
Moscow has rejected the British defense secretary's allegation that Russia poses a threat to the Baltic countries, saying the real risk comes from NATO's increased activity.
Russian Foreign Ministry spokesman, Alexander Lukashevich, said Thursday that British Defense Secretary Michael Fallon's remarks are beyond "diplomatic ethics."
"The comments of Mr. Fallon of course are already beyond diplomatic ethics and the characterization of Russia is completely intolerable," Lukashevich added.
The Russian diplomat, who was speaking to journalists in a weekly briefing, said Moscow would certainly find a way “to respond to the comments”.
In an interview with Times and Daily Telegraph newspapers, Fallon (pictured above) had claimed that Russia's President Vladimir Putin posed what he called a real danger to Baltic states, namely Latvia, Lithuania and Estonia.
This comes as British jets were scrambled Wednesday after two Russian military aircraft were seen flying close to the UK airspace.
A similar incident occurred in January, when the UK Foreign Office said two Russian bombers flying near the UK airspace had caused disruption to civil aviation.
British Prime Minister David Cameron later said he didn't deem it necessary to “dignify” the Russians with a response for their provocation.
Meanwhile, Estonia’s Prime Minister Taavi Rõivas (pictured above) announced Thursday that his country is to host additional NATO forces on its soil. He said the country is ready to make an special investment program worth €40 million for hosting the additional forces.
NATO and Russia are already at loggerheads over the crisis in east Ukraine which has claimed the lives of more than 5,700 people. Hopes were revived after leaders of Russia, Ukraine, Germany and France agreed on a truce deal last Thursday in the Belarusian capital of Minsk. However, clashes have continued with the two sides claiming that they are committed to implementing the ceasefire.
Western governments accuse Russia of having a major hand in the armed confrontation in east Ukraine. Moscow denies that, saying that the Western-backed government in Kiev should stop suppressing the rights of the ethnic Russian population in that part of the country.

Europe’s Future Depends on Relations With Russia – Hungarian Prime Minister

News | 20.02.2015 | 12:56
Sputnik — The future of Europe depends on developing relations with Russia, therefore the possibility of economically isolating the country should be rejected, Hungarian Prime Minister Viktor Orban said Friday.
Orban told Russian newspaper Kommersant that he did not want to live in a Europe heading toward a new Cold War with Russia, making Europeans Russia's enemy.
The prime minister expressed his support for Russia's initiative on economic cooperation and free trade between the European Union and the Eurasian Economic Union.
The interview comes after Orban and Russian President Vladimir Putin had talks on economic cooperation in Budapest on Tuesday. Following the meeting, the Hungarian prime minister said Russia and the European Union must urgently re-establish good relations.

Relations between the European Union and Russia severely deteriorated in 2014 amid Western accusations of Russian involvement in the Ukrainian conflict.

The European Union, as well as the United States and some other nations imposed several rounds of anti-Russia sanctions. Moscow, denying all the accusations, has responded with a year-long food ban on the countries that introduced the sanctions.

