Building a fragile EM coalition
(Business New Europe – bne.eu – MOSCOW BLOG: Ben Aris in Moscow – May 11, 2015)
The May 9 victory parade on Red Square was a show of strength by Russia, which is locked in conflict with Ukraine and the West. But it was also a show of solidarity by some emerging markets that have sided, to a greater or lesser degree and with mixed enthusiasm, with Russia.
Appropriately, President Vladimir Putin’s speech was largely dedicated to honour the circa 25mn Soviet citizens (including 13.9mn ethnic Russians) that lost their lives in World War II. But he couldn’t help taking a backhanded swipe at the US as well.
“However, in the last decades, the basic principles of international cooperation have come to be increasingly ignored. These are the principles that have been hard won by mankind as a result of the ordeal of the war,” Putin told Russia’s assembled military might on the square and the majority of Russians tuning in on TV. “We saw attempts to establish a unipolar world. We see the strong-arm block thinking gaining momentum. All that undermines sustainable global development.”
Putin was reiterating the Kremlin’s increasingly constant refrain of: “we want a multipolar, not unipolar world,” (ie. one where the US doesn’t get to dictate terms in global affairs but all countries, especially the rapidly developing emerging markets, have a proportional say. The 2008 crisis already saw the response to the global meltdown shift from the G7 to the G20 when then US president George W. Bush called a global meeting of the bigger group to come up with a collective response. However, this change remains a work in progress.
Putin’s words were given some weight by his standing shoulder to shoulder with the heads of state of the world’s two most populous countries, India and China, as well as those of most former Soviet Republics (except Ukraine of course) and the leaders of other developing countries such as Cuba, Egypt and Venezuela amongst others.
On the face of it the line-up was a powerful reminder that the West’s attempts to isolate Russia have conspicuously failed. Chinese President Xi Jinping and Indian President Pranab Mukherjee agree with Putin in that they would like to have more say in world affairs and China in particular already has several substantial disagreements with the US, such as the South Sea territorial dispute.
The emergence of an eastern political bloc in the form of the increasing cooperation between the BRICS (Brazil, Russia, India, China and South Africa), which has gone from an investment bank acronym to political body, have led some to speculate on east-west division emerging in the world. But scratch the surface and the relations between the heads of state standing next to Putin on Red Square remain uncomfortable, bringing into question just how serious a challenge the emerging market bloc on display on May 9 can mount.
Starting close to home, the heads of the newly minted Eurasian Economic Union (EEU) met a day earlier to discuss trade amongst other things. Intended as the mirror image of the EU things are not going well with the new trade area. A mini-trade war has broken out between Russia and Kazakhstan, which embarrassingly banned Russian imports of chicken to the Central Asian state in the run-up to the parade. In response, Russia banned the import of Kazakh cheese, which is in short supply after Russia banned the import of cheese from the EU last year. The Kazakhs complain that rather than a free trade zone between the two countries, the EEU has just turned their country into a dumping ground for cheap Russian goods.
There are similar tensions with Belarus, who Russia accused of large-scale sanctions busting after the now infamous Belarusian shrimp and oysters turned up in Moscow shops (Belarus has no coastline). Russia effectively reintroduced border controls for goods transiting from Belarus and economically crucial exports from Belarus to Russia have slumped as a result. Belarus President Alexander Lukashenko was sufficiently peeved with the Kremlin that while he attended the May 8 EEU meeting, he celebrated May 9 at home in Minsk with his own parade.
The problems are not limited to the EEU or Commonwealth of Independent States (CIS) members either. Apple exports from Serbia to Russia to replace the banned Polish apples that were a mainstay of Russian green grocers have grown so fast one economist quipped: “Its amazing. Obviously the Serbs have learnt how to not only grow apples on the branches of their trees, but on the roots as well if the export numbers are anything to go by.”
Far more serious are the lingering disputes between Russia and China over their gas deal. While state-owned Gazprom chief Alexei Miller announced that a deal had been signed with the Chinese over exactly where the “Power of Siberia” gas pipeline would cross the border, he admitted that a deal on the crucial question of how the gas will cost. This deal is supposed to be worth a total of $400bn to Russia and would go a long way of cementing the anti-Western economic bloc the BRICS are talking about. The deal remains elusive.
It is often said that China and Russia are not natural partners and currently are in a marriage of convenience. But the same is true for Sino-Indian relationships. “Together, China and India have a population of 2.6bn – 36% of the global total – and a GDP exceeding US$12trn. They share a border nearly 4,000km long,” says Tom Miller of Gavekal Dragonomics. “Yet China trades more with Thailand than with its most populous neighbour, and there are eight times as many flights between Beijing and Bangkok per week as there are between Beijing and Delhi. The weak ties between Asia’s two giants are a gigantic missed opportunity for global trade and investment.”
So who is Russia’s real friend? Ironically that probably remains Germany. While the politics of the Ukraine conflict meant that German Chancellor Angela Merkel had to stay away from the May 9 parade, conscious of the insult she went out of her way to mitigate its effects as much as possible. German Foreign Minister Frank-Walter Steinmeier was in Volgograd (Stalingrad) on May 8 where he gave a moving and impassioned speech about Germany’s culpability in the war and Merkel was in Moscow on May 10 to lay a wreath at the flame of the unknown soldier with Putin. The two then held talks that ran two hours over time.
While the other European leaders have been content to ignore Russia over this holiday, Merkel is working overtime to keep relations alive and find a way out of the diplomatic mess.
Putin and Merkel stressed in a meeting on May 10 that Moscow and Berlin need to find diplomatic solutions to problems in bilateral relations as soon as possible. “We have done a lot to ensure that relations between Russia and Germany are developing successfully and have achieved a lot in this direction. There are various problems today [between Russia and Germany]. The sooner these problems end their negative effects on developing our relations, the better. We will strive for this,” Putin told Merkel in the Kremlin.
Merkel stressed that lines of communication are still open, although added that a solution remains a long way off. “And with today’s visit I would like to show that we are working with Russia and not against it,” Merkel said, highlighting that the terms of the Minsk II ceasefire agreed in February are not being met. “We hoped that a ceasefire would be reached. Unfortunately, this hasn’t happened.”
Reports that Germany is receiving daily from the Organization for Security and Co-operation in Europe objectively described why the ceasefire was not being observed, she said. “We can’t say that one side is fulfilling [the obligations] by 100% and the other side isn’t doing anything, but we do have information that there are many violations of the ceasefire from the separatists’ side too,” Merkel added in muted criticism of Russia’s failure to bring peace to the region. “We cannot yet say exactly that [Minsk II] will be successful, but we don’t have anything else so we must continue working in this direction.”
Some of the sanctions imposed by the EU on Russia come up for renewal in June and July and Brussels has already said the regime will be extended until December if there is no progress in implementing Minsk II and possibility beyond. So even relations with Russia’s best friend in Europe are extremely tense and could break by the end of the year.
The bottom line is that despite the show on May 9, Putin has yet to make real friends with any of the leaders that showed up. Unless this changes, Russia could truly find itself truly isolated in a few years time, if not sooner.