#2
Center TV (Moscow)
May 16, 2015
Russian TV talk show discusses relations with West, Asia

The 16 May edition of Sergey Minayev's talk show "Right to Know" on Moscow city government-controlled Centre TV channel featured director of the Moscow Carnegie Centre, Dmitriy Trenin, as the main guest. Other panellists in the studio were RT journalist Aleksandr Gurnov, editor in chief of the Kavkazskaya Politika website Maksim Shevchenko, journalist of the Kommersant publishing house Konstantin Eggert and editor in chief of the Lenta.ru news website Aleksey Goreslavskiy. The discussion focused on the following topics below.

US Secretary of State John Kerry's visit to Russia

The discussion kicked off with the recent visit to Russia by US Secretary of State John Kerry and his meeting with Russian President Vladimir Putin and Foreign Minister Sergey Lavrov in Sochi. According to Trenin, the visit is "an attempt, and probably a successful one, to involve President Putin in a dialogue on Russian-US relations". "The time has come not so much for Kerry as for his boss, US President Barack Obama, to register a foreign policy legacy as the election is looming and his term in office is coming to an end," Trenin said, adding that it would be "very desirable to have cooperation with Russia or at least a lack of serious counteraction from Russia on key issues for Obama (Iran, Syria)". In the expert's view, Kerry's visit took place because the "US administration had begun to use the language that the Kremlin understands; this is the language of geopolitics".

When asked by Minayev whether Kerry's visit provides for saying that Putin has won a "positional war with the USA", Trenin said that "it definitely does if Kerry's visit means that Putin is no longer being isolated from the US leadership for at least some time". However, the expert ruled out any possibility of personal contacts between Putin and Obama in the near future as the men "have nothing to agree on, albeit they have things to discuss". Trenin believes that "for Putin, a meeting with Obama will be an advantage" as "it may result in a strategic victory at least in Putin's media environment, but no-one will give Putin such a victory".

According to Trenin, what came as a surprise for him during Kerry's visit was his "hardline rhetoric" towards the Ukrainian leadership, "which had never happened before". In his view, this is "evidence that there is understanding of mutual interests" [of Russia and the USA]. Trenin supposed that "on the basis of its own interests, the USA would be restraining to certain extent the Ukrainian top officials' ardour".

Ukrainian conflict, future of Crimea

Trenin said that "the USA really fears and behaves like a burnt child who dreads the fire" after it "missed Crimea" and "missed the Russian operation" there. According to the expert, the USA "seriously fears that having consolidated troops on the border with Ukraine, Russia will move further into the Ukrainian territory, will seize Mariupol and then probably will head for Kharkiv and then maybe for Odessa" and Washington "does not know what to do in this case". In the expert's view, "the red line for the USA is Mariupol: if Mariupol or any other large settlement is seized by troops from the people's republics [LPR, DPR], this will mean that the Minsk peace accords have been wrecked and new sanctions will be introduced against Russia and lethal arms will be supplied to Ukraine".

Speaking about the future of Crimea, Trenin said that "it is extremely important for the West that everything is formalized, so no-one will simply recognize Crimea". He continued that Crimea would be recognized only when its merger was "formalized in compliance with procedures that the West saw absolutely democratic". He supposed that "this would happen when a referendum was held in Crimea under international control, at which citizens expressed their final opinions of Crimea's future, and the results of this referendum would be recognized by the international community".

Victory Day festivities in Russia

According to Trenin, the "West thought better of its boycott of the 9 May Victory Day festivities in Russia and realized that such a boycott would mean undisguised disrespect for Russian people", so a way out was found: foreign guests from the West ignored the military parade in Moscow but laid wreaths at World War II memorials to pay tribute to victims.

The expert went on to say that the parade and mainly Immortal Regiment marches "made it clear for all the people in the world that the 9 May Victory Day was a real national holiday of Russia". Trenin referred to the parade as "a display of Russia's real military might" and noted that at the parade Russia "had for the first time ever shown that it had something up-to-date, except for nuclear weapons".

Russia's foreign policy

From Trenin's view, the year 2014 "marked the end of the 25-year-long epoch of Russia's attempts to integrate with the West, the Euro-Atlantic community". The cause behind Russia's being not part of the West is its refusal to subordinate to the US dominance, Trenin said, adding that "if Russia had put up with the US dominating role and still remained subordinate to the USA, it would have been part of the Western community".

As for Russia's place in the "non-West" community (Rus: ne-Zapad) as the expert put it referring to Asia, Russia has "certain opportunities and certain apparent vulnerabilities". It is the "most experienced in international politics, the strongest in military terms and the most aggressive one from among 'non-Western' countries", Trenin said. According to him, if the task set by Russia is "not to vent its anger for the defeat in the Cold War and the collapse of the USSR, but to establish a new world order, Russia should play a very significant role in the 'non-West', probably the role of a spokesman".

Trenin praised Russia's U-turn to Asia and mainly its close cooperation with China, but also stressed the importance for Russia of the CIS in terms of security and economy. He said that "it would be a crime from the viewpoint of Russia's foreign policy, if Russia permitted crises or civil wars to erupt in the CIS if it had a chance to prevent them". According to him, "if Russia continues acting the way it acted before, very serious problems await it".

Russians' attitude to the USA

Trenin suggested that Russians' attitude to the USA should be seen separately from their attitude to the US policy. In general, Russians' attitude to the USA "has slightly changed, if at all", the expert said, exemplifying it by the fact that US movies, jeans as well as iPhones are still popular. As for the US policy, Russians' attitude to it "has sharply changed for the worse", Trenin said, adding that "this is a result of US sanctions" as Russians regard this "punishment as humiliation" and a consequence of anti-US propaganda in Russia, which is "the best state propaganda in the world now".

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 #3
Pando.com
May 17, 2015
Neocons 2.0: The problem with Peter Pomerantsev
By Mark Ames

"We're an empire now, and when we act, we create our own reality. And while you're studying that reality - judiciously, as you will - we'll act again, creating other new realities, which you can study too, and that's how things will sort out."
-White House official, 2004

In his opening statement last month before a US Congressional Committee hearing titled "Confronting Russia's Weaponization of Information," the Russian-born British author Peter Pomerantsev served his Republican-led audience a piping hot serving of neocon alarmism. Quoting "the Supreme Allied Commander Europe (SACEUR), General Philip M. Breedlove," Pomerantsev described Russia's 2014 takeover of Crimea as "the most amazing information warfare blitzkrieg we have ever seen in the history of information warfare." To which Pomernatsev added his own chilling warning:

"To put it differently, Russia has launched an information war against the West - and we are losing."

The hearing was put on by Orange County neoconservative Republican Ed Royce; the purpose of the hearings was to drum up fear about Russia's "unprecedented" information war on the West - a propaganda battle which obviously exists, but whose dimensions and dangers are being cynically exaggerated - and then convert that fear into budget money for US propaganda and NGOs to subvert Kremlin power.

What made Pomerantsev's lobbying appearance with the neocons so disturbing to me is that he's not the sort of crude, arrogant meat-head I normally identify with homo neoconius. Pomerantsev's book, "Nothing is True and Everything is Possible", is the most talked-about Russia book in recent memory. His many articles on the Kremlin's "avant-garde" "information war" and its "political technologists" have been hits in the thinking-man's press: Atlantic Monthly, London Review of Books... His insights into the strategic thinking behind the Kremlin's "information wars" are often sharp and illuminating; and yet there's always been something glaringly absent in Pomerantsev's writings. Not so much what he puts in, but all that he leaves out. Glaring omissions of context, that had me start to question if Pomernatsev wasn't manipulating the reader by poaching the rhetoric of leftist critical analysis, and putting it to use for very different, neocon purposes . . . as if Pomerantsev has been aping the very sort of "avant-garde" Kremlin political technologies he's been scaring the Ed Royces of the world with.

And then of course there's the larger nagging question-what the Hell is a presumed journalist/writer like Pomerantsev, who claims to have been most influenced by literary figures like Christopher Isherwood, doing lobbying the US and UK governments to pass bills upping psychological warfare budgets and imposing sanctions on foreign countries? Where does the independent critical analysis stop, and the manipulative lobbying begin?

The term "political technologist" (политтехнолог) first appeared in the Russian press in 1996, to describe Boris Yeltsin's team of American and Russian political spin doctors who stage-managed his campaign to steal the Russian presidential elections that year.

The political technologists were given a seemingly-impossible task: make Yeltsin's pre-ordained election victory look just plausible enough to be hailed by the West as a triumph for democracy, while domestically, imposing on Russians a sense of overwhelming fatalism so complete that they wouldn't rise up again in arms as they had in 1993.

The reason this looked near-impossible on paper was that Yeltsin went into the election campaign with a rating hovering between 3%-5%, reflecting what must be the single most disastrous presidency of the 20th century: Under Yeltsin, Russia's economy collapsed some 60%, the male life expectancy plummeted from 68 years to 56, millions were reduced to living on subsistence farming for the first time since Stalin as wages went unpaid for years at a time. Russia was on its way to going extinct-but about 3-5% of the population (plus or minus 3%) was making out like bandits. Probably because they actually were bandits.

Enter the "political technologists"-Americans led by Dick Morris' former partner Richard Dresner, and Russians at advertising behemoth Video International, led by Mikhail Lesin and former KGB spy Mikhail Margelov - who took credit for pulling off a credible stolen election for Boris Yeltsin. Time magazine wound up crediting the Americans with "Rescuing Boris," which was turned into a B-movie, "Spinning Boris," directed by "Turner & Hootch"'s Roger Spottiswoode.

The way Dresner and the Americans told it, it was the Americans who first introduced focus groups into the campaign; who invented fake pro-Yeltsin crowds at rallies, rustled out of government-owned factories and coerced into attending pro-democracy Yeltsin rallies; and it was good ol' USA advisers who took credit for convincing Team Yeltsin to take total control over the Russian media and convert the only cultural unifying medium into a kind of virtual reality apparatus, deployed to brainwash the public into fearing a victory by Yeltsin's opponent-the cowardly, dumb-as-nails Communist Party leader, Gennady Zyuganov-who, if Russia's 1996 TV media onslaught was to be believed, would plunge the country into a bloody civil war, leading to GULAGs, cattle wagons, and family members hanging from lamp posts. Every fantastical historical nightmare was exploited and exaggerated to frighten the public into a different mindset, and a totally distorted grasp of reality.

This required taking full control of Russia's television networks, radio, and media, which until 1996 had been relatively free and chaotic in editorial interests. Key to this was how Yeltsin co-opted the once-independent national network NTV, owned by oligarch Vladimir Gusinsky, which had been a fierce critic of Yeltsin's slaughter in Chechnya. That problem was solved by Yeltsin promising to give Gusinsky valuable banking and national TV licenses and other properities; Gusinsky agreed, and he put NTV at Yeltsin's service, and seconded NTV's top executive to lead Yeltsin's TV campaign coverage.

As Dresner had advised it in a memo to the Yeltsin Team:

"It was ludicrous to control the two major nationwide television stations and not have them bend to your will."

"...Wherever an event is held, care should be taken to notify the state-run TV and radio stations to explain directly the event's significance and how we want it covered."

In the end, Yeltsin won by old school fraud - in Chechnya, for example, where Yeltsin's war had killed 40,000 people and displaced half the population, elections showed 1,000,000 Chechens voted (even though less than half a million adults remained in Chechnya at the time of voting), and that 70% of them voted for Yeltsin, their exterminator. That helped deliver the numbers that the West needed to see-enough for the New York Times to declare it "A Victory for Russian Democracy"-parroting the laughably cheerful assessment of President Clinton and his team.

But the more important task of creating domestic acceptance through a new post-Soviet brand of sophisticated, virtual reality propaganda, beamed onto a bewildered Russian viewing public, is what helped ensure that Yeltsin's stolen election wasn't followed by unrest. The public was inundated with 24/7 alarmist propaganda about impending bloodbaths should Yeltsin lose; they had no idea that the man they voted for had essentially died from yet another series of massive heart attacks between rounds one and two of voting.

What surprised even Dick Morris' spin-doctor buddies was how effective they were in fooling the raw Russian public into believing that their crude propaganda efforts, distorting reality to falsely portray opposition candidate Zyuganov as a genocidaire-in-waiting, was not propaganda at all. In the late Soviet times, most Russians knew that the far cruder Soviet propaganda was propaganda-but this was something new, the ability to wildly distort reality, paint your political opponent as the greatest monster in history, and have it accepted as news because it looked much more modern than the crude old Soviet propaganda productions.

As Time magazine wrote:

"What really caused surprise was the public's reaction to the biased reporting. "We focus-grouped the issue several times," says Shumate. The results were contained in a June 7 wrap-up memo on TV coverage. Only 28% of respondents said the media were very biased in Yeltsin's favor-a group that consisted mostly of Zyuganov's partisans. Twenty-nine percent said the media were "somewhat biased," but they broke in Yeltsin's favor. Amazingly, 27% said they thought the media were biased against Yeltsin.

The Russian media was never the same again. After the elections, a Petersburg journalist denounced the aftermath in an article, "The Virtual Reality of the Elections." A general sense of unreality and nihilism spread throughout the creative class in the aftermath of Yeltsin's victory. Falsifying reality and staging politics became the new avant-garde, attracting figures like Vladislav Surkov-the "political technologist" behind Vladimir Putin's curtain.

The most popular comical novel of the late 1990s/early 2000s, Viktor Pelevin's "Generation 'P'", tells the story of a second-rate poet who goes from selling vodka in a Moscow kiosk in the early 1990s, to working as an advertising copywriter and "political technologist" in the belly of Russia's PR industry beast. Pelevin's book, released in 1999, describes a world in which all Russian politics and consumer reality is created on Silicon Graphics workstations in secret TV studios, all with the aim of increasing advertising revenues.

In one scene, the protagonist is taken to the main studio where 3-D holograms of Russia's Duma deputies are churned out according to scripts, and presented to the public as functioning democracy. His ad agency boss explains how this virtual reality democracy works:

"[T]hat's what we call the Duma 3-Ds. Dynamic video bas-relief - the appearance is rendered always at the same angle. It's the same technology, but it cuts the work down by two orders of magnitude. There's two types - stiffs and semi-stiffs. See the way he moves his hands and head? That means he's a stiff. And that one over there, sleeping across his newspaper - he's a semi-stiff. They're much smaller - you can squeeze one of them on to a hard disk."

"But it's such a massive scam."

"Aagh, no . . . please, not that. By his very nature every politician is just a television broadcast. Even if we do sit a live human being in front of the camera, his speeches are going to be written by a team of speechwriters, his jackets are going to be chosen by a group of stylists, and his decisions are going to be taken by the Interbank Committee. And what if he suddenly has a stroke - are we supposed to set up the whole shebang all over again?"

Even the notoriously drunken buffoon Yeltsin is a computer graphics invention, using an old studio actor who'd done Shakespeare on stage, hooked up to wires and force-fed cheap vodka so that he'd be authentically drunk during filming:

"Listen, why do we show him pissed if he's only virtual?"

"Improves the ratings."

"This improves his ratings?"

"Not his rating. What kind of rating can an electromagnetic wave have? The channel's ratings. Never tried to figure out why it's forty thousand a minute during prime time news?"

Which brings me back now to Pomerantsev's book, "Nothing is True and Everything is Possible," and his thesis driven home in articles and in the halls of US-UK government power: That Putin's brand of totalitarianism represents something absolutely new, innovative and uniquely threatening - an avant-garde totalitarianism for which we in the West are nearly helpless against; a totalitarianism constructed entirely out of virtual reality, political technologies, and distorted realities, beamed through televisions and the Internet, brainwashing the Russian public and anyone else who crosses their information-beams in ways so sophisticated and disruptive, everything we hold dear is doomed to collapse before it.

I wish I was exaggerating his thesis, but there you have it.

Pomerantsev's book is purportedly an inside look at how the Kremlin propaganda machinery functions, from a British repat who purports to have spent a decade working inside the state propaganda apparatus. But his book is oddly vague on details - just one of its problems. I'd never heard of Pomerantsev while working there; he claims (and I'm sure it's true) that he spent a few years working for the quasi-western TNT network, where one of my own best friends worked as a top producer for several years. I asked recently him if he or his TNT contacts remembered Pomerantsev there because I'd never heard of him in my years in Moscow; he hadn't either. I don't doubt he was there; but there is a vague, foggy, masked quality to his writing and to his approach to most things, including his intimate vignettes in his book: people without last names or recognizable faces, characters whose canned descriptions seem lifted from writers' workshop classes rather than from experience. Much of his book reads as an intimate personal "memoir" of his life in the 2000s, and yet it's peopled with Russian caricatures from the 1990s: mobsters, whores, suicidal runway models, hedonistic New Russians, even a scrappy World Bank do-gooder from western Europe. It's hard to believe anyone would paint a World Bank or IMF representative as the scrappy underdog in Russia, unless perhaps that painter has a personal stake in painting them that way. Which, it turns out, Pomerantsev does: He is listed as "Senior Fellow" at a neoliberal think-tank called the Legatum Institute, founded by a highly secretive billionaire vulture capitalist notorious for always remaining in the shadows.

This is what makes Pomerantsev a particularly complicated and interesting character-study for me. Because on the one hand, his book's thesis - Kremlin political technologists manipulating a virtual reality via television on a vast new scale - has a lot of truth to it, and is worth studying. But the other part of the thesis, that this is something completely new and invented by Putin, is so patently false it makes a mockery of his own reader. It isn't just that Kremlin reality-distortion and political technology began under Yeltsin with the full backing and advice of the West; it's that our own governments are guilty of this as well, as anyone who remembers the fake WMD scare to invade Iraq can tell you.

You might forgive Pomerantsev's omissions if he wasn't so perceptive and intelligent, or if he was an obvious old-school neocon meat-head, from whom one expects nothing at all. His descriptions of Kremlin propaganda, and the "political technologists"' mastery of stage-managing a virtual reality designed to keep Putin in power and project a sense of stability, are important for anyone interested in politics and perception-management. His descriptions of avant-garde art connoisseur-turned-Putin political technologist Vladislav Surkov, "the political technologist of all Rus," is even brilliant at times:

"Surkov has directed Russian society like one great reality show. He claps once and a new political party appears. He claps again and creates Nashi, the Russian equivalent of the Hitler Youth [!] . . . As deputy head of the administration he would meet once a week with the heads of the television channels in his Kremlin office, instructing them on whom to attack and whom to defend, who is allowed on TV and who is banned, how the President is to be presented, and the very language and categories the country thinks and feels in."

And yet what strikes me about this is how deeply rooted this is in the western-backed Yeltsin era, and how similar this reads to Pelevin's comic novel about the late Yeltsin-era political technologists:

"Have you seen Starship Troopers? Where the star-ship troopers fight the bugs?"

"Yeah."

"It's the same thing. Only instead of the troopers we have farmers or small businessmen, instead of machine-guns we have bread and salt, and instead of the bugs we have Zyuganov or Lebed. Then we match them up, paste in the Cathedral of Christ the Saviour or the Baikonur launch-pad in the background, copy it to Betacam and put it out on air."

Pomerantsev doesn't provide this sort of broader context, it turns out, because that would get in the way of where he wants to lead us - to alarmist conclusions, and a familiar old neocon agenda, which he peddles hard and crude at the end of his book, where he portrays Putin's Russia as a direct existential threat to everything westerners cherish.

The real giveaway for me, which got me looking into who Pomerantsev works for, was his choice of heroes in the scary Kremlin information wars: western investors, and western global financial institutions. People like billionaire vulture capitalist Bill Browder, the bloodless grandson of former US Communist Party leader Earl Browder, who served as Putin's most loyal attack dog while he was raking in his billions, but then transformed himself into the Andrei Sakharov of vulture capitalism as soon as Putin's KGB tossed Browder out of their circle and decided to keep his share of the take for themselves.

Pomerantsev is so close to Browder, we learn from his book, that he even serves as one of Browder's lobbyists before the British parliament to push through an anti-Kremlin sanctions bill, the Magnitsky Act, bankrolled by Browder's ill-begotten stash.

I don't have enough room here to give you a full picture of Bill Browder. But here are a few things to keep in mind:

-In a 1997 New York Times profile, Browder, who at the time aligned his investments with Yukos oil oligarch Mikhail Khodorkovsky, defended the way Yukos stripped investors into one of its subsidiaries to enrich the Yukos parent company. Browder crowed: "When a company does terrible things to the subsidiary, I would rather be on the side with the power."
-In 2003, Browder backed Putin's authoritarian power and his decision to arrest Khodorkovsky, saying, "A nice, well-run authoritarian regime is better than an oligarchic mafia regime - and those are the choices on offer."
-The day after Khodorkovsky's arrest, Browder scoffed: "People will forget in six months that Khodorkovsky is still sitting in jail."
-When Putin put Khodorkovsky on trial 2005, Browder attacked the jailed oligarch for the same asset-stripping Browder supported and profited from, telling the BBC: "Mr Khodorkovsky is no martyr. He has left in his wake aggrieved investors too numerous to count and is widely credited with masterminding much of the financial trickery that plagued the Russian capital markets throughout the 1990s."
-That same year, Browder told the New York Times, "Putin cares about foreign investors; he just doesn't care about them enough to allow one oligarch to use his ill-gotten gains to hijack the state for his own economic purposes."

That's the Bill Browder I remember. And ever since his KGB pals decided they'd had enough of him and chased him out to London a very rich vulture capitalist, Browder has styled himself as the Mother Theresa of global vulture capitalism-and he's thrown untold millions into promoting that public relations/lobbying effort, whose goal is to use human rights abuses he once covered for and profited from as a cudgel to force the Kremlin to become investor-friendly to vulture capitalists like Bill Browder again. To do that, he's exploited to the hilt the truly horrific murder of one of his lawyers, Sergei Magnitsky, at the hands of Russia's brutal police. Magnitsky's death appears to be the first Russian death Browder ever cared about in his 15 years of milking the country dry during the tragically deadly 1990s and beyond.

That's the Browder I and every other journalist who worked in Russia I know remembers him. Contrast that with how Peter Pomerantsev-who admits to lobbying for Browder's bill-describes him:

"As I wait for William Browder to come in for his interview in Meet the Russians, I look at the newspaper cuttings that are all over the walls of his office on Golden Square: 'One Man's Crusade against the Kremlin,' 'The Man who Took on Vladimir Putin.' Browder used to be one of the President's more vocal supporters, back when he was the largest foreign investor in Russia. He'd come to the country in the 1990s, when most in Western finance said it was crazy to even try. He proved them all wrong. Then in 2006 he pissed off the wrong people in Russia and was banned from the country. . . .

"We arrive at Parliament. Browder is having a meeting with a member of Parliament in a corner office of Portcullis House overlooking the Thames. . . .

"A little later I'm invited back to Parliament for a presentation, 'Why Europe needs a Magnitsky Act.' The US version of the act is Browder's greatest achievement."

And then Pomerantsev introduces us to Browder's exiled American lawyer, who scares Pomerantsev (and presumably the gullible reader) with his dire prediction about Russian state television laying waste to Western civilization like the barbarian hordes at the gates - specifically, the gates of upper-class London neighborhoods:

"We used to have this self-centered idea that Western democracies were the end point of evolution, and we're dealing from a position of strength, and people are becoming like us. It's not that way. Because if you think this thing we have here isn't fragile you are kidding yourself. This," and here Jamison takes a breath and waves his hand around to denote Maida Vale, London, the whole of Western civilization, "this is fragile."

It's as though Pomerantsev absorbed all the cheesy, schlocky Russian cultural melodrama he wrote about with so much contempt - although this "we didn't listen!" schlock could also have been lifted from any Hollywood B-movie disaster flick, from Soylent Green to The Day After Tomorrow:

Jason Evans: What do you think's going to happen to us?

Jack Hall: What do you mean?

Jason Evans: I mean "us"? Civilization? Everyone?

What I couldn't believe was that Pomerantsev went from putting that into the mouth of an understandably upset former business partner of the murdered lawyer, into Pomerantsev's own voice a few pages later:

"For if one part of the system is all about wild performance, another is about slow, patient co-optation. And the Kremlin has been co-opting the West for years.

"...The Kremlin is the great corporate reider inside globalization, convinced that it can see through all of the old ways of the slow West to play at something more subversive. The twenty-first century's geopolitical avant-garde."

This was the point in Pomerantsev's book where I threw it against the wall, because I really don't like being played like this-and I decided to finally find out who Pomerantsev works for, and why the Hell he went through so much trouble to say something so crude and stupid.

And here, I'm afraid, is where things get really bad, in an awfully familiar way.

Peter Pomerantsev describes himself today as "senior fellow at the Legatum Institute." You may not have heard of the Legatum Institute; I hadn't either, except for Legatum's partnership with First Look Media billionaire Pierre Omidyar in a gruesome microfinance investment in India a few years back, SKS Microfinance. Omidyar and Legatum co-invested in Unitus Equity, which then invested in SKS Microfinance ostensibly to help the world's poorest people in rural India. Instead, a few wealthy insiders cashed out to the tune of mega-millions for themselves, while ruthless SKS debt collectors bullied hundreds of rural Indian villagers into committing suicide by drowning, drinking jars of pesticide, and other horrific means. I knew Omidyar's role in that well, and his callous response to the mass-suicides ("take[s] such setbacks in stride," according to New York magazine's account). But I hadn't known anything about Omidyar's partner-in-crime, Legatum.

Legatum turns out to be a project of the most secretive billionaire vulture capital investor you've (and I'd) never heard of: Christopher Chandler, a New Zealander who, along with his billionaire brother Richard Chandler, ran one of the world's most successful vulture capital funds-Sovereign Global/Sovereign Asset Management. That family of funds, based in the offshore haven of Monaco, operated until 2004, when the Chandler brothers, Richard and Chris, divided their billions into two separate funds.

Brother Christopher Chandler took his billions to Dubai, where he launched Legatum Capital, and, in 2007, the Legatum Institute, where Peter Pomerantsev serves as a Senior Fellow. The Legatum Institute's motto, displayed proudly on its homepage, reads:

"Prosperity Through Revitalising Capitalism and Democracy."

A motto like could be read a lot of ways, but when its source is one of the world's most secretive high-risk billionaire bankers, it's downright creepy.

So secretive, that I only just recently learned that the Chandler brothers were the largest foreign portfolio investors in Russia throughout the 1990s into the first half of the 2000s, including the largest foreign investors in natural gas behemoth Gazprom. I frankly had no idea. And I'd be more embarrassed about not having heard of them, except for the fact that almost no other journalist or even banker I talked to for this article had heard of them either, excepting one from the financial press, who described the Chandlers as notoriously "difficult sources" and "contemptuous of scribblers." Not exactly the sorts of people you'd expect to selflessly push for transparency and human rights in countries where their once-lucrative investments went sour.

From what I've learned, the Chandlers make buckets of fast money by buying into totally depressed and corrupt emerging markets when everyone else is too afraid to, driving up the price of their assets by making a lot of noise about corporate governance and corruption, and then selling out when those investments tick up during what look like to outsiders as principled battles over corporate governance issues. In other words, a form of extreme green-mailing.

The Chandler brothers reportedly were the single biggest foreign beneficiaries of one of the greatest privatization scams in history: Russia's voucher program in the early 1990s, when each Russian citizen was given a voucher that represented a share in a state concern to be privatized . . . and most naive Russians were fooled or coerced into dumping their vouchers for next to nothing, snapped up by clever vulture capitalists and factory directors from the inside. Institutional Investor magazine described how the Chandlers benefited by snapping up Russians' vouchers and converting them into stakes in some of the largest and most lucrative companies in the world:

"By the end of 1994, the Chandlers had snapped up enough vouchers to buy a 4 percent stake in Unified Energy Systems, Russia's largest electric utility; 11 percent of Mosenergo, the Moscow electricity distributor; 5 percent stakes in each of the three main production arms of Yukos Oil Co.; a 15 percent stake in Novolipetsk Metallurgical Kombinat, the country's biggest steelmaker; and a small, undisclosed stake in Gazprom, the world's No. 1 gas producer. The metric they used in each case was simple: The book value of assets vastly exceeded the companies' market capitalizations. With more than $194 million invested at the time, the brothers say they were the largest foreign portfolio investors in Russia."

The article on the Chandlers has an illustration of two respectable, gray-haired brothers in fine tailored bankers' suits, sweating in fear before an angry Russian barbarian aiming an AK at them to keep them out of a shareholder's meeting-the perfect cover to Pomerantsev's book, if he'd been honest enough...

Their most public battle in Russia came in the late 1990s, when they lost a battle for control of Russia's largest steelworks to Vladimir Lisin, now one of Russia's most powerful oligarchs. At the time, Lisin accused the Chandlers' secretive "Cambridge Capital" fund-one of many offshoots of their secretive Sovereign Global group-of being "speculative buyers . . . with no commitment to the long-term recovery of Novolipetsk, or the ailing Russian steel industry."

The Chandlers' method is fairly simple: Buy a chunk of a company in a corrupt, dysfunctional market, get on the board, make a big stink about corporate corruption, drive the price up, then cash out. This is what they did in South Korea in 2003, when they bought a stake in SK Corp-owner of the largest oil refinery and telecoms-fought a bloody boardroom battle leveraging real corruption to their personal gain, then cashed out with hundreds millions more in their Monaco accounts.

What the Chandlers did to cash out big in South Korea is what Pomernatsev is doing today with Russia: Talking a big disingenuous game about corporate governance, ethics, fighting corruption and so on . . . without in any way being the least bit forthright about his own agenda and how his people stand to profit from a seemingly principled struggled.