The Coercion of Greece

EDITOR'S CHOICE | 19.02.2015 | 18:13
The Economist’s February 6 cover displayed the Venus de Milo statue pointing a revolver, with the headline “Go ahead, Angela, make my day.” In the editors’ upside-down world, Greece is threatening Europe, or at least Germany.  Really?
On Monday, February 16, European officials “handed Athens an ultimatum: Agree by Friday to continue with a bailout program or risk the funding that the country needs to avoid a default,” the New York Times reported.
Then there is Wolfgang Schäuble, Germany’s finance minister and die-hard supporter of the failed austerity policies that brought Greece six years of depression. On February 11, according to the Financial Times, he “hinted darkly that a Greek plan to leave the bailout at the end of the month could draw a harsh reaction from financial markets.”
“I wouldn’t know how financial markets will handle it, without a programme — but maybe he [Greek Prime Minister Alexis Tsipras] knows better.”
Schäuble knows very well that it is not “the markets” who will decide how much capital flows out of the Greek banking system if it fails to renew the troika program that expires on February 28.  He knows that it is the actions of the European Central Bank (ECB) that will determine how the markets will react.  His transparent threat is like that of a gangster shaking down a store owner, pretending not to know who is responsible for the vandalism that happens to afflict businesses who don’t make their payments to the mob.
And it’s not just payments that he is shaking down Greece for, but a commitment to transform the Greek economy into something that voters never wanted. Among the “reforms” that Schäuble is insisting upon are measures that will further weaken the bargaining power of labor. These include moving away from industry-wide collective bargaining to negotiation at the firm level, making collective dismissals easier, and legalizing employer lockouts (currently illegal in Greece).
Many observers don’t seem to get it, but this is all about the European authorities using coercion to accomplish political as well as economic goals. That’s why these people have not been content to just rely on their enormous bargaining power and the threat of economic dislocation that would ensue if Greece is forced out of the euro. Instead, they have been pro-active:  on February 4 the ECB announced that it would no longer accept Greek government bonds as collateral. This was a deliberate effort to crash Greek financial markets and increase capital flight so as to force Syriza to capitulate as soon as possible.
There appear to be important divisions within the troika. According to press reports, European Commission President Jean-Claude Juncker has been challenging German Chancellor Angela Merkel on the issue of austerity.
In short, Syriza, having chosen to stay within the eurozone, has had little choice but to try and make its struggle Europe’s struggle, in order to force a change in eurozone-wide policies. Since austerity has failed miserably not only in Greece but in almost all of the eurozone, this is possible – and is some European authorities’ greatest fear at the moment.
Their other fear, of course, is that Greece will be forced out of the euro. It is commonly stated that this could cause some kind of European financial collapse, but that appears unlikely. Much more likely is that Greece, after an initial financial crisis, would recover much faster than its neighbors, and others would also want to leave.
That is another reason that coercion is such an important element here. To be effective, coercion must go beyond the present crisis and present the threat of chaos even after the (presently still unlikely) event that Greece would leave the euro. (The mafia is threatening not only you, but your family after you are killed.) That was part of the threat to Argentina in 2001 and into 2002, even after its default and devaluation. The consensus opinion, which included virtually all of the major media, was that Argentina’s troubles were just beginning, and there would be years of suffering ahead. As it turned out, Argentina suffered a severe financial crisis and recession, but only for three months. Freed from the IMF’s austerity policies, it then began a robust recovery in which GDP grew by 63 percent over the next six years.
Greece would appear to be much better situated for an economic recovery outside the eurozone than Argentina was after its devaluation and default. Argentina got no outside help; on the contrary, multilateral institutions drained money from the economy in 2002. Greece might not need any outside help, since it is running a current account surplus. But if it did, according to press reports, Russia (with $380 billion in reserves) and China (with $3.9 trillion) have offered assistance. The amounts of money that Greece might need to borrow would be trivial for China, and pretty small for Russia too.
So European coercion would come into play in the event of an exit too. The European authorities could try to block trade credits (this was another threat to Argentina) and otherwise injure the Greek financial system. They could try to pressure China and other countries not to provide loans. But it is unlikely that they would succeed in isolating Greece, and it is not clear that they could get political support in Europe for this kind of vindictiveness.
For now, at least, the coercion does not seem to be intimidating the Greeks. Finance Minister Yanis Varoufakis made it clear on Monday that ultimatums would not be accepted.  Tsipras’ approval rating is running at 75 percent, including 42 percent of those who voted for the then-ruling party in the January election. This is a triumph of democracy for Greece, and for Europe.

