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Title: The Belgian Curtain
Author: Sam Vaknin
Posting Date: August 13, 2012 [EBook #8217]

Release Date: June, 2005

First Posted: July 3, 2003
Language: English
Character set encoding: ISO-8859-1
*** START OF THIS PROJECT GUTENBERG EBOOK THE BELGIAN CURTAIN ***

The Belgian Curtain

Europe after Communism

1st EDITION

Sam Vaknin, Ph.D.

Editing and Design:

Lidija Rangelovska

Lidija Rangelovska

A Narcissus Publications Imprint, Skopje 2003
First published by United Press International – UPI

Not for Sale! Non-commercial edition.

© 2002 Copyright Lidija Rangelovska.

All rights reserved. This book, or any part thereof, may not be used or reproduced in any manner without written permission from:

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Created by: LIDIJA RANGELOVSKA

REPUBLIC OF MACEDONIA
C O N T E N T S



  1. European Union and NATO – The Competing Alliances

  2. The War in Iraq

  3. How the West Lost the East

  4. Left and Right in a Divided Europe

  5. Forward to the Past – Capitalism in Post-Communist Europe

  6. Transition in Context

  7. Eastern Advantages

  8. Europe’s Four Speeds

  9. Switching Empires

  10. Europe’s Agricultural Revolution

  11. Winning the European CAP

  12. History of Previous Currency Unions

  13. The Concert of Europe, Interrupted

  14. The Eastern Question Revisited

  15. Europe’s New Jews

  16. The Author

  17. About "After the Rain"

EU and NATO - The Competing Alliances

By: Dr. Sam Vaknin

Also published by United Press International (UPI)

Saturday's vote in Ireland was the second time in 18 months that its increasingly disillusioned citizenry had to decide the fate of the European Union by endorsing or rejecting the crucial Treaty of Nice. The treaty seeks to revamp the union's administration and the hitherto sacred balance between small and big states prior to the accession of 10 central and east European countries. Enlargement has been the centerpiece of European thinking ever since the meltdown of the eastern bloc.

Shifting geopolitical and geo-strategic realities in the wake of the September 11 atrocities have rendered this project all the more urgent. NATO - an erstwhile anti-Soviet military alliance is search of purpose - is gradually acquiring more political hues. Its remit has swelled to take in peacekeeping, regime change, and nation-building.

Led by the USA, it has expanded aggressively into central and northern Europe. It has institutionalized its relationships with the countries of the Balkan through the "Partnership for Peace" and with Russia through a recently established joint council. The Czech Republic, Poland, and Hungary - the eternal EU candidates - have full scale members of NATO for 3 years now.

The EU responded by feebly attempting to counter this worrisome imbalance of influence with a Common Foreign and Security Policy and a rapid deployment force. Still, NATO's chances of replacing the EU as the main continental political alliance are much higher than the EU's chances of substituting for NATO as the pre-eminent European military pact. the EU is hobbled by minuscule and decreasing defense spending by its mostly pacifistic members and by the backwardness of their armed forces.

That NATO, under America's thumb, and the vaguely anti-American EU are at cross-purposes emerged during the recent spat over the International Criminal Court. Countries, such as Romania, were asked to choose between NATO's position - immunity for American soldiers on international peacekeeping missions - and the EU's (no such thing). Finally - and typically - the EU backed down. But it was a close call and it cast in sharp relief the tensions inside the Atlantic partnership.

As far as the sole superpower is concerned, the strategic importance of western Europe has waned together with the threat posed by a dilapidated Russia. Both south Europe and its northern regions are emerging as pivotal. Airbases in Bulgaria are more useful in the fight against Iraq than airbases in Germany.

The affairs of Bosnia - with its al-Qaida's presence - are more pressing than those of France. Turkey and its borders with central Asia and the middle east is of far more concern to the USA than disintegrating Belgium. Russia, a potentially newfound ally, is more mission-critical than grumpy Germany.

Thus, enlargement would serve to enhance the dwindling strategic relevance of the EU and heal some of the multiple rifts with the USA - on trade, international affairs (e.g., Israel), defense policy, and international law. But this is not the only benefit the EU would derive from its embrace of the former lands of communism.

Faced with an inexorably ageing populace and an unsustainable system of social welfare and retirement benefits, the EU is in dire need of young immigrants. According to the United Nations Population Division, the EU would need to import 1.6 million migrant workers annually to maintain its current level of working age population. But it would need to absorb almost 14 million new, working age, immigrants per year just to preserve a stable ratio of workers to pensioners.

Eastern Europe - and especially central Europe - is the EU's natural reservoir of migrant labor. It is ironic that xenophobic and anti-immigration parties hold the balance of power in a continent so dependent on immigration for the survival of its way of life and institutions.

The internal, common, market of the EU has matured. Its growth rate has leveled off and it has developed a mild case of deflation. In previous centuries, Europe exported its excess labor and surplus capacity to its colonies - an economic system known as "mercantilism".

The markets of central, southern, and eastern Europe - West Europe's hinterland - are replete with abundant raw materials and dirt-cheap, though well-educated, labor. As indigenous purchasing power increases, the demand for consumer goods and services will expand.

Thus, the enlargement candidates can act both as a sink for Europe's production and the root of its competitive advantage.

Moreover, the sheer weight of their agricultural sectors and the backwardness of their infrastructure can force a reluctant EU to reform its inanely bloated farm and regional aid subsidies, notably the Common Agricultural Policy. That the EU cannot afford to treat the candidates to dollops of subventioary largesse as it does the likes of France, Spain, Portugal, and Greece is indisputable. But even a much-debated phase-in period of 10 years would burden the EU's budget - and the patience of its member states and denizens - to an acrimonious breaking point.