Here is how a South Korean economist, Won Kang, described what happened with the Chandlers' Sovereign Asset play for SK Corp:

"Sovereign failed for two reasons: after all the rhetoric about good corporate governance, it could not design a specific roadmap to enhance SK Corp's corporate value; after the rhetoric about transparency in management, Sovereign itself was not transparent. It refused to open up about its asset size and its ownership structure, thus triggering uncertainty and apprehension among minority shareholders, including foreign investors."

Putin's Russia is a harder place for vulture capitalists like the Chandlers and Browders to swoop in, extract a few quick hundred millions, and disappear with to Monaco or Dubai. Putin's cronies don't need them; they replaced them and pocketed the money for themselves. Therefore, Russia is a threat to western civilization.

In 2007, Chris Chandler, the billionaire behind Dubai's Legatum Capital, launched the Legatum Institute, and staffed it with senior Bush Administration neocons. Legatum's first leadership team was led by two former senior members of the Bush Administration's National Security Council: William Inboden (who specialized in "counter-radicalization") and Michael Magan, who also served as Special Assistant to President Bush. After Obama came to power, Legatum was headed by uber-neocon Jeffrey Gedmin, former director of the old CIA front Radio Free Europe/Radio Liberty (né "Radio Liberation from Bolshevism"), and one of the original signatories to the neocon heavyweight "Project for the New American Century" alongside Dick Cheney, Donald Rumsfeld, Paul Wolfowitz and the rest of the Iraq war gang.

Nowadays, Legatum tries to be a bit more discreet about its White House national security/neocon connections, although Anne Applebaum's blinding presence on the Legatum staff alongside Pomerantsev somehow slipped through.

Which brings me to the real heart of Pomerantsev's work and agenda, the familiar, sleazy lobbying work he does, bridging the interests of global vulture capitalists like his boss Christopher Chandler with the interests of neocon regime-change groups like the National Endowment for Democracy, and more familiar neocon pro-war lobbyists like Michael Weiss.

In a 2013 white paper for the Legatum Institute, Pomerantsev explicitly called on Western governments to invest in anti-corruption NGOs, and leverage their moral and political advantages through anti-corruption NGOs in order to subvert Putin's rule:

"Ultimately, international networks of anti-corruption NGOs could play a similar role to that of human rights campaigners played in the 1970s and '80s.

"The debate about 'corruption' in Russia is not, therefore, just about slipping bribes or the odd bit of nepotism. It is a struggle to establish genuine democratic capitalism and to defy postmodern dictatorship. Instead of helping, the West is making things worse."

By "democratic capitalism," of course, he means "investment opportunities for my boss's other Legatum- Legatum Capital."

Last year, Pomernatsev co-authored another one of these slick Legatum white papers with an up-and-coming neocon from the late George W. Bush era, Michael Weiss. Together, Pomerantsev and Weiss summed up the threat Russia's avant-garde political technologies pose to world order, warning:

"the struggle against disinformation, strategic corruption and the need to reinvigorate the global case for liberal democracy are not merely Russia-specific issues: today's Kremlin might perhaps be best viewed as an avant-garde of malevolent globalization."

That Pomerantsev would team up with a neocon as compromised as Michael Weiss is enough to call into question the value of everything he's written. During the late Bush years, Weiss worked for the neocon organ of Bill Kristol, the Weekly Standard; afterwards, Weiss headed up a neocon PR project, "Just Journalism," which policed the English-language press for any journalism critical of Israel in the wake of its brutal war on Gaza in 2008-9. Then, as Syria descended into civil war, Weiss became one of the leading neocon warmongers pushing for America to invade Syria. Perhaps most troubling of all when it comes to Pomerantsev's credibility - Weiss played a lead role in promoting the career of one of the most notorious academic frauds of our time, Elizabeth O'Bagy, the fake Syria "expert" whom Weiss teamed up with to argue for war in Syria. Apparently after O'Bagy was exposed as a fraud with no Syria credentials, Weiss skulked away, only to reappear with a new co-author-Peter Pomeranstev-and a new beat: Putin's Russia. Despite having zero Russia background and expertise, Weiss has successfully reemerged lately as a Russia expert on various TV news programs - the Elizabeth O'Bagy of Putin critics - and Pomerantsev's role in this partnership appears to be laundering Weiss' credentials.

[The War Nerd wrote this excellent article on Elizabeth O'Bagy's strange & sleazy story.]

Last November, Weiss and Pomerantsev presented their white paper on Russia to the National Endowment for Democracy, the notorious Cold War arm of the US empire set up by Reagan's CIA director Bill Casey. The event was moderated by the chief of another "color revolution" neocon outfit, Freedom House.

And just last month, Pomerantsev was in Washington lobbying - what else? - Congress on behalf of his billionaire vulture fund boss and the neocons they're aligned with. You can see on Legatum's website how proud Master Chandler must be of his shaggy-haired neocon's lobbying abilities.

It just goes on and on and on - not just the neocon connections, but this specific subspecies of neocon: shaggy, scruffy-faced, Brooklyn hipster neocons. . . .

And at the very end of Pomerantsev's book, in his acknowledgements, he thanks Ben Judah for giving him the final edit read-through.

Really? Ben Judah? Can't the neocon veal pen try a little harder? This is just insulting. Judah, for those who don't know, got busted last year forging what had been his biggest scoop ever for Politico magazine: Judah alleged, falsely, that Putin had secretly proposed to Poland's president in 2008 to carve up Ukraine together. The Polish president whom Putin supposedly offered half of Ukraine to is now dead, so he couldn't deny it. The point of Judah's article was to "prove" that Putin had all along intended to invade and carve up Ukraine, rather than Putin reacting to the 2014 US-backed overthrow of Viktor Yanukovych. (Judah also took to the New York Times calling on the US to "arm Ukraine".)

Welp, wouldnchaknow it, Judah's source for his Big Scoop was none other than the husband of Legatum Institute's Anne Applebaum. His name is Radislow Sikorski, and he's the looniest of Poland's neocons. Nothing about Judah's scoop made sense-why would Putin offer such an inane plan to a NATO enemy? But the best lies aren't the most complicated lies, they're the lies people want to believe. And everyone wanted to believe Judah's story-except Polish journalists, who saw through it. They did what journalists do and questioned Sikorski for more details. Sikorski stuttered and stammered and admitted he'd made it all up, and apologized. So did most media that ran Judah's false story. Sikorski even disowned Judah and Politico. But you won't find a retraction on Judah's story. It's still there, proud as a peacock.

This is the same guy whom Pomerantsev thanks for editing his book.

All of which leads to some unsettling insights. Well, one, actually: The neocons have adapted.

What threw me off was Pomerantsev's aesthetics: the intelligent, at times humble, rhetoric. The shaggy hipster-agnostic look, a schtick Pomerantsev shares with his buddies Weiss and Judah. I guess if you're going to be awful, you may as well look like the sort of Brooklyn hipsters who plague my waking hours.

I shouldn't have ever taken my eye off of Russia, as I have since the Kremlin closed my newspaper and ended my career there. This is what happens when you stop watching what crawls around the foreign policy establishment's Russia portfolio in your own backyard, my backyard. Lesson learned: you can't ever turn your back in this godawful business.

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 #4
RussEurope
May 18, 2015
Russian successes
By Jacques Sapir
Jacques Sapir is a noted French economist and Russia expert, who teaches at Ecole des Hautes Etudes en Sciences Sociales (EHESS) in Paris and at Moscow School of Economics. He heads the CEMI Institute (Centre d'Etude des Modes d'Industrialisation).
Note kindly translated by Anne-Marie de Grazia
Chart here http://russeurope.hypotheses.org/3826

We notice with interest today that a growing number of commentators evoke « Putin's victory. » In any case, one cannot deny that Russia has been accumulating successes. This seems to be the result, however indirect, of the commemorations of May 9th but also of stock having been taken of the total inefficiency of the economic sanctions, and the presently decreasing efficiency of the financial sanctions decreed against Russia.

A diplomatic victory?

From the standpoint of diplomacy, the recent visit of the American Secretary of State, John Kerry to Sochi on May 12th has signalled that Obama had taken duly note of the failure of his policy of isolating Russia. Not only has this policy failed to either put the brake on, or to destabilize Russian politics, but it has even reinforced the ties between this country and China and India. As concerns Europe, the presence of European heads of state at the May 9th ceremonies has been important. The presence in Moscow, at the occasion of these ceremonies commemorating the 70th anniversary of the victory over Nazism, of the Presidents of Bosnia, Macedonia but also of Serbia (who had troops marching on Red Square), of Greece, and of the Czech and the Slovak Republics, shows that in the Balkans, but not only there, the friends of Russia are many.

We must remind ourselves, moreover, that in July the countries of the European Union will have to vote again about the « sanctions » against Russia. An opposition of Greece and Cyprus, which could be supported by Hungary and Slovakia, would result in fact in the end of these sanctions, which must be voted unanimously by the members of the EU. And we must point out, in addition, that the Russian and Chinese government afforded themselves the luxury of undertaking common naval manoeuvres in the Black Sea and in the Aegean during the first days of May 2015. So as to hit the nail on the head, obviously, and to remind the world that it is not only the USA and NATO who can "show their muscle" in that region.

John Kerry's visit focused both on Ukraine, where the American Secretary of State has recognized the validity of the Kiev agreement, committing himself to make the Ukrainian party respect it, and on Iran, where Obama desperately needs Russia in order to arrive at an agreement. Significantly, the matter of Crimea was not brought up[1]. It is not devoid of irony that this encounter should have taken place in Sochi, in the city where the Winter Olympics of 2014 took place, which had signalled the beginning of the cold spell between some Western countries and Russia, but most importantly, the start of the Ukrainian crisis. It is just as significant that the American President finds himself in the position of putting a request to Vladimir Putin. This throws an interesting light, to say the least, on the so-called « isolation » in which Russia is claimed to be caught.

We must also point out that the disastrous situation of the Ukrainian economy is presently constituting a real problem both for the United States and for the European Union. Political support for President Poroshenko will translate into economic support, most of it at a total loss. The various chancelleries have been doing their accounts and, from all evidence, the check turns out to be exceedingly steep for many countries.

An economic victory.

This diplomatic victory, Vladimir Putin owes it to the resistance of the Russian economy to the « sanctions » and to sundry destabilizing manoeuvres. The decision, announced on May 14th , to officially resume foreign currency purchases on the currencies exchange market, confirms that Russia has retaken the upper hand on financial and monetary questions. Forthwith, the question is no longer on putting a brake to the depreciation of the Rouble, but in the contrary to slow down its appreciation and to stabilize the exchange rate around 50 roubles to the US dollar. Coming after the episode of speculation of December 2014, the rouble started to appreciate rapidly as early as February 2015 and has reached a few days ago a rate of 50 roubles to 1 USD, which appears to be the level at which the CBR is intent on maintaining it. To this effect, it has announced that it will buy foreign currencies (dollars, mostly) on the currencies market, which is one way of sending a warning of its intention of defending a 50/1 parity. This decision is understandable if one considers the evolution of the real exchange rate of the Rouble (that is, the nominal rate subtracted of the inflation). This rate was probably overvalued by 10% to 15% in December 2013. Which is why, even before the beginning of the dramatic turn of the Ukrainian crisis, the CBR had let the exchange rate slip. The latter had then stabilized between its old level (corrected by the inflation) and the level which one can consider to be optimal from an economic standpoint (also corrected by inflation). By choosing a reference rate at 50 roubles to 1 dollar, the CBR is leaving itself a comfortable margin in case of a continuation of inflation.

This policy, therefore, is to assure that Russian products will become more competitive not only on the domestic market, but on export markets as well. Industrial production in Russia depends on exports (for the aeronautics and armaments sectors) but growth comes mainly from the domestic market. On the domestic market, the principal indicator of the competitiveness of « Russian » producers remains the exchange rate. The very high sensitivity of the Russian economy and production to the level of the exchange rates becomes therefore understandable. This sensitivity is expressed both in effects of volumes of production (particularly, but not only, in exports) but also of the margin rates of Russians companies or of those "based in Russia" (mainly on the domestic market). We know that the contraction in growth during the first quarter of 2015 has been less than had been anticipated by the Russian government itself. Russia should therefore find back to growth no later than in the third quarter of 2015.

Moreover, the fact that the Central Bank of Russia is buying back foreign currencies is tantamount to injecting roubles into the economy. This official announcement must be interpreted as a signal for monetary policy. The latter, if it will still display restrictive aspects by the way of the exchange rate policies, should in reality become more lax from the point of view of the quantitative supply of the market. This also means that, in the absence (which one hopes to be temporary) of important structural reforms of the Russian banking system, the authorities of the Central Bank are counting on the profits made by businesses (and, essentially, the small and medium sized companies) to restart investments. Which is another reason which probably lead to the adoption of a depreciated exchange rate, in relation to what industry needs would technically request.

 Energy politics.

But the victory of Russia is also verified in another domain, the one of European energy policies and of gas-pipelines. Various indicators show that presently « big manoeuvres » are underway in the energy domain in Europe. Such "big manoeuvres" naturally implicate Russia.

Two important projects have bit the dust at the end of 2014. The first of these being the one supported by Russia of the « South Stream » gas (and oil) pipeline which was supposed to make it possible to by-pass Ukraine and to supply Southern Europe and the Balkans. It's an understatement to say that the EU was opposed to this project, the credibility of which was the more important because the fetish project of the EU, the gas-line « NABUCCO, » had never manage to take off for good. The European Union multiplied pressures on Romania and Bulgaria. In response, Russia decided to cancel « South Stream ». One might therefore consider this to be a Russian failure. But the reality is quite different. In its original format, « South Stream » was an extremely costly project, which could have been profitable only if one had enormous quantities of gas transiting. However, in consideration of the projects of developing gas pipe-lines in the direction of China, and of the agreements between Gazprom, the Russian gas company, and the Chinese government, it had become clear that Russia would not have enough gas to supply both the Europeans and the Chinese. At least, not in the quantities that were foreseen for « South Stream ». In fact, and this is corroborated by the swiftness of the Russian decision, the obstacles put in the way of « South Stream » provided a miraculous pretext for Vladimir Putin for cancelling a project which was becoming an embarrassment.

It was the European Union, which found itself left in the lurch. While it had multiplied obstacles and raised numerous procedures against « South Stream », it suddenly discovered that its disappearance left an enormous void in the supply of energy of Southern Europe. The more so that it also had to take the blow of another project meeting its end - granted it was a somewhat fumy one - into which a lot of hope had been invested: the massive development of shale gas (and oil). We know that the exploitation of shale gas and oil has been presented as an alternative to the supply of gas (and oil) coming from Russia. But various factors have brought this dream to capsize. To begin with, it seems that the deposits are much smaller, and much deeper, than had been thought at first. This would imply high extraction costs, undoubtedly higher than in the United States. Additionally, the drop in the oil (and gas) prices makes the exploitation of shale fuels unprofitable, even in the United States. It seems that on average, a price of 80 dollars for the barrel of oil is needed in order for exploitation to be profitable in the United State, and probably between 95 and 105 dollars in Europe. However, the price of oil, even if it has recovered somewhat (around 60 dollars a barrel for the WTI and around 67-68 dollar for the BRENT), should not exceed 70-75 dollars by the end of this year.

Exit therefore the dream of energetic independence (either for Europe or the United States), and back to square one. We are finding ourselves in a situation in which, surprise, surprise! the Russians have pulled another project out of the hat. This project would consist in deriving from another, already existing gas pipe-line towards Turkey (the « Blue Stream »), and with a coupling to the TransAnatolian gas pipe-line, a gas pipeline which would cross the Bosphorus and could, according to needs, either go back up towards Macedonia and Serbia in order to supply Hungary, Slovakia, Austria and Italy, or go through a projected gas pipe-line between Greece and Italy (through the canal of Otranto) and supply Italy directly. This project is far less costly than the defunct « South Stream », of course with reduced volumes, but it could be brought into service within two years.

Geopolitics « Russian way».

Which is where one discovers that the relations between Russia and Turkey are finally better than had been thought all along. Russia is ready to increase its gas supply to Turkey and even to build nuclear plants on its territory. As to Erdogan, he is not displeased to thumb his nose at the European Union, which has been snubbing him and to show his good dispositions towards the new Greek government.

Greece finds itself, as we well know, in conflict with the European institutions and in particular, with the European Central Bank and with the Eurogroup. Lacking an agreement, which has gone off to a bad start[2], Greece will be forced to default on its sovereign debt and likely leave the Eurozone. However, this new gas pipe-line would turn out to be advantageous indeed, by way of the royalties it would bring to the Greek government, as well as by putting at its disposal low cost energy, an important factor if one takes the perspective of an exit from the Euro and the necessity to rebuild the Greek industrial potential. Moreover, this gas pipe-line project allows the Greek and Russian governments to discuss a possible adhesion of Greece to the « BRICS ». Joining the BRICS would have effects geopolitical as well as economic. It would allow, among other thing, Greece to borrow from the monetary stabilization fund, which the BRICS have set afoot in 2014. It turns out that, when one might have thought Russia to have suffered a setback with the demise of « South Stream », it is jumping back and rattling the European Union, both economically and politically.

Russia's importance in Europe.

The two gas-line projects presented by Russia will most probably be pulled through. But, when this could have been an occasion to unite the countries of Europe, it will turn out to be in the contrary a symbol of division. This results from the attitude both of the European Union and of the United States.

Brussels may complain that Russian policies aim at prying out Russia friendly countries in Europe. But this is perfectly normal. The game of division was put in place by the European Union even if - at present - it realizes with bitterness that when it comes to face Russia it has considerably less power and less influence than what was thought. Actually, far from being "isolated", Russia has never been more central for the future of Europe. In this context, the policies of French President, Mr. François Hollande seem to have been particularly ill considered and even blundering.

[1] Herszenhorn D.M., A Diplomatic Victory, and Affirmation, for Putin, The New York Times, 15 May 2015, http://www.nytimes.com/2015/05/16/world/europe/a-diplomatic-victory-and-affirmation-for-putin.html?_r=2
[2] http://www.bloomberg.com/news/articles/2015-05-15/tsipras-says-he-won-t-cross-red-lines-in-talks-with-creditors

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 #5
Sputnik
May 19, 2015
No More Strong Arm Tactics: US Wants to Mend Relations With Russia

The recent visit of US Assistant Secretary of State for European Affairs Victoria Nuland to Moscow has signaled Washington's readiness to join the Normandy talks on Ukraine, Stratfor pointed out.

US Assistant Secretary of State for European Affairs Victoria Nuland's visit to Moscow "is the latest indicator" that Washington's position on Ukraine and its role in the country's future "may be shifting," the US private intelligence company Stratfor reported.

"Although US officials have been involved in discussions with their Russian and Ukrainian counterparts throughout the conflict, the recent direct high-level negotiations - without the participation of European leaders - signal that Washington wants a larger and more direct role in discussions regarding Ukraine," Stratfor analysts underscored.

Indeed, during the past week Washington's officials have held a series of meetings with Russian and Ukrainian leaders. For instance, last week Victoria Nuland had a meeting with Ukrainian President Petro Poroshenko and Prime Minister Arseniy Yatsenyuk. Earlier, on May 12, she accompanied Secretary of State John Kerry on his trip to the Russian city of Sochi.

Washington's latest initiative was aimed at "inserting the United States directly into the complex negotiations."

Remarkably, the Obama administration has demonstrated that it could shift its stance regarding Russia. In contrast to previous anti-Russia rhetoric, John Kerry and Victoria Nuland evaded the issue of Crimea's status quo or Russia's support for eastern Ukraine, discussing the question of the necessity for the Organization for Security and Co-operation in Europe to have a presence on the Ukrainian border.

According to the analysts, the Russian leadership wants to elicit a number of key concessions from Washington. First and foremost, Moscow is concerned about US military support for Ukraine including the military training mission of American troops in the country and possible supplies of weaponry to Kiev. Russia wants to ensure that the Pentagon will not extend or expand its training mission.

Simultaneously, the Kremlin "is likely pushing" the United States to curb its military training activities in former Soviet Republics in Russia's periphery, such as Georgia and the Baltic states. Moscow has also repeatedly expressed its deep concerns regarding NATO's military buildup in Eastern European states, such as Poland and Romania.

"The United States probably is unwilling to compromise on its military training mission to Ukraine, but the US administration could, as it has thus far, avoid providing Ukraine with weapons that add to the country's military capabilities," Stratfor analysts noted.

However, according to the analysts, "when it comes to sanctions, Washington may be open to compromising." Washington can lift its sanctions when the US administration decides to do so, while EU sanctions can be lifted only in accordance with the decision of all the bloc's member states, the analysts highlighted.

If Washington decides to abolish its sanctions policy, the lifting of US sanctions will "take place piecemeal, beginning with lighter sanctions such as travel bans on individuals," Stratfor analysts elaborated.

"The latest flurry of meetings likely does not herald an end to the crisis. However, greater direct US involvement in the negotiations could change the dynamics of the talks," the analysts suggested.

On the other hand, the Obama administration's initiative has clearly indicated that Washington's "attempts to isolate Russia have failed," as Russian Foreign Minister Sergei Lavrov noted.

Meanwhile, Moscow and Washington have signaled that they both support the full implementation of the Minsk II accord aimed at reconciliation between Kiev and the Donbass region.

 #6
Russia Insider
www.russia-insider.com
May 18, 2015
Putin's Chief of Staff Is a Man to Watch
Triumphant success organising Victory Day celebrations points to growing influence of Sergei Ivanov
By Alexander Mercouris

Kremlinology has never been our thing. However, for those for whom it is, they might care to note that the organiser of the tremendously successful Victory Day celebrations throughout Russia was Sergei Ivanov.

Sergei Ivanov is one of the most powerful men in Russia.  

Like Putin he was born in Leningrad and has an intelligence background. He served for a time in the KGB before the USSR broke up. Like Putin his work was in foreign intelligence, not police work.

Ivanov and Putin are almost the same age (Putin is 3 months older) and are known to be close friends. Putin appointed Ivanov his deputy in 1998 when Yeltsin made Putin head of the FSB - Russia's counterintelligence and antiterrorism agency.

A year later Yeltsin made Ivanov secretary of Russia's Security Council when he appointed Putin Prime Minister.

When Putin became President in 2000, he appointed Ivanov Defence Minister, which post Ivanov kept until 2007. Putin then appointed Ivanov Deputy Prime Minister with overall responsibility for the defence industries.

Ivanov then appeared to suffer a setback when Putin chose Medvedev to succeed him as President in 2008. Many had expected he would choose Ivanov instead.

During Medvedev's Presidency Ivanov's career marked time, but in December 2011, after Putin declared his intention to stand for the Presidency again, Ivanov was appointed chief of staff of the Presidential Administration. He has served in that post ever since, in effect as Putin's chief of staff.

Ivanov speaks English fluently, as well as Swedish, and understands other Scandinavian languages, such as Danish and Norwegian. He is also said to speak some French.

He is reputed to be a brilliant analyst.  

There have been some questions about his skills as a manager. His stint as Defence Minister is sometimes seen as a failure and during his period as Deputy Prime Minister in charge of the defence ministries Russian military procurement appeared to be at a standstill.

This is unfair.

As Defence Minister it fell to Ivanov to bring the difficult war against the jihadist insurgency in the Caucasus to a successful conclusion. So far this remains the only case of a non-Islamic power winning a clearcut military victory against an armed jihadist movement.  

In August 2008 the Russian military won in just five days a decisive victory over Georgia, following Georgia's attack on South Ossetia.

There has been much criticism of the Russian military's performance during that war, some of it reasonable, but most of it unfair. An objective observer would note that the Russian military carried out an exceptionally complicated military operation in sometimes difficult terrain against an enemy who on the battlefield equalled them in numbers at whirlwind speed and with total success.

The contrast with the chaotic handling of the Chechen war 10 years before is striking.

Whilst Ivanov was no longer Defence Minister when the war against Georgia took place, the Russian victory in that war is testament to the significant revival of the Russian military during his watch.

As for the procurement problems, these would appear to have been due more to a lack of resources than to any managerial failures on Ivanov's part.  

Moreover, as might be expected from someone whose background is in analysis and intelligence, Ivanov appears to have focused the limited resources he was given on upgrading Russia's command and control systems, rather than on new hardware. These are essential to a modern military but by definition are less visible to outsiders.

On close study it emerges that much of the criticism that is made of Ivanov's time as Defence Minister and as head of the country's military industries comes from Russian liberals and from the West.

It would be an understatement to say that the West does not like him.  Ivanov makes little secret of his mistrust of the West and is never hesitant to say so to Western officials in forthright terms and in faultless English.

I witnessed an example of this in January 2008, at the time of the so- called reset, when Ivanov gave an interview to RT in which he made no attempt to conceal his cynicism and mistrust of it.

For Russian liberals Ivanov is an arch typical silovik - a politician or official with a background in the defence and security establishment - and is therefore by definition someone to be opposed and feared. The fact that he is known to be suspicious of the West for some Russian liberals is further cause to dislike him.

Ivanov's current position as Putin's chief of staff and head of the Presidential Administration puts him right at the centre of the Russian political and administrative machine.

The Presidential Administration is the Russian government's key coordinating and policy making body. It has inherited many of the functions (and allegedly some of the personnel) of the former Secretariat of the Central Committee of the Communist Party of the Soviet Union, whose former offices in Moscow's Staraya Ploshchad ("Old Square") it now occupies.

As it head Ivanov's influence reaches into every branch of the Russian administration, while as Putin's chief of staff he acts as Putin's principal political adviser and as Putin's contact point with the state bureaucracy and with the government.

Whatever doubts there may have been about Ivanov's management skills have now been laid to rest by his brilliant organisation of the Victory Day celebrations.

To say that the Victory Day celebrations were high profile would be an understatement. Their overwhelming success cannot but reflect well on Ivanov, their organiser.

If it was Ivanov who came up with or backed the idea for the march of the Immortal Regiment, it shows he is acquiring the common touch, something he has previously appeared to lack.

Moreover Putin's website, very unusually, is carrying a transcript of an interview Ivanov has given RT, in which he discusses the Victory Day celebrations and their meaning for Russia.

It is unusual, to say the least, for Putin's website to carry someone else's interview, and off the top of my head I do not remember seeing it happen before. The fact that Ivanov is being given space on Putin's website is to say the least interesting.

It's too early to talk of Ivanov as Putin's likely successor, but he is obviously on the up and is someone to watch.

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 #7
Izvestia
May 11, 2015
Russian expert: Victory Day parade helped Putin win back Moscow's support
Boris Mezhuyev, Russian May as a harbinger of the Day of Great Rejoicing. Journalist and political scientist Boris Mezhuyev talks about the significance of the holiday of 9 May 2015 for Russian history

The words "May events" most often bring to mind the student unrest in Paris in 1968, and sometimes maybe the disturbances on Tiananmen Square in Beijing. It would be great if the "Russian May" of 2015 could be placed in the same historical class (but obviously with a completely different emblem) side by side with the "Paris May". And maybe it is far from being a coincidence that the nephew of Charles de Gaulle was present in Red Square on that day.

We will never know for sure who exactly prepared the "Immortal Regiment" event, the participation of political organizations was minimal, and I think that the civil society action groups were also shocked by the results. The reality exceeded the hopes of all the possible organizers of the march - 12 million people throughout Russia and 500,000 in Moscow itself came out onto the streets with photographs of their parents in the war - nothing like this has happened in our country for the past 20 years. Indeed I still remember the articles of our clueless analysts, who were discussing the idea that since the start of market reforms the Russian people are no longer capable of any kind of grassroots self-organization, because once people get involved in their own private affairs, any common cause becomes impossible.

It has turned out that nothing of the sort is true - the common cause is very much possible, it is simply that the cause has to be worthwhile and must open something in the deep subconscious of all the inhabitants of Russia, who have rallied around the Russian [ethnic Russian] people.

However, we will return to the common cause later. Now I must say a couple of words about our authorities and to some extent the forces. It seems to me that the authorities did not publicize this event that much, and, moreover, they approached it with understandable apprehension. I think that when it became clear from looking through social media that the Muscovites were planning en masse to flood Red Square with portraits of their relations, the question arose of how to make sure that the procession would not turn into another Khodynka [tragic stampede in Moscow in 1896 following the coronation of Nicholas II] or, worse than that, something akin to 9 January [Bloody Sunday 1905 in Russia]. At that time the idea had also arisen in Saint Petersburg of a perfectly well-intentioned procession of the working people carrying icons and portraits of the czar, unified by a desire to go to Palace Square without fail and hand over some hastily put together petition to the sovereign. The outcome of the authorities' fear of such a massive event was a fatal mistake by the monarchy - the decision to stop the procession, and indeed with the help of military units.

Of course the "Immortal Regiment," unlike that Saint Petersburg procession, did not have any political subtext, but, on the other hand, as a result of the combination of an influx of people and a military parade and the receiving of delegations of heads of foreign states 9 May, the most unexpected incidents could have occurred. It was no accident that UN Secretary General Ban Ki-moon supposed that the crowds of people in Moscow that were not dispersing following the parade were political activists who had come to express a protest against the government. He was sincerely surprised that people were joyfully greeting both the head of state and the foreign guests.

