#2
Kremlin.ru
July 6, 2015
Working meeting with President of the Audit Chamber Tatyana Golikova

Vladimir Putin had a working meeting with President of the Audit Chamber Tatyana Golikova. Rational budget spending was the subject of discussion.

Vladimir Putin: Ms Golikova, we have discussed matters concerning effective budget spending on many occasions. You have briefed me on various aspects of these issues too, and we agreed that you would conduct a comprehensive analysis of the situation.

Please, go ahead.

Tatyana Golikova: Mr President, following your instruction, we made this analysis and I sent you the report. I am working closely on these matters with the Finance Ministry, which, as you know, is currently preparing the budget for 2016-2018.

Given the current financial constraints we face, finding new internal reserves and making our spending more effective are the paramount tasks. In this context, there are at least three issues I want to highlight. In reality, the range of issues is broader, but I highlight these three in particular because they are more profitable in terms of the potential internal reserves we can free up.

First, a law came into force several years ago on procedures for financing budget-funded institutions working on the basis of state-mandated tasks. Budget-funded institutions exist to provide services to the public, and we in turn must make the necessary financing available based on the relevant state commitments.

Looking at the situation as it stood on January 1, 2015, we had a total of 208.6 billion rubles in unused funds that had built up from earlier allocated financing. The amount of these unused remainders increased by more than 48 percent in 2014. This is a large amount of money. If we look at the breakdown by sector, we see that slightly more than half of this money was for the social sector and science, and the rest was for industry and agriculture.

What does this mean? It could point to ineffective planning and lack of supervision from the relevant ministries for the institutions under their responsibility. It could also be a sign of ineffective management within these institutions themselves. The services they are there to provide, after all, are services for the public.

What we end up with is a situation in which we earmark funds, and increase our expectations, but the actual services are not provided. In this respect, we proposed that you instruct our colleagues accordingly to take a thorough look into this situation. We are not talking here about taking these funds away again, but about maybe not allocating further funds, or about channelling other funds into other more important tasks.

The next subject is even more sensitive and we have also discussed it on many past occasions.

Vladimir Putin: Accounts receivable and accounts payable...

Tatyana Golikova: Accounts receivable. We are right up against this problem now because the increase in this kind of debt goes beyond the reasonable limits. Our budget spending does not increase at such a pace from year to year, but this debt is increasing at a rate of 28.7 percent from one year to the next.

This means that we made advance payments but did not get the work we were paying for - facilities brought into operation, for example, or purchased equipment. In money terms, this comes to 3.8 trillion rubles.

Vladimir Putin: I recall you gave me a figure of 2.2 trillion.

Tatyana Golikova: Yes, the figure is the overall total and it breaks down into revenue and costs. Revenue accounts for 1.1 trillion rubles in debt, and the rest is costs. But the problem is that this figure is growing all the time and this process has become never-ending.

As far as revenue goes, of the 1.1 trillion rubles in revenue debt, nearly 750 billion is debts for fines for non-compliance with currency laws. This is Rosfinnadzor's [Russian financial monitoring agency] responsibility. Unfortunately, this debt is growing. This situation is linked to two problems. The first is problems with the legislation itself in terms of imposing fines, and second is the existence of fly-by-night companies.

As a result, debts are rising, and so we propose sorting out both aspects of this issue.

Another revenue-related issue is the bailiff service. Debts on their fees are also on the increase. This debt comes to 90 billion rubles and the increase in 2014 was slightly more than 31 billion. The biggest problem with this kind of debt though is the fines for non-compliance with this or that law. Non-payment of fines to the budget discredits the decision-making process in these areas and indicates an irresponsible attitude towards enforcing this country's laws.

As far as costs, the figure is a large one and advances make up 95.6 percent of the total. These advances are a problem that has built up over the years now and they are still rising at a rate of 600 billion rubles a year. I think that sorting out these debts is an absolute priority because the current situation is that advances are not getting settled and new money continues to be allocated.

This chain keeps on moving and moving, but rather than getting the actual facilities we have paid for, we are getting only higher demands for money to cover increased construction costs. I think this is a serious issue that we must address.

Finally, there is the matter of public procurement. There has been some improvement in the situation here, but nonetheless, a selective check of ministries and agencies alone in 2014 revealed violations worth a total of 39 billion rubles. We did not carry out thorough checks of these institutions but only checked the main disbursers of funds.

The violations are about non-compliance with the law. For example, the initial maximum cost of a contract is not set, contracts are revised, deadlines are shifted, additional agreements are signed, and so on. If we were to conduct deep-reaching thorough checks of these institutions, I think we would find a lot more potential money to save than the 39 billion that we have noted for now.

In today's situation, I think this kind of internal work on the budget is even more important than our usual talk about increasing this and increasing that. In today's conditions, we need to go as slowly as we can in spending the reserves that we built up over the previous years.

Vladimir Putin: I agree. I realise that people justify the debt situation and the increase in advance payments and so on by the lack of cheap long-term credit, but we need to monitor, of course, the effects produced by the instruments the state authorities use, and we need to examine this whole situation very carefully.

I want to take a closer look at the details, and then we will discuss the steps we should take to change this situation.
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 #3
Interfax
July 7, 2015
Federation Council to present 'patriotic stop-list' of 12 NGOs to Prosecutor General's Office, Foreign Ministry

The 'patriotic stop-list' drawn up by the Federation Council consists of twelve foreign NGOs, Federation Council Chairperson Valentina Matviyenko has said at a press conference.

"At our meeting tomorrow we will pass a related appeal to the Prosecutor General's Office and the Russian Foreign Ministry and will present our patriotic stop-list consisting of twelve foreign organizations operating on the territory of the Russian Federation," the chairperson said.

In the words of Matviyenko, the list is not full. "This list is not complete; it aims at prevention. We are aware of the activity of these organizations, which is of explicitly political nature," the chairperson of the upper parliament chamber explained.

In her words, the Prosecution Service and the Foreign Ministry will check the degree of compliance of the foreign NGOs' activity with Russian legislation. "In the case this activity violates Russian legislation, they will be put on the list of undesirable organizations," Matviyenko underlined.

She said the decision [to draw up stop-lists] was made at the initiative of regions. "We are receiving plenty of appeals from regions which are concerned about operation of certain NGOs on their territory, [NGOs] are funded from abroad but they are engaged in political activity, and this cannot help but be a source of concern," the chairperson said.

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 #4
Russia Insider/The Saker
www.russia-insider.com
July 6, 2015
Translation of Russian Articles the Best Weapon in Current Information War
Russian media is extremely diverse and far more exciting than its boring, mind-dulling western counterpart
By The Saker

Text below has been excerpted from Saker's bow to the translators of Saker Community.

I strongly believe that there is no better "weapon" in this war than the full translation of Russian articles or videos.

First, contrary to the western propaganda, the Russian media is extremely diverse and anti-Russian or pro-western ideas are richly represented in it. I would even argue that these pro-western ideas are grossly over-represented since the pro-western "non-system opposition" (a Russian term meaning "too small to even get one deputy in the Duma) is supported by less than 5% of the population yet their views are discussed on a daily basis. Folks like Navalnyi, Sobchak, Khodarkovskii, Kasparov, Kasianov, Ponomarev truly represent *nobody* or, should I say, they represent only themselves, which, in essence, is the same thing.  In fact, the Russian media is so "diverse" that mainstream TV talkshows regularly degenerate into long screaming matches and sometimes even fist fights!

As a result, the political debates are not only interesting, but even fascinating. I wish I could share with you all the TV debates were I have seen the correspondents of foreign media ripped into shreds by their Russian colleagues accusing them of lying and distorting the truth. Even pro-junta Ukronazis are regularly invited to speak on Russian TV talkshows (even the most famous ones with the biggest audience) where they are often confronted with representatives of Novorussia. Amazing stuff, I assure you!

Second, there is a lot of excellent analytical articles posted in Russia, written not only by journalists, but also by various professionals: lawyers, generals, economists, governors, astronauts, etc. they all love to write and express their point of view. While in the West such technical experts write mostly in the specialized media (the average reader's attention span and vocabulary mandate short and primitive articles), you can very often find such detailed technical analyses in the Russian general media, including newspapers.

By Russian standards most shows on RT are actually rather dull and tame. Clearly, RT is aimed at a western audience and it is effective, hence the anti-RT hysteria in the USA, NATO and EU. But RT completely pales in comparison to the Russian media: when is the last time you have seen Ishchenko or Starikov on RT? How about a representative of the Donbass? Exactly.

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 #5
Transitions Online
www.tol.org
July 7, 2015
Everybody Loves Volodya
With Putin's approval ratings sky-high, have even his critics changed their minds - or have they just found the door?
by Barbara Frye
Barbara Frye is TOL's managing editor.

Analysts in the West are making a nice living these days explaining the workings and effects of Russian propaganda, but there has seemed a consistent gap in those explanations.
 
Yes, many Russians get their news primarily from state-controlled television, which is home to enough hokum, hucksters, and hagiographers of the ruling regime to degrade the critical faculties.
 
But surely the 89 percent of respondents who recently told pollsters they approve of Vladimir Putin's performance includes some of his former critics - the skeptical city-dwellers who have access to other sources of information and likely don't depend on the state for their livelihood. Further, the nearly 50 percent drop in the number of people with a favorable view of the European Union suggests that a particular version of the Ukrainian conflict has gotten traction.
 
Are we to conclude, then, that legions of Putin critics are accepting a particular lie - one that I would have expected to be a much harder sell - that European countries, including Germany, are embracing a fascist regime in Ukraine while an isolated Russia fights for decency and humanity? And this in a country where people are famously cynical about their homegrown media?
 
I'm not the only one scratching her head over this. In a recent interview with Snob magazine, Radio Free Europe journalist Ksenia Kirillova said she has been struggling with the question of why the intelligentsia is supporting Putin. She offered three reasons: fear, a longing to resurrect the Soviet Union, and a reflexive identification with the state in matters of foreign policy.
 
Kirillova, who formerly worked in the Urals bureau of the opposition Novaya Gazeta newspaper and now lives in the United States, said the specter of instability haunts Russia. A dread of returning to the lawless 1990s, encouraged by the Kremlin, feeds a "phobia that we will have a new Syria, Libya, color revolution, which will mean anarchy, a sharp decline in living standards, the emergence of uncontrolled bandits on the streets, almost a civil war."
 
Putin is the only one who can hold back the tide, many believe, just as he is the only one who can save the country now that it is "surrounded by enemies."
 
"The fact is that even smart people, and maybe intelligent people subconsciously feel this difficult situation even more, [think] Russia is heading for disaster. But they apparently do not have enough of some moral qualities, especially courage, to see this difficult situation for what it is. Even if they do not believe in the 'Nazis in Ukraine,' most of them sincerely believe in the hostility of the West," Kirillova said.
 
Many of the same people would welcome a return to the Soviet Union, not because they harbor imperial ambitions, she said, but because it is an idealized past in a country with a grim future. They also want to live in a country that no one would dare attack.
 
In that light, the annexation of Crimea was a step in the right direction.
 
And finally, with a dearth of functional public institutions to identify with, the state has little competition for people's loyalties.
 
That is a necessarily superficial gloss of a long interview that is well worth reading, but I wonder if Putin's high poll ratings are in turn linked to another set of figures.
 
According to the Russian Statistical Service, the number of emigrants rose by about 60 percent from 2011 to 2014, from 600,700 to about 970,000. Those statistics come with a few caveats - on the one hand, the country's immigration authorities changed how they counted emigrants after 2011 in a way that inflated the numbers, while on the other hand, some emigration won't show up in the statistics for other reasons, as journalist Ksenia Semenova pointed out in a measured analysis of emigration for the Institute of Modern Russia.
 
But whether or not those figures are squishy, they may be beside the point: Semenova is one of a growing list of writers to point out the growing list of achievers and dreamers who are getting out of Russia.
 
"When we talk about the qualitative character of today's emigration, the number of people leaving the country fades into insignificance," she writes. "Today, it is highly educated and entrepreneurially inclined people who are leaving Russia: i.e., those who stand to give Russia's economy a boost, wean it off the 'oil needle,' reduce its dependence on imports, and essentially raise the country to a higher level."
 
People like Vladimir Yakovlev, who founded Kommersant media and coincidentally, Snob magazine, and who recently told Radio Free Europe why he has left Moscow for Israel, with no intention of returning.
 
"People are now leaving because they are scared to stay where they would like to live. They are running from Russia," Yakovlev said, in an article about the rising number of Russian Jews heading to Israel.
 
As RFE reports, emigration to Israel, mostly from St. Petersburg or Moscow, doubled in 2014 compared with any of the previous 16 years, and so far is on track to exceed that this year.
 
Again, not that there is a stampede to the airport: while growing, the number of Russians settling in Israel is still only in the four digits annually - about 4,700 in 2014, according to Israeli government statistics cited by RFE. And fewer Russians tell pollsters these days that they are planning to move abroad.
 
But those who study Russian emigration say the ones who leave are a select group: educated, relatively well-off, entrepreneurial.
 
Apart from Jews heading to Israel, there have been many others in the past year, including researchers, economists, journalists, and tech entrepreneurs. And that is not to mention the foreigners contributing to Russian society, including the American professor trying to help businesses in Nizhny Novgorod to innovate and the Dutch entrepreneur who founded the RBC business news agency, who are being driven out.
 
In a discussion for Radio Free Europe, foreign policy analyst Sergei Medvedev said last month that his students at the prestigious Higher School of Economics have "life priorities" connected with leaving for the West. And Alexei Levinson, a pollster for the independent Levada Center, told Medvedev the young and the rich are more likely to "constantly or often" think about leaving Russia permanently, and the most highly educated, the richest, or those who live in major cities are more likely to want to move out of the former Soviet Union entirely.
 
In Russia's new jingoistic, post-Crimea heyday, life for the dissenter who stays is becoming ever lonelier, journalist Maria Eysmont said in the same discussion.
 
"I've heard others compare it to a ghetto, although I would not say that," she said. "If you're in some small ghetto, and you come out of it into the larger world, it's obviously going to feel as if most people just stick with different views on some basic and very important values. ... It's not easy; few can exist comfortably for a long period of time in such a tense atmosphere."
 
So perhaps those record-high numbers for Putin are thanks in part to newfound support among his former critics. Or perhaps they are thanks to the fact that most of those critics have already left.

#6
Even the Kremlin Doesn't Believe Its Own Poll Numbers, 'Nezavisimaya gazeta' Says
Paul Goble

Staunton, July 7 - The Kremlin it appears "does not believe the ratings" it routinely distributes about the support the Russian people are showing for Vladimir Putin and his regime if one judges by the Russian government's new effort to give the FSB expanded powers to fight mass protests, according to the editors of "Nezavisimaya gazeta."

The amendment to existing law being pushed by three members of the Federation Council would give FSB officers the right to use lethal weapons without warning against protesters and others.  And it would establish that this would inevitably be held to be "justified," the Moscow paper says (ng.ru/editorial/2015-07-07/2_red.html).

The question inevitably arises, the editors continue, as to why the authorities feel they have to take this step now. The paper points out that "amendments to laws are as a rule are a reaction to real events," and that suggests that in the judgment of the authorities, "protests and mass disorders in Russia are not simply possible but are on the agenda."

If that is so, then it follows that "the high ratings of support" that Putin and the Kremlin have been getting "are not deceiving" those in power. Instead, they publish such data to legitimate the decisions taken above and to exert psychological pressure on those who do not agree" by suggesting that the overwhelming majority do.

Clearly, the editors write, "the ruling elite knows the value of these figures and is preparing for mass protests or even for a campaign of civil disobedience. This is a kind of political realism. More than that," they argue, "it is almost the single example of that in the actions of the present-day powers that be."

The Kremlin's attitude reflects its reaction to Viktor Yanukovich's failure to use force against demonstrators in the Maidan. Moscow probably would "have been prepared to understand and even justify" a use of force; Yanukovich's failure to use it, in the view of those in the Russian capital, was a sign of weakness, something to be criticized rather than emulated.

Are the steps the Kremlin wants adequate to the situation? Hardly, the paper says if one views protests as a measure of social protest. But the Russian leadership sees them as something else, as the result of penetration operations by foreign intelligence services working to overthrow the Russian regime.

That is how "the ruling elite in the Russian Federation views mass dissatisfaction in other countries," and that is exactly the way it conceives any protest at home.  As a result, the Kremlin wants to put in place ways to defend itself and its powers rather than find the basis for dialogue with Russian society.

Today's issue of "Nezavisimaya gazeta" also featues a discussion by Aleksey Gorbachev and Darya Garmonenko about what Russian polls, however inaccurate they may be in some respects, nonetheless show about how Russians view their government and Putin personally and how ready they are to protest (ng.ru/politics/2015-07-07/1_putin.html).

According to the latest Levada Center poll, 58 percent of Russians consider that "the leadership of the country is concerned only about maintaining its own power, nearly twice as many (30 percent) who say that it is interested in the flourishing of the country. Only four percent say the government is responsible to the voters.

Every tenth Russian, the paper continues, "is certain that the authorities are conducting a consistent policy of limiting the rights and freedoms of citizens," something many accept but only if the regime is able to ensure a rising standard of living and stability. Given this pattern, most Russians say they try to avoid coming into contact with the regime.