The countries of central and eastern Europe are new consumption and investment markets. With a total of 300 million people (Russia counted), they equal the EU's population - though not its much larger purchasing clout. They are likely to while the next few decades on a steep growth curve, catching up with the West. Their proximity to the EU makes them ideal customers for its goods and services. They could provide the impetus for a renewed golden age of European economic expansion.

Central and eastern Europe also provide a natural land nexus between west Europe and Asia and the Middle East. As China and India grow in economic and geopolitical importance, an enlarged Europe will find itself in the profitable role of an intermediary between east and west.

The wide-ranging benefits to the EU of enlargement are clear, therefore. What do the candidate states stand to gain from their accession? The answer is: surprisingly little.

All of them already enjoy, to varying degrees, unfettered, largely duty-free, access to the EU. To belong, a few - like Estonia - would have to dismantle a much admired edifice of economic liberalism.

Most of them would have to erect barriers to trade and the free movement of labor and capital where none existed. All of them would be forced to encumber their fragile economies with tens of thousands of pages of prohibitively costly labor, intellectual property rights, financial, and environmental regulation. None stands to enjoy the same benefits as do the more veteran members - notably in agricultural and regional development funds.

Joining the EU would deliver rude economic and political shocks to the candidate countries. A brutal and rather sudden introduction of competition in hitherto much-sheltered sectors of the economy, giving up recently hard-won sovereignty, shouldering the debilitating cost of the implementation of  reams of guideline, statutes, laws, decrees, and directives, and being largely powerless to influence policy outcomes. Faced with such a predicament, some countries may even reconsider.

THE WAR IN IRAQ



The Euro-Atlantic Divide

By: Dr. Sam Vaknin

Also published by United Press International (UPI)

The countries of central and east Europe - especially those slated to join the European Union (EU) in May next year - are between the American rock and the European hard place. The Czech republic, Hungary and Poland, already NATO members, have joined Spain, Britain and other EU veterans in signing the "letter of eight" in support of US policy in the Gulf. NATO and EU aspirants - including most of the nations of the Balkans - followed suit in a joint statement of the Vilnius Group.

The denizens of the region wonder what is meant by "democracy" when their own governments so blithely ignore public opinion, resolutely set against the looming conflict. The heads of these newly independent polities counter by saying that leaders are meant to mold common perceptions, not merely follow them expediently. The mob opposed the war against Hitler, they remind us, somewhat non-germanely.

But the political elite of Europe is, indeed, divided.

France is trying to reassert its waning authority over an increasingly unruly and unmanageably expanding European Union. Yet, the new members do not share its distaste for American hegemony.

On the contrary, they regard it as a guarantee of their own security. They still fear the Russians, France's and Germany's new found allies in the "Axis of Peace" (also known as the Axis of Weasels).

The Czechs, for instance, recall how France (and Britain) sacrificed them to Nazi Germany in 1938 in the name of realpolitik and the preservation of peace. They think that America is a far more reliable sponsor of their long-term safety and prosperity than the fractured European "Union".

Their dislike of what they regard as America's lightweight leadership and overt - and suspect - belligerence notwithstanding, the central and east Europeans are grateful to the United States for its unflinching - and spectacularly successful - confrontation with communism.

France and Germany - entangled in entente and Ostpolitik, respectively - cozied up to the Kremlin, partly driven by their Euro-communist parties. So did Italy. While the Europeans were busy kowtowing to a repressive USSR and castigating the USA for its warmongering, America has liberated the Soviet satellites and bankrolled their painful and protracted transition.

Historical debts aside, America is a suzerain and, as such, it is irresistible. Succumbing to the will of a Big Power is the rule in east and central Europe. The nations of the region have mentally substituted the United States for the Soviet Union as far as geopolitics are concerned. Brussels took the place of Moscow with regards to economic issues. The Czechs, Poles, Hungarians, assorted Balkanians, even the Balts - have merely switched empires.

There are other reasons for these countries' pro-Americanism. The nations of central, east and southeast (Balkans) Europe have sizable and economically crucial diasporas in the united States. They admire and consume American technology and pop culture. Trade with the USA and foreign direct investment are still small but both are growing fast.

Though the EU is the new and aspiring members' biggest trading partner and foreign investor - it has, to borrow from Henry Kissinger, no "single phone number". While France is enmeshed in its Byzantine machinations, Spain and Britain are trying to obstruct the ominous re-emergence of French-German dominance.

By catering to popular aversion of America's policies, Germany's beleaguered Chancellor, Gerhard Schroeder, is attempting to score points domestically even as the German economy is imploding.

The euro-Atlantic structures never looked worse. The European Union is both disunited and losing its European character. NATO has long been a dysfunctional alliance in search of a purpose. For a while, Balkan skirmishes provided it with a new lease on life. But now the Euro-Atlantic alliance has become the Euro-Atlantic divide.

The only clear, consistent and cohesive voice is America's. The new members of NATO are trying to demonstrate their allegiance - nay, obsequiousness - to the sole identifiable leader of the free world.

France's bid at European helmsmanship failed because both it and Russia are biased in favor of the current regime in Iraq. French and Russian firms have signed more than 1700 commercial contracts with Saddam's murderous clique while their British and American competitors were excluded by the policies of their governments.

When sanctions against Iraq are lifted - and providing Saddam or his hand-picked successor are still in place - Russian energy behemoths are poised to explore and extract billions of barrels of oil worth dozens of billions of dollars. Iraq owes Russia $9 billion which Russia wants repaid.

But the United States would be mistaken to indulge in Schadenfreude or to gleefully assume that it has finally succeeded in isolating the insolent French and the somnolent Germans. Public opinion - even where it carries little weight, like in Britain, or in the Balkans - cannot be ignored forever.