In this situation, the news emerged completely unexpectedly - both to journalists and to the ordinary participants in the procession - that the president himself would join the "Immortal Regiment" with a photograph of his father. We must assume that he thus interrupted the reception of the heads of state and upset the set schedule for the whole day. When I heard about this news, I thought that if in January 1905 the sovereign had not been afraid to join the procession in the same way and accompany it to Palace Square, then there would have been no 1905 revolution, and consequently there would have been no February 1917, no Great October, no civil war, and no Red Terror.

So now, after the "Moscow May," we can confidently say that there will not be any Maydan in Moscow. Putin has won back the city which had greeted his return in 2011-2012 in such a hostile way. Now, for all of the city's inhabitants and for a long time, Putin is the leader that joined the "Immortal Regiment" together with his father. Of course, all the opponents of the authorities understood this perfectly, and by all accounts they had really hoped for the failure of the great holiday. How many lances have been sharpened and how many arguments prepared against Victory Day: the heads of the all main countries will not come, the people will remain indifferent to the Brezhnevite holiday, and anyway it should not be 9 May but 8 May that should be celebrated, like the whole civilized world does.

As far as people are concerned, I think that as it happens there were too few people. In the main people simply did not know about the "Immortal Regiment," but now they have found out and next year will come out without fail. Next time the whole of Moscow will come out. Some of my acquaintances have started preparing for the next holiday straight away as of yesterday. They are looking for old photos, and scanning them, cutting them out, gluing them. This is more than a family act of commemoration, something in the spirit of a breakthrough of the profound Russian religiousness has occurred, the people's Orthodox belief in the resurrection of the dead. In Russian villages this belief has always been the basis of the people's Christianity. For us city dwellers, the Day of Rejoicing does not have such enormous significance, but in villages on this day families, irrespective of whether it is a day of work, go to the cemetery with wine and Easter cakes to greet the dead and share with them the joy of Easter Sunday. And this belief in communication with deceased ancestors by means of a church ritual could not be stifled by any state atheism.

Let us note that next year the Day of Rejoicing, the Orthodox day of remembering the dead, will fall on 10 May. Of course some Muscovites will go off to their native villages, but many - the majority - will stay in the city. Will they really not feel the mystical connection between the Day of Rejoicing and Victory Day?

The fact that not only [ethnic] Russian given names and family names featured on banners in the columns of the "Immortal Regiment" is perhaps very Russian in itself. I must admit that I have always felt a bit dubious about the various kinds of particular Russian marches: The real Russian faith is the one that unites people and peoples, and that is just the way it is. When the Indians and Chinese, together with Serbs and Mongolians, marched on Red Square to the tune of the Soviet Katyusha - it was seen as representing the idea that the civilized world should not have rejoiced at the collapse of the USSR: you did not like the fact that the Great Rus was capable of bringing together Tashkent and Tallinn around itself, then never mind, it can still bring together Beijing and Delhi. Of course, this was no more than a symbol, but it was a symbol with a major political charge, as the leaders of the two Asian giants knew after all that the military detachments of these countries had to go through Red Square to the tune of one song - a Russian song.

What will the "Russian May" of 2015 develop into? Will we lose this chance for internal renewal? Will the "Immortal Regiment" turn into a regularly repeated annual procession devoid of any special energy, like the 1 May demonstrations in the Soviet era? Or will it be a harbinger of the country's real economic, cultural, and finally, genuine religious revival? A revival which is unthinkable without spontaneity  and unpredictability - which have been fully manifested on this day - and which at the same time definitely presupposes the authorities' readiness to take all the best from what comes from the grassroots, not placing any obstacles in its way and opening up all barriers before it.

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#8
Business New Europe
www.bne.eu
May 19, 2015
What next for Russia's economy and the ruble?
Chris Weafer in Moscow
Chris Weafer is Senior Partner at Macro Advisory, which offers bespoke Russia-CIS consulting

If you left Russia for the last New Year holiday and did not return until the recent May holidays, and did not follow the news from or about Russia in the meantime, you would certainly be scratching your head and wondering what on earth happened? Late last year there were predictions that the war in Ukraine would escalate and sanctions toughened against Russia. People scrambled to get out of rubles because they believed that it would soon be at the RUB100 level against the dollar. The general assumption was also of a big unemployment spike and a recession at least as bad at that of 2009. In short, widespread doom and gloom about Russia's near-term and medium-term future.

Instead, the first-quarter performance of the economy and the very strong ruble rally has given rise to a great deal of optimism, especially within the government, that the peak of the crisis has passed. There is now no longer talk of tougher sanctions but, against a backdrop of what is looking more like an extended frozen conflict in eastern Ukraine, the discussion now is about which sanctions may not be renewed at the July 31 expiry. The Central Bank of Russia is optimistic enough about the trends that it has already cut its benchmark rate from 17% to 12.5%, a negative real rate of 4%, which of itself also adds to the reasons for optimism given the impact on household disposable incomes. Investors also buy into at least part of that optimism, and have pushed the dollar-based equity indices, such as the RDXUSD, up by more that 40% since the start of the year.

Premature optimism

However, while there are some very clear trends to cheer, to make such the assumption that the worst is over for the economy and that financial pressures will continue to ease is decidedly premature. The country's economy has had a good start to the year, but now is more likely to slide lower for the next two quarters as the legacy of last year's events start to bite the more important parts of the economy and especially those focused on the consumer and small and medium sized enterprises. But the operative word is "slide" and not "collapse".

Overall, the economy contracted by just under 2% year on year through January and February, but dropped by almost 3.5% in March. That trend confirms my view that the positive start to the year will not be sustainable in the current or next quarters. But while expecting to see a deterioration, all fears of a major collapse or problems with external servicing etc. - all of which were widely discussed and predicted late last year - have been dispelled. Russia's economy is already in recession, but the contraction for this year will be in the range 3-4% of GDP and the economy should see a small but positive growth next year, ie. all else being equal with regard to sanctions.

That said, the headline number for GDP is somewhat misleading or does not show the broader picture. The manufacturing and agriculture sectors continued to benefit from the competitive boost they received as a result of the fourth quarter ruble collapse as consumers switched heavily to cheaper domestic produced alternatives. The much vaunted import-substitution shift allowed the agriculture sector to report growth of 3.5% on year for the quarter and the decline in industrial production to stay low at 0.4%.

But beyond that, some sectors are being beaten up badly. The construction sector reported a 5% drop in output, investment spending fell 6% and retail sales, the biggest segment of the economy, dropped 6.7% year on year. At the expensive end of durable goods sales, vehicle sales declined by 36% year on year in the quarter and that despite the government's subsidy programme remaining in place. Small business is publicly calling for an easing of access to new bank credits and warning of a faster pace of closures and job losses if they continue to be squeezed by the banks.

Frontloading

Another reason why the economy fared relatively well - ie. at the headline rather than broader level - in the first quarter is because of accelerated budget spending. The deficit at the end of February was at 10.5% of GDP, albeit that fell back to 4.9% of GDP by the end of March. Still, that is well in excess of the full-year target and implies that spending will be much slower in the second half of the year. A lot of the extra spending took place in the defence procurement area - which totalled 40% of the full-year allocation in the quarter - and while that does impact the headline growth numbers it does little for the broader economy.

A big factor supporting the mood of optimism amongst officials and investors has been the strong performance of the ruble since early February. Here again the reasons are clear enough and either cannot be sustained or would be difficult/expensive to. But as with the outlook for the economy, few are now looking at a major ruble collapse as had been widely assumed late last year. A gradual weakness from the current ruble-dollar rate of 50 to around the 55 level is expected rather than anything more dramatic over the summer months. Where oil trades will determine which side of that exchange rate the ruble trades.

Through February to end April both the central bank and Finance Ministry carried out co-ordinated actions to boost the ruble. Chief amongst them was the provision of almost $40bn in forex loans to the corporate sector to cover external debt repayment obligations. It means that those companies did not have to go into the open market to try to buy forex, thus removing that demand pressure. At the same time the Finance Ministry converted up to $15bn of its Reserve Fund from foreign currencies into rubles to cover the budget deficit. That created forex supply and ruble demand. Also pushing the ruble higher was the reversal of at least some of the ruble withdrawals by individuals and companies made in November and December. As the ruble rallied it created a positive reverse momentum.

But the ruble rally has been too much and now endangers the demand for cheaper domestic goods as imports, in ruble prices, start to again become less expensive. We have already heard from various government ministers and central bank officials that they prefer to see some weakening of the ruble so as to sustain that positive driver in the economy. Whether that happens, and to what extent, now depends more on the oil price than domestic factors over the medium term.

The price of Brent crude has rallied by over 25% since the start of the year and is again trading over $65 per barrel. When one looks at the reasons for that rally you come up with the same conclusion as for the Russian economy - the positive drivers are not sustainable, but previous expectations of a price collapse to 2009 levels are now almost unrealistic. The oil price rally has been chiefly driven by three factors: 1) expectations that either US shale supply will soon start to decline or Opec ministers will be forced to agree a production cut; 2) traders built up the largest ever long position (500mn barrels); and 3) the US dollar declined as expectations of a Federal Reserve rate rise are again delayed.

The fact is that there is no evidence that US oil output is about to fall, albeit forecasts for supply growth have been scaled back. Within Opec, the Saudis appear ever more determined to defend market share and are now pumping at a record of over 10.5mn barrels per day. Comments from the Saudi oil minister, always influential in terms of price sentiment, should also dent any optimism that the current price can hold. An unwinding of the speculative long oil position would also create more downside pressure and volatility.

So, when you factor in all the price drivers for oil, including the increasing likelihood of sanctions against Iran being lifted (the EU is looking at Tehran as a meaningful alternative to Russian oil and gas for reasons known only to bureaucrats) the conclusion is that the oil price rally is about done. But using the principle of "once bitten, twice shy", it is unlikely that too many traders will be keen to sell too far down. A slide back to the mid to low $50s per barrel is more realistic than either a push to $80 or a collapse to $40, albeit history tells us that it is foolish to dismiss either as impossible.

The picture that is emerging, therefore, is one where sentiment and politics pushed expectations to extremes by last New Year but where the actual reality, caused by a great deal of pragmatism and common sense, has been a whole lot better. Those efforts and the sentiment shift has resulted in a better than sustainable ruble and oil price rally. But neither is facing much more than a modest slide through the summer. I still expect the ruble to weaken coming into the year-end as those forex repo loans have to be repaid and because December is also the peak month for foreign debt repayments. But that's only a provisional number for now and it, along with the broader macro forecasts for 2016 and 2017, will be adjusted in the autumn. By then we should have a better understanding of where oil is headed and a decision, one way or another, about sanctions will have been made.

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 #9
Moscow Times
May 19, 2015
Russian Foreign Direct Investment Dropped 40% in 2014

Overseas investment by Russian companies fell to $56 billion last year, a 40 percent decline from 2013, even as China led a wider boom in foreign direct investment from emerging economies, according to a report by the United Nations Conference on Trade and Development (UNCTAD) released Monday.

The figure means that Russia last year was the world's sixth-largest foreign direct investor, equal with France, according to UNCTAD. In 2013, Russia placed fourth, with its companies investing $95 billion overseas.

The weaker investment came as Western sanctions over Ukraine and sharp falls in the price of oil slowed Russian economic growth to 0.6 percent in 2014.

While Russia slipped down the rankings, foreign direct investment from China and Hong Kong boomed to $266 billion last year, an increase of 38 percent from the $193 billion recorded by UNCTAD in 2013.

Total foreign investment by companies in emerging economies rose by 30 percent to almost half a trillion dollars last year, making up 36 percent of global foreign direct investment, the report said. The bulk of this, $440 billion, came from developing Asia, UNCTAD said.

The United States remained the largest source of overseas investment last year, with its companies investing $337 billion, according to UNCTAD.

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#10
Financial Times
May 19, 2015
Russia: economy in tatters, or business as usual?
By Ian Ivory
Ian Ivory is a partner at law firm Goltsblat BLP.

Much has been said over the last six months about the collapse of the Russian economy as a result of sanctions and the falling oil price, on top of other negative factors such as bureaucracy and corruption, high inflation, inefficiencies in production, ageing infrastructure, a failure to innovate and diversify and capital flight. A slew of economic data point to a deep recession, and US President Barack Obama describes Russia's economy as being in tatters. No one seems to be denying the long-term negative impact on the economy; even the government expects two tough years ahead, a prediction regarded as hopelessly optimistic by many economists.

However, anecdotally at least, it doesn't feel like a financial meltdown here in Russia.

There are no Venezuela-style food queues, or queues for foreign hard currency. Shopping centres in Moscow are buzzing with people buying western imported goods, supermarkets remain fully stocked (although the steak is now Argentinian and not Australian), new cafés and other outlets are popping up everywhere and the usual temporary wooden terraces are being constructed on pavements outside restaurants to catch the summer tourist trade (these tourists being mostly Russians from other parts of the country, as has always been the case). Roads are still gridlocked, public transport still packed and the airports are overrun with Russian sun-seekers flying off to Florida, Rome, Turkey and Thailand, along with those travelling to other cities in Russia to reunite with relatives and loved ones.

In business circles, deal activity and investment has slowed but continues, even among western companies operating in Russia for many years now, who will quietly admit to making far better returns here than in developed and saturated western markets or indeed some of the other emerging markets around the world. Some major corporates like Adidas have scaled-back, but few have pulled out altogether. Electrical goods retailer Eldorado has announced new plans for expansion and the likes of Nestlé, Burger King and Ikea have all reaffirmed their commitment to the Russian market. This picture is in total contrast to 2008/2009, when the global financial crisis hit Russia hard and deal activity all but stopped.

Moscow of course is not representative of Russia as a whole. Nonetheless, the general sense is that this scene is being played out across the country. Economists will say this is just the calm before the storm and they may well be right - it's just that it doesn't feel like an economic collapse is coming any time soon.

Why so? Confidence must surely play a big part and, rightly or wrongly, it is notable that many ordinary Russians trust their current government to competently manage the economic challenges. Unlike 1998, there has not been a default or official capital controls imposed. Unemployment remains low. The central bank is credited for its handling of the currency crisis in December, when for a short while the rouble was in free fall. Inflation, while still high, has started to ease and high central bank lending rates have now been moderately cut. Russian equities and bonds are generally regarded as undervalued and are performing well against other emerging markets. A four-month period of more or less stable exchange rates and a stabilisation and slight recovery in oil prices have bolstered business confidence and reinforced the belief that over time things will slowly get better, as they always have in the past. The Russian media also have a strong influence over public sentiment.

It is also difficult to quantify the economic damage inflicted by the western sanctions. Clearly, financing has been adversely affected, although not halted. Chinese banks are increasingly visible and active. The sanctions are targeted and specific and have not amounted to a full-scale embargo on anywhere near the same scale as the sanctions programmes against Iran or North Korea. The drop in oil prices has had a far more immediate and noticeable impact. This is an important point, because behind the political rhetoric there is actually a notable absence of steps in place to truly drive the economy into "tatters". The gas pipelines remain open, western cars and luxury goods are still being imported and international payments are still being processed. The Russian counter-sanctions have also been relatively modest in real terms.

For now, the government has not allowed the tense political situation to spill over into an attack on western companies doing business in Russia, despite the usual tub-thumping from the fringes. McDonalds suffered the temporary closure of a handful of food outlets (now reopened) following hygiene inspections, but this remains one high-profile exception and not the rule. By and large, most western companies operating in Russia have not experienced any different treatment despite geopolitical tensions.

The fundamentals are also unchanged and Russia remains relevant: rich in natural resources, the world's largest country by landmass, the 9th largest population, the 6th largest economy by GDP based on purchasing power parity, the largest retail trade market in Europe, a nuclear-armed power and permanent member of the UN Security Council.

Clearly plenty of downside risks remain for the economy and things here can change very quickly. The political and humanitarian consequences of the conflict in Ukraine should not be ignored. However, for now at least, Russia and its citizens remain unexpectedly upbeat.

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 #11
Business New Europe
www.bne.eu
May 19, 2015
A wakeup call for Gazprom
Widely considered one of Russia's most potent weapons, Gazprom's financials show the slow erosion of its core business.
Mark Adomanis in Philadelphia

As with almost every other major Russian company, 2014 was not a particularly good year for Gazprom. In fact, at first glance, the headline numbers were nothing short of catastrophic: from 2013 to 2014, the company's net income declined by nearly a trillion rubles, slumping from a profit of roughly RUB800bn to a loss of more than RUB130bn.

If that sounds too shocking to be true, it's because, from a certain perspective, it is. Gazprom didn't suddenly forget how to produce gas or transport gas, nor did it lose its most important customers: the net income figure cited above is extremely heavily influenced by foreign currency fluctuations.

A brief detour through the footnotes gives an indication as to just how heavily the ruble's sudden swoon weighed on the company's fortunes.

In 2013 Gazprom had a net foreign exchange expense of about RUB97bn. Now even the footnotes aren't terribly clear about the precise manner in which Gazprom's "exchange rate differences" arise, but from the way that they are presented (with both income and expenses clearly delineated) it would appear that Gazprom, like virtually all large international companies, uses various types of financial hedging instruments. In 2013 it looks like these hedges, while far from perfect, more or less acted as intended.

In 2014, however, the extreme and totally unanticipated volatility of both energy prices and the ruble sent Gazprom's net "exchange rate difference" expense into the stratosphere. The company lost a shocking RUB661bn from these differences. For perspective's sake, that is about 80% of its entire 2013 net income. Perhaps one can imagine a company being more hurt by sudden price fluctuations, but Gazprom's 2014 forex charges are just about as bad as they come.

Gazprom also had to record roughly RUB300bn worth of bad debt expense. Without getting too far into the accounting weeds, a bad debt expense is a write-down of preciously extended loans, basically an admission that the company will not be able to get back a bunch of money that it had previously loaned out. Taken together, forex fluctuations and the bad debt expense account for about 90% of the observed decline in Gazprom's net income.

While the financial impacts of these two items are, obviously, very real, I think it would be a mistake to focus too narrowly on them. After all, Gazprom's core business is the production, transportation and sale of natural gas, not making loans to other businesses or speculating on changes in exchange rates. Given recent trends in energy prices and the modest rally of the ruble against both the dollar and the euro, Gazprom will likely recoup many of its 2014 losses over the course of the next year. In other words 2014 looked a little worse than it really was while 2015 will look a little better.

Badly managed

The deeper problem is that, operationally, Gazprom is just not run very well. Its headline revenue growth is respectable, but the company does an extremely poor job of controlling its costs.

One particularly easy way to get a grasp on this is simply to look at the company's total number of employees: from 2013 to 2014 it increased from 423,000 to 445,000. Suffice it to say, most companies will not expand headcount by 5% when they are bleeding money (even if those losses are due to volatility). A normal publicly traded company that went on such a hiring spree while providing its shareholders with a negative return would have its stock decimated and its executives would be lucky to keep their jobs.

Now if those newly minted Gazprom employees were all working productively, then it wouldn't be a problem. Even a cursory look at Gazprom's cost structure, however, suggests that all those new hires aren't contributing very much. From 2013-2014 sales grew by 7.9%, but the direct costs of those sales grew by 12% and general administrative expenses shot up by 29%. Gazprom, in other words, basically fits the dictionary definition of a poorly run business: its costs are growing much more quickly than its revenues.

And that is what really ought to worry the Kremlin. The forex volatility that was such an enormous (and expensive!) problem in 2014 cannot and will not last forever. There is simply no way that Gazprom will have forex loses of the same magnitude on a sustained basis. A reversion to the mean is inevitable and when that happens Gazprom will suddenly look much more profitable than it does at the moment.

But the aforementioned problems with cost management, Gazprom's troubling tendency to both over-hire and over-spend on fixed investment, aren't going anywhere. Indeed they've been problems for as long as Gazprom has existed and they've arguably worsened during the recent crisis.

In other words if the shock of 2014 wasn't enough to force Gazprom to get its act together maybe nothing will be.

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 #12
www.rt.com
May 19, 2015
Russian regulator acting 'adequately' as economy stabilizes - IMF

The Central Bank of Russia is taking effective steps to stabilize the national currency and the economic situation as a whole, according to the Deputy Managing Director of the International Monetary Fund (IMF) Min Zhu.

"I think the Russian Central Bank is reacting adequately to the current situation," the banker said at a conference on doing business with the BRICS countries in Washington on Monday, RIA Novosti reported . He also added that the CBR is "working well and gently".

The Russian economy has improved significantly due to the prompt action of the Russian regulator, according to the IMF official. "We see that the Russian ruble has stabilized along with the country's economy," Min Zhu said.

It is important to maintain good results in future, to maintain the flexibility of the exchange rate in line with market trends, the deputy head of the IMF said. "This will contribute to further stabilization of the Russian currency and the economy, and create a specific reserve for economic development in the long term."

Russia's economy had recovered from last year's panic following the slump in oil prices, Russian and US economists agreed lately, praising it as an "underrated land of opportunity." The Russian ruble has been also recognized as the best performing currency in the first quarter of 2015, mostly due to the actions of the Russian regulator.

The Russian currency has gained almost 17 percent in 2015, after it lost about 46 percent last year. It grew to 49.27 against the US dollar and 55.22 against the euro at 14:15 MSK on Tuesday on Moscow Exchange. The ruble hit rock bottom against the dollar on December 16, when it lost more than 20 percent, with one dollar buying 80 rubles.

The CBR has employed a number of financial tools since the currency crisis erupted at the end of last year. The main one was changing the key interest rate. Now the regulator is weakening the strings on the country's borrowers, as it's been easing the rate citing improvements in a currency market. Most recently it cut the interestrate to 12.5percent last month which is the third rate cut this year. With the previous two cuts in March and January the regulator tried claw back on the 6.5 percent increase to 17 percent enforced on December 16. That was done in an attempt to halt the ruble slide.

As of last November the ruble is free floating after the CBR unpegged it from the dollar and the euro. However, last week the regulator said it would once again be buying foreign currency in the domestic market, as the ruble rate has stabilized.

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 #13
Wall Street Journal
May 18, 2015
Editorial
The Putin Recession
Russia's economy keeps shrinking, but the West won't take advantage.

An oddity of recent weeks has been the attempt to argue that Russia's economy isn't as awful as it looks. Then along comes Friday's report that GDP fell 1.9% year-on-year in the first quarter.

The positive spin is that it could have been worse because economists predicted a contraction of 2.6%. The ruble, having plummeted last year, has been the fastest gainer among emerging-market currencies so far this year, rising some 19% since Jan. 1. Capital outflows have fallen to $32.6 billion in the first quarter, compared to $77.4 billion in the previous quarter. All this supposedly results from a stabilizing oil price that is putting Russia's trade balance on a more sustainable track.

But negative growth still means a shrinking economy. Even Moscow expects the economy to shrink by 2.8% before returning to growth next year. The European Bank for Reconstruction and Development on Thursday predicted a decline of 4.5% this year, with a recession stretching into 2016.

A detailed breakdown of Friday's GDP data isn't available, but other indicators look bleak. Consumer spending is collapsing as wages fall and inflation sets in. Whatever trade boost the Kremlin thinks it's getting from the weaker ruble, the trade deficit is shrinking mainly because imports have declined much faster than exports. Western sanctions continue to dent investment.

The central bank has intervened to keep the currency at its current level of around 50 rubles to the dollar rather than allowing it to appreciate further toward its precrisis level of around 35, and it has cut its policy rate to 12.5% from a high of 17%. Policy makers seem to think this is the right amount of depreciation to boost exports while keeping inflation under control.

Maybe so, but the real story is that Russia continues to grapple with the longer-term crisis of Vladimir Putin's economic mismanagement: endemic cronyism and corruption, hostility to foreign investors, overreliance on commodities, the absence of a meaningful rule of law, and more. Mr. Putin and his regime continue to be vulnerable to economic pressure, but the best news for him is that the West lacks the will to apply it.

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 #14
Bloomberg
May 18, 2015
Russia's Richest Billionaire: Impact of Sanctions Is Waning
by Ryan Chilcote and Yuliya Fedorinova

Russia's richest man said international investors are coming back to the country and the impact of sanctions has peaked.

"Now it's getting clear that the situation is more politically stable or predictable," Vladimir Potanin, who heads Russia's biggest miner, OAO GMK Norilsk Nickel, said in an interview with Bloomberg Television on Monday. "Nobody wants more sanctions. I think we reached a stable level in terms of tensions."

Europe and the U.S. imposed sanctions on Russia's energy and finance industries and dozens of prominent individuals last year after the nation annexed Crimea from Ukraine. The ruble lost almost half its value as the central bank burned through currency reserves in an attempt to slow the collapse.

So far this year, there are signs the situation may be stabilizing. The ruble has rallied to become the world's best-performing currency in 2015, while President Vladimir Putin last week met U.S. Secretary of State John Kerry for the first time in about two years.

Investors were expecting more sanctions and more problems for the Russian economy, Potanin said. It's now the "right time" for investors to come back to Russia, he said.

Most of Potanin's wealth, estimated at $16.7 billion by the Bloomberg Billionaire Index, comes from his 30 percent holding in Norilsk Nickel, which isn't subject to sanctions.

Norilsk fell 1.8 percent to 10,066 rubles at 2:05 p.m. on Tuesday, paring its gains in Moscow to 52 percent over the past 12 months. The company has a market value of 1.6 trillion rubles ($32.4 billion).

Political Power

The company benefited last year from increases in the price of both nickel and palladium. It also gained from the depreciation of the ruble, which despite this year's rally is still down 30 percent against the dollar over the past year. Norilsk pays its local costs in rubles while selling its metal production for dollars.

Potanin, 54, was regarded as one of the Russian oligarchs who wielded power behind the scenes during the administration of Boris Yeltsin, the first post-Soviet president. Potanin denies he ever considered himself an oligarch. While he had influence, he said he never had the power to force someone to do something or to dictate.

Russia has changed a lot since the 1990s and "nobody has political power in Russia except for the president and the government," Potanin said.
'Mentally European'

Europe and the U.S. misunderstand Putin and the dynamics of their relationship with Russia by not appreciating that the nation has its own interests as well as being "mentally" European, according to the billionaire.

"We are friends, but we are not pupils in the class," Potanin said. "Something has been broken since" Russia rallied to support the U.S. after Sept. 11, he said.

Potanin characterizes his relationship with Putin today as that of a businessman discussing issues important to the mining industry. The billionaire shares with the president a common passion for ice hockey. In May, he played against Putin's team in Sochi in a gala match.

Off the rink, one of Putin's main challenges is to find a younger leader to succeed him, according to Potanin, who said there needs to be more competition in Russian politics.

"I believe in leadership and competition," he said. "In order to find the leader, you need people to compete."

It's not insulting to describe the nation as "Putin's Russia," Potanin said.

"People love him," he said. "Russia loves strong leaders."

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#15
Interfax
May 18, 2015
Over 80% of Russians against same-sex marriages

The percentage of Russians who are positive about the law banning the propaganda of homosexuality is increasing and is now 77 percent against 67 percent in 2013, Levada Center told Interfax.

Fifteen percent of the respondents do not support this law and 7 percent said they are not interested, a poll surveying 800 people conducted in 46 regions of Russia shows.

Over half of the respondents said they see this law aims to protect morals (67 percent against 60 percent in 2013), while 14 percent believe it aims to distract public attention from other problems and 7 percent believe it is aimed at fanning feud.

Seven percent of the respondents said they support the idea to allow same-sex marriage in Russia and 84 percent said they are negative towards it.

Twenty-nine percent of the respondents believe homosexuals are subjected to physical violence in Russia, while 32 percent believe they are discriminated against (psychological pressure, encroachments on rights, etc.). Thirty-seven percent of the respondents and 33 percent of the respondents respectively, have the opposite opinion.

A little more than one-third of the respondents (37 percent) believe homosexuality is a disease that needs to be treated (against 34 percent in 2013). One-fourth of the respondents (26 percent against 17 percent in 2013) see homosexuality as a result of bad upbringing, promiscuity and a bad habit.

The percentage of respondents who see homosexuality as a result of seduction has decreased from 23 percent to 13 percent in the past two years. One out of every ten respondents believe homosexuality is innate (11 percent against 16 percent in 2013).

Two-thirds of Russians said their feelings about homosexuals are manly negative: fear and loathing (24 percent), irritation (22 percent), and tension (19 percent). One out of every four respondents (26 percent) reacts to homosexuals and lesbians "calmly, without any special emotion." Only 3 percent are friendly to homosexuals or interested in them.

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 #16
The International New York Times
May 20, 2015
Putin's Disunited Nation
By MICHAEL KHODARKOVSKY
Michael Khodarkovsky is a professor of history at Loyola University Chicago and author of "Bitter Choices: Loyalty and Betrayal in the Russian Conquest of the North Caucasus."

During those tense days in early March when Vladimir Putin disappeared from public view, the Russian president issued only one official statement: He instructed his prime minister to prepare a blueprint for a new federal agency that would work toward "consolidating the unity of the multiethnic nation of the Russian Federation."

The move passed relatively unnoticed, but it raises provocative questions. Why suddenly create a new arm of government when funding for other departments is being frozen or cut? And why did the choice to lead the agency fall upon Igor Barinov, a member of Parliament and a retired colonel of the Federal Security Service with experience in special operations in Chechnya and counterterrorism?

For Mr. Putin's Kremlin, religious and ethnic diversity remains a troubling security concern. The new federal agency is charged with solving one of the major challenges of the Putin era: how to mold a unified Russia from such a vastly diverse population while Mr. Putin pursues his neo-imperial ambition to recoup large swathes of the old Soviet Union.