Fewer than one Russian in five - 18 percent - believes that protests are "completely possible, while three out of four say that demonstrations are "very improbable." And even fewer are prepared to take part in such demonstrations themselves: ten percent in economic protests and eight percent in political ones. For that to change, the situation would have to be much worse.

The paper asked Levada Center's Aleksey Grazhdankin to explain what appears to be a contradiction: 89 percent support the president but 60 percent consider the government not under his control.  He said that pattern reflects the "dual understanding" Russians have about the powers that be.

The government is something they really encounter and dislike; Putin is something else whom "they know through propaganda." In sum, it is the latest iteration of the old Russian belief in the good tsar and the bad boyars.

Konstantin Kalachev, the head of Moscow's Political Expert Group, offered an alternative explanation for what is going on between the powers and the people. He suggested that the Kremlin has its own, unpublished polls which paint a very different and darker picture of the attitudes of the people.

"Otherwise," he said, "why are the authorities concentrating so much on propaganda and repressive legislation?"
 

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 #7
Russia most likely to have 10.5% inflation for year - Ulyukayev

MOSCOW. July 7 (Interfax) - Russia is must likely to have 10.5% inflation for this year, Economic Development Minister Alexei Ulyukayev said.

"Our official forecast is 11.9%. We won't be changing it before we submit our adjusted forecast to the government. Officially it will remain such until September. But right now we see the most likely dynamic as falling to 10.5% by the end of the year," Ulyukayev told reporters.

"In other words, we expect annual inflation to drop to approximately 10.5% by year-end and to below 7% by April," he said.

"Accordingly, since the monetary authorities act given a time lag, the inflation forecast that we share with the Central Bank means there is at least several percentage points of leeway for lowering the key rate," Ulyukayev said in comments on the expediency of cutting the key rate in the near future.

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#8
Oilprice.com
July 6, 2015
Is Russia Ready To Make A Comeback?
By Colin Chilcoat

As world markets nervously react to any news out of Greece, a sense of calm prevails in Russia.

In short, a Greek sovereign default and exit from the euro zone is unlikely to inflict much damage on the Russian economy, already largely isolated from western financial markets. That's not to say the Russian economy is fully insulated or that it's even doing well - it's not - but a rebound of sorts does appear to be brewing.

For starters, Russian state gas giant Gazprom and western major Royal Dutch Shell have embarked on a strategic alliance that will see asset swaps - recent Shell purchase BG holds potential - and an expansion of the firms' successful joint Sakhalin liquefied natural gas operations.

Additionally, Gazprom, together with Shell and its European gas buyers E.ON and OMV, will construct two new Nord Stream gas pipelines to Germany via the Baltic Sea. The new pipelines will double Nord Stream's existing capacity of 55 billion cubic meters (bcm) and turn Austria into one of Europe's largest gas hubs. The expanded Nord Steam and forthcoming Turkish Stream - which takes on an added significance in the event of a "Grexit" - will limit any delivery hiccups as Russia eliminates Ukraine from its transit portfolio.

Exxon is also betting on Russia, though sanctions prevent any immediate return. In 2014, Exxon added 52.3 million net acres to its Russian holdings. The company has 14.6 million net acres in the United States.

In Asia, China has begun construction on its share of the Power of Siberia pipeline, slated to deliver 38 bcm of Russian gas annually to China beginning in 2017. Further, construction of a 30 bcm western spur - Power of Siberia-2, or the Altai route - may soon start, pending a final agreement.

The Asian market is the future for most crude oil and natural gas suppliers and Russia has done well to carve out its position. In 2014, Russia increased sales to China, Japan, and South Korea by 25 percent, grabbing market share from Saudi Arabia, Kuwait, and Qatar. State oil conglomerate Rosneft expects to boost crude shipments to the east by 30 percent this year.

They may compete in the East, but cooperation has been the story thus far this year between Russia and Saudi Arabia. The two countries have signed a nuclear power agreement that would see Russia construct and operate as many as 16 nuclear power plants in the Middle Eastern kingdom. Saudi Arabia currently has none. Conversely, Russia hopes Saudi Arabia will become an important partner in existing or future oil and gas development projects.

Perspective is needed though, and to be sure, the Russian economy has seen better days. In May, several key sectors of the economy recorded some of their steepest monthly declines since the global financial crisis in 2009. Production of goods and services across industrial, retail trade, construction, agriculture, and wholesale trade sectors fell 6.8 percent, after recording lesser declines in each previous month to start 2015. In all, the economy is expected to contract 2.7 percent this year, and has the weakest medium-term growth outlook of any major emerging market.

After last year's utter collapse, the ruble is the world's strongest performing currency in 2015. However - despite being down roughly 30 percent from its 2014 average - it may still be overvalued. As measured by the real effective exchange rate, Russia's sky-high inflation is killing the ruble's competitiveness abroad. Despite the best efforts of the Central Bank of Russia to curb the ruble's rapid appreciation and extend an already shrinking economic "window of opportunity," a high degree of volatility is expected in the third and fourth quarters.

What's more, the sanctions aren't going anywhere. On June 22, European leaders unanimously agreed to extend economic sanctions against Russia until January 31, 2016. Russia is considering further retaliatory measures against the sanctions, which target trade in the financial, energy, and defense sectors.

The economic indicators and rigorous bureaucracy don't exactly equal a welcoming business climate, but a handful of moves suggest Russia, its minerals, and state corporations have their fair share of suitors.

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 #9
The Unz Review
www.unz.com
July 6, 2015
Kiselev Wants to Take You to a Gay Bar
By Anatoly Karlin
[Charts here http://www.unz.com/akarlin/kiselev-and-gay-marriage/]

A few days after the Supreme Court legalized gay marriage throughout the US, a fairly (in)famous Russian TV presenter expressed his support for gay civil unions on the nation's second biggest TV channel in front of a big projector screen blaring out "Love Works Miracles."

No, he was not beaten up by skinheads with iron bars for his temerity live on air, nor was he fired, nor did anything happen to him whatsoever (which is surely shocking enough by itself for many Westerners). What is all the more surprising is the identity of this TV presenter: Dmitry Kiselev. He is a personality who has a highly chequered reputation in the West, reliably generating headlines with soundbytes about Russia's ability to turn the US into radioactive ash and the necessity of burning the hearts of dead homosexuals. He is arguably regarded as being second only to Putin in terms of his godly powers in Ukraine, and has been sanctioned by the EU for being a "central figure" in Russian state propaganda.

And to hear him "come out" this way - "Love Works Miracles," indeed. Snide jokes about his imminent gay marriage to Milonov inevitably follow. Even if he is serious, how exactly is Russian society - where support for gay marriage is at a mere 7% according to opinion polls, down by half from 15% just a decade ago - supposed to accept gay civil unions?

But far from being the raving firebrand and Slavic Glenn Beck that he is typically regarded as, Kiselev is in fact a fairly intelligent and urbane person who speaks four foreign languages, successfully cultivated ties with important people who didn't necessarily share his ideological outlook - here is a photo of him serving fried potatoes to Poroshenko and Buzina, in nicer, older days - and overall, an able servant of the state who is ultimately paid to propagate its thoughts, priorities, and feelers.

This episode must force us to consider an unusual proposition: The granting of concessions to the Russian LGBT community, up to and including civil unions. So far as the Russian state is concerned, this is arguably both realistic and adaptive and might happen far sooner than one might otherwise imagine.

The first major point to bear in mind is that Russian attitudes towards homosexuality - as well as social conservatism in general - have always been far more functional than ideological and/or theological in nature. This might be a surprising assertion to some, but it is backed up by history. The Soviet state was the fourth major European country (France, the Ottoman Empire and Italy were first) to effectively decriminalize homosexuality in 1917, along with abortion. The "reactionary" ancien regime had been overthrown, and so too were its cultural and legal accoutrements to be consigned to the dustbin of history. This policy was sharply reversed by Stalin in 1933, when (male) homosexuality was once again made illegal. Despite the rhetoric, its goals were purely pragmatic: The Stalinist leadership was concerned about falling birth rates (which they ascribed to the liberal policies instituted under the Old Bolsheviks, including legal homosex and abortion), made especially germane due to the looming threat of war with Nazi Germany; and the latent homoeroticism of much of Nazi art and culture (compare Kameradschaft to Worker and Peasant Girl) coupled with the regime's search for scapegoats made homosexuals an easy target. These policies were maintained after Stalinism, when homosexuality was associated with effete capitalist societies that had no place in a worker's state. The USSR might have been Marxist, but it was by no means culturally Marxist (a fine point that oft happens to be lost on US conservatives).

Then the winds of history shifted, and sodomy was (re)decriminalized in 1993 - that's ten years earlier than some US states, for context. In the absence of the state declining to take a strong position one way or the other, attitudes towards homosexuality steadily crept up well into the Putinist 2000s - albeit from a very low base. But then in 2012, Russian politics took a starkly conservative turn as Putin, following the mini-shocks of the 2011-12 elections protests, forsook the urbane and cosmopolitan class of Muscovite latte-sippers in favor of the "real Russia" of the Uralvagonzavod workers in the hinterland. The law against propaganda of homosexuality to minors was adopted in 2013. Locked in an increasingly bitter culture war with the West, which has now began not only embracing but actively weaponizing the international LGBT movement against its geopolitical foes - conventional wisdom must assess the prospects for LGBT rights in Russia as bleak for the foreseeable future.

Or maybe not. Here are the reasons:

(1) As per above, the Russian state's policies on social conservatism are functional, not ideological. If the cost-benefit calculatinos change in a certain direction, so too will state policy. This is especially the case today since unlike the Soviet Union, Russia is an avowedly non-ideological state. When asked if Russia has a "national idea," Putin replied, "For our children, our grandchildren, for our Motherland, Russia, it always was, is, and will be worth living for and creating for. What else is there? However we might try to come up with a national idea, it has to be said directly: There is nothing closer to someone than his family, his close ones, and his own country." In other words, strident conservatism might be adaptive today - but tomorrow is another day.

(2) From a McCarthyite conspiracy theory, the US and Co. have managed to make Homintern into reality, highly intertwined with SJWs (with Buzzfeed as their flagship) and wielded with aplomb against countries unfriendly to the West (I suspect that as much has been written in the American MSM about Russia's "persecution" of gays just in relation to the Sochi Olympics than about the totality of LGBT experiences in Saudi Arabia). What is all the more remarkable is that all this came together just a mere decade or so after the end of institutionalized discrimination against homosexuals in the US. This is no mean achievement and can be said without the slightest trace of irony.

But that doesn't necessarily mean that all or even most homosexuals are now fully on board with Western imperialism. To the contrary, Manning and Greenwald plainly disprove that. The Russian LGBT movement as a whole has been highly subservient to Homintern, but this is neither a universal position nor even an entirely non-understandable one in the context of the Russian state's turn against LGBT in the early 2010's. For instance, Nikolay Alexeyev - a prominent leader in Russia's gay movement - doesn't like the West anymore than he does Putin, after he fell out with America's Homintern (specifically John Aravosis and the AMERICAblog) because of their attacks on him following his refusal to toe their line calling for a boycott of the Sochi Olympics.

(3) To avoid falling behind the global Zeitgeist. If you can't beat it - and let's not kid ourselves, Russia objectively can't - then join it on your own terms. As Razib Khan points out, it is the high IQ people who set policy - even in the US, the religious conservative types have next to zero influence over policy - and the great bulk of high IQ people in the West now support the gay agenda. This percentage is not going to diminish anytime soon. Like it or not, but opponents of gay marriage are going to find themselves increasingly surrounded by blithering idiots (Khanian qualifier: on average). And fat, drunk, and stupid - well, just fat and stupid, I'm talking about the US not Russia here - is no way to exert influence.

The counterargument is that the Western power is sinking anyway with the rise of BRICS, so why adapt to their world now of all times? Even if one insists on viewing it that way, though, it's hardly an exclusively Western phenomenon. For that matter, two BRICS members - South Africa and Brazil - already have gay marriage.

As religiosity decreases, and it is decreasing virtually everywhere, tolerance for homosexuality and consequently support for gay marriage tends to rise. China and Russia are the only two major exceptions to this trend, due to their socialist legacy, but will they remain exceptions indefinitely? With the homosexuality = effete capitalists ideology now defunct, I wouldn't bet on it in the longterm.

One concern for Russian conservatives might be that civil unions would be a slippery slope. To the contrary, evidence so far indicates that they are more of a line in the sand. It's striking that Germany - a country far more socially liberal than the US, and which has had gay civil unions since 2001 - still doesn't have gay marriage, while the US is fining bakers hundreds of thousands of dollars just for following their religious beliefs on homosexual unions. Americans can thank their pathetic cuckservatives for that, who spent many years slavering about the evils of gay marriage only to do a volte-face as soon as support for gay marriage crossed the 50% bar.

(4) One of the main purposes of traditionalism in Russia right now is as a foreign policy to consolidate the Near Abroad (e.g. Novorossiya) and undermine the NWO (e.g. Nazi conferences, support for Front National and Scottish independence - Europe, "The South will Rise Again!" - the US). The No Homo position is a consistent, if unnecessary, complement.

Why unnecessary? First, because consistency in foreign policy is overrated. Nobody pays anything but lip service to it. At various points since the fall of the Soviet Union, the US supported Chechen jihadists, its pet Moscow liberals, and literal liberal Nazis like Navalny - and the US is, after all, the country that invented the very concept of "color revolution." Smart countries would do well to learn from the master. And I think some are doing just that. Today's Russia supports both Left and Right, Syriza and the National Front, Occupy and Texas secessionists.

The naive view is that No Homo will be more of a draw in the Near Abroad, where society is just as or even more homophobic than in Russia. For instance, a mere 5% of Ukrainians support gay marriage. The problem? It's about the 20th item on the typical Ukrainian nationalist's list of priorities (Putin is #1-#3, Europe is #4). More so, in a country where street "lustrations" and Far Right thuggery are a daily occurence, with the police powerless to intervene, any Ukrainian knows that his country is in precisely zero danger of being overtaken by a gay mafia anytime soon. That is why Russian online trolling of Ukrainians about "Gayropean values" and how at this rate they would soon be marrying dogs to toasters is like water off a duck's back.

In dealing with this... cult (see video above), that happens to worships Europe, what would be a guaranteed way to mindfuck svidomy skulls? To inflict unimaginable levels of butthurt amongst Maidanists? Adopting same-sex civil unions just like in (the very European countries like) Germany, Czechia, Croatia, and Estonia that they love and look up to so much.

(5) Conservatism has certainly been useful in restoring Russia's 1990s-depleted patriotism levels and fertility rates, but were it to be taken much further, its overall utility will become questionable. One distant if not altogether impossible outcome is falling into genuine retarded obscurantism. This is currently faked in Russia, not least by characters like Kiselev himself, but as in the Borgesian fable, the map can become the territory.

This would cripple transhumanism in Russia along with associated technological vectors like indefinite life extension and superintelligence. Too "real" and self-sacrificing - or "passionate," in the Gumilevian sense - a commitment to traditionalism would increase the risks of this scenario coming to pass. Starkes Herz, starker Stahl! Dudes with AKs or even Armatas would always end up getting wrecked by Googletopia's drones, Belltower augs and NWO terminators.

A loosening of No Homo policies can be a useful and timely reminder to people not to take the Spiritual Braces (dukhovnye skrepy) too seriously.

Now for sure this must all remain speculation. But I do not think Kiselev's announcement of his support for gay civil unions was entirely out of the blue, and as covered here, there are solid and logical reasons for why it might presage a deeper turn in Kremlin policy in the not too distant future. And though I wouldn't take even odds on it, I do think it's likelier that Russia will into homosex by 2020 than that the President's first name is going to be to be something other than Vladimir or Sergey (Shoygu).

PS. To preempt any claims of opportunism: I have supported same sex civil unions with some of the rights and privileges of marriage since the early 2000s when I became politically aware and my position on that hasn't changed substantially since even though I zigzagged ideologically quite a bit during this period. Searching my blog would confirm that at least for 2008. Ironically, this means in American terms that I went from being a raving liberal under early Bush to a hateful bigot redneck today.

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 #10
Russia Beyond the Headlines
www.rbth.ru
July 6, 2015
Press Digest: Putin calls for dialogue in Independence Day message to Obama
RBTH presents a selection of views from leading Russian media on international events, featuring reports on Russian President Vladimir Putin's message to his U.S. counterpart Barack Obama on July 4, the continuing international negotiations on Iran's nuclear program, and the ongoing protests in Armenia.
Darya Lyubinskaya, RBTH

Putin calls on Obama for respect and equal rights in July 4 message

In his message of congratulations to Barack Obama to mark U.S. Independence Day on July 4, Russian President Vladimir Putin urged the U.S. leader to establish a dialogue on the basis of equal rights and mutual respect for each other's interests.

The centrist newspaper Nezavisimaya Gazeta writes that despite a dramatic deterioration in relations, Moscow and Washington have shown that they are capable of cooperating in those spheres where their joint participation is essential.

Furthermore, in her address to voters, Hillary Clinton, who is viewed as one of the leaders in the U.S. presidential race, also called for cooperation with the current Russian authorities.

According to Western media, for the Russian side, Clinton may become an even less convenient partner than Obama, writes the publication. The incumbent U.S. president values the legacy of the "reset" in bilateral relations, whereas a foreign policy heavyweight like Clinton will be developing relations with Russia on the basis of the tough current political reality.