„KALTE FÜSSE”, „BULLSHIT”, „ANGST” | Was US-Politiker WIRKLICH über die Deutschen in der Ukraine-Krise denken

Der ukrainische Präsident Petro Petroschenko, Bundeskanzlerin Angela Merkel (CDU) und US-Vizepräsident Joe Biden bei der Sicherheitskonferenz in München
Foto: Getty Images
München – Während im Osten der Ukraine ein blutiger Krieg tobt, bricht auf der Sicherheitskonferenz in München der nächste gefährliche Konflikt aus. Eine diplomatische Nervenschlacht um die Frage, ob der Westen Waffen an die Regierung in Kiew liefern sollte. Die Gegner sind eigentlich Verbündete: Die USA gegen Europa, insbesondere Deutschland.
Hinter den schallgedämpften Türen der Konferenzräume im Hotel „Bayerischer Hof“ sprechen die Amerikaner geradezu abfällig über die Deutschen.
Freitagabend, kurz nach 19 Uhr. Im sechsten Stock des Luxushotels treffen sich nach BILD-Informationen amerikanische Vier-Sterne-Generäle, Diplomaten und hochrangige US-Politiker zu einem vertraulichen Gespräch im „Briefing Room“ und ziehen über die Deutschen her.
• „Defätistisch“ nennt ein US-Senator Verteidigungsministerin Ursula von der Leyen (56, CDU), weil sie nicht mehr an einen Sieg der Ukrainer glaube. Das Wort „deutsche Defätistin“ ist nach BILD-Informationen mehrfach zu hören in dieser Runde. 

Bundesverteidigungsministerin Ursula von der Leyen (CDU, hier mit Nato-Generalsekretär Jens Stoltenberg) gilt unter US-Diplomaten als „defätistisch“, weil sie nicht mehr an einen Sieg der Ukraine gegen Russland glaube