One possible reason for choosing Mr. Barinov is fallout from the assassination of the Russian opposition leader, Boris Nemtsov, on Feb. 27. Many people suspect that the Chechen leader, Ramzan Kadyrov, widely believed to be behind other high-profile killings, set the hit in motion in another show of loyalty to Mr. Putin. If this is so, he may have gone too far. Mr. Putin, who has counted upon Mr. Kadyrov to keep the lid on his restive region, may now consider him a loose cannon. Mr. Barinov might be the best man to keep him under control.

More likely, however, the new agency was born out of the growing realization that the country is far less unified than the name of Mr. Putin's party, United Russia, suggests. The fragmentation of Russia, with its multiple ethnic, regional and religious identities, is seen by the Kremlin as a growing threat.

Demographic trends fuel these worries. In the Russian Federation today, 78 percent of the people are ethnic Russians and the rest comprise over 190 minorities, most of them eager to preserve their distinct identities and the territorial integrity of their autonomous republics and districts. Moscow's efforts to encourage higher birth rates among ethnic Russians have done little. By mid-century, the population of Russia is projected to fall to 120 million from 142 million today, a staggering drop. Some studies predict it will have a Muslim majority. Though this prospect may seem distant, it lies at the core of Russia's identity and Moscow's policies.

The issue of national identity has preoccupied intellectuals and government officials since the early 19th century. Is Russia a nation-state, a colonial empire, a multinational union? And who, exactly, is Russian?

The first post-Soviet government, under Boris Yeltsin, attempted to resolve these delicate questions by reserving the term "Russian" (Russkii) only for ethnic Russians, while both non-Russians and Russians became known as "Rossiane," a word that implied an overarching national identity for all the citizens of the Russian Federation.

Yet this fine distinction meant little to most minorities. Mr. Yeltsin famously told non-Russians to "take as much autonomy as you can swallow." And they did, vehemently promoting their own languages, history and culture. In some places, such as the Republic of Tatarstan, non-Russians secured an unprecedented degree of autonomy from Moscow peacefully, while in Chechnya the quest for independence led to two wars.

Mr. Putin reversed Mr. Yeltsin's policy and trimmed the autonomy of the non-Russian republics and districts. Censorship and self-censorship came back. Regional histories, which in the 1990s emphasized the brutality of Russian conquest, reverted to the old Soviet canard of "voluntary" submission to Moscow's benign rule. The Kremlin has generously funded celebrations marking the supposed centuries-old friendship of Russian and various non-Russian peoples.

But propaganda won't make problems go away. Among the federation's non-Russians, Muslims are the largest group, approximately 17 percent of the total population. They present a formidable challenge to the Kremlin in several ways.

The most restless and violent region is the North Caucasus, where Muslim peoples reside in ethnic enclaves and are poorly integrated into the country, even though they are totally reliant on financial subsides from Moscow. In many ways, Chechnya is practically an independent Islamic republic where Shariah law is widespread. Some neighboring republics have only a semblance of belonging to the federal structure.

Moscow exercises slightly better control over the mid-Volga region, where a large Muslim population is also showing signs of discontent. Since the Russian annexation of the Crimea in 2014, nearly 300,000 Crimean Tatars are now counted among Russia's Muslims. But they remain staunchly loyal to Ukraine and resist accepting Russian passports. Moscow is persecuting their leaders but is keenly aware of their unspoken solidarity with other Russian Muslims.

Meanwhile, the greatest challenge lies within Moscow, where more than two million Muslims, mostly migrant workers, reside. It may well be Russia's best kept secret that Moscow is the city with the largest Muslim population in Europe. Relegated to the outskirts of Moscow and suffering from the chronic shortage of mosques, the city's Muslims have been for years subjected to stereotyping and violence. As the economy declines, so does Russian patience with large Kremlin subsidies to the non-Russian regions, and tolerance of the "foreign" population in the capital.

Several geopolitical ideas justifying ultra-nationalism have merged to form the backbone of the Kremlin's chauvinist ideology. One is "Eurasianism," which places Russia in opposition to Europe and justifies Moscow's claims to the former parts of Russian and Soviet empires in both continents. Another concept, known as "the Russian World," asserts Moscow's concern for and authority over Russian-speaking populations regardless of their nationality. Proponents of both theories have supported expansion in former Soviet territories.

Late last year, the Russian Orthodox Church officially declared that only members of the church can be considered Russian and that the Russian world is a distinct civilization based on Holy Rus - Russia, Ukraine and Belarus. Mr. Putin now declares that Russians and Ukrainians are one people.

So what is Russia today? The current occupants of the Kremlin have found their own cynical answer: It is a traditional autocracy in democratic garb, a promoter of virulent ethnic nationalism under the guise of restoring Russian dignity, and blatant old-world expansionism couched as a defense against trumped-up external threats.

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 #17
Oilprice.com
May 17, 2015
Russian Gas: There Is No Alternative For Europe
By Colin Chilcoat

The sanctions are now in their second year; the ruble is still not quite itself; and national champions Gazprom and Rosneft are both bracing for what can generously be called a down year. Still, while Russia's political relationship with the west continues to be redefined, the broader element of codependence remains relatively unchanged - though its worth is hotly disputed. Nowhere is that dispute more pronounced than in the energy sector.

To be sure, Gazprom is in trouble. Last year, the gas giant saw its profits fall 70 percent to $3.3 billion. Through the first three quarters of 2014, Gazprom deliveries fell 3 percent, 13 percent, and 8 percent to Europe, former Soviet republics, and domestic consumers respectively. Its debt burden is up and opportunities for long-term credit are few. Moreover, its legal woes are growing by the day. Recent antitrust filings from Poland and Ukraine join the European Commission's (EC) April charges that could cost the company up to 10 percent of its global turnover.

For its part, Europe - more specifically, the European Union - is still attempting to define the terms of its own energy security. Plans for the 28-member bloc to unite in an energy union are still a go, though only marginally more clear than when they emerged. In a recent statement at the European Economic and Social Committee's Plenary Session, Energy Union commissioner Maros Sefcovic described the goals of the union as follows: a fully integrated energy market; energy efficiency above all else; decarbonization; a commitment to R&D; and securing supply through solidarity and trust.

Much has been done to achieve the first four objectives. Interconnectors are popping up throughout the continent and the EC, along with the European Investment Bank, have launched two new financial instruments to drive investment into energy efficiency and climate action projects. Solidarity however, has been difficult to achieve.

That is nothing new for the European Union. Hardliner positions against Russia and calls for greater transparency (EU oversight) have only served to highlight the unsurprising diversity of national interests in the economic bloc. To take a controversial example, Hungary and Greece, among others, are struggling to see the economic benefits of sanctions against Russia. Brussels has gone to great lengths to present a unified front when it comes to the Ukraine crisis, but some members are not convinced of the strategy.

Securing supply is an even greater headache. The shale gas revolution in Europe has turned out to be anything but. The majors have pulled out of Poland and Ukraine - two of the more promising countries - though marginal hopes still remain in Denmark and the UK.

US liquefied natural gas is still years away, and even then is unlikely to satisfy Europe's thirst. Cheniere Energy's Corpus Christi LNG is the only prospective terminal to have signed contracts with Europe. By 2018 at the earliest, the terminal will deliver about 7.3 billion cubic meters (bcm) of LNG annually - or approximately 1.7 percent of Europe's demand.

Turkmen gas - via the southern corridor - is not expected until 2019. Turkmen officials believe deliveries could account for between 2 and 7 percent of Europe's annual demand. Russia's Turkish Stream pipeline is expected to be operational in 2016, though it is unclear whether or not infrastructure on the Greek side will be ready then.

In the meantime, the EU and Sefcovic will broker an interim Russia-Ukraine gas deal to last until a Stockholm arbitration court rules on Gazprom and Naftogaz's debt dispute. A positive result there would, for a time, reduce the risk of any supply stoppage. Nearly 20 bcm of gas has already transited through Ukraine this year.

Russian gas is here to stay. Not because the EU's Energy Union is still far from the solidarity it seeks, but because the alternatives don't make sense.

Fittingly, on May 13, Centrica, owner of British Gas, extended a gas supply contract with Gazprom's UK-based subsidiary Gazprom Marketing & Trading. Gazprom will now deliver 4.16 bcm per year to the UK until at least 2021 - an increase of 70 percent from the previous deal.

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 #18
Russia in Global Affairs
http://eng.globalaffairs.ru
May 10, 2015
Russia and the U.S.: are national interests so different?
By Simon Saradzhyan
Simon Saradzhyan is a research fellow at Belfer Center for Science and International Affairs at Harvard University.
http://eng.globalaffairs.ru/book/Russia-and-the-US-are-national-interests-so-different-17459

Resume When trying to underscore the difficulty of predicting the Kremlin's next steps, many Westerners like to cite Winston Churchill's famous reference to Russia as "riddle wrapped in a mystery inside an enigma." Few however, recall the remainder of that 1939 adage: "But perhaps there is a key. That key is Russian national interest."

When trying to underscore the difficulty of predicting the Kremlin's next steps, many Westerners like to cite Winston Churchill's famous reference to Russia as "riddle wrapped in a mystery inside an enigma." Few however, recall the remainder of that 1939 adage: "But perhaps there is a key. That key is Russian national interest."

When explaining what drives their policies, Russian president Vladimir Putin and his advisors routinely make general references about the need to protect or advance Russia's national interests. Occasionally they also reveal what interests they think Russia shares with other countries. In an April 2015 interview, Vladimir Putin said Russia shares key interests  with the United States and that the countries need to work on together. Putin mentioned countering proliferation of weapons of mass destruction; fighting international organized crime and terrorism; eradicating poverty in the world, making global economy "more democratic and balanced" as well as "making global order more democratic" among these common interests. But while weighing on common interests with specific countries neither Putin nor his advisors have offered a comprehensive of list what constitutes Russia's national interests or what their order of importance is. A search for combination of "national" and "interests" on Kremlin's web site nets hundreds of results, but no strategic document that spells out what these interests are. I could not find a comprehensive and clear-cut hierarchy of such interests in reports by Russia's leading think-tanks either. One possible exception is a 2009 report by Russia's Council on Foreign and Defense Policy, which surveyed the nation' interest's vis-à-vis U.S. , but this did not produce an overall hierarchy either.

Now, of course, no matter what government agency or think-tank produces a list of their nation's interests, it should not be viewed as dogma, which this government will follow by all means. Still, I believe crafting a hierarchy of national interests is a very useful exercise, as it gives implementers of government policies an idea of what overarching priorities are guiding their government and how their own work fits in these priorities. Such a hierarchy also helps both domestic public and foreign audiences to better understand what drives a nation's policies, dispelling simplistic claims that a leader's personal qualities or interests are the sole decisive factor shaping these policies.  Perhaps, demonization of Putin as "evil enough" and "land-hungry" ruler "bent on reestablishing a Russian empire" in Western newspapers and journals would have gained less traction in the eyes of the Western public if there had been a Russian strategic document or a report, which spelled out that Russia's vital interest is not to acquire more territories, but  to prevent emergence of hostile major powers or regional hegemonies on Russian borders and ensure Russia is surrounded by friendly states.   Taking territory from a neighboring state is bound to be condemned by other countries (though the international could be limited as the last year vote on Crimea at the UN General Assembly demonstrated) and cannot be done without tangible material and reputational costs. However, I would argue that it done not because Russia needed more land, but, primarily to signal to Kiev that Moscow considers Ukraine's political and military integration into the West to be in violation of a vital Russian interest and, therefore, unacceptable, now that Moscow no longer considers its own integration into West to be an option.

Hopefully, the Council on Foreign and Defense Policy or some other authoritative Russian institution will produce a report on par or better than reports on U.S. national interests put out by the Commission on America's National Interests and subsequent projects. In the meantime, let me offer you my take on the hierarchy of Russia's vital national interests, which I initially drafted several years ago, distilling points from Russian leaders' statements and strategies. I have recently updated this hierarchy, run it by leading Russian policy experts for a reality check before, and then I squared it against the list of U.S. vital national interests -- as formulated in the aforementioned U.S. reports-- to identify areas of convergence and divergence.  Since these reports have been published earlier, I followed their style when squaring U.S. and Russian interests against each other to make it easier for readers to compare them.

[Chart http://eng.globalaffairs.ru/book/Russia-and-the-US-are-national-interests-so-different-17459]
Russia's vital national interests (in order of importance):    U.S. vital national interests:    Converge (C)/ Diverge(D)/ No equivalent (NE):

Prevent, deter and reduce threats of session from Russia; insurgency within Russia or in areas adjacent to Russia; and armed conflicts wages against Russia, its allies or in vicinity of Russian frontiers;    Not available;    No equivalent;

Prevent emergence of hostile powers or regional hegemonies or failed states on Russian borders, ensure Russia is surrounded by friendly states, among which Russia can play lead role and in cooperation with which it can thrive;     Maintain a balance of power in Europe and Asia that promotes peace and stability with a continuing U.S. leadership role;     Russian and U.S. interests more diverge than converge;

Establish and maintain productive relations, upon which Russia national interests hinge to a significant extent, with core European Union members, the United States and China;     Establish and maintain productive relations, consistent with American national interests, with nations that could become strategic adversaries, China and Russia;     Converge (partially);

Ensure the viability and stability of major markets for major flows of Russian exports and imports;     Ensure the viability and stability of major global systems (trade, financial markets, supplies of energy, and the environment);    Converge;

Ensure steady development and diversification of the Russian economy and its integration into global markets;    Not available;    No equivalent;
Prevent neighboring nations from acquiring nuclear arms and long-range delivery systems for them on Russian borders; secure nuclear weapons and materials;

Prevent the use and slowing the spread of nuclear weapons and other weapons of mass destruction, secure nuclear weapons and materials, and prevent proliferation of intermediate and long-range delivery systems for nuclear weapons;     Converge, but differ in methods of advancing this interest;

Prevent large-scale or sustained terrorist attacks on Russia;    Prevent large-scale or sustained terrorist attacks on the American Homeland;    Converge;

Ensure Russian allies' survival and their active cooperation with Russia;    Ensure US allies' survival and their active cooperation with the US in shaping an international system in which U.S. can thrive;      No equivalent;

Not available;    Prevent the emergence of hostile major powers or failed states on US borders;      No equivalent.

As made clear in the list above, Russian vital interests partially diverge with those of U.S. only in two domains, while either converging in other areas or having no equivalent on the U.S. side. Theoretically, such a convergence of vital interests could pave for mending of fences between the two countries with the joint countering of the Islamic State and Al-Qaeda being the most evident opportunity to initiate such a rapprochement. In reality, West's concerns with Russia's actions in Ukraine and their repercussions for collective security in Europe, Russia's concerns with expansion of NATO and U.S. advanced weaponry programs, influence of America's strategic allies and partners on its policies, and the priorities of domestic politics in both countries can all considerably delay such rapprochement or prevent it altogether. As can so-called individual black swans and more benign, but as distracting 'bright shiny new objects" that are so common in the age of attention deficit disorder politics.

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 #19
RIA Novosti/TASS
May 18, 2015
Russian diplomat downbeat after talks with USA's Nuland in Moscow

It is up to the USA to improve the "depressing" state of relations between Moscow and Washington, Deputy Foreign Minister Sergey Ryabkov said after talks with Assistant Secretary of State Victoria Nuland in Moscow on 18 May.

"It is in principle possible to move forward but the atmosphere in our relationship and our view of US actions are not conducive," he told reporters.

There are very many contentious issues between the two sides, Ryabkov said, pointing to military and humanitarian matters and mentioning in particular a number of Russian citizens in jail in the USA. But "there were no deals and no compromises on the agenda ... We need to focus on the areas where we probably can work together and where results are possible," he continued. "We parted under no illusions but not feeling that our work cannot go on. It will go on but in what format and on what level is something that needs to be arranged."

The USA's sanctions against Russia were not discussed, Ryabkov said: "The Americans introduced them so it's up to them to decide when and how they want to lift them". He also dismissed any suggestion of deals being done over Ukraine and Syria. "We didn't discuss that and I don't know how we could because Moscow's, the Russian Federation's, positions are clear, understood by all and firm," he said. "It's not a short-term position and it's not a bargaining chip."

The overall situation in Russia-US relations is "depressing", Ryabkov concluded, but "we believe that the responsibility for this lies with Washington".

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 #20
What's behind latest voyages by US diplomats to Moscow?
Lyudmila Alexandrova

MOSCOW, May 19. /TASS/. The latest visits by US diplomatic envoys to Moscow after a long lull are a sure sign the United States has realized that the tactic of ignoring Russia is hopeless, Russian experts have told TASS. At the same time no fundamental improvement in bilateral relations is on the agenda yet, they believe. Washington is pursuing very pragmatic aims.

US Secretary of State John Kerry's meeting with Russian Foreign Minister Sergey Lavrov and President Vladimir Putin in Sochi on May 12 and the visit to Moscow Kerry's deputy, Victoria Nuland, paid just a week later for talks with deputy foreign ministers Sergey Ryabkov and Grigory Karasin have sparked a wide response and a great variety of comments. In particular, analysts point out the two visits were very different in style.

Russian presidential aide Yuri Ushakov said after Putin's talks with Kerry there were "manifestations of the first signs of the understanding the two great powers should get back to normal cooperation in the end." On the contrary, the two senior diplomats who had talks with Nuland several days later made it clear that the negotiations were very tough and, contrary to general expectations, brought about no rapprochement. Ryabkov described the situation in bilateral relations as disappointing. Nevertheless, Nuland declared the United States' intention to furnish support for compliance with the Minsk accords and to back the parties to the negotiations - Russia, Ukraine and the OSCE.

"For the Obama Administration it is very clear that the policy of ignoring Russia is rather senseless," the Svobodnaya Pressa (Free Press) portal quotes political scientist Fyodor Lukyanov as saying. "Moreover, it is rather risky. The experience of the Cold War is a good lesson showing that in a situation where major military powers are at odds it is very risky not to have permanent channels of communication."

As for the stylistic dissimilarity between Kerry's and Nuland's visits, in the opinion senior research fellow at the Russian Institute of Strategic Studies, Sergey Mikhailov, "the Department of State plays the well-familiar bad cop/good cop game."

"Nuland is notorious as Russia's harsh critic. Her part is that of the bad cop," Mikhailov told TASS. "Next to her Kerry looks the dove of peace. That's a well-considered diplomatic trick."

The analyst recalled that Obama was under never-ending fire of criticism from the Republicans for his foreign policy, which looks to them too mild, even spineless.

"Nuland's visit was most probably an attempt to ease the negative impression in the United States which Kerry's visit might have produced at home," Mikhailov believes.

He attributes the United States' wish to be more active in settling the Ukrainian crisis mostly to the intention to make Russia more cooperative over Syria. Some US Administration officials stated that quite unequivocally.

"But if the Middle East motives prevail, this does not mean that Washington is indifferent about the Ukrainian crisis as such. In the meantime, its Ukrainian project seems to have gone all wrong. In case of its eventual collapse, if Washington's undertaking ends in failure, the blow on the US prestige would be really hard. This explains why Washington has decided the situation should be settled somehow."

As for the general state of Russian-US relations, Mikhailov sees them as follows: "In the past the United States was putting psychological pressures on Russia, hoping that the sanctions would trigger internal problems and Moscow would give in. When it realized that nothing of the kind happened, the tactic was changed. "That's sheer arithmetic. No attempts at resetting relations. Just business."

"Kerry and Nuland pursued different objectives," the leading research fellow at the Russian Academy of Sciences' Institute of International Security Problems, xey Fenenko, told TASS. "Kerry's visit was a sheer gesture heralding the restoration of contacts at the US initiative. Nuland was lobbying for Kiev's interests."

As far as Washington's wish to have a say in the settlement of the conflict in Ukraine, it largely stems from certain worries the Normandy format has begun to work, Fenenko said. The United States had hoped France and Germany would be safeguarding its interests, but Russia and Germany have developed working contacts, while the Americans have found themselves on the sidelines of real settlement efforts."

"Washington has realized that a head-on offensive is fruitless and that some bypass routes are to be looked for," Fenenko said.

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 #21
Sputnik
May 19, 2015
Why the US is Finally Talking to Russia
By Pepe Escobar

So a woman walks into a room... That's how quite a few jokes usually start. In our case, self-appointed Queen of Nulandistan Victoria "F**k the EU" walks into a room in Moscow to talk to Russian deputy foreign ministers Sergei Ryabkov and Grigory Karasin.

A joke? Oh no; that really happened. Why?

Let's start with the official reactions. Karasin qualified the talks as "fruitful", while stressing Moscow does not approve of Washington becoming part of the Normandy-style (Russia, Ukraine, Germany and France) negotiations on Ukraine. Not after the relentless demonization not only of the Kremlin but also of Russia as a whole since the Maidan coup.

Ryabkov, for his part, made it known the current state of the US-Russia relationship remains, well, corrosive.

It's crucial to remember the Queen of Nulandistan went to Moscow only after meeting with certified Washington vassal President Poroshenko and her own, hand-picked Prime Minister, "Yats"; and that was before accompanying Secretary of State John Kerry on the full regalia State Department trip to Sochi on May 12.

The Minsk-2 agreement - the actual product of the Normandy-style negotiations - directly involved Berlin and Paris, who finally saw the realpolitik on the wall and were compelled to divert from Washington's monomaniac antagonistic approach.

Inside the EU, chaos remains on the key subject of sanctions. The Baltics and Poland toe the "Russians are coming!" Cold War 2.0 hysteria line, while the adults in Brussels are represented by Italy, Greece, Spain and Hungary.

So Germany and France are already in deep trouble keeping the messy EU house in order. At the same time Berlin and Paris know nothing the self-described "Don't Do Stupid Stuff" Obama administration pulls off will mollify Moscow to abandon its precise red lines.

Watch Those Red Lines

It's crucial to notice that Crimea does not seem to be on the table anymore; it's a fait accompli. But then there are those U.S. "military trainers" who have been deployed to western Ukraine only for a "six-month mission" (historical reminder; this is how the Vietnam war started). For Moscow, expansion of this "mission" is an absolute red line.

And then there's the ultimate red line; NATO expansion, which remains unabated in the Baltics, Poland, Romania and Bulgaria. That won't stop; it's part of NATO's obsession in solidifying a new Iron Curtain from the Baltics to the Black Sea.

Thus, beyond all the talking, the next step to watch is whether the Obama administration will really refrain from weaponizing Kiev.

Ukraine for all practical purposes is now a massively indebted failed state turned into an IMF colony. The EU does not want it - although NATO does. For Moscow, the - ghastly - show will only be over when Ukraine, with or without the people's republics of Donetsk and Lugansk, is neutral, and not part of a NATO strategic threat.  

I have examined here the possibility that the Obama administration's strategic shift towards talking instead of cursing/threatening may signify that the real Masters of the Universe have finally understood the emerging New (Silk) World Order is bound to leave them behind.

President Putin knew that he was heading towards a major confrontation with the US after the dismemberment of Yugoslavia, the Georgian adventure, and NATO's ceaseless expansion violating all those empty promises to Gorbachev.

The difference is that now - and the Pentagon knows it - Moscow has amassed up to 10,000 tactical nuclear weapons. In the - apocalyptic - event of a war between Russia with NATO, the wet dream of many a US neo-con, these tactical nuclear weapons would knock out every commercial and military airfield of every NATO country in twenty minutes. That would leave no airfield for NATO combined air operations.

And then there's the S-500 missile defense system, which can protect Russia against any form of Pentagon/NATO nuclear missile retaliation. No US offensive weapon, including Stealth bombers, could get through the S-500 maze, and the Pentagon also knows it.  

Strategy? What Strategy?

The Dr. Zbig "Grand Chessboard" Brzezinski-style strategy has always been to lure Russia into another Afghanistan in Ukraine, leading to a collapse of the Russian economy with the Big Prize being a Western takeover of Russia's oil and natural gas wealth, and by extension Central Asia's. Ukrainians would be used as cannon fodder, as were Afghans since the 1980s Arab-Afghan jihad.

Yet the Obama administration overplayed its hand, and realpolitik now spells out the deepening of the Russia-China strategic partnership across the entire Eurasian land mass; Eurasia as a prospective, massive commercial emporium stretching from Beijing to Berlin, or from Shanghai to St. Petersburg and beyond towards Rotterdam and Duisburg.

Without the exceptionalist obsession of some key Beltway factions, none of the elements of Cold War 2.0 would be in play, as Russia is a natural ally of the US in many fronts. That in itself reveals the state of "strategic thinking" by the current US administration.

Moscow, anyway, won't be caught off-guard by the current, barely disguised, charm offensive, because Russian intelligence knows that may well veil a "Grand Chessboard"-style tactic of two steps back to regroup for a massive advance later.

Moreover, nothing has basically changed other than the original, dissuasive Cold War era MAD - Mutually Assured Destruction - doctrine being over.

The US still retains PGS (Prompt Global Strike) capability. Ukraine is just a detail. The real game-changer will happen when Russia is able to seal its whole territory, via the S-500s, against PGS. That will happen sooner than anyone thinks. And that's why the real Masters of the Universe - via their emissaries - feel compelled to talk. 

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 #22
Russia Beyond the Headlines
www.rbth.ru
May 18, 2015
Press Digest: Victoria Nuland visits Moscow to discuss U.S.-Russia relations
RBTH presents a selection of views from leading Russian media on international events, featuring reports on the visit of U.S. Assistant Secretary of State Victoria Nuland to Moscow, the warming of relations between India and China, and the death sentence handed down to ousted Egyptian president Mohamed Morsi.
Darya Lyubinskaya, special to RBTH

Victoria Nuland comes to Moscow for talks on U.S.-Russia relations and Minsk accords

The tabloid daily Moskovsky Komsomolets reports that U.S. Assistant Secretary of State Victoria Nuland is visiting Moscow. She is planning to discuss further steps in the implementation of the Minsk accords as well as bilateral relations between Russia and the U.S.

The paper recalls that earlier U.S. President Barack Obama announced that he intends to veto a House of Representatives bill which envisages the allocation of funds for the supply of lethal weapons to Ukraine. Ukrainian pundit Rostislav Ishchenko told Moskovsky Komsomolets that the ban that Obama plans to impose can be easily overcome by the Senate.

"With his veto, the U.S. president wants to show to Putin that he is capable of negotiation, but this will have absolutely no bearing on the final outcome. The bill on arms supplies to Ukraine will come into force no matter what," said Ishchenko.

"As for Nuland's visit to Moscow," he said, "she is unlikely to be bringing with her a plan for how to resolve the conflict in Ukraine. It is unusual for a person who started a fire to be involved in the fire-fighting effort."

For his part, the head of the CIS Institute, Konstantin Zatulin, told Moskovsky Komsomolets that the ban on arms supplies to Ukraine that Obama intends to impose shows that the United States had taken note of the Victory Day parade and all that happened in Moscow on May 9.

"The fact that Russia and China are growing closer together is causing much concern in the U.S. At this stage, they think it expedient to reduce the degree of tensions in Russian-U.S. relations in the hope that it could slow down the Russian-Chinese rapprochement," said Zatulin.
 
Delhi and Beijing confirm commitment to forging closer ties

The Kommersant business daily reviews Indian Prime Minister Narendra Modi's visit to China, which has marked a rapprochement of sorts between the two Asian powers. The Indian leader held talks with the senior Chinese leadership, including President Xi Jinping and Premier Li Keqiang. The paper points out that Xi Jinping received Modi in his native province of Shaanxi, which the Indian delegation interpreted as an important gesture since it was the first time the Chinese leader had received foreign visitors in his hometown.

Kommersant reports that the talks focused on the unresolved territorial dispute between the two countries, the result of the Indian-Chinese war of 1962, in which Delhi suffered a defeat. If this dispute is resolved, it would give a major impetus to resolving the more fundamental geopolitical disagreements between the two rivals for leadership in the region, the paper adds.

The growing rapprochement between the two Asian giants is likely to add further weight to the arguments of those politicians in Moscow who are seeking to create a Russia - India - China triangle. Until recently, the emergence of this geopolitical alliance has been hindered by the existing disagreements between Beijing and Delhi, Kommersant concludes.
 
Mohamed Morsi to be executed for 'organizing prison break'

The centrist newspaper Nezavisimaya Gazeta reports that a court in Cairo has provisionally sentenced Egypt's ousted president Mohamed Morsi to death. Morsi was standing trial on charges of a conspiracy with foreign militants aimed at organizing a mass prison break during the events of the Arab Spring in January 2011. The sentence is provisional and is yet to be confirmed by the country's supreme mufti on June 2, the paper explains.

The execution is likely to be postponed as it could spark new unrest in the country and provoke an extremely negative reaction from Turkey, the U.S. and several other countries, Nezavisimaya Gazeta adds.

"If the sentence is carried out, it would cause mass protests among Morsi's supporters. The situation in Egypt is relatively stable at the moment and unhinging it is not in the interests of the ruling Egyptian elite," senior research associate with the Institute of Oriental Studies under the Russian Academy of Sciences, Vladimir Sotnikov, told Nezavisimaya Gazeta. Therefore, he concluded, the execution of the sentence will most likely be postponed.

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 #23
Russia Beyond the Headlines
www.rbth.ru
May 19, 2015
Moscow ends Afghanistan military transit deal with NATO
The Russian government has decided to abolish the transit of military cargoes to Afghanistan via its territory. A resolution to that effect has been signed by Prime Minister Dmitry Medvedev. Military analysts say the move has clear political motivations.
Alexey Timofeychev, RBTH

NATO will be forced to find new ways of shipping military cargoes to Afghanistan after the Russian government decided to end the transit of shipments via Russian territory.