"It is only with time that it will be possible to assess how serious the intention toward a dialogue is," Valery Garbuzov, deputy head of the Russian Academy of Sciences' Institute of U.S. and Canadian Studies, told Nezavisimaya Gazeta, adding that a dialogue would be possible only if both sides are ready to make concessions.

"Although Obama did not congratulate Putin on Russia Day, [U.S. Secretary of State John] Kerry did. However, it shows that the level of relations has been lowered to that of the Department of State," said Garbuzov.

Commenting on Obama's prospects, Garbuzov suggested that the U.S. president realizes that problems with Putin will not be resolved before the end of his second term in office. Therefore he will try and make sure that "the door of mutual cooperation" is left ajar, with the task of working out the specifics to be carried out by the next president. If that next president is Clinton, it will be rather hard to engage in her in a dialogue, said Garbuzov.
 
Iran nuclear deal almost complete; Russia to accept surplus enriched uranium

The Kommersant business daily reports that the future of the agreement on Iran's nuclear program will be decided in the near future. It is expected that the foreign ministers of the P5+1 group of mediators (the U.S., Russia, China, the UK, and France, plus Germany) and Iran, who are gathered in Vienna, will mark the long-awaited deal at an official ceremony, with a UN Security Council resolution to be adopted later to support the deal.

According to Kommersant sources close to the talks, a mechanism for lifting international sanctions against Iran and reintroducing them in the event of non-compliance has been practically decided: This will be done via a UN Security Council resolution. However, its validity will have to be constantly extended and should one of the permanent members of the UN Security Council have doubts that Iran is sticking to its side of the deal, it will be able to apply its right of veto and block the extension. This mechanism will allow both Iran and the U.S. to save face, the paper points out.

There is also progress, Kommersant continues, in addressing the issue of what is to be done with Iran's surplus enriched uranium: The bulk of it will be moved to Russia. A Russian diplomatic source told the newspaper that in return Moscow will supply either natural uranium to Tehran or ready-to-use fuel.

This is unlikely to generate any profit for Russia, but it would become yet another contribution that Moscow is making to resolving the Iranian nuclear issue, writes Kommersant. In addition to receiving Iranian uranium, Russia, according to the newspaper's sources, is ready to take part in transforming the Fordow site in Iran into a research center.
 
Protesters in Armenia raise the stakes with ultimatum

The business magazine Expert continues to follow the ongoing protests in Armenia, saying that the situation is once again becoming explosive.

The authorities have offered a compromise to the protesters, having promised to de-facto keep electricity prices at their previous level, writes Expert. In the wake of this announcement, a large section of protesters obeyed the police and moved their protest to Freedom Square. However, the more radical demonstrators remained in Bagramyan Avenue.

Naturally, the magazine continues, the protest had begun to weaken due to a loss of momentum combined with very hot weather. Then some of the protest leaders decided it was time to heat things up and presented the authorities with an ultimatum with a deadline, which falls on the evening of July 6. Their demands include canceling the decision to raise electricity tariffs, reducing the current tariffs, punishing police officers who dispersed protesters and dropping charges against protest organizers. The authorities are treating the ultimatum with the utmost seriousness, writes Expert.

The magazine adds that the real reason behind the protests is the inefficient and corrupt system of state governance. "This is why perhaps the presidential administration should indeed call an early parliamentary and presidential election," writes Expert.

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 #11
The Guardian
July 7, 2015
China and Russia: the world's new superpower axis?
Countries are trade partners with a shared goal of challenging US hegemony, but past disputes and competing interests make the relationship more complex
Emma Graham-Harrison in Beijing, Alec Luhn in Moscow, Shaun Walker in Moscow, Ami Sedghi and Mark Rice-Oxley
[Charts here http://www.theguardian.com/world/2015/jul/07/china-russia-superpower-axis]

Forget euro summits and G7 gatherings: for the countries that like to style themselves as the world's rising powers, the real summitry takes place this week in central Russia, where Vladimir Putin will hold court.

Leaders of the Brics countries (Brazil, India, China and South Africa) will meet Putin in Ufa on Wednesday, then make way for the Asian powers grouped in the Shanghai Cooperation Organisation.

Russia and China are the common denominators, as in so much geopolitics these days. The UN security council, Apec, the G20 - Russia and China are the ever-presents, a powerful pairing whose interests coincide more often than not.

Moscow and Beijing have lots in common apart from a 2,500-mile border, economies dominated by state-run firms and oligarchies that can enrich themselves as long as they play by the prevailing political mood of the day.

Officially, Putin is dismissive about suggestions of a new eastern alliance. "We are not creating a military alliance with China," he said last month. "We are not creating a bloc-based approach, we are trying to create a global approach."

And yet both countries share a desire to limit American power; they enjoy a burgeoning trade relationship in which, in essence, hydrocarbons are swapped for cheap consumer goods; and they have a mutual interest in promoting an alternative model to western diplomacy.

Trade has increased sixfold over the past decade. Last year they trumpeted the biggest gas deal in history. The summer will be bookended by two striking events: Russian and Chinese warships puttering about together in the eastern Mediterranean in May, gaming war; and Russian and Chinese presidents standing shoulder to shoulder in Beijing for the 70th anniversary of the end of the second world war in September.

So how robust is the Russia-China axis?

Geopolitics

For China, one of the main attractions of closer relations with Russia is the potential for challenging Washington's still dominant global position.

"In China, where until recently the official line was 'non-alignment', some prominent scholars have started to make unambiguous calls for a comprehensive strategic alliance with Russia," Alexander Korolev, at the National University of Singapore's centre on Asia and globalisation, argued recently. "[They are] arguing on the pages of the CCP [Communist party] central party school's internal publications that 'China-Russia strategic relations are the most substantive ones' and elsewhere that 'China will be unable to shift the world from unipolarity to bipolarity unless it forms a formal alliance with Russia.'"

But often cooperation and tension are two sides of the same coin. Take Central Asia. China's president, Xi Jinping, has set his sights on a "new silk road", using China's billions to help neighbours and regional allies to develop, indirectly supporting growth at home and the expansion of Chinese soft power.

However, this is also Russia's traditional sphere of influence and any Chinese presence that goes beyond commercial dealings is likely to raise hackles in Moscow.

"It's totally possible for China to develop its relations with central Asian countries without challenging Russia," said Liu Jun, a Russian studies expert at East China Normal University. "It's true that Russia would be concerned if China's influence in Central Asia grew too much, but the concerns are not mainstream in the bilateral relations - there are more benefits in cooperation than otherwise."

Russia shares the strategic goal of challenging US hegemony in favour of a more multipolar world, and the two powers often find themselves on the same side in the UN security council, where they wield vetoes as permanent members.

No deal on regulating Iran's nuclear programme can be made without Russia and China, which have staunchly backed its atomic expansion in the past, and the two countries' support is largely the reason Bashar al-Assad has been able to hold on to power in Syria. Recently, Russia has been making political and economic overtures to North Korea, which relies on food, arms and energy from its key ally, China, to survive.

As they support the idea of a multipolar world against American dominance, Moscow and Beijing will also tacitly back each others' attempts to defend their own spheres of influence, said Dmitry Trenin, director of the Carnegie Moscow Centre. In the past two years, Russia has annexed Crimea and backed a separatist campaign to frustrate Ukraine's turn to the west, and China has been disputing islands with western allies in the South China Sea.

"China admits de facto that Russia has interests in eastern Europe, Russia admits that China has interests around the perimeter of its borders, and even though neither will actively help its partner in Ukraine or the South China Sea, both will observe an advantageous neutrality," Trenin said. "There won't be criticism of each other in the areas of their core interests."

Leadership

Government enthusiasm for warmer ties with Russia is summed up by a recent video from the state-controlled Xinhua news agency entitled What Do Chinese People Think About Russia?"

It features Chinese children describing Russia as "even bigger than China", an old man praising Russia's strength, demands for more investment, gas sales, a high-speed train, and plenty of airtime given to adulation of the Russian president.

Putin has long been popular in China, where he is seen as a strong leader who has bolstered national pride, and is not a little admired for his topless photo shoots. "Putin you're a handsome man," says one middle-aged woman on being asked what message she would like to send to Moscow.

There is also an overt comparison to Xi, who has fostered a personality cult of bold leadership that has echoes of the Russian leader's (though with less bare flesh). "Putin is the same as our 'Papa Xi'," says one young man, using a government endorsed affectionate term for the president.

For their part, Russians are more ambivalent about Xi, who has a far lower profile in Russia than does his counterpart in China.

Trade

China's interest in Russian exports has until now been largely focused on natural resources and military hardware. Beyond that they do not make natural partners. Russia can offer little by way of famous brands or innovation in consumer technology to tempt ordinary Chinese customers.

"It's a good thing that there is political will behind the business cooperation. Without it, a lot of things won't happen," Liu said. "Most big projects are backed by the governments and the volume of trade along the border is quite small."

The imbalance of the relationship can be seen in the breakdown of their bilateral trade, worth around $100bn a year. China is Russia's second largest trading partner after the EU, while Russia only just scraped into a list of China's top 10 trading partners, accounting for barely 3% of the country's total trade volume.

Moscow is also hoping Beijing will help with finance for businesses, after western funds dried up last year. Some Chinese firms have seen the Russian economic wobble as an opportunity to make capital investments in the country.

Energy

China and Russia should make natural partners in energy deals, but in reality they have struggled to turn past agreements into real supply deals; pipelines announced last decade have still not been built because of disagreements over pricing and other conditions.

Earlier this year, Russia overtook Saudi Arabia as the largest supplier of oil to China for the first time, with Russian exports to China more than doubling since 2010. But Beijing is accustomed to shopping around for energy and driving a very cheap bargain with its suppliers, while Russia is used to controlling prices for European customers with few other options.

The expansion of shale gas production may have weakened Russia's hand by improving global supply, but China is also increasingly concerned about climate change and needs to wean itself off the dirty coal that still provides well over half its energy.

Since Russia has rarely agreed to sell stakes in strategic land-based deposits to western companies, Putin's offer of a stake in state oil champion Rosneft's biggest production asset, the Vankor oilfields, to China in September underlined the new direction the country's energy policy is taking.

The offer was made at a ceremony to start construction of Russia's $55bn Power of Siberia pipeline, a breakthrough project that is planned to deliver an annual 38bn cubic metres of gas to eastern China over the next 30 years. In November, the two countries also signed a framework agreement for an Altai gas pipeline to potentially supply 30bn cubic metres of gas to western China each year for 30 years.

But neither pipeline deal appears to have been completely finalised, and economic sanctions and a weak rouble will probably make financing the huge projects difficult for Russia's Gazprom.

"It seems like at every meeting there's some sort of document signed and hailed as another big agreement ... but Gazprom will need to develop large fields and construct the pipelines," said Grigory Birg, an analyst at Investcafe. "I think in the current environment securing the finances is the major holdup, and we don't have any indication as to the economics of the project."

Although Birg estimated the rate of return on the Power of Siberia investment to be a modest 9% to 10% when the deal was signed, the profitability is likely to be even less if global oil prices remain weak. Beijing will, by all appearances, be able to drive an even harder bargain for the gas price under the proposed Altai pipeline to western China, a region that has less demand than the industrialised east of the country and already receives cheap gas from nearby Turkmenistan.

Nonetheless, analysts expect energy cooperation to continue to grow as Russia seeks alternatives to the politically thorny European market, and China addresses growing demand and problems with pollution and blackouts. Last year, China replaced Germany as Russia's biggest buyer of crude oil. "China is the major alternative market and is easily accessible for Russia given the [location of energy] reserves and the geopolitical partnership, so it's an obvious fit," Birg said. "But the timing at which it is happening is not in favour of Russia."

Currency

Both Russia and China have an interest in loosening the US dollar's dominance in global trade as the world's reserve currency. Russia now accepts yuan for oil payments (something that other oil exporters, such as Saudi Arabia, don't do).

Following the imposition of sanctions, Russian companies and banks - traditionally reliant on dollar-denominated syndicated loans - started to look to China for a financial escape route. The rouble-yuan currency pair reached records in trading volumes last summer.

Russian companies are not new to the renminbi market, nor to the issuing of "dim sum bonds" - bonds denominated in Chinese yuan and largely issued by entities based in China or Hong Kong. In the past these options represented a cheaper source of funding. Now they're a necessity. However, yields on Russian corporate bonds denominated in yuan have increased as the list of sanctions started mounting up.

Military

Russian arms sales to China have been estimated at $1bn a year, the Russians were previously hesitant to give advanced weaponry to the Soviet Union's one-time military rival. But the recent announcement by Russia's state arms exporter of a deal to supply China with its S-400 surface-to-air missile systems has taken their relationship to a new level at a time when Beijing is seeking new air and naval defence technologies.

The higher-level arms sales have been accompanied by greater military cooperation, which was on display in May with the war games in the Mediterranean Sea. Such exercises in what has traditionally been a "Nato pond" are designed to expand the Chinese navy's reach while showing the United States that Russia is a potentially important military partner, according to Trenin.

Following the Ukraine crisis, which soured relations with the west, he said the main considerations behind Russia's "entente" with China were political. "Now Russia has an important stimulus to grow relations with China, because relations with the west are troubled, and China is the only large player in the world that can be considered as economic, political and to a certain extent military ally," Trenin said.

China and Russia have repeatedly stated that they will become partners, not allies
Both sides, meanwhile, are concerned that the unrest in Pakistan and Afghanistan could spill over into their territory, or serve as incubators for militants who may one day return home.

But none of that means that either side has forgotten past disputes or present differences. Russia is nervous about China sapping its revenue by reverse engineering the equipment it buys, and is also monitoring Beijing closely for any attempts to project military power into central Asia.

"China and Russia's strategic partnership is a result of the times, but it is totally different from a military alliance such as the one between the US and Japan," the Global Times, a Chinese nationalist tabloid, said in a recent editorial.

"China and Russia have repeatedly stated that they will become partners, not allies. They do mean that. China also cares about relations with western countries. Russia does not want to see relations with the west become a deadlock."

Cyber security

Both Russia and China share a concern over the US domination of the internet. In January, Russia, China and a number of central Asian dictatorships jointly submitted a new proposal for an international code of conduct on information security to the UN general assembly.

In a clause clearly aimed at the US, the document calls for countries "not to use information and communications technologies and ... networks to interfere in the internal affairs of other states or with the aim of undermining their political, economic and social stability".

At a recent internet security forum in Moscow, officials from both countries called for a new approach to online security.

"It's great they [the US] invented the iPhone but when you open your iPhone and see the camera you have to guess whether it's photographing you at that moment or not," said Konstantin Malofeyev, a controversial businessman known for his backing for the Russian Orthodox church and the pro-Russian separatist movement in east Ukraine. "Russia went into space first and Antarctic first but we don't control those things, they are controlled by international charters. Why should the US control the internet?"

Chinese official Chen Xiaohua said: "We should join hands to build cyberspace order. Various countries share a consistent vision of enhancing the governance of cyberspace ... following the principles of mutual trust and mutual respect."

In the meantime, Beijing and Moscow signed a landmark cyber-security deal recently that could bolster defence against external attack as well as allowing them to share technology for domestic control.

The two countries have poured resources into managing the internet, aiming to curb its potential as a platform for dissent. Beijing's "great firewall" is a powerful and sophisticated filter of the online world, but is still porous enough that most people inside China do not need to bother trying to evade it.

Both countries also field armies of both hackers and paid pro-government commenters, known in China as the "50 cent" group, because of how much they are paid for each post. However, experts say their focus on internal controls may have come at the expense of security.

"Prioritising political information control over technical cyber defence also damages China's own cybersecurity," Jon Lindsay of Harvard University's Belfer centre for science and international affairs said in a recent briefing. "Lax law enforcement and poor cyber defences leave the country vulnerable to both cyber criminals and foreign spies."

Business mood

Among some business people, there is a fear that the enforced turn to the east will mean Russia selling out from a position of weakness.

"The downturn in relations with the west is bad for Russia and bad for the west; the only beneficiary is China," one top Russian businessman said. "The number of Chinese delegations coming to Russia has gone up tenfold, and the Chinese will only enter the market when they see the conditions are very beneficial to them."

Russian media have been told to play up links with China and other non-western countries, and companies have felt pressure from the government to look eastwards even if it makes little business sense. But what initially seemed pointless may be starting to bear some fruit.

"It started as theatre, but now there are some companies out there really getting stuff done," said Tom Blackwell, CEO of EM, a consultancy firm that has worked with a number of major Russian companies on exploring the Chinese market. "Chinese investment funds have very little experience or knowledge about Russia and it's a hard sell. But the strategy seems to be to do the big state deals first and assume smaller ones will follow. Slowly, real things are happening."

Russia's federal migration service is especially wary of an influx of Chinese migrants across the Russia-China border. It has stated that Chinese could become the largest ethnic group in Russia's far east by the 2020s or 2030s; last summer a border official said that 1.5 million Chinese illegally entered the region from January 2013 to June 2014.

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 #12
The National Interest
July 7, 2015
The Self-Defeating Russia Sanctions
Sanctions against Russia are both ineffective and self-defeating.
By Scott Semet
Scott Semet has been working on global and Russian financial markets since the latter's inception over 20 years ago, in many different capacities, including establishing and running the research department of major financial institutions. He has an MBA from Columbia Business School, an MA from Yale University and is a CFA charter holder.