Furthermore, all the countries of Europe share real concerns about the stability of the Middle East. A divided Iraq stands to unsettle neighbours near and far. Turkey has a large Kurdish minority as does Iran. Conservative regimes in the Gulf fear Iraq's newfound and American-administered democracy. In the wake of an American attack on Iraq, Islamic fundamentalism and militancy will surely surge and lead to a wave of terror. Europe has vested historical, economic and geopolitical interests in the region, unlike America.

Persistent, unmitigated support for the USA in spite of French-German exhortations will jeopardize the new and aspiring members' position in an enlarged EU. Accession is irreversible but they can find themselves isolated and marginalized in decision making processes and dynamics long after the Iraqi dust has settled. EU officials already gave public warnings to this effect.

It is  grave error to assume that France and Germany have lost their pivotal role in the EU. Britain and Spain are second rank members - Britain by Europhobic choice and Spain because it is too small to really matter. Russia - a smooth operator - chose to side with France and Germany, at least temporarily. The new and aspiring members would have done well to follow suit. 

Instead, they have misconstrued the signs of the gathering storm: the emerging European rapid deployment force and common foreign policy; the rapprochement between France and Germany at the expense of the pro-American but far less influential Britain, Italy and Spain; the constitutional crisis setting European federalists against traditional nationalists; the growing rupture between "Old Europe" and the American "hyperpower".


The new and aspiring members of NATO and the EU now face a moment of truth and are being forced to reveal their hand. Are they pro-American, or pro-German (read: pro federalist Europe)? Where and with whom do they see a common, prosperous future? What is the extent of their commitment to the European Union, its values and its agenda?


The proclamations of the European eight (including the three central European candidates) and the Vilnius Ten must have greatly disappointed Germany - the unwavering sponsor of EU enlargement. Any further flagrant siding with the United States against the inner core of the EU would merely compound those errors of judgment. The EU can punish the revenant nations of the communist bloc with the same dedication and effectiveness with which it has hitherto rewarded them.

THE WAR IN IRAQ

Bulgaria - The Quiet American

By: Dr. Sam Vaknin

Also published by United Press International (UPI)

Last week, Bulgaria, currently sitting on the Security Council, was one of ten east and southeast European countries - known as the Vilnius Group - to issue a strongly worded statement in support of the United States' attempt to disarm Iraq by military means. This followed a similar, though much milder, earlier statement by eight other European nations, including Hungary, the Czech Republic and Poland, the EU's prospective members in central Europe.

The Vilnius Ten - including Albania, Bulgaria, Croatia, Estonia, Latvia, Lithuania, Macedonia, Romania, Slovakia and Slovenia - called the evidence presented to the Security Council by Colin Powell, the US Secretary of State - "compelling". Iraq posed a "clear and present danger" - they concluded.

Bulgaria and Romania pledged free access to their air spaces and territorial waters. The first US military plane has landed today in the Safarovo airport in the Black Sea city of Burgas in Bulgaria. Other members are poised to provide medical staff, anti-mine units and chemical protection gear.

Such overt obsequiousness did not go unrewarded.

Days after the common statement, the IMF - considered by some to be a long arm of America's foreign policy - clinched a standby arrangement with Macedonia, the first in two turbulent years. On the same day, Bulgaria received glowing - and counterfactual - reviews from yet another IMF mission, clearing the way for the release of a  tranche of $36 million out of a loan of $330 million.

Partly in response, six members of parliament from the ruling Simeon II national Movement joined with four independents to form the National Ideal for Unity. According to Novinite.com, a Bulgarian news Web site, they asserted that "the new political morale was seriously harmed" and "accused the government of inefficient economic program of the government that led to the bad economic situation in the country."

Following the joint Vilnius Group declaration, Albania, Croatia, Bulgaria and Macedonia received private and public assurances that their NATO applications now stand a better chance. Bulgaria started the second round of negotiations with the military alliance yesterday and expects to become full member next year. The head of the US Committee on NATO Enlargement Bruce Jackson stated: "I'm sure that Bulgaria has helped itself very much this week."

Yet, the recent rift in NATO (over Turkish use of the Alliance's defense assets) pitted Germany, France and Belgium against the rest of the organization and opposite other EU member states. It casts in doubt the wisdom of the Vilnius Group's American gambit. The countries of central and east Europe may admire the United States and its superpower clout - but, far more vitally, they depend on Europe, economically as well as politically.

Even put together, these polities are barely inconsequential. They are presumptuous to assume the role of intermediaries between a disenchanted Franco-German Entente Cordiale and a glowering America. Nor can they serve as "US Ambassadors" in the European corridors of power.

The European Union absorbs two thirds of their exports and three quarters of their immigrants. Europe accounts for nine tenths of foreign direct investment in the region and four fifths of aid. For the likes of the Czech Republic and Croatia to support the United states against Germany is nothing short of economic suicide.

Moreover, the United States is a demanding master. It tends to micromanage and meddle in everything, from election outcomes to inter-ethnic relations. James Purdew, America's ambassador to Sofia and a veteran Balkan power broker, spent the last few weeks exerting pressure on the Bulgarian government, in tandem with the aforementioned Bruce Jackson, to oust the country's Prosecutor General and reinstate the (socialist) head of the National Investigation Services.

Bulgaria is already by far the most heavily enmeshed in US military operations in Asia. It served as a launch pad for US planes during the Afghanistan campaign in 2001-2. It stands to be affected directly by the looming war.

Bulgaria is on the route of illicit immigration from Iraq, Palestine and Iran, via Turkey, to Greece and therefrom to the EU. Last Friday alone, it detained 43 Iraqi refugees caught cruising Sofia in two Turkish trucks on the way to the Greek border.

The Ministry of Interior admitted that it expects a "massive flow of (crossing) refugees" if an armed conflict were to erupt.

The Minister of Finance, Milen Velchev, intends to present to the Council of Ministers detailed damage scenarios based on a hike in the price of oil to $40 per barrel and a 3-4 months long confrontation. He admitted to the Bulgarian National Radio that inflation is likely to increase by at least 1-1.5 percentage points.