The relevant resolution, signed by Prime Minister Dmitry Medvedev on May 18, says that the decision has been taken since UNSC Resolution 1368, which was adopted in 2001 setting up the International Security Assistance Force in Afghanistan, is no longer in effect. The mandate of the mission expired in December 2014.

According to the NATO website, the alliance approached Russia with the request to allow the land transit of non-lethal cargoes to Afghanistan in the spring of 2008. Two years later, Russia allowed the transit of military cargoes from Afghanistan too.
In 2012, the Russian government approved air transit of NATO's Afghanistan cargoes and the airport in the Volga city of Ulyanovsk (530 miles east of Moscow) was chosen as the transit hub. The deployment of what some media described as "a NATO base" in Ulyanovsk caused considerable controversy inside Russia and provoked opposition protests.

The significance of the Russian transit route grew due to the difficulties that arose with the main transit route, from Karachi across the whole of Pakistan to Afghanistan in the north: The Pakistani military had little control over that route and NATO convoys were often targeted by Taliban attacks.
 
Several factors in play

According to deputy head of the Institute of Political and Military Analysis Alexander Khramchikhin, "this decision by Moscow has more to do with politics" than with the fact that the UN Security Council resolution has expired.

There may be several factors in play here, he continued. Firstly, with the withdrawal of the bulk of the international contingent from Afghanistan, the number of shipments has dwindled, so Moscow will not be losing that much money following its refusal to transport NATO cargoes.

Secondly, Russia is not happy with the new Western mission in Afghanistan, Resolute Support, since it has not been backed by a UN resolution. The Russian prime minister's resolution may also be "a reply of sorts" to the sanctions, said Khramchikhin.
 
Response to end of NATO cooperation

A similar view has been expressed by military expert and editor-in-chief of the Arsenal of the Fatherland magazine Viktor Murakhovsky, who is also convinced that Moscow's decision to end Afghan transit is driven by politics. According to Murakhovsky, it is a response to NATO's actions: In a unilateral move last year, the alliance ended all cooperation on Afghanistan.

Asked why this decision, which Murakhovsky described as "a demonstrative step," was taken now, he explained that Russia to the very last was hoping that "it would be possible to organize a joint fight against terrorism" - against the Taliban in Afghanistan. "It turns out that NATO has gone so far that it does not want to cooperate even in this area," he concluded.

In 2014, the bulk of the International Security Assistance Force was withdrawn from Afghanistan. At the same time, as part of the new Resolute Support mission, over 12,500 troops (some 10,000 of whom are U.S. personnel) still remain in Afghanistan. Their official task is to train Afghan forces and to protect diplomatic missions.

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 #24
Russia Direct
www.russia-direct.org
May 18, 2015
Russia and China are frenemies both in Central Asia and globally
While there are greater outward signs of cooperation between Russia and China, especially in Central Asia, the reality is that Russia and China still view each other as rivals in their economic and geopolitical ambitions.
By Christopher Hartwell
Christopher A. Hartwell is President of CASE - Center for Social and Economic Research in Poland, Associate Professor at Kozminski University in Poland, and Visiting Professor at the Russian Presidential Academy of National Economy and Public Administration (RANEPA).

Chinese leader Xi Jinping's visit to Russia and the former Soviet republics of Central Asia in early May was warmly received by the Russian media as a sign of close collaboration between the two countries. In line with President Vladimir Putin's disengagement with Europe and pivot to elsewhere in the world (typified by the emphasis on the strange bedfellows of the BRICS), it is widely believed that Russia and China represent a counterbalance to the perceived monolith known as "the West."

With tensions between Washington and Beijing also rising due to Chinese activities in the South China Sea, some have even giddily commented that a new "G2" of Russia and China could supplant the current one of the U.S. and China. However, the tensions that have long existed between the two neighbors are hardwired to their geopolitical and economic interests and will not dissipate because of one trip. Indeed, it is more accurate to think of Russia and China as "frenemies," apparent friends due to their disagreements with other countries but in reality rivals with very different ideas on how the neighborhood should be run.

The relationship between China and Russia has been the subject of increasing interest over the past three years, as cooperation has appeared to intensify across a broad range of issues. The Chinese President's attendance at the Victory Day celebrations in Moscow may have been the most ostentatious manifestation of this growing closeness, but more concrete measures such as the joint Russian-Chinese naval exercises in the Mediterranean last week are more telling for where the relationship might go. China has also been a willing (and the largest) backer of the new "BRICS Bank," a brainchild of Russia that has been seen as a way to "chip away" at America's financial hegemony.

Moreover, as the world's fastest growing economy, China also has an intense and sustained need for energy. According to the U.S. Defense Department, China imported 60 percent of its oil in 2014 and is projected to import 80 percent by 2035. This reality that explains why Russia is an attractive partner for China, even as the Russian economy moves more and more towards being a mono-economy, dependent upon natural resources.

Russia has played up this aspect of the partnership, with energy concerns playing a central role during the visit of Xi Jinping to Moscow at the beginning of May. With markets in Europe seeking to break their dependence on Russian energy, it is vital for Russia to find new consumers elsewhere.
But perhaps the most important reason that Russia has looked to its eastern neighbor has been for support of its own territorial ambitions. With the heavy-handed Russian approach to Moldova and Georgia and the continuing slow-motion "invasion" of Ukraine (and the corresponding backlash from Europe), Putin has looked elsewhere for friends who would not be so judgmental.

And China certainly has no reason to cast aspersions on Russia: the Chinese conquest and incorporation of Tibet pre-dates Russia's re-establishment of control over Chechnya by 50 years, and Chinese territorial claims throughout the South China Sea mean Beijing is in no mood to counter Russia's own regional aspirations. However, China is also conflicted by Russia's actions in Ukraine, as the referendum in Crimea could set a dangerous precedent for Tibet or the Uighurs in Xinjiang to have their own secessionist vote and attempt to leave the People's Republic.

Regardless of this tension, for the most part China has been somewhat supportive of Russia's Ukrainian policy. Much has been made in the Russian media regarding China's abstention in the UN vote condemning the Russian annexation of Crimea, with Putin himself taking this abstention as a clear sign of China's support. More directly in support of Russia, China has been vocally against the imposition of sanctions by the EU, and state media has pointedly not criticized Russia's military incursions.

However, ambiguity still remains on China's true stance, with continuous "clarifications" from the Foreign Ministry and seemingly contradictory support for Russia's interests while at the same time championing non-interference. The takeaway from the entire affair appears to be that China deplores the idea of the West telling anyone what to do, while not necessarily believing that Russia's invasion is in and of itself a good idea.

Traveling the Silk Road together or alone?

While Ukraine may showcase common interests between Russia and China, there is a marked divergence of economic and geopolitical interests in relation to the landlocked and politically immature countries of Central Asia. Where broader sentiments against the West may converge far from China's shores, there is more potential for friction between the two countries in each other's backyards.

Moscow should rightly regard Beijing as a competitor in the Central Asia for several reasons, with the biggest one related to economics. The Russian (and in many cases, still the Soviet) economic model has failed the region for a century, spawning only backwardness and political repression.

With China's vibrant economy and ready capital next door, and Russia's economy in freefall after military conflict in Ukraine, the Chinese model of political centralization but economic decentralization may look much more attractive to the leaders of Uzbekistan or Tajikistan. And China has proven itself as more adept in penetrating these markets, becoming the region's largest trading partner as of 2013.

Perhaps aware of this economic challenge to its moribund economy, Russia has not been making it easier for the countries of Central Asia to enjoy the benefits of proximity to China. The Moscow-led Eurasian Economic Union (EEU) has created extra barriers to trade and in-migration with Kazakhstan, a country that has benefited from China mightily over the past decade, and Kyrgyzstan's recent acquiescence to the EEU means it too is likely to erect unnecessary barriers to life with China.

Thus far, Russia has ignored advice for the EEU to be more liberal in relation to China (and in general), although there has been some discussion on creating an EEU-China Free Trade Agreement. Such a move would be incredibly beneficial for consumers in the EEU, but is unlikely to bolster Russia's political prospects any further, as China's economic dominance in the region will likely increase.

In regards to security issues, Russia and China also display some disagreements, although they have not been as pronounced as China has been fairly deferential to Russia's position in the region (preferring to operate through the Shanghai Cooperation Organization, or SCO, rather than bilaterally). In particular, Russia and China are in agreement about the rise of Islamic terrorism in the region, but there is also some divergence on the strategies.

China has less of a fear of American presence in Central Asia, while Russia believes it can take on the issues by itself (and has pressured the Central Asian countries, notably Kyrgyzstan, to close American bases in the country). Russia has ramped up its military presence in the region via a training exercise in Tajikistan this past weekend to demonstrate just this point, using as its vehicle the Collective Security Treaty Organization (CSTO). With Tajikistan, Kyrgyzstan, and Kazakhstan on board (as well as Armenia and Belarus), Moscow hopes to utilize this organization to help keep the peace in the region.

Others in the region are not so sure, and both Turkmenistan and Uzbekistan has turned to China to upgrade their military, rather than Russia. Uzbekistan in particular has much to lose from increased terrorism, bordering Afghanistan to the north and having fought its own insurgency in the guise of the Islamic Movement of Uzbekistan (which was defeated in part by the U.S. during its intervention in Afghanistan).

China has contributed $4.4 million worth of equipment for Uzbekistan's border posts and sniper rifles for the military starting as early as 2000. Kazakhstan has also sought some assistance from China in military capacity building, famously mulling the purchase of Chinese drones (although, at time of writing, this had not yet happened). And even the latest member of the EEU, Kyrgyzstan, has conducted bilateral exercises with China (although in 2002), with more recent overtures including $16 million in military aid at the end of 2014.

The final point regarding the incipient rivalry between the two countries in Central Asia is probably the one that may cause the most friction: China may see itself having a partnership with Russia in the region, but it believes it, and not Russia, is the leader. While China may have been deferential in the past, the undisputed divergence in economic fortunes, exacerbated by Western sanctions on Russia, may make it bolder and more persistent in its ambitions.

Such a desire could be behind the Chinese championing of a new "Silk Road," an initiative it is vigorously promoting in order to link its producers with markets in Central Asia and in Europe. Even the joint naval exercises seen last week can be thought of, not as a show of solidarity with Russia, but as a vehicle to push this idea. In this view, Moscow is deluded if it feels that it is bringing China along to help do Russia's bidding, when the exact opposite may be true.

China does what China wants

In reality, at least in reference to Central Asia (but likely on a host of other issues), China is returning to its Cold War strategy of triangulation between Moscow and Washington. This is clearly not based on some mystical solidarity with Russia or acquiescence to the U.S., but on a cold and hard calculation of China's geopolitical position.

As Lord Palmerston noted in the 19th century, countries do not have "permanent allies, only permanent interests," and China sees this more clearly than others. For the future, China will tack towards Russia when it feels it suits its interests, and it will collaborate with the U.S. when that suits itself better.

This means that, unfortunately, neither Moscow nor Washington have much leverage to persuade China conclusively to one side or the other. Russia, having displayed its disregard for international law, may have the upper hand is supporting China in its territorial disputes, as it is unbound by diplomatic niceties and pieties. But, as noted, Russia has its own ambitions in Central Asia that definitely do not converge with China.

Similarly, the U.S. is the only country with the logistical and financial ability to effectively combat Islamic terrorism in the Middle East and Central Asia (whether President Obama is serious about this is another question); and while the U.S. economy remains fragile under years of harmful policies, it still remains a formidable force on the world stage. But Washington has its own ideas about the way disputes should be resolved in the South China Sea, which put them into direct opposition to Beijing.

Given these broad divergences, it appears that China and Russia will remain frenemies for the foreseeable future. Russia no longer has the economic or military clout to compel Beijing along with all of its schemes, and China will continue to blaze its own path. This needs to be kept firmly in mind to avoid the embarrassment of China suddenly discovering its short-term future lies with the U.S. rather than Russia.

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 #25
Carnegie Endowment for International Peace
http://carnegieendowment.org
May 14, 2015
Reform as Resilience: An Agenda for the Eastern Partnership
By Thomas de Waal and Richard Youngs
De Waal is a senior associate at the Carnegie Endowment, specializing primarily in the South Caucasus region comprising Armenia, Azerbaijan, and Georgia and their breakaway territories as well as the wider Black Sea region. Young is a senior associate, DEMOCRACY AND RULE OF LAW PROGRAM

SUMMARY

The EU needs to remold its support for fundamental political reform in Eastern Partnership partner states-and use this as a firmer base from which to assuage tensions with Russia.

After a year of diplomacy dominated by the Ukraine-Russia conflict, the EU's Eastern Partnership (EaP) summit in Riga on May 21-22 will focus on the wider challenges of the surrounding region. Yet most EU member states appear reluctant to bring forward new agreements or promises to EaP states.

Many aspects of the EU's response to Russian geopolitical assertiveness have been strong and admirably balanced. Yet there is a danger that EU policy is shaped primarily around the Russia factor rather than around the underlying challenges that come from the EaP countries themselves. This approach risks turning the six EaP partners-Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine-into passive objects of a perceived Russia-EU geopolitical rivalry instead of treating them like sovereign states with their own specific identities and needs.

To rectify this danger, the EU needs to remold its support for fundamental political reform in EaP partner states-and use this as a firmer base from which to assuage tensions with Russia. The Riga summit should aim to make a tangible contribution to this process.

Minimalist Ambition

Since the current crisis erupted in 2013 with antigovernment protests in Ukraine, EU leaders have repeatedly asserted that the EaP needs to move into a higher gear. In practice, however, a number of factors are holding EU member states back from upgrading the partnership. While some member states talk of the Riga summit representing a last chance for the EaP, others hold positions that risk making it a nonevent.

The EaP strategy has in some ways evolved and become more sophisticated. The "more for more" concept-which the union has prioritized since 2011 and which promises bigger EU carrots in return for partners' stronger commitment to EU principles and values-is a sensible advance. This incentive has drawn a useful distinction between those states that have genuine affinities to the EU (Georgia, Moldova, and Ukraine) and those that do not (Azerbaijan and Belarus), with Armenia being something of a swing voter between those two positions.

Yet the legacy remains of the initial EaP logic that includes all six countries in a single framework defined only by geography and proximity to Russia. This was the impression given by the previous EaP summit in Vilnius in 2013, and the Riga summit should avoid equally prioritizing the notion of a single six-country framework simply to declare a political success story.

The EU would do better to focus on a select number of practical reform priorities within each of the EaP states-as these countries have taken political trajectories that are very different from one another.

If at the Riga summit the EU were to aim for an ambitious set of outcomes, it could quite feasibly offer visa-free travel to Ukrainians entering its territory. The union could also propose some kind of graduated membership deal for Moldova and Georgia that goes beyond the current Association Agreements, which create a framework for political and economic cooperation without holding out any prospect of EU accession.

However, in recent months the EU's level of ambition has appeared increasingly uncertain, and doubts are growing that member states will be courageous in the Latvian capital. Governments' prevailing outlook is one of inertia and geostrategic caution.

There are a number of reasons for this restraint. Most notably, some governments seem to be waiting to see how the conflict between Ukrainian forces and Russian-backed separatists in eastern Ukraine evolves before significantly strengthening their focus on other EaP states. European governments' priority is to avoid rocking the boat with Russia and upsetting the extremely fragile calm that is scarcely holding together in Ukraine's eastern Donbas region despite a ceasefire deal in February 2015.

The broad lesson that most member states seem to have drawn from the turbulence of the last two years is that they must take greater heed of likely Russian reactions to EaP commitments. This is because of the extent to which Russia has been able to complicate the smooth implementation of many EaP policies, which the EU devised without considering Moscow's interests in the region. In the future, the partnership looks set to resemble a framework of negotiated order, within which Russia has a de facto if not a formal voice. The dynamics of assertively extending EU rules and norms are in retreat.

More practically, EU officials warn that the existing Association Agreements with Ukraine, Georgia, and Moldova need to be implemented gradually before other prospective changes are brought to the table. In the cases of Armenia and Belarus, the EU is now focused on very modest offers of cooperation that fit around the still-evolving rules of the Russian-led Eurasian Economic Union.

There is much convincing logic in the EU's prevailing caution. Yet there is considerable scope for heightened EU ambition within the parameters of sensible geopolitical prudence.

Review Processes Are Not Sufficient

Beyond the question of ambition, there is also a risk that effective responses to fast-moving conditions on the ground become hostage to the union's elaborate and drawn-out internal institutional procedures and timetables. The EU has promised repeatedly to correct this often-seen shortcoming in its foreign policy. Even the most charitable observer would be hard-pressed to prove that it has done so.

Central to these internal procedures are the various review processes currently under way in Brussels; these include one on the European Neighborhood Policy (ENP), of which the EaP is the Eastern dimension, and another on the EU's security strategy. There is a broad consensus among diplomats and analysts that the EU needs to take stock of its basic approach to foreign affairs, given the far-reaching changes unfolding in its immediate neighborhood and farther afield and, indeed, the shifts in the tenets of effective international power. As a result, many diplomats feel that it would be premature to forward radical new commitments in Riga before these reviews make any headway.

Among those involved in the ENP review process, there is general agreement that EU policies need to be more flexible and more tailored to each partner country's domestic specificities. This is true, but it is not a reason for delaying new action. It is not necessary to await completion of the review processes to develop policies that are more differentiated and effective, or for there to be a more nuanced use of conditionality and more locally owned funding priorities.

The more important consideration is this: while the various review processes are entirely sensible and necessary, they should not be taken to imply that a modest fine-tuning of EU instruments suffices.

EU and member-state diplomats certainly understand the need for flexibility, ownership, and differentiation. Yet in practice, they approach such principles as relatively modest design modifications. These principles should not divert the EU's attention from the more viscerally political questions with which the EaP should be grappling-questions ranging from simmering conflicts to rising illiberalism to corruption.

Such principles do not in themselves offer the secret to unlocking a more geopolitically sensitive neighborhood policy. The EU needs to design its differentiation much more specifically as part of a comprehensive focus on political reform processes. When it comes to bilateral relations between member states and EaP countries, day-to-day politics still frequently undermine EU officials' efforts to establish more effective, flexible conditionality.

Illiberalism and State Weakness in the Neighborhood

This need for a more comprehensive approach to the Eastern neighborhood leads into another current concern: the EU still lacks a fully political diagnosis of the root problems in the EaP region.

The EU should not weigh its commitment to EaP countries against engagement with Russia, as if these were two counterbalancing policy options. The EU's policies since 2013 have been framed primarily in terms of how to respond directly to Russia. But the containment-versus-engagement debate with respect to Russia provides at best a very partial lens on the preconditions of peace and stability. The most important geopolitical question is not simply what and how much the EU should offer to EaP partners, but what kind of states these countries will become.

There is a deeper source of tension than the way the EU frames its policy that to some extent has contributed to Russia's choice for strategic confrontation. That is the trend of rising illiberalism.

All six EaP countries, including the three that profess to be pro-European, suffer from serious domestic problems. Azerbaijan has turned into an authoritarian state on the Central Asian model and now has the worst human rights record in Europe. Belarus and Armenia have entrenched elites that govern with a somewhat lighter hand and allow elections, but in the knowledge that the results are preordained and that the economic and political power of the leadership is not challenged.

Ukraine's massive state problems-a powerful oligarchic class and pervasive corruption-are well-known. The fact that Ukraine is by far the largest country in the EaP also makes it much harder for the EU and other outside actors to help Kyiv tackle these problems.

Despite being praised as a European champion and holding free elections, Moldova suffers from endemic state corruption in which leading members of the political class are implicated. Minority rights legislation and judicial independence exist more on paper than in reality.

Georgia is probably the best performing of the six. A precedent of clean elections seems to have taken hold. The media and judiciary are mostly, if not fully, independent. But law enforcement agencies still wield disproportionate power, and the country still suffers from a culture of intolerance.

Above all, these states are unacceptably poor, and the gravity of the problems facing them should not be underestimated. With a GDP per capita of under $4,000 each, Georgia and Ukraine are less than one-third as wealthy as Poland. More than two decades after gaining independence, the EaP partners are all still weak states, with high levels of poverty and unemployment and associated socioeconomic problems. High rates of emigration have resulted in a brain drain of professionals and created large migrant populations in Russia. A recent census in Georgia revealed that the country's population has declined by more than 14 percent since 2002-years associated in the minds of most outsiders with a Georgian success story of reform and economic growth.

Reform as Resilience

These socioeconomic challenges have a geopolitical implication. Russia's ability to dominate or influence EaP countries is in direct correlation to the state weakness caused by such problems-problems that have also helped strengthen populist and extremist parties.

The EU and its member states assert repeatedly that their most effective geostrategic policy is to support political and economic reform in EaP partners. This is because the EU should not and cannot seek to match Russian sources of power on a like-for-like basis. The union's influence must be of a different order.

However, the EU remains a long way from improving the effectiveness of its support for fundamental reform in countries in the EaP region. Two years into the current Eastern crisis, it is difficult to see where the EU's support for reform has been massively upgraded and revamped.

In Belarus, Azerbaijan, and Armenia, support for reforms has been downgraded. In Georgia and Moldova, it continues at a level similar to the precrisis period and has been unable to quell the democratic pathologies that now smolder in both countries.

In Ukraine, the EU has extended additional loans and commenced a number of reform initiatives. Yet most observers in Kyiv feel that the conflict in Donbas has reduced European pressure on the government of President Petro Poroshenko to deepen reforms-and that the EU's failure to revise its use of conditionality means much new money is simply being poured into a black hole of political nepotism.

While a large number of conferences and articles cursorily conclude that support for political reform in EaP partners needs to be strengthened, their focus is primarily on the EU's Russia strategy. There is much less focus on the detailed tactics of how the EU needs to make this support more meaningful and effective. Yet it is at this deeper level that improvement is needed if the EU's reform-oriented approach to geopolitics is to succeed.

The EU is right to keep the door open to engagement with Russia and to take on board some of Moscow's concerns. But the union is mistaken in thinking that it needs to dilute its support for reforms in the EaP states as part of this equation. Supporting reform is not an anti-Russian option. Contrary to much recent analysis, pulling back from reform support in the EaP is not a kind of implicit prerequisite to more constructive engagement with Russia.

Some analysts argue today that the focus on reform is expendable because the nature of geostrategy and international power has fundamentally changed. This argument is overstated because reform processes can and should be shaped as a means of strengthening EaP partners' state resilience. Better-functioning institutions could give EaP states stronger de facto sovereignty and the confidence to choose their own forms of strategic identity-which in many cases will include an element of (multivector) balance between the EU and Russia.

A much more highly prioritized and systematic focus on governance reform and on tackling deep-lying problems would give the EaP project a strategic anchor-a much-needed antidote to the growing sense of extempore shapelessness.

Toward a More Differentiated Partnership

For the EU, a corollary of this emphasis on state resilience is that it requires a yet-more-differentiated EaP strategy. This means biting the bullet of offering Georgia, Moldova, and Ukraine the big incentive of an eventual EU membership perspective. This could be done on some kind of innovative, graduated basis, in full awareness that this goal cannot be realized for perhaps fifteen or twenty years.

By the same logic, the EU should stick by its principles and not unconditionally give any special status to Armenia, Azerbaijan, and Belarus, each of which pursues illiberal domestic policies at variance with EU norms. This position should come with the proviso that normal foreign policy discussions will continue and that the door remains open to a more privileged relationship in the future.

Discussions should continue on a modernization pact with Azerbaijan. Diplomacy should advance with Belarus, especially as the sanctions the EU has imposed on the country since 2006 have not worked. These steps are important because some form of engagement is needed to cajole regimes to contemplate a degree of reform over the medium term. With Armenia, which came close to agreeing an Association Agreement with Brussels in 2013, discussions should deepen on how the EU can maintain a relationship with the country since it entered the Eurasian Economic Union in January 2015-and in case that Russian-led project fails. Yet all these avenues of engagement would best be pursued outside the framework of a privileged EaP relationship supposedly based on commitments to shared values.

In Georgia, Moldova, and Ukraine, the reverse side of offering a membership perspective should be a more hardheaded EU approach to the reform agenda. In particular, all engagement should be based on the understanding that if corruption continues at such high levels, no amount of foreign aid or economic reform will make a difference.

EU ministers and other senior officials now routinely stress how much they support the principle of local ownership and a more demand-led EaP. But the imprecision with which EU officials talk of such notions suggests they have little idea of what they mean-or where they would actually take the Eastern Partnership over the longer term.

The EU certainly needs to support more demand-driven initiatives that originate from EaP partners if it is to quell growing frustration in these countries with the union. But from an earlier tendency to follow a uniform, Eurocentric script, the EU risks tilting to the other extreme of molding itself in an overly ad hoc fashion to redlines drawn by regimes with less-than-stellar democratic credentials. Giving partner regimes whatever they want is not in itself a foreign policy. Review processes, policy documents, the EU high representative, and European commissioners can all breezily allude to key principles. But if the EU raises expectations that are then not fully met, its geostrategic interests will be seriously weakened. Unfulfilled expectations will hasten, not prevent, the region's incipient de-Europeanization.

Rather than putting all hope in a revamped EaP, EU member states should use their scope for more agile and immediate bilateral policy initiatives. Member states could easily commit to pumping in additional funding to EaP partners by pooling new resources to maximum effect outside the scope of slow-moving EU budgets. Despite all the official rhetoric about the EU's unprecedented geopolitical challenge in the East, member-state governments have reduced, not increased, their funding levels in the EaP region. Instead of waiting for yet another EaP policy document talking of the same generic motherhood-and-apple-pie principles, national governments could launch concrete and specifically funded new initiatives-now.

A final, very practical policy suggestion: independent analysts and civil society actors in EaP states should turn the tables on Brussels and prepare their own progress reports on the EU-to assess the union's follow-through on its stated principles. The EU publishes progress reports every year that take EaP partners to task for falling short of their commitments. Organizations in the six EaP states should produce similar progress reports that monitor the EU's success or failure in delivering on its own promises.

This kind of reform-targeted shaming might be a much bigger catalyst for concrete EU policy improvements than any number of high-level summits that are long on rhetoric but short on substance-the kind of imbalance one fears might prevail in Riga this May.

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#26
Russia Beyond the Headlines/Kommersant
www.rbth.ru
May 18, 2015
Russian NPT delegation head: Probability of a nuclear war has not increased
New York is currently hosting the review conference on the Non-Proliferation Treaty (NPT). Mikhail Ulyanov, head of the Russian delegation and Director of the Department of Non-Proliferation and Control of Armaments at the Russian Foreign Ministry, talked about what is impeding the process of nuclear disarmament.
Kseniya Baigarova, Kommersant
 
Kommersant: 160 NPT member states have requested the complete abandonment of nuclear weapons due to the humanitarian consequences of their use. The five NPT nuclear states [Russia, the U.S., the UK, France and China - RBTH] are against this. Is the NPT coming apart at the seams?

Mikhail Ulyanov: When such a number of countries, that is, the predominant number of NTP participants, undersigns an initiative on the humanitarian consequences of using nuclear weapons, it is impossible not to take this into consideration. Even though we do not agree with this initiative.

First of all, it distracts everyone from the real problems in the nuclear disarmament process... Why wasn't this issue raised in 2005 or at the end of the last century? Nothing extraordinary has happened in the world since then for us to be discussing this issue. It seems that it was introduced to the international agenda artificially, in order to move towards a ban on nuclear weapons. Secondly, the given initiative engenders high expectations in the field of nuclear disarmament and this could indeed shake the foundations of the NPT.

K.: Many countries are already saying that the NPT has a discriminatory character.

M.U.: Yes, they say that the nuclear powers have it good. While all the other countries have committed to not producing nuclear weapons, the nuclear countries, instead of disarming, are not responding to the hopes of the international community of seeing a non-nuclear world.

K.: That seems to be the right logic...

M.U.: Yes, there is definitely a lot of common sense in this logic. But such evaluations go against the grain of reality: In the last 25 years we and the Americans have reduced the number of deployed nuclear weapons by almost 85 percent. And if we begin counting from 2005, the number of deployed weapons was reduced by three times. Is this pace too slow? But whenever we repeat this, no one wants to listen...

K.: But hasn't the process of nuclear disarmament slowed down recently?

M.U.: If we are to speak about nuclear disarmament, then the situation is indeed complex. In less than three years, by February 5, 2018, we and the Americans must reach the levels that are included in the last START agreement. Then the question is: what next? There is still no answer. The situation in the sphere of strategic stability is unclear. The issue deals with, as we have often repeated, the American missile defense system... and the possible deployment of weapons in space, and the disbalance in the sphere of conventional weapons...

Perhaps no one can currently answer the question of whether or not it is possible to sign a new agreement in the sphere of the reduction of strategic offensive weapons. We, at least, do not have this question on our agenda.

K.: Is there still a possibility of dialogue with the U.S. regarding the missile defense system?

M.U.: I don't have any information about Washington's readiness to discuss this issue. Dialogue on matters of strategic stability within the presidential committee, as is known, was canceled. The Americans said that the missile defense system would be built with or without Russia. They also clearly announced that they would not satisfy our request to have legal guarantees of the system not being directed against Russia. And the state of our bilateral relations today doesn't really favor the renewal of dialogue on this issue.