In the geopolitical arena, do the ends always justify the means? Is it wise to inflict damage on yourself and your institutions to hobble an enemy? The relationship between the West and Russia over the last few years offers an illustrative case.

Even if we assume that Western promotion of the Maidan revolution was absolutely correct and noble, and that Russian resistance is indicative of the re-emergence of the "evil empire," questions remain as to what types of punishment are appropriate and what level of damage to Western society and institutions are acceptable. Specifically, many Western actions vis-à-vis Russia have damaged constructs as fundamental as the rule of law and disrupted many economic innovations, which in no small measure contributed to the higher quality of life and level of development of the West. In other words, in an effort to punish Russian "misdeeds," two of the major forces that helped the West win the Cold War, namely capitalism and its necessary prerequisite, democracy, have been jettisoned when deemed expedient. Is this an appropriate sacrifice?

This work examines sanctions and other actions that can undermine economic relations and contract law. The question of appropriateness is addressed not in terms of any moral right, which this author believes in international politics to be subjective and short-lived at best, but rather in terms of rational self interest:

Does the action do more harm to the initiator than the victim in the short run?

Does the action result in changes or damage to systems harming the initiator in the long run?

Does the action lead to a decline of Western (U.S.) dominance in global affairs, economic and otherwise?

Does the action elicit the desired change in the victim, or does it reinforce the current undesired behavior? Similarly, in third parties does the action stimulate the desired behavior?

The Underpinnings of Capitalism

By the time Mikhail Gorbachev had become general secretary of the Communist Party, the superior strength of the capitalist system, specifically, market allocation of capital to more productive uses, and/or uses that satisfy consumer demand (a stark contrast to the planned economy of the USSR) had become plain to see. Half measures under perestroika failed to materially improve the situation, leading to the demise of the USSR.

After a chaotic and violent start in the 1990s, Russia adopted capitalism, albeit with pronounced local features. After the turn of the millennium, Russia became more and more involved in the global financial and trade system. The West exported excess capital due to a dearth of attractive investment opportunities, and Russia, faced with insufficient capital for attractive investments, imported it. This was mutually beneficial as it allowed Russia to modernize and expand capacity, raising the standard of living and well-being of the people, and Western financial institutions and investors were able to receive higher returns on capital. Russian commodities and products enjoyed high demand from the global (particularly Chinese) economic boom and in turn helped fuel this boom. Such integration and comparative advantage is part and parcel of capitalism and has been known to be beneficial to all parties at least since the time of Ricardo's work, two centuries ago.

The strengthening and reassertion of Russia was met with disquiet in some quarters and led to push back, such as the color revolutions and attempts to provoke confrontation in Ossetia. This push was mostly political and military, not economic. After the ousting of the colored revolutionaries by the local populations and Russian intervention to prevent a Western attack on Syria, efforts to move Ukraine out of the Russian sphere of influence and under the control of the West were stepped up and the demonization of Russia in the eyes of the Western public was accelerated. Still, it was only after the revolution in Ukraine, and after events there dragged on and did not follow the Western script, that economic sanctions were unleashed to isolate and destroy the Russian economy.

The most damaging economic sanction has been shutting Russia out of Western capital markets. In other words, the West convinced Russia to switch to capitalism, borrow money, and then pulled the rug out. Although strictly speaking sanctions lock out a relatively small number of companies and banks, either with State ownership or perceived closeness to the State, de facto they closed Western capital markets to nearly all companies, since prudent risk management precludes taking Russian credit risk under circumstances where exogenous government actions could prevent service and repayment of debt, all questions of ability and willingness to pay aside.

What does our rational self-interest framework say about this economic sanction? In the 12-month period commencing August 21, 2014, roughly corresponding to the effective closure of Western capital markets, some $160 billion in Eurobonds and bank credit principal was repaid that otherwise would have been rolled over. The weighted average spread of this debt ex ante was some 300 bp. At moments when the crisis was particularly sharp, spreads blew out even past 900 bp, and spent long periods over 600 bp, compared to 100 bp for similar Western credit risk. If we use a figure in the middle to account for the fact that, even in the absence of sanctions, the perception of Russian risk would have increased somewhat due to events in the Ukraine, we can estimate that the cost in decreased rent to owners of capital was some 450 bp. In today's ultra-low (even negative) yield environment, this is a palpable, particularly to retirees and pension funds that are unlikely to meet targeted returns.

Is it worth it? What is the damage to the Russian economy? Some of the debt was rolled over into more expensive ruble facilities. The rest was simply redeemed. All else equal, debt redemption leads to lower economic activity, and this no doubt has and will continue to be a factor in lower economic growth (or contraction) in Russia. However, given slowing global economic growth and thus demand, Russian economic growth would have slowed anyway as evidenced by commodity producers' lower CAPEX and thus demand for credit. In other words, these sanctions would be much more damaging in an environment of strong and rising demand than it is today. Moreover, given that annual Russian GDP is over $2 trillion and the capital stock exceeds $7 trillion, this amount of principal repayment, which will decrease going forward, is not a major impediment. Furthermore, Russian Sovereign and corporate debt loads are low by Western standards.

(It should be noted that there are other types of financing that have dried up and will have an adverse effect on the Russian economy, such as vendor financing, which now is becoming a problem. However, such financing has a lesser effect on the economy and is more qualitative in nature, i.e. imported consumer goods become scarcer, and less quantitative, that is, reducing economic activity. Also, substitution of domestic credit facilities has contributed to ruble weakness, but whether such weakness is good or bad for the economy on balance is very nuanced, and beyond the scope of this work. Deterioration in the credit quality of Russian loan books given refinancing problems is also best addressed elsewhere.)

In the long run, denying access to Western capital markets, the deepest and most liquid in the world, undermines their attractiveness to borrowers from other regions: Imposition of these sanctions was a wake-up call that borrowers can be shut of markets if they refuse to toe the line. The damage is amplified as currently the world is awash in capital, and profitable opportunities to employ it are limited. Such opportunities are more likely to be found in developing economies, not stagnating Western ones.

As a result, foreign countries are likely to seek out other sources of financing, particularly domestic. Although the death of Western capital markets in the foreseeable future is nearly impossible, such sanctions are likely to decrease its relative importance and market share and thus reduce its contribution to economic activity. Furthermore, free trade and movement of capital have been major drivers of global economic growth. Restricting access to and/or increasing the cost of capital will have a negative impact on the global economy, decreasing wealth, albeit in differing amounts.

This brings us to our fourth criterion, namely, will Russia change its ways to regain access to Western credit markets? Simple game theory leads to the conclusion that since the West has played this card once, it stands to reason that it will play it again. Thus, giving in to such pressure cannot result in a long-term optimum solution for the entity upon which sanctions have been imposed. No doubt other countries have taken notice of this too.

Post-USSR, the Russian political and economic landscape has been driven loosely by two camps: The first, often labeled as liberals, favor increased global economic integration and private ownership (capitalism), and a more democratic government and society; the second, the siloviki, favor less integration, greater State ownership, and a more authoritarian government and society. During the economic boom of the first decade of this millennium, the liberals seemed to be in the ascendency as trade and capital flows between Russia and the West increased. Over the last several years, the trend has been reversing as government involvement and control of the economy has increased. Western involvement in the Ukraine only strengthened the siloviki's hand, as did sanctions that seek to damage the economy and are thus tantamount to warfare. Thus, sanctions actually reinforce the behavior that the West is trying to stamp out.

Past as Prologue - Cyprus and Violation of Seniority of Claims

Problems of the Cypriot banking system were largely due to ill-advised investments in Greek assets, complicated by the unusual capital structure of Cypriot banks. A "typical" bank's capital is 15 percent equity, 25 percent debt and 60 percent deposits. When the bank gets into trouble, the first losses are taken by equity holders, followed by debt holders and only then depositors if the value of the first two stakes is insufficient. Deposits at Bank of Cyprus and Laiki comprised 83 percent and 86 percent of the capital structure, with nearly all the rest equity. (This should have been a major red flag for anyone exposed to these banks.)

By 2013, the banks were in trouble and it was clear that someone had to take losses. Insured deposits were paid in full. But uninsured deposits are senior creditors, and receive compensation together with other senior creditors insofar as assets remain after insured depositors have been paid. (This differs from the situation in the United States and other jurisdictions where uninsured deposits are super-senior and paid ahead of senior creditors. Contrary to some conspiracy-minded Internet musings, this is nothing new and is not confiscation but merely the seniority of claims.)

However, in 2013, Cyprus confiscated nearly half of uninsured bank deposits while over €9bn in liabilities to European National Central Banks (NCBs) was not touched. NCB loans were collateralized by Greek debt instruments. Any deficiency in collateral is an unsecured claim with the same standing as other claims, including uninsured deposits. Thus, funds remaining after paying insured deposits should have been divided among remaining claims, including uninsured deposits and NCB loans, not preferentially funneled to the latter.

Additionally, as a reward for expropriating uninsured deposits, the Troika extended €10bn on easy terms, and various other financial incentives were granted, allowing Cyprus to avoid default on its bonds. Thus, not only did the NCBs get paid in full, but also holders of Cypriot bonds, such as European banks and hedge funds, were made whole at the expense of depositors, since failure to redeem liabilities to NCBs would have led Cyprus to default.

Strictly speaking, this was not a sanction because it occurred before events in the Ukraine. Nevertheless, it is strikingly similar.

Returning to our four criteria, in this case the short-term damage was greater to the victim, namely depositors in Cypriot banks. Indeed many have justified this expropriation due to the shadowy source of the deposits (Russian mobsters) although in the 20 prior years no such qualms were expressed and many depositors were ordinary people and businesses. In any event, this does not validate violation of the rule of law and the sanctity of contracts.

In the longer term, the damage to the system is likely to be far greater. Not only is it a disincentive to deposits but also questions the role of banks as capital intermediaries, especially in an age where access to markets and innovations such as crowd sourcing are on the rise. The zeal of central banks to defend the financial system is understandable, since disruptions can have profound economic repercussions, including depression and even war, but at what cost? A very dangerous precedent has been set. If depositor funds are regularly used to recapitalize banks, the depositor base will quickly erode, which is in and of itself disruptive to the financial system.

These actions were perpetrated to protect the European banking system and unelected EU and ECB officials who made a conscious choice to inflate collateral values, violate the rule of law and sanctity of contracts to prop up Cypriot banks. Furthermore, there is strong evidence to suggest that Central Bank of Cyprus officials played down problems in the banking sector until after the 2013 presidential elections. Thus, on multiple levels infrastructure crucial to the functioning of capitalism was damaged to achieve short-term political goals.

Clearly this does not advance Western dominance in global economic affairs and gives pause to those considering entering economic relations with these institutions. If Cyprus becomes a template for resolution of problematic banks in the future, as many central banks and international financial institutions have suggested, the perceived safety premium of Western institutions will dissipate further. (One shudders to think what would have been the consequences if there was a levy on all deposits, as was originally proposed.) If confiscation of all deposits is insufficient to the task at hand, do we move on to senior secured debt to protect a more junior but politically favored creditor? If so, if contractual stricture and the rule of law are disregarded when convenient, who would ever make a deposit or loan to a bank?

Lastly, such actions do nothing to discourage the behavior that led to the problem in the first place. If anything, the takeaway is that such behavior, reckless lending in this case, is in the economic actor's self interest, since he retains the upside and the downside is pushed onto depositors, creditors and taxpayers.

Economic Sanctions and Credit Cards - Destroying Financial Innovation

Thanks to subprime mortgages, MBS and other derivatives, financial innovation today has a negative connotation. However, this is due to misuse of the innovations, which in and of themselves offer great benefits in efficiency, allocation of risk and cost of capital.

A great financial innovation is the credit card. It allows you to buy almost anything, anywhere in the world, obviating the need for cash, which has negative carry and the risk of loss (and perhaps bodily harm) and drastically cuts down frictional costs, e.g. prepayment, guarantees and currency conversion. They have increased the people's wealth as well as the quantity and quality of leisure time. Credit cards have become so ubiquitous, with 7.5 billion outstanding and 149 billion transactions per year, that it is hard to imagine modern life without them, although they only appeared a half century ago and achieved widespread use only in the 1980s.

On March 20, 2014, the U.S. government imposed sanctions on Arkady and Boris Rotenberg for "providing material support to Russian government officials," i.e. being part of Putin's inner circle. (Interesting to note that neither has been charged with any crime and were not involved in the Ukraine at all. If using political influence to gain economic advantage is a crime then legions of Western businesses and businessmen should be in the dock. Is K Street to be razed?) The next day, Visa and MasterCard stopped processing transactions of cards issued by SMP Bank, which was majority owned by the Rotenbergs. The bank itself was not sanctioned until later. More importantly, all but a handful of the bank's 170,000 cards were issued to ordinary people, largely employees of the brothers' construction and other companies.

Thus, in this case, the greatest harm was inflicted on ordinary Russians who have nothing to do with the government of Russia, Ukraine or the United States, but nevertheless lost access to their money as a result of sanctions. Those hawking sanctions try to make the case that the anger of ordinary people suffering will be directed at the government and the inner circle, but it is clear that they blame those who approved and implemented the sanctions.

In the longer term, damage to the initiator can be much greater, and in this case erodes U.S. credit card dominance. As it is, the fastest growing credit and debit card company in the world, both in terms of transactions and cards issued, is China's UnionPay, which was already set to be a major challenger to Visa and MasterCard due to its dominance in settlement and payment services in the world's largest market. Western readiness to sanction credit cards no doubt served as a wake call to China and others and will lead them to redouble their efforts.

Globally, UnionPay is likely to be a major beneficiary of the sanctions. In Russia, its plan to reach 2 million cards by 2016 from under 100,000 currently look more realistic given the external environment and that several top 20 Russian banks have already begun issuing UnionPay cards. Even if required by law, such suspensions of service should help UnionPay eat into Visa and Mastercard's 90 percent Russian market share.

Russia is even launching its own credit card, "Mir." Although it would likely be limited to domestic use for the foreseeable future and is unlikely to capture significant market share, it is negative for Visa and MasterCard, which have invested heavily in Russia due to low penetration (only 30 million cards issued) and high GDP per capita. While Russia is unlikely to expel Visa and MasterCard, they will face more scrutiny and costs, whether in terms of compliance and audit, or requirements to deposit cash at the Russian Central Bank (RCB), all of which will adversely affect the bottom line. Additionally, the RCB now requires all domestic transactions to be cleared through the National Payment Card System (NPCS), depriving Visa and Mastercard of an important source of revenue and information.

SWIFT - The Nuclear Option

The last sanction to be mentioned is one that has not been implemented but threatened widely in the UK and EU: Disconnecting Russia from the SWIFT system.

From humble beginnings in 1973, SWIFT has grown to become the dominant network for the secure exchange of payments and securities orders, reaching 5.6 billion messages among 10,805 users in 215 countries last year. Russia is a major user, with 360,000 messages daily from over 400 institutions and 90 percent of all foreign transfers. (This has led to a Russian recently joining the SWIFT board of directors for the first time.) Thus, disconnecting SWIFT would be catastrophic for the Russian financial system and economy.

Proponents of this measure point to success in Iran. To be sure, Russia would encounter difficulties in receiving payment for its exports of 7 mbpd and 190 bcm of gas annually. But this is yet another illustration of the pipeline fallacy, namely that the EU is at the mercy of gas imports from Russia when it is logically equivalent to say the Russia is at the mercy of EU gas exports. In other words, without SWIFT customers would have difficulty in paying for imports, possibly leading Russia to curtail exports. Thus, in the short term both the EU and Russia would suffer pain (although the United States would be relatively immune).  

Furthermore, exclusion from SWIFT was easier in Iran as it is less integrated in the global economy. As mentioned above, Russia has become very integrated in the global economy. Also, at $500 billion annually, exports are an order of magnitude greater than those of Iran, and are largely directed to Europe, not China, India and Turkey. It is also worth noting that by using physical gold and Turkish Lira, Iran was nevertheless able to continue exporting, albeit at added cost due to such cumbersome settlement.

(The effect on domestic financial transfers is likely to be very limited. The RCB has already tested old, low-tech systems involving telexes and faxes. While less efficient, they are certainly functional and robust. This author remembers the start of stock trading in Russia, when all quotes were indicative and deals were consummated by phone on a recorded line, followed by fax confirmation.)

In the longer term, the desire to create an alternative to SWIFT will only increase. Currently, many countries, particularly Russia and China, would like to end the ability of the West (United States) to inflict such financial damage to achieve policy goals. Progress on this front has been glacial, since the economy is truly global and a wide variety of participants would have to accept the new system for it to work. Also, the costs of building it are enormous.

Still, as time goes by and this sanction is more often used, or at least threatened, causing consternation in foreign countries, the desire to develop an alternative and bear the associated costs will no doubt increase. Already, modifying or creating an alternative to SWIFT has become a frequent topic for discussion at BRICS meetings. This would be a major blow to the current Western-dominated system for several reasons. First, in the interim, as the current system degrades and the new system is not in place, global trade will suffer. This will affect all, but the largest trading economy is likely to suffer the most.