The daily cost of a single 150-member biological and chemical defense unit stationed in the Gulf would amount to $15,000, or c. $500,000 per month, said the Bulgarian news agency, BTA. The Minister of Defense, Nikolai Svinarov, told the Cabinet that he expects "maximum (American) funding and logistical support" for the Bulgarian troops. The United States intends to base c. 400 soldiers-technicians and 18 planes on the country's soil and will pay for making use of the infrastructure, as they have done during operation "Enduring Freedom" (the war in Afghanistan).

Bulgaria stands to benefit in other ways. The country's Deputy Foreign Minister, Lyubomir Ivanov, confirmed in another radio interview that the Americans pledged that Iraqi debts to Bulgaria will be fully paid. This can amount to dozens of millions of US dollars in fresh money.

Is this Bulgaria's price? Unlikely. Bulgaria, like the other countries of the region, regards America as the first among equals in NATO. The EU is perceived in east Europe as a toothless, though rich, club, corrupted by its own economic interests and inexorably driven by its bloated bureaucracy.

The EU and its goodwill and stake in the region are taken for granted - while America has to be constantly appeased and mollified.

Still, the members of the Vilnius Groups have misconstrued the signs of the gathering storm: the emerging European rapid deployment force and common foreign policy; the rapprochement between France and Germany at the expense of the pro-American but far less influential Britain, Italy and Spain; the constitutional crisis setting European federalists against traditional nationalists; the growing rupture between "Old Europe" and the American "hyperpower".

The new and aspiring members of NATO and the EU now face a moment of truth and are being forced to reveal their hand. Are they pro-American, or pro-German (read: pro federalist Europe)? Where and with whom do they see a common, prosperous future? What is the extent of their commitment to the European Union, its values and its agenda?

The proclamations of the European eight (including the three central European candidates) and the Vilnius Ten must have greatly disappointed Germany - the unwavering sponsor of EU enlargement. Any further flagrant siding with the United States against the inner core of the EU would merely compound those errors of judgment. The EU can punish the revenant nations of the communist bloc with the same dedication and effectiveness with which it has hitherto rewarded them. Ask Israel, it should know.

THE WAR IN IRAQ

Russia Straddles the Euro-Atlantic Divide

By: Dr. Sam Vaknin

Also published by United Press International (UPI)

Also Read

The Janus Look

Russia's Second Empire

Russian Roulette - The Security Apparatus

Russia as a Creditor

Let My People Go - The Jackson-Vanik Controversy

The Chechen Theatre Ticket

Russia's Israeli Oil Bond

Russia's Idled Spies

Russia in 2003

Russian President Vladimir Putin warned on Tuesday, in an interview he granted to TF1, a French television channel, that unilateral American-British military action against Iraq would be a "grave mistake" and an "unreasonable use of force".

Russia might veto it in the Security Council, he averred. In a joint declaration with France and Germany, issued the same day, he called to enhance the number of arms inspectors in Iraq as an alternative to war.

Only weeks ago Russia was written off, not least by myself, as a satellite of the United States. This newfound assertiveness has confounded analysts and experts everywhere. Yet, appearances aside, it does not signal a fundamental shift in Russian policy or worldview.

Russia could not resist the temptation of playing once more the Leninist game of "inter-imperialist contradictions". It has long masterfully exploited chinks in NATO's armor to further its own economic, if not geopolitical, goals. Its convenient geographic sprawl - part Europe, part Asia - allows it to pose as both a continental power and a global one with interests akin to those of the United States. Hence the verve with which it delved into the war against terrorism, recasting internal oppression and meddling abroad as its elements.

As Vladimir Lukin, deputy speaker of the Duma observed recently, Britain having swerved too far towards America - Russia may yet become an intermediary between a bitterly disenchanted USA and an irked Europe and between the rich, industrialized West and developing countries in Asia. Publicly, the USA has only mildly disagreed with Russia's reluctance to countenance a military endgame in Iraq - while showering France and Germany with vitriol for saying, essentially, the same things.

The United States knows that Russia will not jeopardize the relevance of the Security Council - one of the few remaining hallmarks of past Soviet grandeur - by vetoing an American-sponsored resolution. But Russia cannot be seen to be abandoning a traditional ally and a major customer (Iraq) and newfound friends (France and Germany) too expediently.

Nor can Putin risk further antagonizing Moscow hardliners who already regard his perceived "Gorbachev-like" obsequiousness and far reaching concessions to the USA as treasonous. The scrapping of the Anti Ballistic Missile treaty, the expansion of NATO to Russia's borders, America's presence in central Asia and the Caucasus, Russia's "near abroad" - are traumatic reversals of fortune.

An agreed consultative procedure with the crumbling NATO hardly qualifies as ample compensation. There are troubling rumblings of discontent in the army. A few weeks ago, a Russian general in Chechnya refused Putin's orders publicly - and with impunity. Additionally, according to numerous opinion polls, the vast majority of Russians oppose an Iraqi campaign.

By aligning itself with the fickle France and the brooding and somnolent Germany, Russia is warning the USA that it should not be taken for granted and that there is a price to pay for its allegiance and good services. But Putin is not Boris Yeltsin, his inebriated predecessor who over-played his hand in opposing NATO's operation in Kosovo in 1999 - only to be sidelined, ignored and humiliated in the postwar arrangements.

Russia wants a free hand in Chechnya and to be heard on international issues. It aspires to secure its oil contracts in Iraq - worth tens of billions of dollars - and the repayment of $9 billion in old debts by the postbellum government. It seeks pledges that the oil market will not be flooded by a penurious Iraq. It desires a free hand in Ukraine, Armenia and Uzbekistan, among others. Russia wants to continue to sell $4 billion a year in arms to China, India, Iran, Syria and other pariahs unhindered.