Foto: dpa
• Obamas Top-Diplomatin für Europa, Victoria Nuland, bezeichnet die Reise der Kanzlerin zu Putin als „Merkels Moskau-Zeug“, ein anderer US-Außenpolitiker spricht vom „Moskau-Bullshit“ der Europäer.
• Und US-Senator John McCain redet sich in Rage: „Die Geschichte zeigt uns, dass Diktatoren sich immer mehr nehmen werden, wenn man sie nur lässt. Sie werden sich von ihrem brutalen Benehmen nicht abbringen lassen, wenn man zu ihnen nach Moskau fliegt – ganz so wie man einst in diese Stadt geflogen ist.“
Merkels diplomatische Initiative in der Ukraine-Krise steht im Zentrum der amerikanischen Wut. Der Grund: Die Amerikaner glauben nicht, dass Putin sich ohne massiven Druck zu einem Abkommen bewegen lässt. Und Druck wollen die Europäer nicht weiter aufbauen.
„Sie fürchten sich vor Schäden für ihre Wirtschaft, Gegensanktionen der Russen“, sagt Nuland. „Es schmerzt mich zu sehen, dass unsere NATO-Partner jetzt kalte Füße bekommen“, sagt ein anderer US-Politiker nach BILD-Informationen.
German newspaper BILD gets inside US-NATO-Nuland planning session 
General Breedlove tells US diplomats and select members of Congress what Ukraine needs.
The Bild headline:
“Cold Feet” “Bullshit,” “Angst”
What US Politicians REALLY think about the Germans in the Ukraine-crisis
February 19, 2015
Translated from German by Tom Winter
Munich — While a bloody war rages in eastern Ukraine, the next dangerous conflict is breaking out in the Security Conference, a diplomatic battle of nerves centered on the question whether the West ought to supply armaments to the regime in Kiev. The opponents are actually allies: the USA against Europe,  and Germany in particular.
Behind the soundproof doors of the conference room in the Bayerischer Hof hotel, the Americans speak about Germans in rather derogatory terms.
Friday evening a bit after 7 p.m. on the sixth floor of the luxury hotel, according to BILD’s sources, American four-star generals, diplomats, and high-ranking US politicians held a frank discussion in a “briefing room,” and held forth about the Germans.
“Defeatist,” is what a US Senator called German Defense Minister Ursula von der Leyen, because she no longer believes in a Kiev victory. The phrase “German defeatist,” according to our information, was often heard in the room. 
Obama’s top diplomat for Europe, Victoria Nuland, called the Chancellor’s trip to Putin, “Merkel’s Moscow thing.” Another US Foreign office type spoke of the Europeans’ "Moscow bullshit.”
And US Senator John McCain talked himself into a rage: “History shows us that dictators always take more, whenever you let them. They can’t be brought back from their brutal behavior when you fly to Moscow to them, just like someone once flew to this city.”
Merkel’s diplomatic initiative in the Ukraine crisis stands at the center of American anger. Reason: the Americans don’t believe that Putin can’t be made to back off without a massive push, and the Europeans have no wish to build up a greater push.
“They’re afraid of damage to their economy, counter-sanctions from Russia,” said Nuland. Another US politician: “It’s painful to see that our NATO partners are getting cold feet.” 
Obama’s close confidante Victoria Nuland is the one who set the tone for her American colleagues at the prelude to the evening: “We can fight against the Europeans, we can fight with rhetoric against them.”
Several US politicians appeared to have hesitations about weapons supply to Kiev. One asked whether it was only a tactic, a false promise to get the Europeans to put more pressure on Putin. “No, it’s not a tactic to push the Europeans,” answered Nuland dryly. "We’re not going to sent any four divisions into Ukraine, as the Europeans fear. It’s only a relatively moderate delivery of anti-tank weapons.”
“But what will we tell the Europeans if we really decide on delivering weapons,” asked one Congressman. "What’s our story then?”
NATO Commander General Philip Breedlove was there. He answered: "We’re not on a footing to deliver so many weapons they could defeat Russia [!!! —tr] That’s not our goal. But we have to try to raise the battlefield cost for Putin, to slow down the whole problem, so sanctions and other measures can take hold."
Again top diplomat Nuland, who speaks fluent Russian and served as Dick Cheney’s security advisor took it up: “I’d strongly urge you to use the phrase ‘defensive systems’ that we would deliver to oppose Putin’s ‘offensive systems.’"
General Breedlove clarified for the US politicians, what an actual arms delivery would look like. “Russian artillery is by far what kills most Ukrainian soldiers, so a system is needed that can localize the source of fire and repress it. Ukrainian communications are disrupted or completely swamped, so they need uninterceptible communications gear. Then I won’t talk about any anti-tank rockets, but we are seeing massive supply convoys from Russia into Ukraine. The Ukrainians need the capability to shut off this transport. And then I would add some small tactical drones.”
NB: These planned weapons and systems are so technically demanding that US soldiers would probably have to train the Ukrainian army. Thus the USA would be intervening with their own troops in the conflict.
There hasn’t been this much conflict between Europeans and Americans since the Munich Security conference of 2003, shortly before the beginning of the Iraq war. In the morning Chancellor Angela Merkel travels to Washington to US President Barak Obama. The two have much to discuss…
Translator's note: This material is visible throughout the German press, and it all comes back to this article in Das Bild, and the source for this Bild article had to be German Intelligence. The German press is full of praise for their peace-making Chancellor, and apparently the Chancellory is committed to making Minsk II a success. Further, this item removes, and was doubtless intended to remove, any doubts about NATO being a US instrument. Also to be noted here is a complete zeroing out of the five or six million Russian-speaking inhabitants of Lugansk and Donetsk; they don't exist, it's just Russia. 
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Economics Wars and Economic Sanctions (III)

Ways out of the Trap! (blogger)