(SWIFT itself, "a neutral global cooperative," recognizes this risk, and has stated that it "will not make unilateral decisions to disconnect institutions from its network as a result of political pressure" since this would "risk undermining the systemic character of the services that SWIFT provides.")

Second, although the West may be threatening to use financial isolation too much, and/or to achieve policy goals that are not primary, and/or destroying its own institutions to do so, such sanctions do have a place. Specifically, control over SWIFT has helped greatly in the fight against terrorism, trafficking in drugs and humans, and tax evasion. If an alternative system were to arise, the West would lose this ability, to the detriment of all.

Third, SWIFT and nearly all major global economic systems require at least the submission of a great number of countries and other economic actors. Many give grudging consent because there are no viable alternatives. The appearance of an alternative might lead many to jump ship, thus reducing the reach and effectiveness of existing systems. Plainly, undertaking actions that lead to the destructions of systems that you created, that benefit you and your goals (and hopefully the world's too) is not acting in rational self interest.

Lastly, it seems unlikely that shutting off SWIFT would lead to Russia pursuing different policies. As we have seen with credit cards and other sanctions, the people come to the conclusion that the pain is being inflicted by Brussels and Washington, not Moscow. Even in the cast of Iran, where the expulsion from SWIFT may be a factor leading to resolution of the standoff, it was by no means the only one and the situation persisted for many years. (It also generated considerable ill will among ordinary Iranians toward the West, something that is happening in Russia today.)  Additionally, as discussed above, basic game theory indicates that capitulation in the face of such sanctions will only lead to them being used (or at least threatened) again. As Joshua said, "the only winning move is not to play."

Conclusion

Policy goals, however well-intentioned, reasoned and moral they may be, or seem to be, should not trump cost-benefit analysis. Policy levers, such as sanctions, that hurt the country or economic actors imposing them should be avoided, and rejected outright if the damage inflicted on the initiator of such actions is greater than that inflicted on the target. The same is true for actions which lead third parties to engage in behavior that is not conducive to our well-being.

To achieve political ends, many actions undertaken by the West over the past few years, particularly against Russia, have impaired the value of societal and economic institutions that have helped the West achieve a higher degree of prosperity. This trend may intensify if policies and the means to achieve them are not scrutinized more carefully.

This is not to say that our policy goals vis-à-vis Russia or any other part of the world are wrong per se, but simply that they are not worth pursuing at any cost, particularly at any cost to ourselves and our systems, which necessarily affect the happiness and well-being of ourselves and our children. If we believe policy goals are necessary and just, then appropriate means to achieve them must be found. Swinging a bigger stick in a crowd is not always the answer.

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#13
www.rt.com
July 7, 2015
No artificial deadlines in nuclear deal negotiations with Iran - Lavrov

There won't be any artificial deadlines for the nuclear talks between Tehran and six world powers, announced Russia's foreign minister before leaving the Vienna summit. Experts are now discussing issues to clear the way for diplomats, he said.

"We've seen significant progress," Lavrov said.

Deputy ministers, officials and experts from Iran and P5+1 countries are now busy discussing some eight technical issues needed to be accorded on before diplomats proceed with further steps towards a general nuclear agreement, Lavrov revealed.

The "polishing" of these issues is going to take a day or two, he said.

"We are continuing to negotiate for the next couple of days. This does not mean we are extending our deadline," told reporters European Union foreign policy chief Federica Mogherini.

"As far as France is concerned, we are insisting on necessary limitations on nuclear research and development, sanctions and their re-establishment, and the possible military dimensions," Reuters cited French Foreign Minister Laurent Fabius as saying.

"I will return to Paris tonight ... and I will return tomorrow at 21:45 (19:45 GMT)," Fabius added.

"There's good will to accommodate each other's interests," said Lavrov, adding that the sides are now discussing certain procedures and steps to eliminate credibility doubts on either side.

Both sides are trying to negotiate more "positive concessions" for themselves, said Lavrov, which he finds is only natural. Reaching an agreement has become even closer, he believes.

Nobody is speaking about "artificial deadlines" and everybody is concentrated on reaching a "quality agreement" and there's every reason that "we will reach it," Lavrov said.

The US also said on Tuesday that an interim nuclear deal between Iran and six major powers will be extended through Friday to allow for more time for talks on a final agreement.

According to US delegation spokeswoman Marie Harf, the parties "have made substantial progress in every area, but this work is highly technical and high stakes for all of the countries involved. We're frankly more concerned about the quality of the deal than we are about the clock, though we also know that difficult decisions won't get any easier with time - that is why we are continuing to negotiate," she added.

Lavrov says the Iranian nuclear deal should become a "joint contribution to non-proliferation regime."

The sides of the negotiations are going to set up mechanism administered by the UN Security Council that will review complaints on non-compliance with the deal by either sides, Lavrov said.

The main question that remains to be resolved is the arms embargo issue, he stressed.

There is a need to build a coalition to fight terrorists in the Middle East region that will include Iran, and if arms embargo on Tehran is lifted, it will be helpful, Lavrov said.
 

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#14
Moscow Times
July 7, 2015
What Does Greece's 'No' Vote Mean for Russia?
By Anastasia Bazenkova and Delphine d'Amora

As EU leaders gather Tuesday to seek an answer to Greece's sweeping rejection of international bailout terms, Russia -the EU's third-largest trading partner - is quietly waiting to see where the chips fall.

Hailed as a victory for democracy by Greece's new far-left leaders, the resounding "no" vote in Sunday's impromptu referendum hurled the EU into an existential crisis and international markets into turmoil.

Given the massive trade ties between Russia and the EU, the Greek debt crisis and its effect on the euro zone can be expected to leak across the border in some form. The question is how and to what extent.

Some economists - such as Vladislav Inozemtsev, director of the Moscow-based Center for Post-Industrial Studies - say that global markets have already adapted to the Greek crisis, leaving little room for further impact.

But other analysts see both pluses and minuses for Russia in this continued instability in the EU. Here are the four chief ways that the Greek crisis may impact the Russian economy:

1. Spillover From the EU

The first likely problem for Russia lies in the fact that any hit to European Union economies will ultimately affect Russian producers too.

"If there is further uncertainty in the economic development of the euro zone and a fall in its growth rate, it will lead to a drop in European demand for Russian goods," said Sergei Afontsev, head of the department of economic theory at the Moscow State Institute of International Relations.

The European Union is Russia's single largest trading partner, importing more than 180 billion euros ($200 billion) in goods from Russia last year, according to EU statistics agency Eurostat. Russia is the EU's third-largest trade partner after the United States and China.

As negotiations over Greece's debt stalemated in May, the European Commission forecast that economic growth in the EU would still beat 2014's sluggish 0.9 percent growth to rise 1.5 percent this year.

2. Fall in Oil Prices

The Greek crisis could also hit Russia by further depressing the price of oil, a key export commodity.

Uncertainty over the future of the euro zone is expected to weaken the euro currency and send capital fleeing to the more stable U.S. dollar. A stronger dollar, in turn, will pressure commodities prices, which tend to fall when the dollar rises.

Oil prices could fall to $55 per barrel, down from the current level of just below $59, Afontsev said. The price of Brent crude oil fell more than 3 percent on Monday on news of the Greek referendum.

Further falls in the price of oil could pose a serious challenge to the Russian government. The fall from more than $115 in June last year to today's levels has already sapped budget revenues and necessitated wide-ranging budget cuts that hamper the government's ability to battle Russia's current economic recession.

3. Upper Hand in Sanctions Talks

Despite the potential financial losses, the Greek crisis could also strengthen the Kremlin's hand in negotiations with the European Union on its sanctions against Russia, analysts said.

"To make up for the losses caused by the situation in Greece, Europe could return to the Russian market. This is one of the easiest ways to compensate for the losses, as the Russian market is comparable to the Greek market," said Valery Mironov, deputy director of the Higher School of Economics' Center for Development.

The EU last year slapped Russia with a series of economic sanctions over its role in the Ukraine crisis. Among the measures are ones that bar major Russian banks and companies from buying long-term debt on EU capital markets and others that prohibit exports of key military and energy technologies to Russia.

Russia's economic recession - caused in part by EU sanctions - will cost Europe up to 100 billion euros ($113 billion), a study by the Austrian Institute of Economic Research published last month said.

So far, however, a rumored play by Russia to buy a back door into EU decision-making by bailing out Greece seems unlikely.

Despite prior displays of public affection between their governments, President Vladimir Putin in a phone conversation with Greek Prime Minister Alexis Tsipras on Monday merely expressed his "support for the Greek people in surmounting the difficulties that face their country," according to a Kremlin statement.

4. Market Turbulence

Investment in Russia - along with other emerging markets - is under threat from any ripple in the wider world economy, let alone a wave as tall as the Greek crisis.

Russia's dollar-denominated RTS index dropped 1.82 percent on Monday following news of Greece's no vote and falls in the price of oil. The ruble-denominated MICEX stock index fell 0.64 percent.

"The main risk is from volatility in the financial markets and the capital outflow from developing markets. It will affect other developing markets, including Russia," Afontsev said.

Capital flight is already high in Russia, having soared to a record $151.5 billion last year, according to the Central Bank. The regulator last month forecast capital flight of $90 billion in 2015.

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 #15
Russia Direct
www.russia-direct.org
July 6, 2015
How Greece's 'No' will impact EU-Russian relations
The Greece's vote against the economic reforms proposed by the EU will have far-reaching implications for Europe and Russia, as well as for former Soviet republics such as Georgia and Ukraine.
By Pietro Shakarian
Pietro Shakarian is an MA graduate student at the Center for Russian, East European, and Eurasian Studies (CREES) at the University of Michigan in Ann Arbor. He earned his BA in History from John Carroll University in 2012 and his MLIS from Kent State University in 2013. He also serves as a member of the editorial board for the Gomidas Institute and is the author of the online publication Reconsidering Russia. In addition to Russia Direct, he has also written analyses on Russia and the former USSR for The Nation and Hetq Online.

"Oxi," the Greek word for "No," carries important historical significance for Greeks. It was this word that, on October 28, 1940, was said to be the response of Greek Prime Minister Ioannis Metaxas to Benito Mussolini's ultimatum for Italian troops to occupy Greece. Since then, every October 28 is celebrated in Greece as "Oxi Day" or, simply, "No Day."

On July 5, once again the Greek people said "Oxi" in the much-anticipated Greece referendum (or "Greferendum").  On the ballot was the question of whether or not the Greek people wanted more of the same austerity, with potentially damaging long-term consequences for Europe. The vast majority of Greeks rejected the economic reforms that impose austerity.

Speaking to the Greek people after the vote, Greek Prime Minister Alexis Tsipras announced that, "With the difficult circumstances prevailing today, you made a very brave choice."

In the lead-up to the referendum, politicians in Brussels warned that a vote for "No" meant a vote against Europe. Such efforts to dissuade Greek voters from voting "No" have in fact backfired and illustrate that Brussels can no longer solely impose the terms of the negotiations for solving Greece's mammoth financial problems.

The Greeks also saw another thinly-veiled motive behind EU advocacy for a "Yes" vote, namely, an effort to discredit Prime Minister Tsipras and oust him and his leftist populist party from power. For many Greeks, the "No" vote was representative of more than a vote on the IMF-sponsored austerity policies. It was also a vote on Greek sovereignty and on the right of Greece to fully express itself democratically.

At the final rally for the "No" campaign before the final vote, Tsipras addressed a massive crowd at Syntagma Square in Athens. It was said to be the largest demonstration in Greece since the fall of the military junta in 1974.

"Today, at this hour," Tsipras told the crowd, "all of Europe has its eyes on you, on the Greek people, on the three million who are poor, on the 1.5 million who are unemployed."

"Today we are celebrating," he said, "because of our courage and determination to take our destiny into our own hands, to give the Greek people the opportunity to express their will... In the birthplace of democracy, we are giving democracy the chance to return. To return to Europe, because we want Europe to return to its founding values."

Not so fast, though. The ultimate result of "No" also leads to another question: Does this vote indicate a "Grexit," i.e., a Greek departure from the Eurozone? Not necessarily so. In fact, it is more likely that Tsipras was challenging the bluff of the Europeans, gambling that Greece would not be ousted from the Eurozone.

In his campaign for a "No" vote, he loudly proclaimed that he could secure an even better deal for Greece, one that would ultimately not involve the harsh austerity policies to which Greece has been subjected for the last five years.

However, time will tell. In the event that a deal still cannot be attained, Greece may indeed opt for leaving the Eurozone and re-adopting the drachma. That scenario could also include some tough times for the Greeks.

Implications for Russian-EU relations

However, it should be noted that although the Greek "No" vote was largely a matter between Brussels and Athens, it also has implications for Russian-EU relations. In particular, the ongoing Greek financial crisis (or "Grisis"), including the most recent referendum, will continue to focus the EU's attention on its internal problems.

Although some within the EU may advocate continued efforts to enlarge the union to include ex-Soviet republics like Ukraine and Georgia, most politicians in Brussels will be far more concerned with trying to keep the existing union together.

The Greek crisis has reminded EU politicians that it still has major financial problems for which there is no quick fix. The EU simply cannot afford to enlarge itself any further, not only because of the stress it would cause for states that are already EU members, but also because it would unnecessarily aggravate relations with Moscow.

This may explain why the recent EU Eastern Partnership summit in Riga, Latvia was a less-than-celebratory occasion and a disappointment for former Soviet states, like Ukraine, which have EU membership aspirations.

Not only was visa-free travel ruled out, but German Chancellor Angela Merkel also clearly ruled out any serious talk of EU enlargement in the post-Soviet space. Noting that the Eastern Partnership is "not an instrument of the EU's enlargement policy," she spoke against creating false expectations for former Soviet republics.

Given Brussels' ongoing headaches with Athens, one can only imagine what difficulty the EU would have with a country like Ukraine, which is even more bankrupt, has no real plans for financial stability, and has a population that is four times the size of Greece.

This pragmatic position may anger hawks in both the EU and the U.S., but it is arguably the most reasonable approach. The EU has very serious problems that need to be addressed immediately.

Getting involved in a major geopolitical confrontation with Russia will only distract from these far more important issues and will in fact create new ones. If history has taught Europe anything, it is the lesson of avoiding needless entanglements.

Instead, Europe would be better off pursuing dialogue with Russia, taking into account Russia's interests. This would be one in which former Soviet republics like Ukraine, Georgia or Armenia can have access to the best of both worlds. If realized, such a scenario could help pave the way toward the realization of a truly united Europe, stretching from Lisbon to Vladivostok.

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 #16
Russia Beyond the Headlines
www.rbth.ru
July 6, 2015
Why Gazprom became so flexible
Russia's natural gas giant is planning to put three billion cubic meters of gas up for auction - yielding to pressure from European customers, experts say. It may also scrap plans to stop Ukrainian gas transits, reducing supply risks linked to the construction of a new Turkish route.
Alexei Lossan, RBTH
 
In September 2015 Gazprom will hold an auction for the supply of three billion cubic meters of gas to the European market, business daily Kommersant reports.

Gazprom CEO Alexey Miller told the newspaper that it will be a spot bid auction, for the supply of gas "here and now, rather than the traditional take-or-pay model used by Russian companies, where buyers commit to purchase an agreed amount of gas during a set period - but pay fines if they take less.

The Russian energy company also unexpectedly announced the possible continuation of gas transits through Ukraine. Last year Gazprom said it would cut Ukraine out of the transit market after it announced a new line via Turkey. The Turkish Stream will pipe gas under the Black Sea for delivery to southern European countries.
 
Gas balloon

"Gazprom is putting up a trial balloon by selling three billion cubic meters of gas on the spot market," said Ivan Kapitonov, a state economic regulation expert at Moscow's Presidential Academy of National Economy and Public Administration

If successful, the plan will not only allow Gazprom to sell more volume, but put it in a stronger negotiating position on the Turkish stream, which is not yet finalized.

Gazprom is clearly signaling that it is considering alternatives to increase gas supply to Europe, Kapitonov added.

Ilya Balakirev, a senior analyst at UFS IC, says Gazprom occasionally sells small volumes of gas on the spot market, but the company is unlikely to abandon the take-or-pay scheme. "Pipeline deliveries have fixed transportation costs, and if the actual supply volumes are significantly reduced, the company incurs losses," he said.

But Gazprom could abandon the take-or-pay scheme if gas transit technology changes. Such schemes are not used for tanker shipments of liquefied natural gas, he noted.
 
Ukrainian transit

Russian President Vladimir Putin has also told Gazprom to enter talks about extending Ukrainian transits after 2019, Gazprom chief Miller says. The company had said it would stop using that route in 2019, when the current contract expires.

In April 2014, Miller said that due to the construction of the Turkish Stream pipeline in 2019 Gazprom would end gas transits through Ukraine.

Kapitonov believes Putin's order is designed to tackle a number of objectives. It will increase pressure on the Turkish side in the Turkish Stream discussions and encourage rapprochement with Ukraine.

"The abandoning Ukrainian transit was not a constructive position," says Mikhail Korchemkin, of East European Gas Analysis.

"Potential Turkish stream partners may be becoming intractable, and this is a signal for them," Balakirev says. He believes that the first phase "the Turkish stream, intended only for Turkish market" will be completed in any case.