Only the United States, the sole superpower, can guarantee that these demands are met. Moreover, with a major oil producer such as Iraq as a US protectorate, Russia becomes a hostage to American goodwill. Yet, hitherto, all Russia received were expression of sympathy, claimed Valeri Fyodorov, director of Political Friends, an independent Russian think-tank, in an interview in the Canadian daily, National Post.

These are not trivial concerns. Russia's is a primitive economy, based on commodities - especially energy products - and an over-developed weapons industry. Its fortunes fluctuate with the price of oil, of agricultural produce and with the need for arms, driven by regional conflicts.

Should the price of oil collapse, Russia may again be forced to resort to multilateral financing, a virtual monopoly of the long arms of US foreign policy, such as the International Monetary Fund (IMF). The USA also has a decisive voice in the World Trade Organization (WTO), membership thereof being a Russian strategic goal.

It was the United States which sponsored Russia's seat at table of the G8 - the Group of Eight industrialized states - a much coveted reassertion of the Russian Federation's global weight. According to Rossiiskaya Gazeta, a Russian paper, the USA already announced a week ago that it is considering cutting Russia off American financial aid - probably to remind the former empire who is holding the purse strings.

But siding with America risks alienating the all-important core of Europe: Germany and France. Europe - especially Germany - is Russia's largest export destination and foreign investor. Russia is not oblivious to that. It would like to be compensated generously by the United States for assuming such a hazard.

Still, Europe is a captive of geography and history. It has few feasible alternatives to Russian gas, for instance. As the recent $7 billion investment by British Petroleum proves, Russia - and, by extension, central and east Europe - is Europe's growth zone and natural economic hinterland.

Yet, it is America that captures the imagination of Russian oligarchs and lesser businesses.

Russia aims to become the world's largest oil producer within the decade. With this in mind, it is retooling its infrastructure and investing in new pipelines and ports.

The United States is aggressively courted by Russian officials and "oiligarchs" - the energy tycoons. With the Gulf states cast in the role of anti-American Islamic militants, Russia emerges as a sane and safe - i.e., rationally driven by self-interest - alternative supplier and a useful counterweight to an increasingly assertive and federated Europe.

Russia's affinity with the United States runs deeper that the confluence of commercial interests.

Russian capitalism is far more "Anglo-Saxon" than Old Europe's. The Federation has an educated but cheap and abundant labor force, a patchy welfare state, exportable natural endowments, a low tax burden and a pressing need for unhindered inflows of foreign investment.

Russia's only hope of steady economic growth is the expansion of its energy behemoths abroad. Last year it has become a net foreign direct investor. It has a vested interest in globalization and world order which coincide with America's. China, for instance, is as much Russia's potential adversary as it is the United State's.

Russia welcomed the demise of the Taliban and is content with regime changes in Iraq and North Korea - all American exploits. It can - and does - contribute to America's global priorities. Collaboration between the two countries' intelligence services has never been closer. Hence also the thaw in Russia's relations with its erstwhile foe, Israel.

Russia's population is hungry and abrasively materialistic. Its robber barons are more American in spirit than any British or French entrepreneur. Russia's business ethos is reminiscent of 19th century frontier America, not of 20th century staid Germany.

Russia is driven by kaleidoscopically shifting coalitions within a narrow elite, not by its masses - and the elite wants money, a lot of it and now. In Russia's unbreakable cycle,  money yields power which leads to more money. The country is a functioning democracy but elections there do not revolve around the economy. Most taxes are evaded by most taxpayers and half the gross national product is anyhow underground. Ordinary people crave law and order - or, at least a semblance thereof.

Hence Putin's rock idol popularity. He caters to the needs of the elite by cozying up to the West and, in particular, to America - even as he provides the lower classes with a sense of direction and security they lacked since 1985. But Putin is a serendipitous president. He enjoys the aftereffects of a sharply devalued, export-enhancing, imports-depressing ruble and the vertiginous tripling of oil prices, Russia's main foreign exchange generator.

The last years of Yeltsin have been so traumatic that the bickering cogs and wheels of Russia's establishment united behind the only vote-getter they could lay their hands on: Putin, an obscure politician and former KGB officer. To a large extent, he proved to be an agreeable puppet, concerned mostly with self-preservation and the imaginary projection of illusory power.

Putin's great asset is his pragmatism and realistic assessment of the shambles that Russia has become and of his own limitations. He has turned himself into a kind of benevolent and enlightened arbiter among feuding interests - and as the merciless and diligent executioner of the decisions of the inner cabals of power.

Hitherto he kept everyone satisfied. But Iraq is his first real test. Everyone demands commitments backed by actions. Both the Europeans and the Americans want him to put his vote at the Security Council where his mouth is. The armed services want him to oppose war in Iraq. The intelligence services are divided. The Moslem population inside Russia - and surrounding it on all sides - is restive and virulently anti-American.

The oil industry is terrified of America' domination of the world's second largest proven reserves - but also craves to do business in the United States. Intellectuals and Russian diplomats worry about America's apparent disregard for the world order spawned by the horrors of World War II. The average Russian regards the Iraqi stalemate as an internal American affair. "It is not our war", is a common refrain, growing commoner.

Putin has played it admirably nimbly. Whether he ultimately succeeds in this impossible act of balancing remains to be seen. The smart money says he would. But if the last three years have taught us anything it is that the smart money is often disastrously wrong.



THE WAR IN IRAQ

Germany's Rebellious Colonies

By: Dr. Sam Vaknin

Also published by United Press International (UPI)

Also Read

The EU and NATO - The Competing Alliances

The Skoda Model

The Czechs' Indian Gambit

Europe's Four Speeds

Switching Empires

Eastern Advantages

Invited by a grateful United States, the Czech Republic on Saturday sent a representative to meet with Iraqi opposition in Kurdish north Iraq. The country was one of the eight signatories on a letter, co-signed by Britain, Italy, Spain and the two other European Union central European candidate-members, Poland and Hungary, in support of US policy in the Gulf.