Valentin KATASONOV | 08.02.2015 | 00:00

Over the long period of time that economic sanctions have been actively used in the world, a wealth of knowledge has been accumulated regarding the organisation of such sanctions and ways to counteract them. Probably the most extensive experience of counteracting sanctions has been accumulated by Russia, and almost all of this was accrued during the Soviet period of her history. 
The Soviet experience of counteracting economic sanctions
In the early years of Soviet Russia, the trade and sea blockade by her former allies (the Entente countries) was overcome by organising trade flows through neutral countries (Persia, Turkey and China) or via contraband corridors (one of the main corridors passed through the Baltic States and Scandinavia). After the outbreak of the global economic crisis towards the end of 1929, the Soviet Union began to play on conflicts between countries in the West in an effort to get some of them to relax or even lift the sanctions. 
The strategic solution to the problems caused by the economic sanctions was the industrialisation of Soviet Russia. One of the main objectives of industrialisation in December 1925 was declared to be a reduction in the dependence of the Soviet economy on foreign markets as much as possible, relying instead on its own resources and production. Between 1929 and 1941, nearly 10,000 businesses were set up that produced manufacturing equipment, consumer goods, and all kinds of weapons and military equipment. The economy during that time was mobilised and its most important elements were: the centralised management of the national economy, 100 per cent state participation in industry, medium-term (five-year) policy planning, the collectivisation of agriculture, the complete eradication of all forms of capital (industrial, trade and monetary), the nationalisation of the monetary system, an alignment of living standards for all sections of the population (social programmes, combating unearned income and so on), the state monopoly of foreign trade, and a state currency monopoly. 
From the very earliest stages of industrialisation, Soviet Russia was able to reach out to American countries that were in the middle of a severe economic crisis. It was these companies that supplied the equipment for the construction projects of the USSR’s first five-year plan, and carried out installation and commissioning work. Equipment was supplied under the terms of commercial lending, which alleviated the problems associated with a lack of currency. Then the American window of opportunities gradually began to close, and in subsequent years German firms became the main suppliers of machinery and equipment. It is interesting that industrialisation took place without the involvement of any kind of foreign investment in the Soviet economy. Previously, the only foreign capital in the USSR was in the form of concessions, the last of which were terminated in 1932-1933 (1). For several decades, the Soviet economy was self-sufficient: the share of exports and imports in the GDP of the USSR was just a few per cent. This meant that the Soviet Union was only marginally vulnerable to economic sanctions. 
In the mid-1970s, however, the USSR became more dependent on exports and imports. In 1973, oil prices on the world market jumped fourfold. Rather than continuing to strengthen the country’s industrial potential, the Soviet government took the path of least resistance. The country’s economic, social and military problems began to be resolved with the aid of petrodollars, which is why the West’s economic sanctions became steadily more effective over the last 15 years of the USSR’s existence. Officially, the slump in oil prices on the global market in 1986 has absolutely nothing to do with the economic sanctions against USSR, but there is little doubt that the slump was planned by Washington with a view to finally undermining the Soviet economy. It was an act of economic warfare and it achieved its objective. Five years later, the Soviet Union ceased to exist. 
Iran and Iraq: three levels for the counteraction of sanctions
Among the countries that have managed, with some success, to counteract the West’s economic sanctions in recent years, one could mention Iraq and Iran. Sanctions were actually imposed against the former from 1990 to 2003 (officially until 2010), and against the latter from 1979 to the present day. In both countries it is possible to identify three levels for the counteraction of sanctions:
- the adaptation of foreign economic activity to the bans and restrictions imposed by sanctioning countries;
- the substitution of imports for domestic production and the diversification of the export commodity structure; and
- measures regarding the distribution of essential goods.
Measures for the adaptation of foreign economy activity to the conditions of sanctions
This includes the following areas: 