K.: Do you believe that the probabilities of a nuclear conflict have increased?

M.U.: No, I don't believe so. Nothing has happened in the world that could stimulate the use of nuclear weapons. The Americans and all the nuclear countries understand the measure of their responsibility.

Article 14 of the START treaty implies that the build-up of a missile defense system can be viewed as grounds for abandoning the agreement. Why hasn't Russia left the agreement yet?

M.U.: I will remind you that in November 2011 Russia's then-president Dmitry Medvedev announced that we could review our relation to the agreement if in one phase or another the missile defense system begins to affect our security. For now, as I understand, such circumstances have not arisen. The American missile defense system is still in the initial stages.

K.: Doesn't Russian President Vladimir Putin's declaration in the documentary film Crimea: Homeward Bound that Russia considered the possibility of putting its nuclear weapons on combat alert during the escalation in the Ukrainian crisis mean that more significance is given to nuclear weapons today than before?

M.U.: The president said that indeed this option was considered, but he did not imply that nuclear forces were put in a state of combat alert...

K.: Another controversial issue during the conference were the accusations that Russia had violated the Intermediate-Range Nuclear Forces Treaty (INF).

M.U.: Such questions should be solved through diplomatic channels... We believe that the polemic on this issue in the NPT review conference is out of place. But since our American partners were the first to raise the question, then naturally we will present our position.

K.: Since the signing of the INF Treaty, military technology has made great progress. Russia accuses the U.S. of violating the INF Treaty, in particular in its use of shock drones.

M.U.: These American drones completely fall into the category of an intermediate range missile, regardless of the function they carry out. Before producing these shock drones our American colleagues could have come and proposed an amendment to the agreement. But they didn't do so and chose the route of violating the positions stipulated in the agreement.

K.: Does that mean you would accept amendments to the agreement?

M.U.: The agreement itself mentions such a possibility. Any side can introduce any amendment, but it will be accepted only if the other side agrees. Each particular case must be decided separately. But we do not intend to make any amendments.

First published in Russian in Kommersant.

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 #28
Stratfor.com
May 19, 2015
A Net Assessment of the World
By George Friedman

A pretentious title requires a modest beginning. The world has increasingly destabilized and it is necessary to try to state, as clearly as possible, what has happened and why. This is not because the world is uniquely disorderly; it is that disorder takes a different form each time, though it is always complex.

To put it simply, a vast swath of the Eurasian landmass (understood to be Europe and Asia together) is in political, military and economic disarray. Europe and China are struggling with the consequences of the 2008 crisis, which left not only economic but institutional challenges. Russia is undergoing a geopolitical crisis in Ukraine and an economic problem at home. The Arab world, from the Levant to Iran, from the Turkish border through the Arabian Peninsula, is embroiled in politically destabilizing warfare. The Western Hemisphere is relatively stable, as is the Asian Archipelago. But Eurasia is destabilizing in multiple dimensions.

We can do an infinite regression to try to understand the cause, but let's begin with the last systemic shift the world experienced: the end of the Cold War.

The Repercussions of the Soviet Collapse

The Cold War was a frozen conflict in one sense: The Soviet Union was contained in a line running from the North Cape of Norway to Pakistan. There was some movement, but relatively little. When the Soviet Union fell, two important things happened. First, a massive devolution occurred, freeing some formally independent states from domination by the Soviets and creating independent states within the former Soviet Union. As a result, a potentially unstable belt emerged between the Baltic and Black seas.

Meanwhile, along the southwestern border of the former Soviet Union, the demarcation line of the Cold War that generally cut through the Islamic world disappeared. Countries that were locked into place by the Cold War suddenly were able to move, and internal forces were set into motion that would, in due course, challenge the nation-states created after World War I and the fall of the Ottoman Empire that had been frozen by the Cold War.

Two emblematic events immediately occurred. In 1990, even before the collapse of the Soviet Union was complete, Iraq invaded Kuwait and seemed to threaten Saudi Arabia. This followed an extended war with Iran from which Iraq emerged in a more favorable position than Tehran, and Baghdad seemed to be claiming Kuwait as its prize. The United States mobilized not only its Cold War coalition, but also states from the former Soviet bloc and the Arab world, to reverse this. The unintended consequence was to focus at least some Sunnis both on the possibilities created by the end of the Cold War and on the American role as regional hegemon, which in turn led to 9/11 and is still being played out now, both to the south and north of the old Cold War dividing line.

The second event was the breakup of Yugoslavia and the Serbian-Croatian-Bosnian war that left about 100,000 people dead. It was a war of old grudges and new fears. It seemed to represent a unique situation that was not applicable to the rest of the region, but it in fact defined the new world system in two ways. First, Yugoslavia was the southern extension of the borderland between the Soviet Union and Western Europe. What happened in Yugoslavia raised questions that most people ignored, about what the long-term reality in this borderland would be. Second, among other things, the war centered on an east-west schism between Christians and Muslims, and the worst of the bloodletting occurred in this context. The United States and NATO interceded in Kosovo against Serbia despite Russian protests, and Moscow was ultimately sidelined from the peacekeeping mission that defused the war. The explosion in the Balkans foreshadowed much of what was to come later.

While Russia weakened and declined, the two ends of Eurasia flourished. The decade following the collapse of the Soviet Union and the reunification of Germany ushered in a period of significant prosperity that had two results. The European Union, created through the Maastricht Treaty the same year the Soviet Union disintegrated, expanded its influence eastward into the former Soviet sphere and southward, incorporating disparate states whose differences were hidden by the prosperous period. And China, after the end of the Japanese economic miracle, became the global low-wage, high-growth country, powered by the appetite for its exports in prosperous Europe and North America.

The forces at work in Eurasia were hidden. The fragility of peripheral nations in Europe relative to German economic power was not fully visible. The cyclical nature of China's growth, similar in many ways to the dynamics of Japan in the previous generation, was also invisible. The consequences of the end of the Cold War Islamic world, the forces that were unleashed beneath the surface and the fragility of the states that were containing them were hidden beneath the illusion of American power after the victory in Kuwait. Only in Russia was weakness visible, and one of two erroneous conclusions was reached: Either Russia was permanently impotent, or its misery would cause it to evolve into a liberal democracy. All seemed right with Eurasia.

Signs of Destabilization

The first indication of trouble was, of course, 9/11. It was the American attack that was critical. Drawing on the recollection of Desert Storm, it was assumed that American power could reshape the Islamic world at will. All power has limits, but the limits of American power were not visible until later in the 2000s. At that point two other events intervened. The first was the re-emergence of Russia as at least a regional power when it invaded Georgia in 2008. The other was, of course, the financial crisis. Both combined to define the current situation.

The financial crisis transformed Chinese behavior. Although China was already reaching the end of its economic cycle, the decline in appetites for Chinese exports changed the dynamic of China's economy. Not only did the decline suppress growth, but Beijing's attempts to shift growth to domestic consumption created inflation that made its exports even less competitive. The result was a political crisis as the Chinese government became increasingly concerned about instability and therefore increasingly oppressive in an attempt to control the situation.

At the other end of Eurasia, the differences between the interests of Germany - Europe's major exporter - and those of Southern Europe's developing economies exposed the underlying contradiction in the European Union. Germany had to export. The weaker countries had to develop their economies. The two collided first in the sovereign debt crisis, and again in the austerity policies imposed on Southern Europe and the resulting economic crisis. As a result, Europe became increasingly fragmented.

In a reversal of roles, Russia took advantage of the fragmentation of Europe, using its status as a natural gas supplier to shape Europe's policies toward Russia. Russia was no longer the cripple of Europe but a significant regional power, influencing events not only on the Continent but also in the Middle East.

It was at this point that Russia encountered the United States. The United States has an elective relationship with the rest of the world. Except when a regional hegemon is trying to dominate Europe, the United States limits its global exposure. It exports relatively little, and almost half of what it does export goes to Canada and Mexico. But as Russia became more assertive, and particularly as it tried to recoup its losses after the fall of the Ukrainian government and the ensuing installation of a pro-Western government, the United States began to increase its focus on Ukraine and the borderlands between Europe and Russia.

At the same time that Washington felt it had to respond to Russia, the United States sought to minimize its exposure in the Middle East. Recognizing the limits of its power, the United States came to see the four indigenous powers in the region - Turkey, Iran, Saudi Arabia and Israel - as bearing the primary responsibility for regional stability and as counterbalances to each other's power.

The Current State of Play

This brings us to the contemporary world. There is general economic malaise around the globe. That malaise has forced China to control social forces by repression. It has created an existential crisis in Europe that goes far beyond Greece but is being acted out in a Greek-German relationship. The Russians have reached for regional power but have fallen short, for the moment. The nation-states of the Middle East are fraying, and the four major powers are maneuvering in various ways to contain the situation.

The United States remains the world's leading power, but at the same time, the institutions that it used during the Cold War have become ineffective. Even though NATO is increasing deployments and training in Eastern Europe, it is a military alliance that lacks a substantial military. The International Monetary Fund has become, in many cases, the problem and not the solution to economic difficulties. The United States has avoided entanglement in the economic problems in Europe and China and has limited its exposure in the Middle East. Yet it is becoming more directly involved with Russia, with its primordial fear of a European hegemon aroused, however far-fetched the prospect.

After every systemic war, there is an illusion that the victorious coalition will continue to be cohesive and govern as effectively as it fought. After the Napoleonic Wars, the Congress of Vienna sought to meld the alliance against France into an entity that could manage the peace. After World War I, the Allies (absent the United States) created the League of Nations. After World War II, it was the United Nations. After the Cold War ended, it was assumed that the United Nations, NATO, IMF, World Bank and other multinational institutions could manage the global system. In each case, the victorious powers sought to use wartime alliance structures to manage the post-war world. In each case, they failed, because the thing that bound them together - the enemy - no longer existed. Therefore, the institutions became powerless and the illusion of unity dissolved.

This is what has happened here. The collapse of the Soviet Union put into motion processes that the Cold War institutions could not manage. The net assessment, therefore, is that the Cold War delayed the emergence of realities that were buried under its weight, and the prosperity of the 1990s hid the limits of Eurasia as a whole. What we are seeing now are fundamental re-emerging realities that were already there. Europe is a highly fragmented collection of nation-states. China contains its centrifugal forces through a powerful and repressive government in Beijing. Russia is neither an equal of the United States nor a helpless cripple to be ignored or tutored. And the map of the Middle East, created by the Ottomans and the Europeans, has hidden underlying forces that are rearing their heads.

The United States is, by far, the world's most powerful nation. That does not mean that the United States can - or has an interest to - solve the problems of the world, contain the forces that are at work or stand in front of those forces and compel them to stop. Even the toughest guy in the bar can't take on the entire bar and win.

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 #29
Ukrainian crisis escalation will have adverse impacts on entire Europe - Russian FM

MOSCOW, May 19. /TASS/. Further escalation of the Ukrainian crisis will have adverse impact both on Ukraine and the entire system of European security, Russian Foreign Minister Sergey Lavrov said on Tuesday at a session of the Committee of Ministers of the Council of Europe.

Further escalation of the political crisis in Ukraine, "radicals in Kiev and a number of other capitals are seeking to instigate would have the most negative impacts on both Ukraine and the entire system of European security," he said.

"Conflict settlement prospects depend on proper fulfilment by the sides of the Minsk agreements of February 12, 2015 that were approved by the United Nations Security Council," he said.

"It is necessary to spare no effort to have Kiev establish direct dialogue with Donetsk and Luhansk, immediately lift inhumane economic blockade, carry out amnesty, conduct inclusive constitutional, court and other reforms in Ukraine," Lavrov stressed. "The Venice Commission and the Council in Europe in general must hold its ground on those matters."

"We expect further concrete results of the efforts of an international consultative group set up under the Council of Europe's auspices to promote the investigation of crimes in Ukraine, including those committed in Maidan and in Odessa," the Russian top diplomat said.

"We commend the establishment of Council of Europe's centres for assistance in the area of local self-government in all of Ukraine's regions," he noted. "With support and coordination of the Committee of Ministers, their activities might make a solid contribution to the democratization of Ukrainian society."

The minister asked the secretary general of the Council of Europe to see to it that these centres were guided by Ukraine's decentralization liabilities committed to paper in the Minsk agreements of February 12, 2015 at Germasny's and France's initiative.

"In a broader sense, it is important that Ukraine keeps all of its liabilities under the Charter, conventions and other legal acts adopted within the Council of Europe," Lavrov stressed.

Russia ready to search for compromises on thorny issues

Lavrov stressed that Russia seeks to advance a positive and uniting agenda in the Council of Europe, ready to search for compromises.

"We are ready for a search for compromises on most difficult matters on the basis of equality, mutual respect and regard for each other's interests," the foreign minister said.

"We expect that the current session of the CMCE will help to reach progress in the strengthening of mutual trust as an inalienable condition for the unity of Europe and resumption of its progressive development," he said.

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 #30
www.rt.com
May 19, 2015
Civilian killed in intense Ukrainian army shelling of Donetsk despite ceasefire
[Graphics here http://rt.com/news/259825-civilian-killed-ukraine-shelling-donetsk/]

At least one civilian has been killed in the eastern Ukrainian city of Donetsk after an army shell hit an apartment building amid intense fire on rebel positions. An RT correspondent says the city has seen one of its worst shellings in months.

"There was fire, shelling for about two hours and it was almost non-stop...blast after blast, you could feel the vibrations from the explosions, kilometers away from the frontline," RT's Murad Gazdiev said over the phone from Donetsk.

According to Gazdiev, the attack centered on northern Donetsk, where the previously contested airport is located, but at least one shell landed on a civilian building. RT's crew rushed to the area to find out if the report was true.

"We found the residents who survived sitting outside, obviously in shock, covered in dust. One elderly man who lived on the top floor...the shell landed in his apartment. The place was almost torn apart, the walls were blasted out," Gazdiev said, describing the scene.

Rescue workers were still trying to find the man's remains in the rubble, he added.

The rise in violence in eastern Ukraine comes just days after Ukrainian President Petro Poroshenko vowed to "fight to the last drop of blood" against what he called "Russian aggressors" and called the internationally-recognized Minsk peace roadmap a "pseudo-peace" deal in an interview with the German TV channel ZDF. Earlier, Poroshenko's official website quoted him as saying: "I have no doubt - we will free the [Donetsk] airport, because it is our land. And we will rebuild the airport."

The Donetsk Airport had been the last strategic spot occupied by Ukrainian troops in the rebel-held city before anti-government forces overran the area after eight months of siege.

Poroshenko's statement prompted reaction from both Moscow and Washington. While the Kremlin said it "clearly violated the Minsk agreements," US Secretary of State John Kerry advised Poroshenko to "think twice" before reigniting the conflict.

The Ukrainian president later backpedaled on his remarks about the airport, accusing the Russian press of overblowing the quote.

The latest attack comes despite US Assistant Secretary of State Victoria Nuland, who is currently in Moscow on a Ukraine-centered visit, saying that "there is no indication from our own information or from my consultations in Kiev that anybody on the Ukrainian side, anybody in leadership...has any intention of launching new hostilities."

However, Daniel McAdams, the Executive Director of the Ron Paul Institute for Peace and Prosperity, believes the latest spate of violence has clearly been coordinated with Kiev's supporters in Washington.

"I think it would be very naïve to think that Poroshenko was doing that on his own. Even though we heard Kerry last week saying that Poroshenko's vow to retake eastern Ukraine, that he should shut up about it, the US has been training Ukrainian troops, it's been sending in dozens if not more Humvees and other equipment. They're providing the capability of the Ukrainian National Guard and Army to attack eastern Ukraine - why should there be any surprise they've been emboldened by this US assistance?"

According to McAdams, there is no indication the US government has demanded that Kiev cooled down its stance on rebel-controlled areas in eastern Ukraine, while the military training and support have continued.

The shelling of Donetsk also comes on the heels of Nuland's visit to Kiev, which is no coincidence, according to the former foreign affairs advisor to Ron Paul.

"Any time a major US official has gone to the region, some attack has happened afterward - remember the CIA [director John Brennan] was there a couple of times and attacks immediately followed. This just seems to be another of those patterns," McAdams argued.

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 #31
Kiev sets up field depots with 2,000 tons of munitions in Donbas - militia intelligence

MOSCOW, May 14. /TASS/. Ukrainian troops have set up field depots holding up to 2,000 tons of munitions along the line of engagement with the self-proclaimed Donetsk People's Republic (DPR), Eduard Basurin, a spokesman for the DPR defense ministry, said on Thursday.

"The Ukrainian side continues to scale up heavy weapons and munitions in the zone of the so-called anti-terrorist operation [Kiev's military operation in eastern Ukraine - TASS]. Thus, DPR reconnaissance has reported movement of Uragan and Grad multiple rocket launch systems, infantry combat vehicles, self-propelled artillery units towards the engagement line," Basurin told the Rossiya-24 television channel.

"Also, we have information about Ukraine's deployment of additional field depots, which, according to our estimates, are holding more than 2,000 tons of munitions," he said.

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 #32
Fort Russ
http://fortruss.blogspot.com
May 18, 2015
Ukrainian conscripts revolt at the Lvov base with American instructors
Lifenews [http://lifenews.ru/news/154099]
Translated by Kristina Rus

More than 300 soldiers demand commanders to give them the uniform and start full training or to allow the conscripts to return home.

While on Yavorovsky base in the Lviv region the U.S.-Ukrainian exercises are unfolding with the participation of the national guard [volunteers], conscripts mobilized into the UAF staged a protest by blocking the road to the training base. The conscripts demand the government either to give them the uniform and begin training, or to dismiss the recruits of the new wave.

According to the Ukrainian publication "Today" with reference to the wife of one of the protesting recruits, the conscripts are outraged by the actions of the General staff, which once again took the side of the volunteer battalions [which the national guard is based on]: the country's leadership gave soldiers of the national guard training under American instruction, provided them with food and clothing, and is ignoring the regular recruits.

- Today is exactly a month since the recruits arrived there, still did not receive the uniform.  Many have to run in slippers or flip-flops,  They went shooting only four times. The battalion is in a patriotic spirit, but none of them want to become cannon fodder, - said the wife of the Ukrainian conscript.

Yavorovsky base is home to the six months training course of the Ukrainian military under the guidance of instructors from the USA. The Americans prepared for the soldiers of the national guard a course, similar to the last months of basic training course in the U.S. army, but in the first two weeks it turned out that the skills of the Ukrainian soldiers are clearly lacking. For now Ukrainians are taught how to cut the barbed wire, to take out doors with a crowbar, to use the radio and not to leave fellow soldiers on the battlefield. LifeNews published a video in which American Marines on the ground near Lviv were teaching the UAF fighters to use a Soviet grenade launcher RPG-7, adopted 50 years ago.

Problems with supplying the Ukrainian army remained the same as a year ago, as the Ukrainian General staff is used to systematically save on their troops. For example, the battalion "Phoenix" was armed with mortars  made in 1943, and several brigades were issued rusty bullets. And in August of last year, the Ministry of Defense of Ukraine has spent $3.5 million on body armor, which the Prosecutor General's office found unsuitable for use in the area of so-called anti-terrorist operation. Moreover, in October the Ministry of Defense of Ukraine sent to the front line "paintball" helmets: the soldiers read in the instructions that the fragile equipment was not designed for protection against bullets.

Kristina Rus:

Meanwhile the ex-Minister of Defense of Ukraine, Valery Geletey, nicknamed  "Of Ilovaisk" for the Ilovaisk cauldron disaster in the summer of 2014, which cost thousands of Ukrainian soldiers their lives and known for his promises to hold a Ukrainian parade in Sevastopol, bought a $36 million mansion in the Lincolnshire county in the UK. His other toys include a yacht, a helicopter and two boats. Geletey commented to the Ukrainian media that his lavish possessions were just gifts from Ukrainian businessmen.

Geletey quit his post as Minister of Defense of Ukraine on October 14, 2014 after the Ilovaisk disaster.  

The question on everyone's mind is: where will the next Minister of Defense of Ukraine purchase his mansion?

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#33
LPR would like to secure direct dialogue with Kyiv through Contact Group

MOSCOW. May 19 (Interfax) - The leadership of the self-proclaimed Luhansk People's Republic (LPR) views meetings of the Trilateral Contact Group for Ukraine as an instrument that may help launch direct dialogue between the self-proclaimed republics and Kyiv.

"It will be good if this [direct] dialogue takes place. But at this point, we are speaking about our work within the Contact Group and the working sub-groups. This is a mechanism that may help this dialogue take place. It will be good if such communication continues to broaden," LPR chief negotiator Vladislav Deinego told Interfax.

The LPR and the self-proclaimed Donetsk People's Republic (DPR) "have repeatedly demonstrated their readiness for such a dialogue," he added.

"We came to Minsk, but Kyiv refused to participate in these talks at the last moment. This proves our commitment to this dialogue," he said.

Russian Deputy Foreign Minister Grigory Karasin told Interfax earlier that any attempts to secure a long-term solution to the Donbas conflict "are doomed to failure" in the absence of Kyiv's direct dialogue with Donetsk and Luhansk.

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#34
www.rt.com
May 18, 2015
'Threat to free expression': OSCE slams Kiev over 'decommunization' law

A recent Ukrainian law condemning the Communist and Nazi regimes poses a threat to freedom of expression and free media, the European security and human rights watchdog has said.

The Ukrainian law, "On condemnation of the Communist and Nazi totalitarian regimes in Ukraine and banning of propaganda of their symbols" was slammed by OSCE (Organization for Security and Cooperation in Europe) representative on freedom of the media, Dunja Mijatovic, in a statement on Monday.

"It is discouraging for freedom of expression and media freedom advocates that the law has gone into effect, despite various calls to safeguard these basic rights," Mijatovic said.

According to the OSCE representative, after the legislation was adopted by the Ukrainian parliament on May 9, she wrote to President Petro Poroshenko asking him to think carefully before adopting it.

Organization for Security and Co-operation Representative on Freedom of the Media Dunja Mijatovic (AFP Photo)Organization for Security and Co-operation Representative on Freedom of the Media Dunja Mijatovic (AFP Photo)

However, Mijatovic's call was ignored and on May 15 Poroshenko put his signature to the law, which criminalizes approval of the activities of the Communist and Nazi regimes in Ukraine and bans all their symbols.

The law envisages prison sentences of five to 10 years for violations, and media outlets could be punished with termination.

"While I fully respect the often sensitive and painful nature of historical debate and its effect on society, broadly and vaguely defined language that restricts individuals from expressing views on past events and people, could easily lead to suppression of political, provocative and critical speech, especially in the media," Mijatovic said.

She also commented on another law, "On the legal status and honoring of fighters for Ukrainian independence in the twentieth century," which was also signed by Poroshenko on May 15.

The legislation officially recognized Ukrainian nationalists, who collaborated with the Nazis during World War II, saying that members of the Organization of Ukrainian Nationalists (OUN) and the Ukrainian Insurgent Army (UPA) fought "for the country's independence" and are entitled to receive social benefits.

It also outlawed public expressions of disrespect to these militant groups and criminalized the denial of Ukraine's fight for independence in the 20th century.

"The media is a vital element of a healthy democracy and its role should be respected at all times. Contested information and potentially problematic speech should not be banned, on the contrary, it should be addressed through an open debate," Mijatovic stressed.

"Disproportionate restrictions on media freedom can never be justified in a democratic state and Ukraine's significant progress in this area should be preserved, not undermined," she added.

The OSCE representative also expressed regret that the controversial laws were introduced by Ukraine without any public discussion.

The Ukrainian authorities have recently been making vigorous efforts to break away from the Soviet past, which links the country with Russia.

This included rethinking the way the country marks Victory Day over the Nazis, which spanned two days in the country this year.

The Day of Remembrance and Reconciliation was introduced on May 8 to celebrate the end of World War II with the rest of Europe, while May 9 - traditionally celebrated as the Victory Day in Russia and other post-Soviet states - went ahead without the usual military parade and fireworks.

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 #35
AFP
May 18, 2015
Russia drops opposition to EU-Ukraine trade deal starting 2016: EU

Russia has dropped its demands for a further delay in a landmark EU-Ukraine trade deal at the heart of the Ukraine crisis and accepts that it will now begin next year, the EU said Monday.

"The reference that the (trade agreement) enter into force on 1 January 2016 was not contested by the Russian delegation," Trade Commissioner Cecilia Malmstroem said after talks with Russian and Ukrainian officials.

Malmstroem added that there was a "clear understanding" that the deal would not be amended and would now be implemented on time.

Russia had claimed that the so-called EU-Ukraine Deep and Comprehensive Free Trade Agreement will damage its own important economic ties and interests in its Soviet-era satellite.

The free trade accord is part of the broader EU Association Agreement, whose sudden rejection by Kremlin-backed Ukrainian president Viktor Yanukovych in late 2013 triggered the protests that led to his downfall and the current crisis in Ukraine.

The deal was finally agreed in 2014 and was originally due to come into effect in January this year.

But in September the EU postponed implementation for a year to support peace efforts as a first ceasefire accord was negotiated in the Ukraine conflict between government forces and pro-Russian rebels.

In return, Russia promised to hold off on the retaliation it had threatened if the EU and Ukraine had gone ahead with the trade pact without resolving its concerns.

Several rounds of talks between EU, Ukraine and Russian officials had been held before but no progress has been reported.

The EU still has tough sanctions in place against Russia over the Ukraine conflict.

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 #36
New York Times
May 18, 2015
In Ukraine, Corruption Concerns Linger a Year After a Revolution
By DAVID M. HERSZENHORN

KIEV, Ukraine - The country is on the cliff of bankruptcy. A spate of politically motivated killings and mysterious suicides of former government officials has sown fear in the capital. Infighting has begun to splinter the pro-European majority coalition in Parliament. And a constant threat of war lingers along the Russian border.

A year after the election of Petro O. Poroshenko as president to replace the ousted Viktor F. Yanukovych, and six months after the swearing in of a new legislature, Ukraine remains deeply mired in political and economic chaos.

"Poroshenko, whether you like him or not, he's not delivering," said Bruce P. Jackson, the president of the Project on Transitional Democracies, an American nonprofit group. "The Ukrainian government is so weak and fragile that it is too weak to do the necessary things to build a unified and independent state."

Efforts to forge a political settlement between the government in Kiev and Russian-backed separatists who control much of the eastern regions of Donetsk and Luhansk have hit a deadlock over procedural disputes, despite a cease-fire in February calling for decentralization of power and greater local autonomy as the linchpins of a long-term accord.

The shattered economy keeps sinking, with the G.D.P. plummeting 17.6 percent in the first quarter of 2015. Hoping to avoid default, senior officials have been in protracted negotiations with creditors, but they have failed so far to secure a deal. Officials also now fret openly that more than $40 billion pledged by the International Monetary Fund and allies, including the United States and the European Union, will not be enough to keep the country afloat.

In perhaps the greatest disappointment to the protesters who seized the center of Kiev last year, the new government led by Mr. Poroshenko and Prime Minister Arseniy P. Yatsenyuk has so far failed to deliver on promises to root out endemic corruption. Instead, it has become ensnared in new allegations of misconduct and charges of political score-settling.

The Parliament, in which pro-European parties control a huge majority, voted last month to create a special committee to investigate accusations that Mr. Yatsenyuk, a suave English speaker admired in the West, and his cabinet have presided over the embezzlement of more than $325 million from the state.

The government and its supporters deny any wrongdoing and say it has gone further than any of its predecessors in trying to shake off Ukraine's post-Soviet legacy of mismanagement and malfeasance. They point out that Parliament has adopted a slew of reform initiatives, notably an overhaul of the notoriously crooked natural gas industry and installing new leadership at the national bank.

The continuing disarray is becoming a source of friction between the Ukrainian government and its European allies, especially Germany and France, whose leaders helped broker the cease-fire and are increasingly frustrated with the slow pace of change.

"We don't have simply Russian aggression against the victim Ukraine," Mr. Jackson said. "We have a predictably aggressive Russia against an unpredictable and unreliable Ukraine. Ukraine is now seen as not to be trusted. What the E.U. is saying is: Where is the decentralization? Where is the commitment? Where are the reforms?"

Not surprisingly, public confidence in the government has slumped, as well.

Adding to the tumult, Mr. Poroshenko recently declared a crackdown on the country's richest and most powerful businessmen, known as oligarchs, in a bid to curtail their influence and to win back popular support. Yet the assault risks making enemies of the country's biggest employers, who until now have backed the government.

"When you don't want to do anything and you don't have anything to report on what you have already done, you need an enemy," said Dmitry V. Firtash, a former patron of Mr. Yanukovych who is a major target in the so-called de-oligarchization campaign. "It's very convenient to use rich people as scapegoats."

For Kiev, there is no greater problem, and no greater test, than the as-yet futile fight against corruption. Even officials on the forefront of the effort say it has so far largely gone nowhere.

David Sakvarelidze, the deputy prosecutor general, who helped carry out sweeping changes to the judicial system in his native Georgia, has been given Ukrainian citizenship and a mandate to overhaul the prosecutor's office.

"They are still corrupted, and no systemic changes have been made in law enforcement agencies and in courts," Mr. Sakvarelidze said in an interview in his office in Kiev.

He described a criminal justice system that needs to be rebuilt nearly from scratch. For example, he said, there was no effective system of plea bargaining to allow prosecutors to resolve cases swiftly, and no clear goals that set national priorities in law enforcement.

"We do not have any criminal policy," he said. "None of the prosecutors have clear guidelines."