According to The Observer and the New York Times, American troops in Germany - and the billions of dollars in goods and services they consume locally - will be moved further east to the Czech Republic, Poland and the Baltic states. This shift may have come regardless of the German "betrayal". The Pentagon has long been contemplating the futility of stationing tens of thousands of soldiers in the world's most peaceful and pacifistic country.

The letter is a slap in the face of Germany, a member of the "Axis of Peace", together with France and Belgium and the champion of EU enlargement to the east. Its own economic difficulties aside, Germany is the region's largest foreign investor and trading partner. Why the curious rebuff by its ostensible protégés?

The Czech Republic encapsulates many of the economic and political trends in the erstwhile communist swathe of Europe.

The country's economic performance still appears impressive. Figures released yesterday reveal a surge of 6.6 percent in industrial production, to yield an annual increase of 4.8 percent. Retail sales, though way below expectations, were still up 2.7 percent last year. The Czech National Bank (CNB) upgraded its gross domestic product growth forecast on Jan 30 to 2.2-3.5 percent.

But the country is in the throes of a deflationary cycle. The producer price index was down 0.8 percent last year. Year on year, it decreased by 0.4 percent in January. Export prices are down 6.7 percent, though import prices fell by even more thus improving the country's terms of trade.

The Czech koruna is unhealthily overvalued against the euro thus jeopardizing any export-led recovery. The CNB was forced to intervene in the foreign exchange market and buy in excess of 2 billion euros last year - four times the amount it did in 2001. It also cut its interest rates last month to their nadir since independence. This did little to dent the country's burgeoning current account deficit, now at over 5 percent of GDP.

Unemployment in January broke through the psychologically crucial barrier of 10 percent of the workforce. More than 540,000 bread earners (in a country of 10 million inhabitants) are out of a job. In some regions every fifth laborer is laid off. There are more than 13 - and in the worst hit parts, more than 100 - applicants per every position open .

Additionally, the country is bracing itself for another bout of floods, more devastating than last year's and the ones in 1997. Each of the previous inundations caused in excess of $2 billion in damages. The government's budget is already strained to a breaking point with a projected deficit of 6.3 percent this year, stabilizing at between 4 and 6.6 percent in 2006. The situation hasn't been this dire since the toppling of communism in the Velvet Revolution of 1989.

Ironically, these bad tidings are mostly the inevitable outcomes of much delayed reforms, notably privatization. Four fifths of the country's economy is alleged to be in private hands - a rate similar to the free markets of Estonia, Slovakia and Hungary. In reality, though, the state still maintains intrusive involvement in many industrial assets. It is the reluctant unwinding of these holdings that leads to mass layoffs.

Yet, the long term outlook is indisputably bright.

The ministry of finance forecasts a rise in the country's GDP from 59 percent to 70 percent of the European Union's output in 2005 - comparable to Slovenia and far above Poland with a mere 40 percent. The Czech Republic is preparing itself to join the eurozone shortly after it becomes a member of the EU in May 2004.

Foreign investors are gung ho. The country is now the prime investment destination among the countries in transition. In a typical daily occurrence, bucking a global trend, Matsushita intends to expand its television factory in Plzen. Its investment of $8 million will enhance the plant's payroll by one tenth to 1900 workers. Siemens - a German multinational - is ploughing $50 million into its Czech unit. Siemens Elektromotory's 3000 employees export $130 million worth of electrical engines annually.

None of this would have been possible without Germany's vote of confidence and overwhelming economic presence in the Czech Republic. The deteriorating fortunes of the Czech economy are, indeed, intimately linked to the economic stagnation of its northern neighbor, as many an economist bemoan. But this only serves to prove that the former's recovery is dependent on the latter's resurrection.

Either way, to have so overtly and blatantly abandoned Germany in its time of need would surely prove to be a costly miscalculation. The Czechs - like other central and east European countries - mistook a transatlantic tiff for a geopolitical divorce and tried to implausibly capitalize on the yawning rift that opened between the erstwhile allies.

Yet, Germany is one of the largest trading partners of the United States. American firms sell $24 billion worth of goods annually there - compared to $600 million in Poland. Germany's economy is five to six times the aggregated output of the EU's central European new members plus Slovakia.

According to the New York Times, there are 1800 American firms on German soil, with combined sales of $583 billion and a workforce of 800,000 people. Due to its collapsing competitiveness and rigid labor laws, Germany's multinationals relocate many of their operations to central and east Europe, Asia and north and Latin America. Even with its current malaise, Germany invested in 2001 $43 billion abroad and attracted $32 billion in fresh foreign capital.

Indeed, supporting the United States was seen by the smaller countries of the EU as a neat way to counterbalance Germany's worrisome economic might and France's often self-delusional aspirations at helmsmanship. A string of unilateral dictates by the French-German duo to the rest of the EU - regarding farm subsidies and Europe's constitution, for instance - made EU veterans and newcomers alike edgy. Hence the deliberate public snub.

Still, grandstanding apart, the nations of central Europe know how ill-informed are recent claims in various American media that their region is bound to become the new European locomotive in lieu of an aging and self preoccupied Germany. The harsh truth is that there is no central European economy without Germany. And, at this stage, there is no east European economy, period.

Consider central Europe's most advanced post-communist economy.

One third of Hungary's GDP, one half of its industrial production, three quarters of industrial sales and nine tenths of its exports are generated by multinationals. Three quarters of the industrial sector is foreign-owned. One third of all foreign direct investment is German. France is the third largest investor. The situation is not much different in the Czech Republic where the overseas sales of the German-owned Skoda alone account for one tenth the country's exports.