a) the reorientation of foreign economy activity to a country that is not involved in the economic sanctions (a «non-aligned state»); 
b) the use of alternative currencies to the US dollar and the euro for international settlements; and 
c) the use of intermediary countries operating under the flags of a wide variety of countries for trade. 
Sanctions against Iraq were imposed by the UN, but even this was not enough to organise an iron blockade around the country. Iraq signed agreements with its neighbouring countries Jordan, Egypt and Turkey, through which oil supplies left Iraq and a wide variety of goods (from cars, equipment and military technology to food and medicine) were imported into Iraq. Washington was aware of all these operations, but the pressure it put on Iraq’s neighbouring countries had little effect. According to the CIA, during the years of sanctions Iraq was able to sell USD 75 billion worth of oil. As well as the channel of interstate agreements for international trade, they also took advantage of contracts with intermediary companies and even individuals. These individuals and companies included a number of citizens and businesses from China, France and Russia. Some of the companies were short-lived companies, created for the execution of a single contract. 
The blockade that the US has spent many years trying to organise around Iran is looking increasingly holey. US sanctions against the country are not UN sanctions. Only in early 2010 did Washington manage to get the European Union involved in sanctions against Iran, but in just a year or two Iran reorientated itself from the European market to the markets of such countries as China, India, Turkey and Russia. A number of small Arab states neighbouring Iran are being used as trade transit points. Before the EU joined Washington’s sanctions, many European companies had managed to make considerable investments in Iran’s economy. French companies, for example, secured a footing in Iran’s automobile industry, while German and English companies gained a foothold in Iran’s mining industry. At present, these European companies are still collaborating with Iran, just not directly; they are collaborating through governments and companies playing the role of intermediaries. They can send equipment to fictitious addresses in Turkey, for example, then from Turkey the equipment goes to Dubai (UAE), and from there to the Iranian port of Bandar Abbas. There are also other transit routes through South Africa and Malaysia. Often, schemes for the movement of goods are straightened out, and goods travel back and forth directly between Iran and Turkey. For Turkey, although it is a member of NATO, Iran is still its main trading partner (although official statistics for Turkey do not reflect its trade with Iran in full). 
It is extremely important for sanctioned countries to move away from settlements in the main reserve currencies, especially the US dollar. Settlements like these are controlled by the West, since transactions pass through the correspondent accounts of American and European banks. Today, Iran has almost completely liberated itself from the dollar in its trade settlements. Quite a substantial portion of Iran’s trade is carried out on the basis of bartering, so the direct exchange of commodities, in other words. An even greater proportion of its commercial transactions are made using the national currencies of Iran’s trading partners. These are primarily the Chinese yuan, the Indian rupee and the South Korean won. The Russian rouble is also used, as is gold, which is becoming another tool for transactions. 
Furthermore, there is an observable trend in Iran to strengthen state control over the financial and foreign exchange sectors. To strengthen the rial, the Bank of Iran is buying gold from India and Turkey and foreign currency through a network of money changers in Iraq. The government has reverted to exchange restrictions, a single exchange rate has been introduced, and the Bank of Iran has established a centre for economic and monetary stabilisation. 
Substitution of imports for domestic production
The aim of substituting imports for domestically-produced foodstuffs has become particularly timely for Iraq and Iran. Immediately after the introduction of sanctions against Iraq in 1990, the Iraqi government took a number of decisions to increase its agricultural production – by putting more land into economic circulation, and through the subsidisation of agricultural producers and guaranteed government procurement. Decree No 367 of the Iraqi Revolutionary Command Council states that: «All land not being used by its owners or others in keeping with its agricultural purpose shall be nationalised without compensation.» The Ministry of Agriculture compensated farmers up to 100 per cent of the cost of seed and spent 586 million dinar on this in 1990. Iraq’s agriculture was planned: farmers were given detailed instructions about what to plant, where and how, and any failure to comply with these instructions was a punishable offence. By October 1992, the government had started buying up the entire crop without intermediaries. These measures helped to significantly increase the amount of harvested crops. According to official Iraqi sources, 1 million tonnes of crops were harvested in 1989 and 2.5 million tonnes were harvested in 1990. The area of arable land increased by 50 per cent.