Earlier this month, during the St. Petersburg International Economic Forum, Gazprom announced plans to double the capacity of the Nord Stream pipeline that connects the Russian gas supplier with markets in northern Europe through Germany. The gas company signed a deal memo with Anglo-Dutch petroleum giant Shell, Germany's E.On and Austria's OMV to build two new gas pipelines under the Baltic Sea with a total capacity of 55 billion cubic meters.

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 #17
BRICS summit gives Putin a chance to show Russia not isolated
By Lidia Kelly and Katya Golubkova

MOSCOW, July 6 (Reuters) - The BRICS emerging economies will launch a development bank at a summit this week which President Vladimir Putin hopes will help reduce Western dominance of world financial institutions and show Moscow is not isolated.

At a meeting in the remote Russian city of Ufa, originally a fortress built on the orders of Tsar Ivan the Terrible, Brazil, Russia, India, China and South Africa also aim to put the last touches to a $100-billion contingency currency reserves pool.

The BRICS account for a fifth of the world's economic output and 40 percent of its population. The pool and New Development Bank, with an initial $50 billion in capital, are central to their efforts to reshape the Western-dominated financial system.

"At this meeting we will make operational our two biggest institutions, which is key for us to advance as a group and learn more from each other," said a Brazilian official involved in the preparations for the meeting. "Nobody thought that was going to be possible a year ago when we ratified the proposals."

The official asked not to be named as he is not allowed to speak publicly about the two-day summit starting on Wednesday in Ufa, nearly 1,170 km (730 miles) southeast of Moscow.

For Putin, whose focus has shifted to the emerging economies and especially Asia since the West imposed sanctions on Moscow over its role in the Ukraine crisis, the summit is also a chance to show the West that Russia can get along fine without it.

"The BRICS, in addition to their economic and pragmatic agenda, have become an influential factor in world politics," Russian Foreign Minister Sergei Lavrov said last week.

He denied the five countries' efforts to join forces were aimed against anyone else and praised their "important stabilising role" in international affairs.

SLOW IN COMING

The unity of the BRICS nations is important for Putin in his standoff with the West over Ukraine, especially as Russia suffered the symbolic blow of being suspended from the Group of Eight industrial powers over its seizure of the Crimea region.

But independent foreign policy experts say the BRICS group is still a long way from achieving its main goals and Russian ties with China remain less developed than Moscow would like.

Progress on the New Development Bank, first proposed in 2012, has also been slow.

At last year's BRICS summit in Brazil it was agreed the headquarters would be in Shanghai but China ratified the bank only last week and it is not expected to be operational until next year. Its capital still has to be rated to issue debt.

Other emerging markets such as Turkey, Mexico, Indonesia and Nigeria could join as partners at a later date.

The contingency reserves pool is expected to start operating immediately to help members if they are hit by a sudden exodus of foreign capital.

The summit coincides with a meeting in Ufa of the Shanghai Cooperation Organisation (SCO), a security bloc grouping China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, which India and Pakistan are set to join.

Putin is also expected to hold talks with Iranian President Hassan Rouhani in Ufa. Iran has observer status in the SCO.

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 #18
www.rt.com
July 7, 2015
BRICS bank, crises in Greece & Ukraine to top agenda at SCO/BRICS summits - presidential aide

Ahead of the landmark BRICS/SCO summits in Russia's Ufa, Putin's top aide Yury Ushakov speaks to RT, Vesti and RIA on the key topics of the forums' agendas, including the BRICS New Development Bank, Iran joining SCO, and crises in Greece and Ukraine.

Q:Mr. Ushakov, it so happened that there will be two crucial events, an SCO summit and a BRICS summit, taking place at the same place at the same time. My first question is why are these two events happening at the same place at the same time. Do you think that they may possibly distract attention from each other? Or on the contrary, attract it? Also, could you please say a few words about the role these two organizations play today - especially considering the situation in the world today where we often hear about confrontation between various international organizations?

A: The upcoming event is really important to our country. Russia currently presides in both BRICS and the Shanghai Cooperation Organization. So, it was only natural for us to suggest it to our partners that we put these two summits together.

Another reason is that both these organizations have a very positive and stabilizing effect on the world. They both have positive agendas.

Also, Russia and China are members of both BRICS and the SCO, India is a member of BRICS and has observer status at the SCO. So, the leaders of these three countries were supposed to come together anyway, and it made sense to put these two events together and to have them in the same city.

I would also like to mention that we worked hard to prepare for these two summits, and we turned the city of Ufa into a very good platform for major international forums which we hope to host there in the future. So, this will be the inaugural summit for Ufa, and I really hope that it goes well.

Q: In addition to what you just said about this event taking some long and strenuous preparation. How do you expect the summit to affect the region and its development - not just Ufa but the whole of Bashkiria?

A: Like I said, it is a major chance for Bashkiria to come into the spotlight internationally, getting new opportunities for hosting more international events. In fact, one such event is already scheduled for September: Ufa will host the Russia-Kazakhstan interregional forum featuring appearances by the presidents of both nations. It is an obvious advantage for Ufa, in addition to all the practical improvements that can be used in the future, such as the newly upgraded airport. Following its reconstruction, Ufa Airport is now one of Russia's best airports, capable of handling any flights. One more fact that is important for Ufa: seven new, world-class hotels have been built for the summit, with a total capacity of more than 1,000 rooms. Of course, Ufa had hotels even before that - I would frequently go there while the city was preparing for the summit - but they were all Soviet in style, such as would befit a second-rate provincial city. And now, Ufa is effectively a city that can host an international event at any level. That is very important.

Q: Could you tell us, what events are expected to take part during SCO and BRICS summits, and what key roles are given to Russia in them? What documents are you expecting to adopt? What documents will be signed during bilateral talks as well during summits? What development prospects do you see for these organizations in general?

You are asking a very multi-level question. Firstly, I'd like to explain what our motivation was in planning the program for these summits. We invited heads of member states of the Eurasian Economic Union, so that the summits program could include discussions of major issues related to the Eurasian space. Except for South Africa, all other states are located on this space; so we're providing an opportunity to discuss the issues that we're concerned about and that should be discussed at this time. These include future cooperation of this Eurasian enclave with Europe, and other countries.

The BRICS countries make up 30 percent of the GDP. These five countries make up 40 percent of the world's population, and cover one third of the dry land.

SCO is also developing. In our view, the main outcome of the SCO meeting in Ufa is that we've started the process of including new members to this organization. So far it had only six members, and we had quite lengthy and difficult negotiations on the participation of India and Pakistan in this format. So one of the main decisions, which is beyond the SCO forum framework, was to start the procedure of integrating India and Pakistan into SCO. Iran had also applied to join SCO. We reviewed it, and we decided to return to this matter when the Security Council sanctions are lifted as a result of successful Iranian nuclear talks. Then we'll have the opportunity to include Iran in our cooperation as well.

We made a map that reflects the SCO coverage after the accession of the new member states, and it looks very convincing, covering a large homogenous space and bearing a lot of capacity and potential.

Q: Should sanctions be lifted, when would Iran be able to join SCO?

A: When sanctions are lifted the process of consultations between the SCO member states will begin, which will determine a timeframe for accession. I also want to stress that India and Pakistan are not joining the SCO overnight either; this process has just started. In this process they have to get a working memorandum approved by the SCO secretariat. Then they have to sign 28 fundamental SCO documents. And only then, hopefully at the next summit that will take place in India, their membership will be finalized, and the SCO will consist of eight member states.

Q: So we'll have our own Group of Eight.

A: That's right. A Group of Eight of sorts, which will later expand by including Iran.

Q: I wanted to ask you about the promising areas for economic cooperation within the framework of the BRICS and the SCO, particularly in light of Russia's recent foreign policy shift toward the East, the Asia Pacific, etc. There is a very promising project underway in China, namely the Silk Road [Economic Belt]. Russia has a very promising project of its own; the Eurasian Economic Union. There has been quite a bit of debate in favor of somehow merging these two projects. Indeed, this appears to be the most lucrative market. Will the leaders discuss integration at this summit, or at least convergence?

A: This issue has already been extensively discussed, in part during the Russian president's recent meeting with the Chinese president on the sidelines of the World War Two victory celebrations in Moscow in May this year. It was then that the two nations signed a document that opens a discussion of posssibilities for the Eurasian Economic Union and the Silk Road initiative. They will certainly cover this in Ufa during an informal meeting for leaders of BRICS, the SCO and the Eurasian Economic Union. Not only will this matter be discussed; it might become the key theme of these talks.

Furthermore, BRICS is now also ready to form its own financial institutions. The previous BRICS summit in Fortaleza, Brazil made a decision to do so. Now they will be discussing the functional details of the BRICS New Development Bank and the contingent currency reserve pool.

Q: Since we've touched upon the notion of BRICS developing its own financial institutions, there is an opinion that the BRICS Development Bank and other institutions would serve to counterbalance other global powerhouses, such as the IMF. Would you agree with that statement? And what would be the new benefits that BRICS' own financial institutions would have to offer?

A: The New Development Bank and the foreign currency reserve pool do not constitute an attempt to oppose the International Monetary Fund or the World Bank. These institutions are rather new instruments for addressing our shared objectives. BRICS is developing its common mechanisms that can efficiently stabilize our economies' capital markets at the time of a crisis, and provide additional opportunities for cross-border lending, and for promoting mutual trade and investment. We see the creation of these new institutions as our contribution to making the international financial architecture more stable and resistant. We do not intend to challenge any of the existing institutions. Besides, I'd like to point out that the New Development Bank is open for accession to any nation - though I do realize it may be too early to discuss that, as the bank has to set up operations first, and people have to see it perform before they make any decisions. In fact, we would have a better idea ourselves of what this bank should do in the future once we start doing practical things with it.

Q: Mr. Ushakov, there must be a lot of bilateral meetings planned during the summit; namely, the meeting with the Iranian president that's been announced. What's the agenda for this meeting? Are they going to discuss such matters as military cooperation and S-300 missiles supply?

A: I'd say, the program for these two summits is not just intense; it's overly intense. Frankly speaking, I don't even know how the leaders, including the Russian president, will handle this amount of work. For instance, in addition to hosting these two summits, Mr. Putin plans on having 11 bilateral meetings. He also has planned a trilateral meeting with China and Mongolia as part of regional cooperation. This will be their second meeting. Last year, they met for the first time in Dushanbe. He will also meet bilaterally with all the other leaders, making it 11 meetings, as I've said.

Regarding Iran, this meeting will take place on July 9th and will definitely factor into the outcome of the Iranian nuclear program talks. We really hope these talks make headway, and so far things seem to be going that way. So the outcomes and prospects of Russia and Iran working together in view of those talks will be the key topic of the agenda. They will also cover various matters of bilateral cooperation in the trade, economic, and military fields.

All these bilateral meetings are going to be rather informal, with no clearly set agenda, so that leaders can bring up any issues. So in anticipation of your next question, I expect they will discuss such matters as Greece, Ukraine, the ISIS threat, among other topics.

Q: Since you mentioned Ukraine - indeed, it will definitely be discussed when journalists ask questions about it. What about the actual negotiations, will they cover Ukraine specifically?

A: I believe Ukraine, as one of the hottest topics, will certainly not be ignored by leaders of such major states. They will obviously discuss the Ukraine crisis in a BRICS working lunch, or a BRICS closed meeting; I am sure the same goes for SCO meetings. Moreover, the declarations that are adopted at the end of the Ufa summit do cover this issue. In particular, there are three major points, which are of crucial importance according to Russia; and, importantly, our colleagues from India, China and other states share these views.

First, these countries don't believe in a military solution to the Ukraine crisis. They call for diplomatic negotiations. And finally, as the documents emphasize, they insist that the conflicting sides fully comply with all 13 points of the Minsk Agreement of February 12th. The leaders will thoroughly analyse the Ukrainian situation based on these three points, which have already been approved. I believe they will appreciate Mr. Putin's input when he shares his views on this situation.

Q: The Greek debt is another burning issue today, considering the country's strained economic situation. Do you think there is a chance that the two summits may end up with Greece announcing it wants to join the New Development Bank, and the BRICS nations, in turn, announcing that Greece can count on new loans to finance some of its projects?

A: Like I said, the situation in Greece will be discussed at both summits, particularly during informal conversations. Especially now that the results of the Greek referendum are in, and there is intensive consultation underway within the euro zone. The Euro summit launches tomorrow, and the Greek issue will inevitably be on the table there. There has been speculation in the media that Greece may apply for accession to the New Development Bank. We know of these assumptions, but so far, no one has officially discussed such an option with us. Besides, like I said, the bank is just launching its operations, it still has to set out its priorities and start to function. And it certainly won't start its operations with Greece; it has its own tasks and challenges to deal with. So Greece will be discussed at the summit, but not in the context of its prospective accession to the New Development Bank, not even in the long term.

Q: So it's been mere speculation?

A: (nods).

Q: We are looking at a lot of work to be done, including a lot of discussion and debate - even through BRICS and the SCO are sometimes described as clubs for the like-minded. It's probably great that our nations are able to discuss common issues while avoiding contention. We wish you success in your deliberations.

A: Thank you. We are indeed looking at three days of hard work and intense deliberations, and I very much hope that both summits will prove successful.

Q: Thank you.

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#19
Russia Direct
www.russia-direct.org
July 7, 2015
Ahead of Ufa Summit, future of BRICS in limbo
The recent visit by the Brazilian president to the United States points to a lack of unity within the BRICS, which could dent the Kremlin's aspirations to break its isolation from the West.
By Eugene Bai
Eugene Bai is an expert in USA, Latin America and international relations, a contributor to Politcom.ru, The New Times, World and Politics magazine.

In the run-up to the BRICS Summit, which this year will take place in the Russian city of Ufa from July 8-10, Russian experts and members of the media have taken to expressing diametrically opposite views on the future of the BRICS.

Some experts are still taking an optimistic view of the BRICS. For example, in the opinion of the executive director of the National Committee for BRICS Research Georgy Toloraya, the BRICS has become an "alliance of international relations reformers." He believes that it is not an economic union in the traditional sense of the word, such as the North American Free Trade Agreement (NAFTA) or other free trade zones, and that the economic focus is an artificial appendage.

"It is not an economic union, but an alliance of international relations reformers," he asserts, stressing that the meeting in Ufa will be a "full-scale summit probing all 25 areas of BRICS cooperation."

Other Russian experts believe that the BRICS partners have "foiled U.S. plans to blockade Russia."

"Russia's cooperation with the other BRICS countries is developing rapidly, particularly in areas hit by anti-Russian sanctions," says Russian Institute for Strategic Studies expert Vyacheslav Kholodkov.

He cites as an example the signing of an agreement at the previous BRICS summit in Fortaleza, Brazil, on the establishment of two financial institutions: the New Development Bank (NDB) and the Contingent Reserve Arrangement (a pool of foreign exchange reserves).

"These structures will help Russia to wriggle free and provide a source of external financing, which we will certainly use," Kholodkov belives. "That way, the BRICS will not allow Russia to be internationally isolated."

A week before the summit in Ufa, the Standing Committee of the National People's Congress of China ratified the Fortaleza agreement on the creation of the NDB.

The bank will have an initial authorized capital of $100 billion. The capital to be distributed equally among the BRICS will amount to $50 billion, according to Xinhua News Agency. Russian media believe that the decision marks a bid for political independence by developing countries, including those outside the BRICS, which will no longer have to go hat in hand to the International Monetary Fund (IMF) and the European Bank for Reconstruction and Development (EBRD) to stabilize their finances.

In addition to China, however, the agreement has so far been ratified only by Russia and India, while Brazil and South Africa remain uncommitted.

Is Brazil backing away from the BRICS?

Why such caution? A few days before the opening of the summit in Ufa, Brazilian President Dilma Rousseff paid a state visit to the United States. It should not be considered as a demarche addressed to the country's BRICS partners, but speaks volumes all the same.

During the visit, Rousseff was at pains to make clear to U.S. President Barack Obama that the tension between the two countries was over. Recall that in 2013 she canceled a scheduled visit to the United States in the wake of press reports about U.S. snooping on her telephone conversations and correspondence. With characteristic bravado, Rousseff delivered a sharp rebuke to the White House.

Her hardliner criticism has since been replaced by extensive attempts to get closer to the U.S. As noted by the Brazilian director of the Moscow-based Ibero-American Institute Vicente Barrientos, Rousseff's rapprochement with the United States has both economic and political undercurrents.

The United States is second only to China in terms of trade relations and investments in the Brazilian economy. However, another important factor led Rousseff to Washington: She is currently going through the most difficult period of her presidency, having secured a second term last October only by a very narrow margin.

Hanging over her is the Sword of Damocles, more specifically, possible impeachment in connection with the epic scandals engulfing state oil company Petrobras, accused of large-scale corruption. Rousseff's once high approval rating has plummeted to 9 percent, even lower than that of neighboring Venezuela's unpopular leader, Nicolas Maduro.

Further still, in December 2014 the U.S. city of Providence filed a suit against Petrobras, in which connection Rousseff herself could be subpoenaed by a U.S. court. Hence, her trip northwards is probably intended to take some of the sting out of the criticism coming her way from the Brazilian Congress and domestic opposition.

Russian media downplays Brazil's relationship with US

As noted by Russian news agency REGNUM, Dilma Rousseff's visit to the United States barely warranted a mention in Russian media. Almost nothing was said about the fairly solid package of agreements signed in Washington.