The relationship between Germany and central Europe is mercantilistic. Germany leverages the region's cheap labor and abundant raw materials to manufacture and export its finished products. Central Europe conforms, therefore, to the definition of a colony and an economic hinterland. From a low base, growth there - driven by frenzied consumerism - is bound to outstrip the northern giant's for a long time to come. But Germans stands to benefit from such prosperity no less than the indigenous population.

Aware of this encroaching "economic imperialism", privatization deals with German firms are being voted down throughout the region. In November, the sale of a majority stake in Cesky Telecom to a consortium led by Deutsche Bank collapsed. In Poland, a plan to sell Stoen, Warsaw's power utility, to Germany's RWE was scrapped.

But these are temporary - and often reversible - setbacks. Germany and its colonies share other interests. As The Economist noted correctly recently:

"The Poles may differ with the French over security but they will be with them in the battle to preserve farm subsidies. The Czechs and Hungarians are less wary of military force than the Germans but sympathize with their approach to the EU's constitutional reform. In truth, there are no more fixed and reliable alliances in the EU. Countries will team up with each other, depending on issue and circumstances."

Thus, the partners, Germany and central Europe, scarred and embittered, will survive the one's haughty conduct and the other's backstabbing. That the countries of Europe currently react with accommodation to what, only six decades ago, would have triggered war among them, may be the greatest achievement of the Euro-Atlantic enterprise.

 

How the West Lost the East



By: Dr. Sam Vaknin

Also published by United Press International (UPI)

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The Pew Research Center published last week a report expansively titled "What the World Thinks in 2002". "The World", reduced to 44 countries and 38,000 interviewees, included 3500 respondent from central and east Europe: Bulgaria, the Czech Republic, Poland, Russia, Slovakia and Ukraine. Uzbekistan stood in for the formerly Soviet central Asia. The Times-Mirror 1991 survey, "The Pulse of Europe" was used as a benchmark.

With the implosion of communism in 1989 and the disintegration of the Soviet Union in 1991, large swathes of central and eastern Europe found themselves devoid of an internal market, an economic sponsor, or a military umbrella.

The countries of central Europe - from Slovenia to Hungary - and the Baltic dismissed the communist phase of their past as a "historical accident" and vigorously proceeded to seek integration with Western Europe, notably Germany, much as they have done until the rise of Fascism in the 1930s.

The polities of eastern Europe bitterly divided into the "nostalgics" or "reactionary" versus the "European", or "progressive". The first lot - including Russia, Ukraine and Belarus - sought to resurrect an economic incarnation of the former USSR. The latter - notably Poland - reclassified themselves as "central Europeans" and emulated the likes of the Czech republic and Hungary in a desperate bid to curry favor with the European Union and the United States.

The Pew report reveals that the concerns of the denizens of central and east Europe are varied but closely aligned with the global agenda. In this sense, the iron curtain has, indeed, lifted and total integration has been achieved despite massive economic disparities. The publics of the former Soviet Bloc place surprisingly great emphasis on the environment, for instance - hitherto thought to be a preoccupation of their more affluent neighbours to the west.

Consider the war on terrorism.

People in Russia are vehemently opposed to the use of force to dislodge Saddam Hussein. They regard the Israeli-Palestinian conflict as a greater threat to peace in the Middle East.

They are convinced that the USA is bent on war in the Gulf to secure its oil sources. Europe is likely to pay the price, say the Russians, by becoming a target for international terrorism.

Yet, in a sweeping reversal of sentiment, Russians now regard the world as safer with a single superpower. In Uzbekistan, whose crumbling economy has enjoyed a fillip from the presence of 1500 US troops, support for America's military campaigns is understandably high.

Yet, the most startling and unambiguous revelation was the extent of anti-American groundswell everywhere: among America's NATO allies, in developing countries, Muslim nations and even in eastern Europe where Americans, only a decade ago were perceived as much-adulated liberators. "People around the world embrace things American and, at the same time, decry U.S. influence on their societies. Similarly, pluralities in most of the nations surveyed complain about American unilateralism."- expounds the report.

The image of the Unites States as a benign world power slipped dramatically in the space of two years in Slovakia (down 14 percent), in Poland (-7), in the Czech Republic (-6) and even in fervently pro-Western Bulgaria (-4 percent). But it rose exponentially in Ukraine (up 10 percent) and, most astoundingly, in Russia (+24 percent, albeit from a very low base).

Still, rising anti-Americanism may have more to do with a nonspecific wave of gloom and dysphoria than with concrete American policies. "People who are less well off economically are more likely than those who are more financially secure to dislike the U.S." - says the report.

Only two fifths of Czechs are satisfied with their own life or with the state of their nation. Three quarters are unhappy with the world at large. The figures are even way lower in Slovakia, Poland and Ukraine. Only Uzbeks are content, probably for want of knowing better.

In Russia, less than one fifth are at ease with their life, their country, or the world. Bulgaria takes the prize: a mere 8 percent of Bulgarians find their life gratifying. One in twenty five Bulgarians is optimistic regarding his or her nation. One in eight approves of the world.

East Germans are far more pessimistic than the Wessies, their brethren in the western Lander. East European are exceedingly displeased with their income, though they find their family lives agreeable and, in the lands of vertiginous unemployment levels, their jobs appealing.

Nine in ten Ukrainians, Bulgarians, Poles and Slovaks maintain a negative view of their national economies. In Russia the figure is 83 percent and even in the Czech Republic it is 60. Three quarters of east Europeans surveyed - including east Germans - do not believe that economic conditions will improve.

"Will my kids go hungry? Will they be stuck with my debts? … It looks bad and it can only get worse. I mean, you can hope it will get better but it does not look good" - muses a forlorn 69-years old Polish farmer.