Iran also began to carry out a policy of import substitution, and not only for foodstuffs, but for a wide range of industrial products. On 23 August 2012, the Supreme Leader of Iran, Ayatollah Ali Khomeini, called on the country’s government to create «an economy of resistance» capable of withstanding international sanctions. This new term actually referred to a continuation of the policy of «economic jihad» officially announced by the country’s rahbar in 2011 and had essentially been underway from the very first days of the Islamic Republic of Iran’s existence. The economic jihad pursues two main objectives: reducing Iran’s dependence on oil exports and switching to the export of high value-added products; and reducing its imports of essential goods, primarily foodstuffs and medicines. 
Iran: the diversification of its export commodity structure and the search for new trading partners
Supporters of tougher sanctions against Iran in the West are trying to prove that the Iranian economy, under pressure from sanctions, is becoming increasingly weak. Now and then, they refer to a 2012 statement by the Iranian Oil Ministry which states that after the EU joined the sanctions being imposed by Washington, Iran’s oil export revenue fell by more than 40 per cent. 
However, this is an extremely cunning interpretation of the processes currently taking place in the Iranian economy. The fact is that Iran has started to change the structure of its exports by increasing its processed raw materials and other product groups (besides oil). In 2012 (2), polyethylene and fertilizer exports amounted to USD 9 billion, the export of plastics – USD 3.2 billion, the export of construction materials (stone, cement, and related products) – USD 8.2 billion, agricultural exports – USD 5.3 billion, and rug exports – USD 0.8 billion. 
According to the Customs Administration of Iran, Iran’s main partners for non-oil exports in 2013 (with the exception of gas condensate) were China, Iraq, UAE, India, Afghanistan, and Turkey. All of these (except Afghanistan) showed a growth in the volume of Iranian goods purchased. In 2012, China bought USD 4.8 billion worth of goods from Iran, and in 2013 China’s purchases in Iran increased to USD 7.4 billion. 
As for Iran’s main import partners, at the end of 2013 they ranked as follows: UAE, China, India, South Korea, Turkey, Switzerland, and Germany. Imports from countries like South Korea, Switzerland and Germany have fallen slightly in comparison with 2012. Along with this, there has been a significant increase in imports from the other countries. Imports from UAE grew from USD 9.3 to USD 10.8 billion, and from China from USD 7.1 to USD 9.6 billion. The growth of imports from India is particularly significant, from USD 1.6 to USD 4.3 billion. All of this dispels the myth regarding the effectiveness of the West’s sanctions against Iran. 
In 2013, Iran’s share of global GDP stood at 0.74 per cent. It is predicted that in 2014, this figure will grow to 0.76 percent, in 2015 to 0.8 per cent, and in 2016 to 0.85 per cent. At the beginning of this decade, Iran’s share of the global petrochemical market was 2.4 per cent, and Iran’s Fifth Five-Year Development Plan (2011-2015) aims to raise this figure to 4.9 per cent. Iran’s share of the petrochemical market in the Near and Middle East has reached 23.4 per cent, and it is planned that this figure will reach 41 per cent by 2020. 
In February 2014, the Iranian government unveiled a plan of action in keeping with the «economy of resistance». Essentially, the plan is to mobilise the Iranian economy. It consists of 24 points. One of the most important points is the development of partnerships with countries that are not involved in the economic sanctions being imposed by the US, and Tehran is attaching particular significance to the development of a partnership with Russia. 
(1) Readers can find out more about the industrialisation of the USSR during the economic blockade in my book: «Ekonomicheskaya voina protiv Rossii i stalinskaya industrializatsiia» [«The economic war against Russia and Stalin’s industrialisation»] (M.: Algoritm, 2014). 
(2) This refers to the Iranian year, which begins on 21 march and ends on 20 March in the European calendar. Here, 2012 refers to the period of time from 21 March 2012 to 20 March 2013 in the European calendar. According to the Iranian calendar, the year is 1391.
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