The talk was essentially about resetting bilateral relations after the recent tension. The agenda included the expansion of bilateral trade, including in the military sphere, investment and infrastructure cooperation, the problems of global climate change, and other important topics. Neither did the tense internal situation in Brazil escape attention.

"The BRICS have cracked: Brazil surrenders to the United States" was how REGNUM headlined an opinion piece on Rousseff's visit to the United States.

Perhaps that assessment is too abrupt. But the very fact of the Brazilian president's full state visit to the United States, with almost half her cabinet in tow, is telling. It seems that she is no supporter of Russia's defiant rhetoric about BRICS independence from international lenders, and rejects the artificial anti-Americanism of the union. It is also in the interests of the White House for Brazil not to swap trade relations in the Western hemisphere for the still nascent BRICS.

Having termed Russia a "regional power" in March 2015, Obama at his meeting with Rousseff described Brazil as a "major world power" and the key to Latin America for the United States.

Russia's long road to a true multipolar world

As noted by distinguished economist and member of the Russian Academy of Economic Sciences Victoria Perskaya, "Russia is overly optimistic if it believes that the BRICS forum is in itself an important structural element towards multipolarity. No G7 member is about to voluntarily surrender its preeminence in the global community."

According to Perskaya, the BRICS "should not be perceived as an integration union... the BRICS partnership can and will progressively develop only in those sectors and segments that correspond to national priorities and interests."

In this context, Rousseff's visit to the United States is evidence that Brazil is not at all interested in restricting cooperation with the United States, no matter what role it plays in the BRICS.

China is displaying similar flexibility. Russian journalist and Orientalist Vladimir Skosyrev writes in Nezavisimaya Gazeta that the Greek drama did not prevent the European Union from holding a summit with China in Europe.

Chinese Prime Minister Li Keqiang after talks in Brussels called for the abolishment of tariffs on trade between Europe and China and the conclusion of an agreement on investments.

"Such an agreement," writes Skosyrev, "would make it easier for China to buy up companies in Europe, and would chime with the geopolitical ambitions of Beijing." The headline is also striking: "Russia pivots to the East, China to the West."

Beijing's desire to move closer to the EU should not be viewed as an obstacle to partner projects within the BRICS framework, the primary aim of which is to counter the trans-Atlantic bridge being built between the United States and Western Europe. However, China is setting an example of a multivector policy in marked contrast to the extreme position occupied by Russia, which has taken offense at the West and is now marching eastwards at full pelt.

Likewise, renowned economist Sergei Aleksashenko doubts that Russia is a priority for China. Rather the opposite: In the long term, Beijing is looking to the West, not at the Kremlin's slapdash proposals.

"Browsing the papers, it is not difficult to see that China has decided to shift westwards," says Aleksashenko. "But don't rejoice just yet. China does not intend to go west along the Trans-Siberian Railway, but via its New Silk Road megaproject, which involves the construction of infrastructure, including roads, railways, pipelines and power grids, in countries that lie to the south of Russia. Because China believes that a good neighbor is a rich neighbor. And any infrastructure will make these economies richer and more stable."

Aleksashenko cautions that "in 7-8 years' time China could overtake Russia on its western journey, i.e. towards Europe," which Russia has "emphatically turned its back on for the sake of the East." "But if China departs for the West, who will Russia turn to then?" concludes the expert.

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 #20
Business New Europe
www.bne.eu
July 7, 2015
Saudi Arabia to invest $10bn in Russia via fund
bne IntelliNews

Saudi Arabia's Public Investment Fund, a sovereign wealth fund, will invest $10bn in Russia via the government-run Russian Direct Invest Fund (RDIF), in what will be Saudi Arabia's biggest ever investment in Russia.

"This is a landmark transaction, one of the largest transactions in the realm of sovereign funds," the head of RDIF, Kirill Dmitriyev, told journalists, adding that it signified the "reloading" of economic ties between Russia and Saudi Arabia. "The potential of relations between the two countries is huge," newswires quoted him as saying.

The RDIF is a co-investment fund established in 2011 that matches investors' committments with funds from its own resources. The Saudi deal was reportedly initiated by the signing of a memorandum of understanding during the St Petersburg Economic Forum in June.

The announcement comes on the eve of Russia's hosting of a joint summit in the Urals city of Ufa of the BRICS organisation of largest emerging markets and the Shanghai Cooperation Organisation of Central Asian countries. The event will represent a landmark in the Kremlin's pivot away from the West towards Asian investors.

The Saudi investment signals that besides BRICS and Asia, another source of funds for Russia to tap is in the Middle East, where many oil-rich states have set up sovereign wealth funds akin to the Saudi' Public Investment Fund. Prior to the Saudi deal, the largest investment in the RDIF was a $7bn commitment from a wealth fund run by United Arab Emirates.Russia may be able to leverage its foreign policy influence in the Middle East against investment commitments, analysts noted.

Dmitriyev said Mohammed bin Salman Al Saud, Saudi deputy crown prince and defence minister, had made an "immense" contribution to the signing of the deal, as quoted by the Financial Times. Meanwhile, analysts speculated that the deal may be a Saudi sweetener to induce Russia to compromise on its Syria policy. The Saudis are backing "moderate" Islamist rebels in a four-year-old civil war, while Russia supports the increasingly embattled Syrian President Bashar al-Assad.

RDIF said it would invest the Saudi money in projects for infrastructure, retail, logistics and agriculture over a five-year period together with other funds committed by sovereign wealth funds, including the $2bn Russia-China Investment Fund.

According to Dmitriyev, seven projects have already been selected, including the Moscow ringroad. "The first seven projects have received preliminary approval, and we expect to close 10 deals before the end of the year," the RDIF chief said.

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 #21
Sputnik
July 6, 2015
The New Cold War: No Rules, No Red Lines, No Diplomacy - Stephen Cohen

The new US-Russian Cold War could be far more dangerous than the preceding 40-year conflict, Stephen F. Cohen stresses, noting that Obama's policy of isolating Russia has facilitated the development of a multi-polar world order.

While the Minsk II agreement is falling apart at the seams, neglected by both the West and the Kiev regime, the new Cold War is rapidly spreading across Eastern Europe through efforts of Washington; the situation is grave since the new Cold War is far more dangerous than the previous one, professor of Russian studies at Princeton University and New York University Stephen F. Cohen warns.

"All the elements of the 40-year Cold War plus some are now back. We've got a nuclear conventional buildup on both sides, we have an all-out propaganda war, we have sanctions on both [sides] and we have ideology," Professor Cohen noted.

The scholar underscored that despite the similarities the new Cold War has some distinguishing features.

"This Cold War is more dangerous for the following reasons: there are no rules. During the 40-year Cold War there were all sorts of rules of behavior on both sides, recognition of red lines that should not be crossed... Those rules no longer exist. There was arms control and attempts to keep nuclear weapons under control and even reduce them. That is now stopped. There was a lot of diplomacy. There is no diplomacy now," Stephen Cohen pointed out.

While US President Obama is claiming that his policy of Russia's isolation has succeeded, obviously this is not the case. Instead, "Russia moved economically, politically and militarily ever closer to China," as a result of the new Cold War and the Ukrainian crisis according to the scholar.

The professor elaborated that the upcoming summit in Russia of the Shanghai Cooperation and BRICS nations is a clear sign that the Obama administration has against its own will facilitated the creation of a multi-polar world order.

The BRICS' countries - China, Russia, India, Brazil, South Africa and, possibly, Iran - "may set up an international bank to rival the International Monetary Fund; they may set up a defense organization to rival NATO. But geopolitically whatever they do, what we see here, is the old world dominated by the United States and NATO now losing their hegemony [while] a multi-polar world is emerging," the professor highlighted.

So, is Russia really isolated? The scholar noted that the peoples of Russia, India and China amount to two thirds of the world's population. All the three countries have a lot of resources, a lot of military power, a lot of technology and a lot of ambitions that coincide.

Instead of saying that Washington has isolated Russia, the White House should openly recognize that it has driven Russia from the West, the professor noted.

Meanwhile the situation on the ground is deteriorating steadily. Pentagon chief Ashton Carter has recently announced that NATO would deploy its military contingent equipped with heavy offensive weapons in the Baltic states and some Eastern European countries.

According to Stephen Cohen, there was some gruesome symbolism in the fact that during joint NATO exercises near Russia's borders, in the Baltic region, the US Air Force's B-2 stealth bomber, a key component of the US long-range strike arsenal, appeared.

Professor Cohen stressed that B-2 bombers were built to deliver nuclear bombs to targets inside Russia.

"Ask yourself: what message are the United States and these B-2 bombers sending to the Kremlin?" the scholar asked.

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 #22
Vox.com
July 6, 2015
How likely is nuclear war with Russia?
By Max Fisher
[Charts here http://www.vox.com/2015/7/6/8900237/russia-war-odds]

I spent much of this spring obsessed with a question: Could the United States and Russia stumble into war, perhaps even nuclear war? It was a concern I'd first heard in late 2014, shortly after Russia's covert invasion of eastern Ukraine and its military harassment of neighboring NATO member states, which the United States is treaty-bound to defend.

As I spoke to analysts and policymakers, I found a growing and increasingly alarmed community, in the US and Western Europe as well as in Russia, warning that war has once again become a real possibility. They compare Europe of today to that before World War I. If war does happen, they say, recent changes to Russia's nuclear thinking mean such a war could easily go nuclear.

I outlined these threats, how they came to be, and how it would all happen in a long article published last week. But there was one question I was not able to satisfactorily answer: Exactly how likely is all this?

To the extent that there was broad agreement among my sources, it was that peace is still much likelier than war: The scenarios for war all involve several overlapping events, such as a cross-border provocation and an accidental midair collision. But they stressed that the odds of a war, while remote, are no longer negligible, and are real enough that the world should take them seriously and respond accordingly.

"The atmosphere is a feeling that war is not something that's impossible anymore," the well-placed Russian analyst Fyodor Lukyanov told me, describing a growing concern within Moscow's foreign policy elite. "A question that was absolutely impossible a couple of years ago, whether there might be a war, a real war, is back. People ask it."

Lukyanov's assessment was representative of what I heard in researching the story: a feeling, a question, a fear hanging in the background like a storm cloud. What he could not offer me, what no one I spoke to could really say for sure, is a rigorous assessment of precisely how likely this was. It was high enough that people should be concerned and take it seriously, but how much higher than that, no one could say.

That didn't satisfy Jay Ulfelder, a political scientist who specializes in political forecasting and instability, and who runs an excellent blog. He set up a two-question survey, pushing it out to a couple of online political science expert communities. The first question asked respondents to estimate the odds that that the US and Russia would go to war in the next four and a half years. The second asked for the odds that, if such a conflict occurred, one or both sides would use nuclear weapons.

Ulfelder took the first 100 responses and ran them through some statistical analysis (you can read more about his methodology here). Here is the aggregate assessment he found:

Probability of war: 11 percent
Probability that one or both sides will use nuclear weapons, conditional on war: 18 percent
Probability of nuclear war between US and Russia: 2 percent

These charts show the responses:

Results of survey on risks of war (Jay Ulfelder)

Results of survey on risks of nuclear war (Jay Ulfelder)

Ulfelder cautions that his survey is not particularly scientific (he called it "rinky dink" in a later email exchange) and that we shouldn't put too much stock in it, though he points out that the results about track with those from a much more rigorous 2014 William & Mary survey of 2,000-plus experts on the likelihood of war.

While none of my sources ventured anything as specific as a numerical probability, for what it's worth these estimates track with the sense I got from speaking to them. So we now have the William & Mary survey, Ulfelder's survey, and my research all roughly lining up. That's not conclusive, of course - you're never going to get a conclusive assessment for something as complex and multilayered as an unintended escalation to major interstate warfare - but the consistency of the data so far seems to suggest there is something there.

So what do these numbers mean? Is an 11 percent probability of war and a 2 percent probability of nuclear war a lot? On the one hand, that seems pretty small - a 1-in-50 chance of nuclear war. On the other, that's significantly higher than other things we consider serious threats; it's twice the odds of dying in a car accident, for example. And when you consider the stakes of a nuclear war between the two great nuclear powers, even 2 percent seems way, way too high.

In looking at those numbers, I think back to a formula that every international relations student learns in the first week of undergrad: Threat equals intent multiplied by capability. In other words, you figure out how threatening something is by multiplying its intention to hurt you by its capability to hurt you.

There's no such thing as intent when it comes to accidental escalations to nuclear war. But you can substitute that 2 percent probability of occurrence for "intent." That's a small number, but when you multiply it by the "capability" of major nuclear war, which potentially includes millions of dead or even the literal end of the world, it looks more significant. To me, it looks alarming.

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#23
Moscow Times
July 7, 2015
Russian Soldiers Start a Second Life in Afghanistan
By Elizaveta Vereykina
[Photos here http://www.themoscowtimes.com/arts_n_ideas/article/russian-soldiers-start-a-second-life-in-afghanistan/525166.html]

Alexei Nikolayev, a Moscow photographer specializing in photo stories about Russia and the former Soviet republics, went to Afghanistan to document the lives of six former Soviet soldiers who had been imprisoned by mujahedin during the Soviet-Afghan war in 1980s and never returned home.

Overall, 620,000 Soviet troops took part in the war, which lasted from December 1979 to February 1989, with official Soviet military losses of over 15,000. When the Soviet army withdrew, hundreds were left behind. Officially, 417 people were declared missing and/or prisoner or war.

While some former prisoners of war began to come back to Russia in the 1990s, many decided to stay. Some didn't want to come back since they were deserters or had already converted to Islam. After the collapse of the Soviet Union, in the chaos of political and social changes these people seemed to be forgotten.

In the summer of 2013, Alexei Nikolayev visited ex-Soviet soldiers in the wildest parts of Afghanistan and saw their successful integration into Afghan society.

The Moscow Times sat down recently with Alexei Nikolayev to discuss his photo project "Eternally Imprisoned" ("Navsegda v plenu") about former Soviet soldiers still in Afghanistan.

Q: Alexei, why did you decide to take on this project about the Soviet-Afghan war?

First of all, for personal reasons. My stepfather served in Afghanistan, and I remember as a child listening to him tell stories with his army buddies.

Later in 2012 when I was interviewing Afghan veterans in Moscow, I realized that the Soviet-Afghan war was a very big, significant part of the history of the U.S.S.R. The country may not exist anymore, but I grew up in it and still belong to it. I wanted to know much more.

Q: How did you find the men for your book?

First I found Nikolai Bistrov, who now lives in in the Krasnodar region [southern Russia] - he used to be the personal bodyguard of Ahmad Shah Massoud [military commander, minister of defense of Afghanistan 1992-96].

He told me about many Russians who were still in Afghanistan or who had come home. These soldiers had come back recently and didn't want to meet for an interview. So I decided to fly to Afghanistan to meet others personally.
 
Q: Was it easy to travel to Afghanistan?

In Russia I had no problem obtaining a journalist visa. But from the moment we landed in Kabul, my fixer and I were under constant surveillance. Once I was imprisoned in Kabul for 11 hours because I'd taken a picture of a wall of a building that is forbidden to photograph.

In small cities like Kunduz or Chaghcharan, it was even more extreme. People from the local committee of security or police department were constantly trying to accompany us, explaining they wanted to protect us.

Q: It's no wonder - there is constant military conflict in the country.

Yes, it was terribly dangerous. When we went to Ghor Province in central Afghanistan for an interview, we went up to a roof at night and saw fighting only three or four kilometers away.

There is constant fighting between different tribes and gangs ... The authorities can only keep the situation under control within a guarded perimeter. Outside the city, it's basically a no-man's land.

The situation is so dangerous that when I asked a former Soviet soldier I interviewed if I could come back to his aul (village), he told me: "No! Don't come back! Everyone here already knows that you are a journalist and not an Afghan. Someone might come in the night and abduct you."

Q: Was it easy to talk with the men?

Yes, they were willing to speak. The most easygoing and interesting person was Sergei Kransnoperov, whose local name is Noormomad. He lives in Chaghcharan, a town in central Afghanistan. I was the first Russian journalist who visited him.

We spoke in Russian, he formulated grammatically simple sentences and sometimes confused the endings.

When I looked at him, I saw a typical Russian man. His six children are all blond and blue-eyed. But despite their Russian appearance, they are totally immersed in the local culture. When I visited him, his son obediently served us food. The way they received guests was very ritualistic and patriarchal. It's not common in Russia anymore.

Q: Are they happy in Afghanistan?

Yes, they all are married and have happy families. Sergei Kransnoperov is the most successful person I met. When he was a soldier during the Soviet-Afghan war, he had a conflict with someone at a military base and left to try to make his way home. But he was captured by mujahedin and spent a year in captivity, until he converted to Islam and was released.

Now he has two jobs as a road constructor and an electro-mechanical technician at the local hydroelectric power station. He earns more than $1,000 a month, a very good salary for the region, and built a house. He is in great demand in Afghanistan and wants to stay there. He is afraid he wouldn't find any work back in Russia.  

Another person - Alexander Levenets, whose local name is Ahmad - has also adapted really well. He converted to Islam and went on the Hajj, the annual Islamic pilgrimage to Mecca, last year. He works as a taxi driver and is happy with his job.