Instead of existing government agencies taking action, Mr. Sakvarelidze said, the Parliament has been overly focused on adopting legislation that creates even more bureaucracy.

One of the major promises to come out of the Maidan revolution was a new anticorruption bureau, which is expected to employ 700 enforcement officers. On April 16, after long delays, Mr. Poroshenko finally selected the bureau's first director, Artem Sytnyk, a former Kiev city prosecutor.

Because of the delays, the government has been unable to deliver on pledges of swift restitution. Most notably, it has failed to recover any of the billions of dollars believed to have been stolen by the former president, Mr. Yanukovych, his family and closest associates.

Nor have Mr. Yanukovych or any of the senior officials who fled with him been arrested, with many now in Russia. Corruption investigations against other former officials and executives of state-owned companies have largely stalled.

Egor Sobolev, an organizer of last year's protests who is now a member of Parliament and chairman of its Committee on Corruption Prevention and Counteraction, said his panel was flooded with complaints.

"The biggest problem in the country is we do not have a real system of justice, we do not have judges, most of them are people from Yanukovych's time, very corrupted," he said. "The same situation with prosecutors."

"And another problem, a very big problem," he added, was that "Mr. Poroshenko as the president is not ready to fire them."

Mr. Sobolev is not alone in his lack of trust in the new government. Many of the Maidan demonstrators who are now in government posts say they are uncomfortable with Mr. Poroshenko and Mr. Yatsenyuk, who were opponents of Mr. Yanukovych but also longtime veterans of the Ukrainian political system that the demonstrators wanted to dismantled.

This is one reason there was strong support in Parliament to create a special committee to investigate allegations by Nikolai Gordienko, the former head of a state financial inspection agency, who accused Mr. Yatsenyuk's government of benefiting from a major embezzlement scheme.

To a great extent, the frustrations are to be expected, analysts say. "A year out, everybody is always disappointed from any revolutionary upheaval, that's a statement of social science law," said Michael A. McFaul, a Stanford University professor and former American ambassador to Russia who is an expert on revolutions and visited Kiev last month.

"There's never a case where people are saying, 'Oh, things are going even better than I thought.' It's always, 'The government is not doing enough.' It's always, 'Reform is slow.' "

Mr. McFaul said that he had hope for Ukraine's efforts. "I am impressed with the number of reforms that they have already passed. I think that is underappreciated in the West," he said.

Still, he said, the task ahead is gargantuan, especially given the demands of Western benefactors. "They just don't have the state in place to do the kind of things they are being asked to do right now," Mr. McFaul said.

Boris Lozhkin, Mr. Poroshenko's chief of staff, said the president had five priorities: "de-shadowing, de-monopolization, de-oligarchization, deregulation and decentralization," with de-shadowing referring to bringing new transparency to the economy and the government.

"The oligarchy as a basis of the country's political and economic life must cease," Mr. Lozhkin said.

But the confrontation has only added to a sense of fear in Ukraine, particularly among business figures and officials who had ties to the Yanukovych government.

At least six such officials have died in apparent suicides this year, and a seventh, Oleg Kalashnikov, a former member of Parliament from Mr. Yanukovych's Party of Regions, was shot dead outside his home in Kiev last month.

Prosecutors have opened investigations but say they do not believe the killings and suicides are connected.

While the government says it fears a renewed invasion by pro-Russian forces could come at any time, some analysts said there was little reason for renewing hostilities while the Ukrainian side was fighting with itself.

"Russia is just waiting for the internal problems of Ukraine to make it less attractive for the West," said Alexander Baunov of the Carnegie Moscow Institute, a research group. "Putin's hope is Russia doesn't need to make Ukraine weak. Ukraine will be weak by itself, and he can just wait awhile and take advantage of its weakness sometime in the future."

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 #37
Poroshenko loyalists in parliament doubt Ukraine will declare technical default

KYIV. May 19 (Interfax) - The Petro Poroshenko faction in the Ukrainian parliament predict that the government will not make use of the right to declare a moratorium on the repayment of the external debt to commercial companies.

"The law on the Cabinet's right to impose a moratorium on the repayment of the external debt is putting additional pressure on the lenders to get the restructuring finally done. I personally think that this will not happen, but will help the government carry through what it is doing now," deputy leader of the Petro Poroshenko faction Ihor Kononenko said in the parliament's corridors on Tuesday.

"Does the adoption of the law mean that the government will make use of this right?" member of the pro-government People's Front faction Ostap Semerak told journalists "No, it doesn't. This only means that the Ukrainian parliament and the coalition have supported the government in the tough talks with our lenders," he said.

Semerak also said that Russia's Gazprom (MOEX: GAZP) is among the lenders with which Ukraine is in talks.

Gazprom is among those who can and must conduct a discussion with Ukraine about the future of the debt, he said.

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#38
Forbes.com
May 18, 2015
Ukraine Is Losing Its Economic War With Russia
By Mark Adomanis
[Chart here http://www.forbes.com/sites/markadomanis/2015/05/18/ukraine-is-losing-its-economic-war-with-russia/]

The New York Times published a sobering and largely downbeat assessment of Ukraine's political and economic situation earlier today. The article strongly suggests that the earlier sense of optimism surrounding economic reform has, by this point, totally evaporated. Pretty much across the board, earlier expectations about the efficacy of liberalizing reforms are being rapidly adjusted downwards to account for an economic collapse that continues to gather momentum.

The blame for Ukraine's accelerating economic implosion, of course, lies in large part on Moscow. The Russian government is actively and quite-openly trying to undermine Ukraine's attempts to re-orient itself towards the West. It's not exactly breaking news that the Russian government was opposed to the overthrow of Viktor Yanukovych and has done everything in its still-considerable power to undermine Poroshenko, Yatsenyuk, and the rest of the post-Maidan government. Nothing that's happening in Ukraine is happening in a vacuum, and Russian policy has been consciously focused on maximizing economic pain and dislocation.

The important question is not whether Russia is justified in its attempts to economically blackmail its neighbor (anyone with a functional moral compass recognizes that almost all Moscow's recent actions in Ukraine are deplorable) but whether or not they will work. Essentially, the important debate about Ukraine's economy is whether the impact of aggressive economic reform coupled with Western financial assistance would outweigh the impact of Russian tariffs, sanctions, and destabilization in Donetsk and Lugansk.

To date, the evidence unfortunately suggests that Russia's effort to economically strangle Ukraine's pro-Western government is having its intended impact. The economic damage that Russia has suffered (even in the face of reasonably robust set of Western sanctions) has been substantially outweighed by the damage it has inflicted on Ukraine.

None of this is written in stone. It is entirely possible that the West will finally provide Ukraine with the financial resources to put itself back on solid ground and to more effectively resist Moscow's attempts to undermine its economy. A sufficiently large pile of cash  would, at a stroke, make many of Ukraine's seemingly intractable problems look a lot less daunting. The United States and its European allies clearly have the ability to do this, but they have so far lacked the will: even as Ukraine's needs have ballooned over the past year, the amount of Western aid promised to Kiev has remained extremely stingy.

The sad truth is that absent some kind of major change in Western policy Russia seems as if it is likely to succeed in its goal of economically crippling its neighbor. So far Russia's economy has been unexpectedly robust in the face of the challenges thrust in front of it while, at every turn, Ukraine's has performed unexpectedly poorly. The lesson that the Kremlin has taken away from this experience is that if they just hold out a little while longer the antagonistic government in Kiev will simply collapse.

Unless something changes soon, Ukraine is heading straight for an economic and financial implosion. It's unclear exactly what type of political impact that will have (pro-European attitudes might have become so popular that the next government will be of a broadly similar outlook) but the social and human costs will be enormous.

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 #39
Wall Street Journal
May 18, 2015
In Ukraine, Economic Ties to Russia Are Hard to Break
Pivoting economy toward West proves difficult as companies struggle to compete in EU
By JAMES MARSON

BERDYCHIV, Ukraine-Billboards here hail the army's fight against Russia-backed separatists in the east of the country, the statue of Lenin has been torn down and activists have covered the word "Russia" on a bank sign with Ukraine's yellow-and-blue flag.

But the director of the machine-building plant in this city, a two-hour drive west of Kiev, is treading a familiar path as he tries to revive flagging sales-to Russia.

"On the one hand, it's our enemy, but we haven't stopped trade. I have a thousand people at the factory. They all want to eat and feed their families," says Ihor Shchesnyakov, the 46-year-old chief executive of the Progress plant.

Ukraine's pro-Western government has been trying to pivot away from Russia. It signed an association agreement with the European Union, secured billions in loans and other aid from the West and passed a law calling for the removal of all Soviet symbols from the public sphere.

But turning its economy toward the West is a more arduous task. Much of its Soviet-era heavy industry has long-standing ties to Russia and struggles to compete in Europe.

The separatist conflict in eastern Ukraine drove the country's exports to Russia down 61.3% to $1 billion in the first quarter of 2015 compared with last year, while exports to the EU slipped one-third to $3.3 billion, the State Statistics Service said on Friday.

Gross domestic product shrank 17.6% in the first quarter, with industrial output down by more than one-fifth, the agency said.

The worst hit are plants in or around the combat zone that have suffered damage to equipment or severe disruption to supply chains. But the erosion of the Russian market is also crippling factories hundreds of miles away like Progress, which for years has depended on Russian buyers for its industrial equipment and is struggling to find customers in the EU.

In its heyday in the 1980s, Progress was at the heart of life in this city of some 80,000 people, providing accommodation for its 7,600 employees as well as a sports hall and swimming pool. The bulk of the factory's production-including filters used in the metals and mining industries-were shipped to Russia.

The factory suffered a series of blows starting with the collapse of the Soviet Union in 1991. By 2013, business was just beginning to pick up after the global financial crisis, Mr. Shchesnyakov says, before Moscow started putting "spokes in the wheels" in response to Ukraine's pursuit of closer EU ties.

Russia barred some imports from Ukraine, started tougher customs checks on others and encouraged Russians to buy domestically. Orders from Russia have shrunk by two-thirds in the last two years, although they still account for half of sales as the domestic market has also contracted, Mr. Shchesnyakov says. Sales to Europe and the U.S. make up a tiny amount.

As a result, the remaining workforce of some 1,100 has had working hours cut. The average full-time salary is around 3,000 hryvnias ($150) a month.

Russian officials say Ukraine needs to join its nascent Eurasian Economic Union if it wants preferential trade ties, and has demanded that Ukraine rewrite its free-trade deal with the EU or face further restrictions.

At Progress, where a Soviet red star still stands over the main offices, the EU offers little hope.

"Europe isn't waiting for us. We aren't needed there," says Mr. Shchesnyakov. "We are trying to push into the European market, but our share is very small, and it's not growing."

Others say owners used factories as cash machines, making insufficient investments to improve production or to break into new markets. "Technology in Europe is many times better," says Hennadiy Losovskiy, deputy chief executive at Progress. The withering of Ukraine's currency, the hryvnia, hasn't helped the factory, as it relies on imported parts, he says, pointing to an Italian thermometer and a Slovakian meter on his desk.

Larger enterprises have also been hit, including pipe makers and railway-car manufacturers. The country's largest steel mill, owned by the world's biggest steelmaker ArcelorMittal, has all but halted sales to Russia and is looking for new customers in the Middle East and North Africa.

"I'd be lying if I said that it was easy to sell to one market one year, and then quickly switch the same production to other countries," Economy Minister Aivaras Abromavicius said in March. "We have to be realistic."

Ukraine's large agricultural exports, including grains, have fared much better, recording only a tiny dip in earnings last year, because they aren't as dependent on the Russian market.

Volodymyr Vlasyuk, director of a consultancy that advises companies on selling abroad, said Ukraine's best chance for recovery is for Western producers to use the country as a manufacturing site.

That model is helping one Berdychiv firm to flourish. The town's main clothing factory was taken over by a Hungarian company over a decade ago, and now ships more than 90% of its products to Europe, said Chief Executive Halyna Stukalo.

The average monthly salary is 3,600 hryvnias ($175), topped up in recent months as the currency slid. Ms. Stukalo says the company recently made a new hire as a security guard: one employee's husband, who used to work at Progress.

But the factory is an exception. Walls and lampposts here are covered with fliers offering jobs 200 miles to the west in Poland, an EU member.

-Nick Shchetko contributed to this article.

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 #40
www.truth-out.org
May 18, 2015
Who Owns Agricultural Land in Ukraine?
By Elizabeth Fraser, Oakland Institute

The fate of Ukraine's agricultural sector is on shaky ground. Last year, the Oakland Institute reported that over 1.6 million hectares (ha) of land in Ukraine are now under the control of foreign-based corporations. Further research has allowed for the identification of additional foreign investments. Some estimates now bring the total of Ukrainian farmland controlled by foreign companies to over 2.2 million ha;1 however, research has also identified important grey areas around land tenure in the country, and who actually controls land in Ukraine today is difficult to ascertain.

The companies and shareholders behind foreign land acquisitions in Ukraine span many different parts of the world. The Danish "Trigon Agri," for example, holds over 52,000 ha. Trigon was established in 2006 using start-up capital from Finnish "high net worth individuals." The company is traded in Stockholm (NASDAQ), and its largest shareholders include: JPM Chase (UK, 9.5 percent); Swedbank (Sweden, 9.4 percent); UB Securities (Finland, 7.9 percent); Euroclear Bank (Belgium, 6.6 percent); and JP Morgan Clearing Corp (USA, 6.2 percent).

The United Farmers Holding Company, which is owned by a group of Saudi Arabian investors, controls some 33,000 ha of Ukrainian farmland through Continental Farmers Group PLC.

AgroGeneration, which holds 120,000 ha of Ukrainian farmland, is incorporated in France, with over 62 percent of its shares managed by SigmaBleyzer, a Texas-based investment company.

US pension fund NCH Capital holds 450,000 ha. The company began in 1993 and boasts being some of the earliest western investors in Ukraine after the break-up of the Soviet Union. Over the past decade, the company has systematically leased out small parcels of agricultural land (around two to six hectares in size) across Ukraine, aggregating these into large-scale farms that now operate industrially. According to NCH Capital's General Partner, George Rohr, the leases give the company the right to buy the currently-leased farmland once the moratorium on the sale of land in Ukraine is lifted.

Another subset of companies have Ukrainian leadership, often a mix of domestic and foreign investment, and may be incorporated in tax havens like Cyprus, Austria, and Luxembourg. Some of them are also led by Ukrainian oligarchs. For instance, UkrLandFarming controls the country's largest land-bank, totalling 654,000 ha of land. 95 percent of the shares of UkrLandFarming are owned by multi-millionaire Oleg Bakhmatyuk with the remaining five percent having been recently sold to Cargill.  Similarly, Yuriy Kosiuk, Ukraine's fifth richest man, is the CEO of MHP, one of the country's largest agricultural companies, which holds over 360,000 ha of farmland.

With the onset of the political crisis, several of these mostly Ukrainian-based companies have descended into crisis themselves. One example is Cyprus-incorporated Mriya Agro Holding, which holds a land-bank of close to 300,000 ha. In 2014, the company's website (which is no longer available online) indicated that 80 percent of the shares of Mriya Agro Holding are/were owned by the Guta family (Ukrainian), who hold primary leadership positions in the company. The remaining 20 percent are/were listed on the Frankfurt Stock Exchange.

According to news sources, in summer 2014 the company defaulted on its payments for two large Eurobonds, putting its future into question. The company first enlisted the support of US-based Blackstone Group and Ukrainian-based Dragon Capital, both of whom withdrew support after only one month; and later, the international auditing and financial service firm, Deloitte. An international bondholder committee was struck, comprised of several US and UK-based investment groups (including CarVal Investors - Cargill's investment arm), which together own over 50 percent of the debt owed on Mriya's 2018 Eurobonds and 15 percent of the 2016 Eurobonds. The future of this firm is unclear with some sources suggesting a risk of bankruptcy.

Other Ukrainian-owned companies incorporated in tax havens are also experiencing difficulties. Sintal Agriculture Public Ltd (based in Cyprus, traded on the Frankfurt Stock Exchange as of 2008, and holding almost 150,000 ha of land) ceased trading in shares on January 29, 2014 "until further notice" after bankruptcy proceedings were initiated against the company. In 2013, its website (now also defunct) indicated that 36.3 percent of the company was free floating shares.

The potential bankruptcy of these corporations, and the involvement of Western investors in the crisis management, raises questions about the fate of the agricultural land they hold. At this time, it is not clear how control over the agricultural lands in question will be addressed and what the role of foreign companies and funds who have invested in these companies will be. However, if things progress in a similar way to neighboring Romania, foreign control of this land could transpire.

Romania has a similar story of dissolving collectivized farms, giving land titles to collective farm workers, and imposing a moratorium on the sale of agricultural land. Loopholes in the country's national legislation have created opportunities for foreign control of land via bankruptcy proceedings. As documented by Judith Bouniol, the bankruptcy of national agribusinesses has provided a gateway for foreign control of Romania's farmland.

It is far from clear if the same scenario could take place in Ukraine. However, this lesson from Romania emphasizes the importance of keeping close watch on these agricultural land deals. In addition, the murky situation around land ownership in Ukraine raises many questions. Perhaps the most important is whether the growing concentration of Ukrainian land in the hands of a few oligarchs and foreign corporations can benefit the country, its people, and its economy.

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#41
One Plus One TV (Kiev)
May 17, 2015
Ukraine military says local residents in Donbass collaborate with militants

[Presenter] Several hours ago, a military vehicle driving along a country road near Popasna [Luhansk Region] was blown up by a landmine. One National Guard serviceman and three volunteers were killed, with another serviceman sustaining injuries, Hennadiy Moskal, head of the Luhansk region state administration, has said.

In addition, the ATO [antiterrorist operation] headquarters reported on three fatalities and 17 wounded among Ukrainian troops, as well as on a series of provocative actions near Shyrokyne and Hranitne. In the vicinity of Horlivka, terrorists deployed loads of heavy weapons and are using them without a stop.

It is important to note that they know exactly where to land their attacks, according to Oleksandr Motornyy [a correspondent of One Plus One TV Channel], because local residents readily sell locations of Ukrainian troops to them for one hundred hryvnyas, without having any mercy on their own neighbours.

[Correspondent] If anyone anywhere says now that there is a cease-fire in the country's east, he definitely means some unknown parallel reality, at least to Ukrainian soldiers.

[Serviceman, captioned as Andriy Maloshchuk, press officer of the 30th separate mechanized brigade] Over the past 24 hours, illegal armed groups of separatists have stepped up their activity, and the number of shellings has increased twofold. Mainly, they are using mortars of various calibres, tanks and conventional artillery.

[Correspondent] Whereas there was some kind of nominal peace in the forefront positions of sector C, between Debaltseve and Horlivka, according to the guys, such notion disappeared and is not used anymore after 7 May.

[Serviceman, captioned as Yastrub (Hawk), company commander of the 30th separate mechanized brigade] This week, this past week, they have been firing from morning and till night using [weapons of] 152-mm, 120-mm calibres, Vasilek [mortars] and everything else, including tanks, canons, etc.

[Correspondent] Huge shell craters, destroyed concrete structures and the scale of damages evidence that it was done by the enemy's artillery units. They work in the section almost according to schedule, and this is a case when the spring and good weather do not bring any pleasure.

The militants conduct mainly up-sun attacks, making it hard to calculate locations of their batteries, while strong winds, which deafen everything around, make every attack come by surprise.

Yesterday at dusk, an enemy shell landed in the dugout where Ukrainian troops just arrived from their shift and were having rest.

[Maloshchuk] Two servicemen were killed, our sworn brothers, and 17 were wounded. It was an artillery attack launched by the separatists from the Horlivka direction.

[Correspondent] Generally speaking, in addition to a plainly unquiet and very dangerous situation, there is another very serious problem betrayal by civilians. There are only few of them left here, and they may seem very friendly.

[Local resident shown with a bicycle, carrying animals in bags] This is how it goes here. I got them from [local resident] Natashka, whose cow got killed recently. Is it press here? We keep some animals here. It is war, but we need to keep managing our households.

[Correspondent] The problem is that the enemy's artillery hits their aims very accurately, even from large distances. The majority of people remaining here are older persons, and, generally speaking, one has nothing to present against them. But our guys suspect that these local residents direct the enemy's artillery precisely at Ukrainian positions.

[Yastrub] This damage was caused by a 152-mm shell, as a 120-mm shell would not cause such harm. This garage was fired upon only once, one artillery shot.

[Correspondent] It is not news for Ukrainian troops that such cooperation between militants and civilians does exist almost in every sector. They even know the rates for such betrayal. Several hundreds of hryvnyas for giving away locations, and a thousand [of hryvnyas] if a shell hits the disclosed target.

[Yastrub] They give away all the information, including locations of our troops, locations of our headquarters.

[Correspondent] The betrayers do not care much that enemy shells often land in their neighbours' courtyards.

[Local resident] This is the second shell landed here on 13 May. It hit the entire wall. This is the second shell on 13 May.

[Correspondent] They even do not care that shell debris kill and wound their neighbours, with whom they lived side by side for many years.

[Local resident] All the fragments flew here. Children were here, in the basement, but it all came through the top, and two fragments hit the kid's heads. We have pulled out one fragment, but the other went from the shoulder to the elbow. We do not have a telephone or electricity.

[Correspondent] In addition, international observers  have also started to behave strangely lately. It is the same scenario every day. White off-road vehicles stop several kilometres away from the front line, wait until terrorists stop firing and, as soon as Ukrainian troops start firing in response, inspectors appear there right away. Oleksandr Motornyy, Serhiy Kyselyov and Serhiy Shportylov reporting from Donetsk Region for TSN Tyzhden [weekly programme], One Plus One.

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 #42
Vedomosti
May 13, 2015
Russian daily highlights spat between Ukraine leaders, rebels over peace deal
Aleksey Nikolskiy, Donets Basin's proposals for settlement are unacceptable to Kiev. Galvanization of combat operations is also hindering political dialogue

On the eve of the first sessions of the working subgroups within the framework of the Minsk process the self-proclaimed Donetsk and Luhansk people's republics [DPR and LPR respectively] have published their proposals for a political settlement, as well as their draft amendments to the Ukrainian Constitution and a draft law on local elections on the territory controlled by them. The amendments to the constitution mainly repeat the Russian Foreign Ministry's well-known proposals aired in March 2014 and partially the Minsk agreements. In the opinion of representatives of the Donets Basin [Donbass], the fundamental law must enshrine the non-aligned nature of Ukraine and the special rights of areas with a special status recognized as an inalienable part of the country. The latter are accorded virtual control over the law-enforcement system, the right to develop transborder ties, the creation of a people's militia, and the Russian language's official status. According to the draft law on elections, these must be held without the involvement of parties, and media that kindle civil strife and disseminate deliberately unreliable information about the situation in "individual areas of Donets and Luhansk regions" will not be permitted to cover them.

So far Ukraine's leaders have not officially commented on these proposals, but Yuriy Lutsenko, leader of the Petro Poroshenko Bloc faction in the [Supreme] Council, declared that the Donets Basin will acquire no special status in comparison with other regions. Ukrainian President Petro Poroshenko, who was on a visit to Germany, reported that he supports the statement of Alexander Hug, deputy leader of the OSCE mission, to the effect that a truce and demilitarization should first be achieved in the two hottest spots - Shyrokyne and the Donetsk airport - and only then proceed to discussing the question of holding elections.

The main thing for the Donets Basin is that the points of the Minsk agreements should be fulfilled in the order in which they are written down - that is, first achieve a full political settlement and only then reinstate Ukraine's control over the borders, someone close to the Donetsk People's Republic leadership said. The order of fulfilment of specific political points - the holding of elections and making of amendments to the constitution - is less important, for it is more important now to establish a full truce and end the Ukrainian economic blockade, he said (this issue will be discussed at the 14 May session of the economic working subgroup).

Meanwhile, several days after the 9-10 May relative lull reported by the OSCE Monitoring Mission, exchanges of fire are continuing in the Shyrokyne region and close to Donetsk airport and, according to a statement by a DPR spokesman, Ukrainian artillery shelled Horlivka on the night of 12-13 May. The sides are now discussing the question of setting up permanent OSCE observer posts in all hot spots with a view to achieving a stable truce, someone close to the Russian Defence Ministry said. In his opinion, it is not yet clear whether it will be possible to achieve such a truce next week.

Even though, generally speaking, both sides are continuing to prepare for combat operations, there are no signs at present that they are creating groupings to carry out major offensive operations, although individual exchanges of fire and local fighting are continuing and could become still more intensive, Col Viktor Murakhovskiy, reserve, said. This has been occasioned both by insufficient forces on both sides and by the lack of US interest in the resumption of large-scale hostilities at the present time, Murakhovskiy believes.

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 #43
Gazeta.ru
May 13, 2015
What happens if Ukraine' southeast becomes Russian rouble zone, experts mull
Petr Orekhin, Donets rouble basin. DPR and LPR could be transformed into Russian rouble laundering centre

The authorities of the self-proclaimed Donetsk People's Republic [DPR] and Luhansk People's Republic [LPR] are gradually switching from the hryvnya to the rouble. Meanwhile, no legal grounds exist for the entry of the Donetsk Basin [Donbass] into the rouble zone and all operations are de-facto being conducted illegally. Gazeta.ru has investigated what threat the rouble's expansion poses to Russia.

On the eve of the [May] holidays the authorities of the self-proclaimed DPR announced the payment of pensions for May in Russian roubles. Local news agencies, citing Galina Sagaydakova, head of the DPR Pension Fund, reported that pensioners will be paid approximately R2bn. The total number of recipients of "republic" pensions is 518,000 and the average payment is around R3600. Expenditure in the LPR is also comparable. According to Tatyana Vasilyeva, acting chairman of the LPR Pension Fund, 475,000 pensioners will receive payments.

Donbass under blockade

Last year the official authorities in Kiev began an economic blockade of Donbass: Subdivisions of the Ukrainian National Bank and other state structures are not working on the unrecognized republics' territory. Pensions are not being paid and wages are not being paid to budget-funded workers and it is impossible to withdraw money from banks and ATMs and conduct official non-cash transactions. The financial system of the unrecognized republics today consists of two "central banks" which are conducting all transactions and payments. This year supplies of output from Ukraine to the DPR and the LPR have been officially banned. On 12 May, Hennadiy Moskal, head of the Luhansk regional state administration, signed the ban on the crossing of the demarcation line which runs through Luhansk Region by any means of transport including light vehicles.

In order to receive a pension it is necessary to register in the "unoccupied" regions and process a special permit for crossing the "border." A whole business has already been built around this, Georgiy Chizhov, vice president and leader of the [Moscow-based think tank] Centre for Political Technologies' Ukraine Bureau, says. Unofficial border trade and other crime-related "delights" are flourishing.

The DPR authorities are trying to restore regular payments to people many of whom have not held hard cash in their months for months. But now there is a risk that some people will want to receive two pensions at the same time - a Ukrainian and a Donetsk one. "Residents will have to decide: Either they will receive a pension from the DPR or from Ukraine. If pensioners want to receive their pension in the DPR and not on Ukraine's territory they must apply to our Pension Fund. And the Ukrainian Pension Fund will be informed that the individual has been switched to payment in the DPR," Galina Sagaydakova says.

In addition to budget-funded payments the rouble is being increasingly actively used in trade.

Because the amount of the hryvnya money supply received is extremely small the DPR and LPR authorities were forced to allow Russian roubles and also dollars and euros to be used as a means of payment. Aleksandr Zakharchenko, head of the DPR, has previously said that the Ukrainian hryvnya makes up around 70 per cent of the money in circulation in the republic, the rouble makes up around 30 per cent, and the dollar accounts for no more than 2 per cent. LPR finance minister Yevgeniy Manuylov indicated that the Russian rouble will most probably remain the only official currency in the republic.

"Grey" zone

Donbass has effectively entered the rouble zone. However, an obvious problem arises here. De jure Donbass territory is part of Ukraine, Konstantin Korishchenko, head of the Russian National Economy and State Service Academy's Stock Markets and Financial Engineering Department and a former deputy chairman of the Central Bank, recalls.

"I cannot imagine how it is possible to import cash roubles here, how it is possible to bank them, and how to service them. It seems to me that this is an extremely complex process with many political, regulatory, and operational risks," he told Gazeta.ru.

The Donetsk and Luhansk authorities prefer to skirt around the question of how the rouble money supply will enter the budget. The DPR and LPR press services did not respond promptly to Gazeta.ru's request. Previously there had been a commentary that this is happening "in the natural way."

In this instance it is trade relations with Russia that are primarily in mind. However, their volume is not so great as to bring sufficient money into the treasury. Between January and April 2015 Russia supplied output worth R342m to the DPR, Yevgeniya Samokhina, the republic's economic development minister, recently reported. Meanwhile, May's pensions alone needed R2bn.

Oleksandr Kikhtenko, head of the official Ukrainian administration of Donetsk Region, says that "Russia now has an opportunity to pursue its policy in full: The borders are open and a rouble money supply is being brought in." "Today, unfortunately, we are not supplying either our hryvnya or our output there," he complains.

Schemes for the rouble's penetration of the Donbas are in the "grey" zone at least.

There are two options (apart from commercial deals carried out via Russian banks). Cash can be supplied by private structures and individuals or the Central Bank. For the former to do this it is necessary to ensure that the operations in withdrawing large amounts of cash in Russian banks do not arouse increased attention on the part of the Central Bank or the Federal Service for Financial Monitoring.