Incredibly, these dismal figures reflect a rise in satisfaction throughout the region since the demise of communism in 1989-91. Significantly, the young are double as hopeful than those older than 35. Between one third (Bulgaria, Czech Republic) and one half (Ukraine, Slovakia and Russia) of respondents of all age groups believe in a better future - far outweighing the pessimists. Only in Poland are the majority of people are anxious for the future of their children.

Still, "while Eastern Europeans feel their lives are better off since the collapse of communism, many say they have lost ground over the past five years. A majority of Bulgarians (55%) believe their lives are worse today, as do pluralities in Ukraine, the Slovak Republic and Poland. Again, Czechs are the exception – 41% think they have made progress while 27% believe they have lost ground. Russians are divided on this point (37% say they have lost ground, 36% feel they have made progress)."

Poverty is a potent depressant. The greater part of Russians and Ukrainians reported that "there have been times in the past year when they had too little money to afford food", medical care, or clothing. So did half the Bulgarians, one third of the Poles and one sixth of Slovaks. Ninety-two percent of the Bulgarians interviewed identified economic problems as having the most effect on their lives.

Similar figures obtained in Russia (85), Ukraine (79) and Poland (73). These data are as bad as it gets. Senegal, Mali and Bangladesh are in the same league. The situation is better in Slovakia (63 percent). At 46 percent, the Czech Republic proved equal to the much richer United Kingdom and United States.

People everywhere do not blame their economic predicament on inapt administrations, or on specific leaders. Vladimir Putin is much more popular in Russia than his cabinet but the government get good marks. The leadership in Slovakia, the Czech Republic, Bulgaria, suffered precipitous drops in popularity since 1991. East Europeans - except the Russians - also rate the European Union higher than they do their own authorities. In Slovakia the ratio is a whopping three to one.

With the notable exceptions of Ukraine and the Czech Republic, east Europeans approve of their religious leaders. Ukrainians distrust their military - but all other nationalities are fond of the armed forces. The media and journalists are universally highly rated as positive social influences.

Russians and Uzbeks are concerned about lack of housing. Health is a universal headache: two fifths of Russians, one third of Poles and Czechs and one quarter of Slovaks listed it as such. Central and east European education still yields superior results so only one fifth of Russians find it worrying. Respondents from other countries in the region did not.

Between two thirds and four fifths of the denizens of the crime-infested societies of the countries in transition registered delinquency as a major scourge, followed by corrupt political leaders, AIDS and disease, moral decline, poor drinking water, emigration, poor schooling, terrorism, immigration and ethnic conflict.

East Europeans are as xenophobic as their counterparts in the West. Between half and three quarters of all respondents - fully 80 percent in the Czech Republic - thought that immigrants are a "bad influence on the country". Only Bulgaria welcomes immigration by a wide margin. But nine of ten Bulgarians decry emigration - Bulgarians fleeing abroad. Three quarters do so in Slovakia, Ukraine, Poland and the former East Germany.

Ironically, the more xenophobic the society, the more concerned its members are with ethnic hatred. Almost three fifths of all Czechs identify it as the major problem facing the world today. Other east Europeans are equally worried by nuclear weapons, the gap between rich and poor, the environment and infectious diseases.

The survey reveals both the failure of transition and a decisive break between central and eastern Europe. The shared brief episode of communism failed to homogenize these parts of the continent. Central Europe - including Slovenia - with its history of industrial capitalism, modern bureaucratic governance and the rule of law - is reverting to its historical default. It is being reintegrated into the European mainstream.

The countries of east Europe - Poland included - are unable to catch up. Their transition is tortuous and unpopular among their subjects. Their lot is, indeed, improving but glacially and imperceptibly. They are being left behind by a largely indifferent West. Their erstwhile central European co-inmates in the gulag of communism are now keen to distance themselves. They are considered a drag and an embarrassment. Their unquenched hopes for a better future are smothered by insurmountable economic and social problems.

European enlargement is likely to stall after the first intake of 10 new members in 2004. Those left out in the cold are excluded for a long stretch. Rather than relying on the double panacea of NATO and the EU, they would do well to start reforming themselves by bootstrapping. Surveys like these are timely reminders of this unpleasant reality.

Left and Right in a Divided Europe 



By: Dr. Sam Vaknin

Also published by United Press International (UPI)

Even as West European countries seemed to have edged to the right of the political map - all three polities of central Europe lurched to the left. Socialists were elected to replace economically successful right wing governments in Poland, Hungary and, recently, in the Czech Republic.

This apparent schism is, indeed, merely an apparition. The differences between reformed left and new right in both parts of the continent have blurred to the point of indistinguishability. French socialists have privatized more than their conservative predecessors. The Tories still complain bitterly that Tony Blair, with his nondescript "Third Way", has stolen their thunder.

Nor are the "left" and "right" ideologically monolithic and socially homogeneous continental movements. The central European left is more preoccupied with a social - dare I say socialist - agenda than any of its Western coreligionists. Equally, the central European right is less individualistic, libertarian, religious, and conservative than any of its Western parallels - and much more nationalistic and xenophobic. It sometimes echoes the far right in Western Europe - rather than the center-right, mainstream, middle-class orientated parties in power.

Moreover, the right's victories in Western Europe - in Spain, Denmark, the Netherlands, Italy - are not without a few important exceptions - notably Britain and, perhaps, come September, Germany. Nor is the left's clean sweep of the central European electoral slate either complete or irreversible. With the exception of the outgoing Czech government, not one party in this volatile region has ever remained in power for more than one term. Murmurs of discontent are already audible in Poland and Hungary.

Left and right are imported labels with little explanatory power or relevance to central Europe. To fathom the political dynamics of this region, one must realize that the core countries of central Europe (the Czech Republic, Hungary and, to a lesser extent, Poland) experienced industrial capitalism in the inter-war period. Thus, a political taxonomy based on urbanization and industrialization may prove to be more powerful than the classic left-right dichotomy.


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