However, if these actions are coordinated with the authorities, the regulators will close their eyes to it.

For any operations involving the resources of the Bank of Russia or the budget there must be a normative act but no official decisions on assistance to the DPR and the LPR have been made. Of course it is possible to withdraw several billion roubles in cash from the Central Bank's storage facilities and send them to Donetsk but this operation will bear an obviously illegal character.

Following in the Footsteps of the "Unrecognized"

The kind of situation in which the status of territories is unregulated, the legal financial system is absent, and the work of the regulators is unclear could become fertile soil for transforming Donetsk and Luhansk into a kind of all-Russian "money laundering centre."

Yelena Pamfilova from Transparency International notes that money laundering could become a big problem. "The Federal Service for Financial Monitoring and the Financial Action Task Force will howl if this all begins on a large scale. We could get a situation like the one in Transnistria at the start of the century. I do not know whether we will engage with this problem because what we have are mainly cases of corruption but what they have there is all kinds of trafficking in weapons, narcotics, and people," she believes.

Transnistria is indeed being subjected to criticism for the organization of money laundering primarily from the Moldovan authorities. Back in 2001, Vladimir Voronin, president of Moldova, accused the entourage of Igor Smirnov, the leader of the unrecognized republic then, of corruption and money laundering. "Around 580m dollars were laundered through three Transnistria banks and one bank in Chisinau when the republic had gross revenue of around 220m dollars," he said. "The Smirnov regime is a corrupt mafia regime and is a burden on the backs of Transnistria's people," Voronin was sure.

Moldova's authorities imposed restrictions on the work of Transnistria's financial institutions. In 2012, Vadim Vrabie, deputy head of Moldova's Intelligence and Security Service, stated the existence of "appalling facts" of money laundering via PMR [Dniester Moldavian Republic] banks. In 2015 problems with the legislative base and the system for the control and regulation of the activity of Transnistria's financial institutions still persisted.

At the same time, Russia has already put pressure on the PMR authorities because Transnistria's banks are working primarily with Russian financial organizations and the latter have to comply with international norms. The Transnistria "case" is not unique. The financial systems of other unrecognized republics - Abkhazia and South Ossetia - are also bound up with Russia. Meanwhile, in the republics themselves there are only local banks and the international Visa and MasterCard systems do not work there.

Ever increasing amounts of roubles will be needed.

The DPR and LPR will demand ever increasing amounts of roubles. Everything is getting by with several billion roubles now but if a peaceful life and the economy are restored an amount of resources an order of magnitude higher will be needed to service trade and industry.

According to the Ukrainian State Committee for Statistics' figures, retail trade turnover in Donetsk Region in 2014 amounted to 65.7bn hryvnyas and in Luhansk Region the figure was 22bn hryvnyas. And this is already after a fall of almost a half compared with 2013.

Based on the exchange rate of 0.5 hryvnyas to the rouble established in the DPR and the LPR, it will take R175.7bn in cash and non-cash form a year to completely oust the hryvnya. Plus a further R40-50bn a year for the payment of pensions and the same amount again for the wages of budget-funded workers.

The volume of industrial output produced in the two regions last year amounted to around 227bn hryvnyas or around R450bn. Taken together it all comes to around R800bn. The amount of cash in circulation, according to the Central Bank's statistics, comes to R75,000bn and when non-cash money is taken into account the figure is R31,600bn. It is clear that in current conditions the required amount of roubles will actually be several times less.

At the moment experts do not see a threat to the financial stability of Russia itself from the slide of the Donbas into the rouble zone.

Andrey Cherepanov, leader of the non-commercial institution the National Development Project and a former Central Bank staffer, says that there is no threat to the rouble because the local national banks cannot emit roubles. "There is even a positive factor here because more contractors will work with the rouble," he notes.

Most probably, the fate of the unrecognized republics awaits Donbass, Georgiy Chizhov says. In his opinion, Ukraine will not make concessions in the negotiating process and will not agree to the terms of Donbass' reintegration that they are trying to "foist" on it. Moscow does not need these regions either because to maintain them is too costly, especially given that there is recession in Russia itself now and every budget rouble counts.

It may be presumed that the flow of roubles into the unrecognized republics will remain in the "grey" zone and [former Ukrainian President and Pirme Minister respectively] Viktor Yanukovych, Mykola Azarov, and the businessmen close to them who have fled to Russia could take active part in generating it.

Experts note, however, that if compromise is reached between Kiev, Moscow, Donetsk, and Luhansk, the hryvnya could easily recover its lost positions. The only question is how much time will be needed to reach this compromise.

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 #44
RFE/RL
May 19, 2015
Lose The Territory, Win The War
By Brian Whitmore

For more than year, there's been a war in eastern Ukraine that nobody called a war. And for the past three months, there's been a cease-fire there that wasn't a cease-fire.

And now that the agreement reached in Minsk in February that was supposed to end hostilities in the Donbas is all but dead in the water, we seem to be lurching toward some kind of endgame. And it is shaping up to be as strange and counterintuitive as every other aspect of this through-the-looking-glass hybrid conflict.

"Normally, wars are fought over prize territory: winners gain it, losers lose it," Alexander Motyl, a professor at Rutgers University-Newark and expert on post-Soviet affairs wrote recently in Foreign Policy.

But in this conflict, Motyl added, whoever ends up holding the Russian-controlled territories of the Donbas will actually be the loser.

The region, he noted, is an economic basket case. It's industrial base is devastated. Infrastructure damage is estimated to be $227 million. Gas and water shortages are endemic. Only one-third of the population is receiving regular wages.

Of the estimated 3 million people remaining there, 2 million are either children or pensioners who must be supported by 1 million working-age adults.
Responsibility for rebuilding this mess will be a major financial albatross for either Kyiv or Moscow.

And then there are the politics.

Without the rebel-held areas, Ukraine can get on with reforming its economy and integrating with the West. With them, Kyiv will be saddled with a pro-Moscow fifth column in the east that will paralyze it for the foreseeable future.

So who is losing?

"As the man who owns the enclave and is likely to do so for the foreseeable future," Motyl wrote, "Vladimir Putin is thus the loser. And both Russia and Ukraine know it."

And this explains a lot. It explains, for example, why the Kremlin is suddenly so concerned about Ukraine's territorial integrity.

In a radio interview last month, Russian Foreign Minister Sergei Lavrov said Moscow wanted Ukraine to remain united and accused the authorities in Kyiv of trying to partition their own country.

Lavrov made his comments in reaction to a call by Ukrainian President Petro Poroshenko for UN peacekeepers in Donbas

It also explains why separatist leaders in Donetsk and Luhansk last week submitted proposals for those territories' long-term status that keep them inside Ukraine -- albeit one that is decentralized to the point of dysfunction.

"At first glance, the separatist documents seem promising. In a sharp break with previous practice, they make no mention of the unrecognized Donetsk and Lugansk 'people's republics,'" Russian political commentator Leonid Bershidsky wrote recently in Bloomberg.

"Instead, the territory is called 'a separate district with a special status.'"

Bershidsky added that the proposals "have Moscow's fingerprints" and "demonstrate a lawyerly cunning that the rough and ready rebels have never exhibited."
This is the context, subtext, and backstory of the flurry of diplomacy we have seen in recent weeks -- from Angela Merkel's visit to Moscow to U.S. Secretary of State John Kerry's stopover in Sochi to U.S. Assistant Secretary of State Victoria Nuland shuttling between the Ukrainian and Russian capitals.
The West is desperately trying to salvage a Minsk cease-fire that is long past its sell-by date.

Russia, meanwhile, is trying to force an interpretation of that cease-fire on everybody that results in a Bosnia-style solution that allows Moscow's proxies in eastern Ukraine to keep the country dysfunctional and out of the Western orbit.

Russia could of course still launch a costly and risky military offensive aimed at Mariupol or Kharkiv.

Or, as Bershidsky suggests "he can freeze the situation and proceed to build ties with the rebel-held areas on the model of other frozen conflict zones: Transdnistria in Moldova, Abkhazia and South Ossetia in Georgia."

But according to Motyl, "time is on Ukraine's side" as "the current stand-off is the best of all possible worlds for Kyiv."

"Winning this 'hybrid' war means losing territory. All Ukraine needs do is keep the separatists boxed in," he wrote.

"Sooner or later, a rational or semi-rational Putin disinclined to start World War III over a piece of crummy real estate will have to accept 'frozen conflict' status or pull another Crimea and annex the territory. Either way, Russia will be stuck with a no-future region that will be a drag on its economy for decades to come."

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 #45
Consortiumnews.com
May 18, 2015
Fake Evidence Blaming Russia for MH-17?
By Robert Parry
Investigative reporter Robert Parry broke many of the Iran-Contra stories for The Associated Press and Newsweek in the 1980s.
[https://consortiumnews.com/2015/05/18/fake-evidence-blaming-russia-for-mh-17/]

Exclusive: Pointing the finger of blame at Russian President Putin for the Malaysia Airlines shoot-down last July, an Australian news show claims to have found the spot where the Russian BUK missile battery made its getaway, but the images don't match, raising questions of journalistic fakery, writes Robert Parry.

An Australian television show claims to have solved the Malaysia Airlines Flight 17 shoot-down mystery - the Russians did it! - but the program appears to have faked a key piece of evidence and there remain many of the same doubts as before, along with the dog-not-barking question of why the U.S. government has withheld its intelligence data.

The basic point of the Australian "60 Minutes" program was that photographs on social media show what some believe to be a BUK anti-aircraft launcher aboard a truck traveling eastward on July 17, 2014, the day of the shoot-down, into what was generally considered rebel-controlled territory of eastern Ukraine, south and east of Donetsk, the capital of one of the ethnic Russian rebellious provinces.

Citing one image, the program's narrator says the "launcher is heading east further into rebel territory," south and east of Donetsk.

However, in mid-July, the ethnic Russian rebels were reeling under a Ukrainian military offensive to the north of Donetsk. Despite shifting their forces into the battle zone, they had lost Sloviansk, Druzhkivka, Kostyantynivka and Kramatorsk. In other words, the lines of control were fluid and chaotic in mid-July 2014 with the possibility that an unmarked Ukrainian government truck, maybe carrying a concealed anti-aircraft battery, could have moved into the titular rebel zone, especially in the lightly defended south.

Another problem with the Australian TV account is that the video and photographic images show the truck heading eastward toward Russia, but there are no earlier images of the truck moving westward from Russia into eastern Ukraine. If the mysterious truck was supposedly so obvious on the day of the shoot-down, why wasn't it obvious earlier?

For the Australian TV account to be true - blaming the Russians - the launcher would have to have crossed from Russia into Ukraine, traveled somewhere west of Donetsk, before turning around and heading eastward back toward Russia, yet the trail seems to begin only with photos on July 17 showing the truck headed east.

Indeed, I was told shortly after the MH-17 crash, which killed 298 people including Australians, that one of the problems that U.S. intelligence analysts were having in pinning the blame on the Russians was that they could not find evidence that the Russians had delivered a BUK missile system to the rebels who - until then - were known only to have short-range Manpads incapable of reaching MH-17 flying at around 33,000 feet.

Another part of the Australian TV narrative stretched credulity. If the Russians had somehow snuck a BUK missile system into eastern Ukraine without U.S. intelligence knowing and were moving it back toward Russia, why would the crew stop en route to shoot down a civilian airliner before continuing on the way? There was no military value in destroying a civilian airliner and it was obvious - in the Western media hysteria then surrounding Ukraine - that Russia and its president, Vladimir Putin, would be blamed.

What I was told by a source briefed by U.S. intelligence analysts was that at least some of them - after reviewing electronic intercepts, overhead satellite images and other intelligence - had reached the conclusion that the shoot-down was a provocation, or a false-flag operation, carried out by a rogue element of the Ukrainian military operating under one of the hard-line oligarchs.

However, it was not clear to me whether that was the opinion of just a few U.S. analysts or whether that had become the consensus. When I sought an updated briefing from the Office of the Director of National Intelligence in March, I was told that the U.S. intelligence community had not updated or refined its analysis of the shoot-down since five days after the event, a claim that was not credible given the significance of the MH-17 case to tensions between nuclear powers, United States and Russia.

In reality, Western intelligence services have been hard at work trying to determine who was responsible for the shoot-down. Last October, Der Spiegel reported that the German intelligence service, the BND, had concluded that Russia was not the source of the missile battery - that it had been captured from a Ukrainian military base - but the BND still blamed the rebels for firing it. The BND also concluded that photos supplied by the Ukrainian government about the MH-17 tragedy "have been manipulated," Der Spiegel reported.

And, the BND disputed Russian government claims that a Ukrainian fighter jet had been flying close to MH-17, the magazine said, reporting on the BND's briefing to a parliamentary committee on Oct. 8, 2014. But none of the BND's evidence was made public - and I was subsequently told by a European official that the evidence was not as conclusive as the magazine article depicted. [See Consortiumnews.com's "Germans Clear Russia in MH-17 Case."]

Possible TV Fakery

There also appears to have been some fakery involved in the Australian documentary. In several instances, as the film crew traveled to eastern Ukraine to seek out scenes from July 17 video showing the truck possibly carrying BUK missiles, images of those sites - then and now - were overlaid to show how closely the scenes matched.

However, for one crucial scene - the image of an alleged "getaway" BUK launcher lacking one missile and supposedly heading back to Russia after the shoot-down - the documentary broke with that pattern. The program showed the earlier video of the truck moving past a billboard and then claiming - based on information from blogger Eliot Higgins - that the TV crew had located the same billboard in Luhansk, a rebel-held city near the Russian border.

This was the documentary's slam-dunk moment, the final proof that the Russians and particular Vladimir Putin were guilty in the deaths of 298 innocent people. However, in this case, there was no overlay of the two scenes, just Australian correspondent Michael Usher pointing to a billboard and saying it was the same one as in the video.

But the scenes look nothing at all alike if you put them side by side. While Usher is standing in an open field, the earlier video shows an overgrown area. Indeed, almost nothing looks the same, which might explain why the film crew didn't try to do an overlay this time.

This discrepancy is important because the Russian government placed the scene of the "getaway" BUK launcher in the town of Krasnoarmiis'k, northwest of Donetsk and then under Ukrainian government control. Usher dismissed that Russian claim as a lie before asserting that his team had located the scene with the billboard in Luhansk.

The significance of the Australian news show's sleight of hand is that if the BUK launcher was making its "getaway" through government-controlled territory, not through Luhansk on its way back to Russia, much of the Russia-did-it scenario collapses. It also means the Australian audience was grossly misled.

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 #46
Interfax
May 18, 2015
Russian Defence Ministry denies serving troops captured in Ukraine

The Russian Defence Ministry has rejected Ukrainian allegations that two men who were reportedly captured during fighting in eastern Ukraine are serving members of the Russian armed forces, privately-owned Russian news agency Interfax reported on 18 May.

Ministry spokesman Maj-Gen Igor Konashenkov admitted that the two men, who were detained by the Security Service of Ukraine (SBU) in Luhansk Region, had served in the Russian armed forces in the past, but added that this was no longer the case.

"At the moment at which they were detained on 17 May, the Russian citizens seized by the SBU in Luhansk Region, Aleksandr Aleksandrov and Yevgeniy Yerofeyev, were not serving Russian armed forces servicemen," Konashenkov said.

The spokesman also accused the SBU of mistreating the two men.

"We have checked the Ukrainian side's information - it's true that these lads had served in a unit in the Russian armed forces and had undergone military training. On top of that, I can confirm that the association of special forces veterans contacted us and asked us to contact the Ukrainian General Staff via official channels in order to put an end to the abuse of their wounded comrades by SBU employees as they beat convenient testimony out of them," he said. "We are counting on the Ukrainian leadership to show good sense and on Aleksandr Aleksandrov and Yevgeniy Yerofeyev being released as soon as possible."

According to Interfax, Konashenkov said that, during the course of the conflict in eastern Ukraine, "dozens and even hundreds of Ukrainian service personnel and fighters from so-called 'territorial' battalions" have been detained on Russian territory. "The way in which they were treated fully complies with international norms and, within a short time, once they were provided with the necessary assistance, they freely returned to their families and friends," he said.

Earlier on 18 May, Ukrainian officials said the two men had been taken to hospital in Kiev after being wounded when they were captured near the city of Luhansk. Ukraine also said it had had evidence that the men are a captain and a sergeant in a Russian special forces group.

 [return to Contents] 

 #47
Moscow Times
May 19, 2015
Moscow Admits Two Fighters Captured in Ukraine Are Ex-Russian Soldiers
By Anna Dolgov

Russia's Defense Ministry has identified two fighters captured in Ukraine as former servicemen in the Russian military - a concession that echoes rights advocates' claims that Moscow has been discharging its soldiers from the army before sending them to fight alongside separatists in the Donbass.

The fighters, Alexander Alexandrov and Yevgeny Yerofeyev, whom Ukrainian forces captured in the rebel-controlled Luhansk region, "were not active servicemen in the Russian armed forces at the moment of their capture on May 17," Russian Defense Ministry spokesman Igor Konashenkov said Monday.

However, "we have checked up on the information of the Ukrainian side - these boys previously have in fact served in one of the Russian military units and have military training," Konashenkov said, according to comments carried by Russia's major state-run news agencies.

It remained unclear when the men might have been discharged from the Russian military. Separatists in Luhansk claimed that the fighters were serving in rebel "militia" and have released photos of their rebel-issued military IDs, both dated this year.

Ukraine has identified the fighters as officers from the GRU, the foreign military intelligence branch of Russia's army, and released a video with the men saying they had been part of a Russian special forces spying mission. In the video, which could not be independently verified, Alexandrov also says that his group has been in eastern Ukraine since earlier this year.

Kremlin spokesman Dmitry Peskov, asked to comment, said: "Both we and the Defense Ministry have said multiple times that there are no Russian servicemen in the Donbass."

Russian President Vladimir Putin has also repeatedly denied the presence of Russian troops in Ukraine.
"I am telling you openly and unambiguously: There are no Russian troops in Ukraine," Putin said during his annual televised call-in show last month.

Putin had also denied the presence of Russian troops in Crimea ahead of Moscow's annexation of the peninsula from Ukraine in March 2014 only to acknowledge it afterward.

The Defense Ministry's latest claim about the identity of the Russian fighters jibes with an account provided in a report released last week by allies of murdered opposition leader Boris Nemtsov.

Based on interviews with Russian troops and their representatives, the report claims that this year, Moscow started discharging its soldiers from the army before sending them to Ukraine and then declining military benefits to the families of soldiers who were killed in the conflict.

The practice marked a shift from Moscow's alleged handling of the fighting in Ukraine last year, when Russia deployed active servicemen across the border, the report said. At that time, soldiers' families received military benefits in exchange for keeping silent about the circumstances in which their loved ones died, the report said.

Ukraine intends to prosecute the captured fighters for "terrorist acts," the head of Ukraine's Security Service, Valentyn Nalyvaichenko, said Monday.

Ukrainian Interior Ministry adviser Anton Gerashchenko has suggested that after the men stand trial, they could be exchanged for Ukrainian pilot Nadezhda Savchenko, who is currently in prison in Moscow, as well as another 400 Ukrainian prisoners held by Russia.

The Russian Defense Ministry is "counting on" Ukraine to free the two fighters, its spokesman said, TASS news agency reported.

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 #48
Dances With Bears
http://johnhelmer.net
May 18, 2015
MOTHER GOOSE HAS COOKED HER GOOSE - HOW ANGELA MERKEL HAS BEEN ABANDONED BY JOHN KERRY, VICTORIA NULAND, AND VLADIMIR PUTIN
By John Helmer, Moscow
[Links, footnotes, photos here http://johnhelmer.net/?p=13387]

Angela Merkel, the German Chancellor, would do almost anything to get and keep power. That, in the opinion of powerful German bankers, includes making herself look ready for war with Russia in order to make her political rival, Frank-Walter Steinmeier (lead image, right), the coalition Foreign Minister and opposition leader in Berlin, look too weak to be electable when the German poll must be called by 2017. So, sources close to the Chancellery say, Merkel insulted President Vladimir Putin and all Russians to their faces last week. This week Victoria Nuland, the junior State Department official who told the chancellor to get fucked [1] a year ago, was in Moscow, replacing Merkel with a settlement of the Ukraine conflict the Kremlin prefers.

"We are ready for this," Foreign Minister Sergei Lavrov said [2] last Thursday after meeting Secretary of State John Kerry. Referring to Nuland, Lavrov added: "we were not those who had suspended relations. Those, who had done it, should reconsider their stance....But, as usual, the devil is in the details." Lavrov meant not one, but two devils, who have sabotaged every move towards a settlement of the Ukraine conflict since the start of 2014 - Nuland and Merkel.

Merkel's Kaput! moment came on May 10, when she went to Moscow to lay a wreath at the Tomb of the Unknown Soldier. Deutsche Welle, the state German press agency, called [3] it Merkel's "compromise after she stayed away from a Russian military parade the day before."

At the following press conference with Putin, Merkel said [4]: "We have sought more and more cooperation in recent years. The criminal and illegal annexation of Crimea and the military hostilities in eastern Ukraine has led to a serious setback for this cooperation." German sources report the word Merkel said, "verbrecherische [5]", has rarely been used by her before; it carries the connotation in colloquial German of gangsterism - and of Nazism. "Merkel doesn't seem to care what she says any longer," a high-level German source says. "She exhibits more and more emotion these days, more irritation, and less care for what she says, and where. Putin understood exactly what she meant, and on the occasion she said it. He acted with unusual generosity not to react."

The Kremlin transcript [6] omitted Merkel's remarks altogether. The Moscow newspapers ignored Merkel's word and emphasized the positive Putin ones. "Our country fought not against Germany," Putin replied to Merkel, "but against Nazi Germany. We never fought Germany, which itself became the Nazi regime's first victim. We always had many friends and supporters there.

US state radio followed with an attempt to endorse Merkel's "verbrecherische", and castigate the Kremlin for ignoring it. "An official interpreter at a Kremlin press conference has omitted a top Western leader's stinging criticism of Russia's annexation of Ukraine's Crimea region", Radio Free Europe/Radio Liberty reported on May 12 [7].

Reporter Carl Schreck claimed he "is unclear whether the interpreter made a conscious call to soft-pedal Merkel's rebuke, or simply missed the word...One person who certainly would have understood the German word for 'criminal' used by Merkel - 'verbrecherisch' - is Putin himself. The Russian leader, who was stationed in Dresden with the Soviet KGB in the 1980s, is a fluent German speaker and in the past has spoken with Merkel in her native language. Whether he heard the word might depend on what ear Putin was listening with. He sported an earpiece on his left ear, presumably to listen to the Russian-language interpreter. His right ear - the one closest to Merkel - was free of electronic accoutrements."

SchreckSchreck (right) - the word in German means fright or scare - was a reporter for the Moscow Times for several years before moving to Prague for the US government. On his own website [8] he doesn't explain his German background, or whether his Washington state upbringing included the German language. Compared to Putin, Schreck is a soft touch for the oligarch Mikhail Prokhorov. For him Schreck's most sensitive question [9] has been: "What do you look for in a woman?"

Verbrecherische isn't the first instance of Merkel's loose lips sinking her own ship. Last November [10] she picked more aggressive German for impromptu remarks than were set down in the chancellery's script. But that was in Australia, and Putin had already left the country. Merkel isn't the only politician to say things in Australia [11] which don't count in the rest of the world.

The irony of Merkel's May 10 attack on Putin is that Kremlin sources believe Putin has been the last of the officials on the Security Council to give Merkel the benefit of their strategic doubt. Yevgeny Primakov, Putin's most experienced strategic advisor, has been telling him privately for months there is no prospect of salvaging the German-Russian entente while Merkel is chancellor, and no hope for the German opposition to break her grip in the short run.

In public, on January 15, Primakov said [13]: "External changes that would favor Russia should not be expected anytime soon. It is doubtful that the sanctions will be cancelled in the near future. Betting on some politicians and European businessmen who speak against the sanctions is not realistic." Primakov omitted the adjective German out of politeness. He and the Russian intelligence services regard Merkel as Washington's patsy.

Two days after Merkel's trip to Moscow, on May 12, Kerry met with Putin and Lavrov in Sochi. The Kremlin communique [14] was minimal, acknowledging that "special focus" had been given to the Ukraine conflict. "The Russian side gave its assessments of the reasons behind the Ukrainian crisis, stating the key points of Russia's position. It was stressed during the meeting that Russia strives to implement the Minsk Agreements in full and will do its utmost to support this process."

By "reasons behind", Putin and Lavrov meant Nuland and the Washington war party. Ahead of the Sochi meeting, the State Department spokesman had tried to play up Kerry, and downplay Nuland. "You can't deal with diplomatic issues if you don't do diplomacy," the spokesman declared [15] on May 11. On May 13, the spokesman was asked if "United States is ready to put pressure on Ukraine to fully implement Minsk II agreements", and ducked [16] the question.

On the next day, by the time Nuland was in Kiev meeting Prime Minister Arseny Yatseniuk and President Petro Poroshenko, the spokesman claimed [17] the "United States' full and unbreakable support for Ukraine's government, sovereignty, and territorial integrity. We continue to stand shoulder to shoulder with the people of Ukraine and reiterate our deep commitment to a single Ukrainian nation, including Crimea, and all the other regions of Ukraine."

Whatever devil can be read in these details, US Government statements indicate something new - there are now only two pairs of shoulders, Merkel's having been shouldered aside. If there's to be a settlement of the Ukraine conflict, it will be trilateral, according to the US, one between the US, Russia, and Ukraine. From the Russian point of view, it's plain this means a deal between Russia and the US, with Nuland to keep the Ukrainian government in line.

Nuland has insisted that she was right beside Kerry in his meetings in Sochi. The press photographs have excluded her. The Kremlin, Lavrov and Kerry have spoken as if Nuland wasn't there.

In Sochi Kerry also went to the trouble of showing Merkel how to behave in front of a memorial to the Russian dead in the war against Germany.

According to Kerry [18],"the war memorial here in Sochi [is] where more than 4,000 of the millions of courageous then-Soviets who died in World War II are buried. And it's a very beautiful memorial and I was very moved by the young children who were there taking part in the ceremony. And I think Sergey and I both came away from this ceremony with a very powerful reminder of the sacrifices that we shared to bring about a safer world, and of what our nations can accomplish when our peoples are working together towards the same goal."

Kerry also gave the regime in Kiev a warning of what not to interpret from anything Nuland may be saying. "If... President Poroshenko is advocating an engagement in a forceful effort at this time," Kerry said [18] in Sochi, "we would strongly urge him to think twice not to engage in that kind of activity, that that would put Minsk in serious jeopardy. And we would be very, very concerned about what the consequences of that kind of action at this time may be."

Now that Nuland has been excluded from the decision-making of the big boys, her job was to go to Kiev to tell the smaller boys what the new US line is. Yatseniuk's version [19] of their talks - minus the customary photo opportunity - was that "the key topics of the talks were questions of overcoming Russian aggression and the implementation of the Minsk agreements, the implementation of economic reforms and the fight against corruption, as well as the assistance from the United States in these processes. Yatsenyuk and Nuland discussed the status of implementation of the program of cooperation with the International Monetary Fund, as well as the preparation for a free trade zone between Ukraine and the European Union from January 1, 2016."

Poroshenko stuck to pledging allegiance: "coordination of our actions with the U.S. is vitally important," is the only quote the presidential website posted [20] from the meeting. Photo opportunities were also curtailed.

Nuland's version, according to the US Embassy transcript [21], was to emphasize just how "eager [we are] to deepen our involvement in helping the parties achieve full implementation-everything from complete ceasefire and pullback on the line of control, to the political pieces, to the border pieces." By "political pieces" Nuland meant the constitutional changes for eastern Ukraine Putin insists on and Kerry mentioned, while Nuland bit her tongue.

Nuland has also ignored Yatseniuk's requests for more money because Washington will neither declare it's in favour of a Ukrainian default on its US-held sovereign bonds at the end of this month, nor provide any money to stop it.

Instead, the US Treasury rolled out its former Secretary, Lawrence Summers, to announce [22] that the International Monetary Fund (IMF) "has done as much as can reasonably be asked". Summers, on the receiving end of Ukrainian oligarch Victor Pinchuk's treasury (right), is this week omitting to call for fresh European Union money or contributions from the Ukrainian oligarchs.

Summers says he is also opposed to an offer of new American taxpayer money. Instead, his US Treasury plan is that "Ukraine's creditors - led by the investment firm Franklin Templeton, but also with the support of a number of major US fund managers, who are sufficiently embarrassed by their selfish and unconstructive position that they avoid public identification - are playing hardball and refusing any write-offs. Understandably, if there are a substantial group of such free riders, other debt holders including the Russians will not accept writedowns... The IMF and national authorities should call out the recalcitrant creditors on their irresponsible behaviour."

In Kiev Nuland put Merkel in her place, relegating her and the French to a single mention in last place in the process to decide the outcome of the Ukraine settlement. The US, she said in Kiev, is "in lockstep with our European allies and partners". Lockstep means chain-gang - Germany must follow where the US leads. The Merkel Kaput! has been followed by the Merkel kibosh!

Dictionary note: Kaput started in French, when it meant losing in cards, and passed into English via the German kaputt during World War 1. Kibosh, disposed of in English, is derived from the Irish caidhp bháis, meaning death cap - the hood put on someone before execution, or the black cap worn by English judges when pronouncing the death sentence.

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