But others aren't so happy. Gennady Tsevma, whose local name is Nekmuhammad, lives in Kunduz. He was disabled by a leg injury in the war and can't work. He has no pension and gets no proper medical care. I even had to pay him for the interview - it's one of few ways for him to earn money.

Q: In the introduction to the book, you mention that some of the men are now so far from Russian culture that they even think in Dari.

Yes, some don't remember Russian at all. For example, a man from Samarkand, Uzbekistan now living in Herat. During the Soviet-Afghan war, he had a serious head injury - I could see a deep dent in his skull. The wound caused memory loss. All he remembers are the words spasibo and pozhaluista ["please" and "thank you" in Russian], so we spoke through a translator.

Q: Did anyone ask for help getting back to Russia?

No one. They don't need my help - at any time they can come back very easily just by calling the Warriors-Internationalists Affairs Committee in Moscow.

They don't do it because they have found their home in Afghanistan. Many of the men who attempted to come back to Russia in 1990s and 2000s faced difficulties. Afghanistan became their home, as Russia could not give them anything. The country itself was in trouble.

For example, I heard about a man named Yury Stepanov, who came back in 1996, lived in Bashkortostan for a half a year, couldn't get a job and returned to Afghanistan, where he got far more work offers. He built a hydropower station and set up a television satellite for the residents.

Q: Why did so many POWs stay in Afghanistan?

Because the Soviet Union collapsed. If the country hadn't disappeared, they would have returned much earlier and would have been able to adapt much more easily.

And then, most of the men in the book were just afraid to come back - they were deserters and were not hailed as "war heroes," despite the amnesty for them announced in 1989.

But they are living good lives and Afghans like them. In general, the Afghan people respect Russians. When my translator and I were drinking tea in a local chaikhona ("tea house") in Chaghcharan, some local people told us: "We had a war with you, but the roads and hospitals that we still use were built by you." Amazing that they still remember that!

To help Alexei Nikolayev finish the book, see planeta.ru/campaigns/foreverincaptivity

 

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 #24
New York Times
July 7, 2015
Islamic Battalions, Stocked With Chechens, Aid Ukraine in War With Rebels
By ANDREW E. KRAMER

MARIUPOL, Ukraine - Wearing camouflage, with a bushy salt-and-pepper beard flowing over his chest and a bowie knife sheathed prominently in his belt, the man cut a fearsome figure in the nearly empty restaurant. Waiters hovered apprehensively near the kitchen, and try as he might, the man who calls himself "Muslim," a former Chechen warlord, could not wave them over for more tea.

Even for Ukrainians hardened by more than a year of war here against Russian-backed separatists, the appearance of Islamic combatants, mostly Chechens, in towns near the front lines comes as something of a surprise - and for many of the Ukrainians, a welcome one.

"We like to fight the Russians," said the Chechen, who refused to give his real name. "We always fight the Russians."

He commands one of three volunteer Islamic battalions out of about 30 volunteer units in total fighting now in eastern Ukraine. The Islamic battalions are deployed to the hottest zones, which is why the Chechen was here.

Fighting is intensifying around Mariupol, a strategic seaport and industrial hub that the separatists have long coveted. Monitors for the Organization for Security and Cooperation in Europe say they have seen steady nighttime shipments of Russian military equipment on a rail line north of here. Recently, the Ukrainian authorities released photos - which they said were taken by a drone flying north of the city - that showed a massing of heavy weapons, including tanks and howitzers, on the rebel side.

Anticipating an attack in the coming months, the Ukrainians are happy for all the help they can get.

As the Ukrainians see it, they are at a lopsided disadvantage against the separatists because Western governments have refused to provide the government forces with anything like the military support that the rebels have received from Russia. The army, corrupt and underfunded, has been largely ineffective. So the Ukrainians welcome backing from even Islamic militants from Chechnya.

"I am on this path for 24 years now," since the demise of the Soviet Union, the Chechen said in an interview. "The war for us never ended. We never ran from our war with Russia, and we never will."

Ukrainian commanders worry that separatist groups plan to capture access roads to Mariupol and lay siege to the city, which had a prewar population of about half a million. To counter that, the city has come to rely on an assortment of right-wing and Islamic militias for its defense.

The Chechen commands the Sheikh Mansur group, named for an 18th-century Chechen resistance figure. It is subordinate to the nationalist Right Sector, a Ukrainian militia.

Neither the Sheikh Mansur group nor Right Sector is incorporated into the formal police or military, and the Ukrainian authorities decline to say how many Chechens are fighting in eastern Ukraine. They are all unpaid.

Apart from an enemy, these groups do not have much in common with Ukrainians - or, for that matter, with Ukraine's Western allies, including the United States.

Right Sector, for example, formed during last year's street protests in Kiev from a half-dozen fringe Ukrainian nationalist groups like White Hammer and the Trident of Stepan Bandera. Another, the Azov group, is openly neo-Nazi, using the "Wolf's Hook" symbol associated with the SS. Without addressing the issue of the Nazi symbol, the Chechen said he got along well with the nationalists because, like him, they loved their homeland and hated the Russians.

To try to bolster the abilities of the Ukrainian regular forces and reduce Kiev's reliance on these quasilegal paramilitaries, the United States Army is training the Ukrainian national guard. The Americans are specifically prohibited from giving instruction to members of the Azov group.

Since the Afghan war of the 1980s, Moscow has accused the United States of encouraging Islamic militants to fight Russia along its vulnerable southern rim, a policy that could deftly solve two problems - containing Russia and distracting militants from the United States. The Chechen leader, Ramzan Kadyrov, has accused the Western-backed Georgian government of infiltrating Islamic radicals into the North Caucasus, though he has not offered proof.

In Ukraine, the Dzhokhar Dudayev and Sheikh Mansur units are mostly Chechen, but they include Muslims from other former Soviet areas, such as Uzbeks and Balkars. The third unit, Crimea, is predominantly Crimean Tatar. There is no indication of any United States involvement with the groups.

Along the front about seven miles to the east, the battalions career about in civilian cars, AK-47 rifles poking from the windows, while the regular army holds back in a secondary line of defensive trenches.

The Chechens, by all accounts, are valuable soldiers. Ukrainian commanders lionize their skills as scouts and snipers, saying they slip into no-man's land to patrol and skirmish.

The Chechens are also renowned for their deft ambushes and raids. In the Chechen wars, insurgents had a policy of killing officers and contract soldiers who were taken prisoner, but conscripted soldiers were spared.

In Ukraine, the Chechens' calls of "Allahu akbar," or God is great, are said to strike fear in the hearts of the Russians.

In the interview, the Chechen commander said his men liked to fight with little protective gear. "This is the way we look at it," he said. "We believe in God, so we don't need armored vests."

In the interview at the restaurant, a steakhouse and favorite haunt of Right Sector, the Chechen said he was about 45, had fought against Russia in both Chechen wars and had seen a good deal of violence. When he talks about combat, his eyes grow dark and inscrutable.

For the Ukrainians, the decision to quietly open the front to figures like the Chechen - who are making their way here from Europe and Central Asia - has brought some battle-hardened men to their side. The Chechen had been living in France, and he founded the Chechen battalions last fall along with Isa Musayev, an émigré from Chechnya who had been living in Denmark.

Mr. Musayev, the Chechen said, had received approval from senior members of the Ukrainian government, but "there were no documents, nothing was written," he said, adding that Mr. Musayev was killed in fighting in February.

Though religious, the Chechen groups in eastern Ukraine are believed to adhere to a more nationalist strain of the Chechen separatist movement, according to Ekaterina Sikorianskaia, an expert on Chechnya with the International Crisis Group.

Not everyone is convinced. The French authorities, on edge over Islamic extremism in immigrant communities, detained two members of the Sheikh Mansur battalion this year on accusations of belonging to the extremist group Islamic State, the Chechen said. He denied that the two were members of the group.

"All of Europe is shaking with fear of the Russians," he said. "It's beneficial for Europe that we fight here as volunteers. But not everybody understands."

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 #25
www.thedailybeast.com
July 4, 2015
Is America Training Neonazis in Ukraine?
Officially no, but no one in the U.S. government seem to know for sure.
By Will Cathcart and Joseph Epstein
Will Cathcart is a former media advisor to the President of Georgia and former managing editor of the Charleston Mercury newspaper. Will currently works in media and business development in the Black Sea region.

There are no doubts about the neo-Nazi and white supremacist background of the Azov Battalion, a militia that has positioned itself at the forefront of the fight against Russian-backed separatists in eastern Ukraine. As the founder and head of the battalion Andriy Biletsky once put it, "The historic mission of our nation in this critical moment is to lead the White Races of the world in a final crusade for their survival."

That Russian President Vladimir Putin and his propagandists exploit this fact, using it to build support for their aggression and to undermine the international effort to help Ukraine defend its independence, is undeniable. But knowing that, and wanting to resist that, does not resolve some very important questions about the basic facts.

What is the relationship of the U.S. government to these people? Is it training them? Might it arm them? Is this, like the Afghan war of the 1980s, one of those cases where we aid and abet the kind of monsters who eventually become our enemies? Concerns about that possibility have been growing on Capitol Hill.

Because of uncertainties surrounding the Azov Battalion's role in the U.S. training initiative and worries about the possible supply of shoulder-held anti-aircraft missiles to such characters, the House unanimously adopted bipartisan amendments to H.R. 2685, the "Department of Defense Appropriations Act of 2015." And one of them specifically blocks training of the  "Ukrainian neo-Nazi paramilitary militia 'Azov Battalion.'" Representatives John Conyers and Ted Yoho sponsored the amendment to the bill, which was passed unanimously by Congress.

This is in addition to criteria established in an amendment to the Foreign Assistance Act of 1961, originally sponsored by Sen. Patrick Leahy, known as "the Leahy Vetting Process." The Leahy process consists of screening foreign forces applying for U.S. Government training and support to certify that they haven't committed any "gross human rights violations." If they are found to have done so, support is withheld.

But the highly problematic truth is that the U.S. currently has no real way of ensuring that members of neo-Nazi groups like the Azov Battalion are not being trained by U.S. forces, because most, if not all, have not committed a "gross human rights violation." Even more difficult to determine is whether ex-U.S. military are training crypto-Nazis in a private capacity, and the issues speaks volumes about the complexities that have to be confronted by the United States in its efforts to help Ukraine defend itself from the Russian-supported secessionists.

In an interview with The Daily Beast, Sgt. Ivan Kharkiv of the Azov battalion talks about his battalion's experience with U.S. trainers and U.S. volunteers quite fondly, even mentioning U.S. volunteers engineers and medics that are still currently assisting them. He also talks about the significant and active support from the Ukrainian diaspora in the U.S. As for the training they have and continue to receive from numerous foreign armed forces. Kharkiv says "We must take knowledge from all armies... We pay for our mistakes with our lives."

Those U.S. officials involved in the vetting process obviously have instructions to say that U.S. forces are not training the Azov Battalion as such. They also say that Azov members are screened out, yet no one seems to know precisely how that's done. In fact, given the way the Ukrainian government operates, it's almost impossible.

The Ukrainian Ministry of Interior brings what one U.S. official calls a "mishmash" of troops, consisting of volunteers, members of militia battalions and official army to be trained, and the Leahy process exists to check and see if any have committed a "gross violation of human rights," which most likely they have not-at least not yet. But much less care is given to the question of ideology. When officials are asked for details of any kind regarding how the vetting process actually functions, answers are ambiguous, details are scarce and the explanations become contradictory.

In an interview with The Daily Beast, the U.S. Army Public Affairs Officer from the 173rd Airborne Brigade training Ukrainian forces in Lviv in western Ukraine, Capt. Steven Modugno, says that no one from the Azov Battalion or Right Sector is being trained in Lviv because the embassy uses the Leahy vetting process, which is in place to make sure no one has committed any kind of gross human rights abuses. When asked about members of the Azov Battalion who have not committed gross human abuses, more specifically how they are screened out, he says, "You know that's actually a great question. It's one the State Department would need to answer."

The Daily Beast then interviewed State Department representative, Press Officer Yarina Ferentsevych of the U.S. Embassy in Ukraine. Ferentsevych told us, "At this point, as far as we are aware, no"-that is, no members of Azov. "Whether or not some may be in the lineup, that is possible. But frankly, you know, our vetting screens for human rights violations, not for ideology. Neo-Nazis, you know, can join the U.S. army too. The battalions that are in question have been integrated as part of Ukraine's National Guard, and so the idea is that they would be eligible for training, but in all honesty I cannot tell you if there are any on the list we train. There were not any in the first rotation as far as I am aware."

Ferentsevych confirms that it is practically impossible to know which trainees are from which battalion, "It's a mishmash of folks: volunteers, soldiers, war heroes, Maidan veterans-I mean I couldn't tell you, you know, short of investigating the background of each guy."

At this point, she recommends that we speak to the press officer of the 173rd Airborne Brigade. We explain that he actually directed us to her. She laughs. Welcome to the United States Government.

When we asked PAO Capt. Modugno whether it was possible to detect all the Azov guys who are dispersed into the national guard battalions, he told us, "I don't know if any of them could get through." He explained that he is not an expert on the Leahy vetting process, but, "From what I've seen here, I haven't seen any extremists, I've seen patriots." The acting head of Ukraine's national guard, Mykola Balan, told The Daily Beast, "Azov hasn't been trained by the U.S. military. Currently they are at the front line."

Regarding the Ukrainian government's involvement in the vetting process, Capt. Modugno explains that one section of the government is doing all the heavy lifting, "I believe it is the Ministry of Interior that is picking companies to come here."

The Azov Battalion not only answers directly to the Ministry of Interior, but it is ingrained deeply in that structure. The founder and head of Azov, Andriy Biletsky works closely with the Ukrainian Ministry of Interior and as the BBC reported last year, "The Azov Battalion was formed and armed by Ukraine's interior ministry."

Biletsky claims, however, that his battalion hasn't been trained by the U.S. military. In a comment to The Daily Beast, he said: "No, American army representatives do not train and had never trained the battalion. What I know so far is that there are regular training of the Ukrainian armed forces and Azov has nothing to do with it."

Capt. Modugno says that he is more of a "boots on the ground type of guy... When it comes to vetting and the Ukrainian government, the most I can tell you is that we are training at the request of the government and where these guys come from and where they go-it is their [the Ukrainian government's] decision not ours."

As for American private individuals training Ukrainians elsewhere, Capt. Modugno says, "I can't tell you that no Americans are there because any American who believes in a cause can go anywhere in the world. I can tell you in an official capacity, no, there are no American forces east of Kiev."

When asked if, in an official capacity, any Azov members have been trained by the U.S. military in the past he says, "I don't know. I don't want to say 'no' because I am not a big history buff on military training here. As far as I know, no. But I also know the U.S. and other nations have been doing exercises here in Ukraine since like 2002. Rapid Trident is one of those exercises. I really don't know what units would come to that because I believe that's active duty military. So I'm not sure, but I don't believe so."

Capt. Modugno continues, "As far as who has been trained here on the ground, there were two companies that came in the first rotation. They were called Jaguar and Cheetah Company. It is my understanding they were complete companies when they came here. They augmented them with some of their war heroes from the ATO [Anti-Terrorism Operations] from other locations. They just graduated this past week. And right now we have the North and East Company. They are kind of a mishmash of different units and soldiers being trained here. Part of the Ukrainian government's intent here is that when they graduate they're actually dispersing them throughout Ukraine so they can take some of these tactics and techniques and see what they've learned... to take back to their units."

This is exactly the concern of many about who is being trained by U.S. forces in Ukraine.

"You know, I know I'm about to speak speculatively here and I say that because I don't know the entire process. But I do know that the State Department is very aware of the concerns that many news agencies and U.S. citizens have, that as [The Daily Beast's]  article says, we're training neo-Nazis over here. I've seen them. I keep up on the news. I'm not saying that's what we're doing. I think what is really happening is the U.S. State Department is taking a serious look at these guys before allowing them to come here [to Lviv]. Again, that's entirely speculative. But I think because concerns are so high, they're being very careful."

The captain continues describing what he has seen on the ground. "With most of the guys that I've seen here though, I haven't seen anything extremist." In order to convey the cultural diversity he has seen, he begins to name various sects of Christianity he has come across: "I've seen Roman Catholics; I've seen Mormon soldiers on the ground both U.S. and Ukrainian; I've seen Latter Day Saints; I just haven't seen anything too crazy or anything you wouldn't expect from any other military."

When asked if there are any Jewish Ukrainian forces he replies, "You know that's a fair question and one I can't answer. I know on the U.S. side we've had Jewish soldiers here. I don't know for the Ukrainians."

Chief of the Office of Defense Cooperation for the United States Embassy in Ukraine, Col. Cynthia Matuskevich, also denies that U.S. forces are training anyone from the Azov Battalion. Col. Matuskevich says, "The [Ukrainian] National Guard has told us there are none and that they all went through the normal vetting process that we're required to do by the State Department."

When asked for specifics on the vetting process she says, "Essentially, in its nearest sense, it's like background checks on individuals. I can't really elaborate, but we check with various agencies including the consular section and they just kind of do background checks. I can't personally say what happens in D.C. because I've never been on that end of the process but the State Department in D.C. is the ultimate clearer-if you want to call it that."

When asked how the Leahy process weeds out Azov members, for instance those who have not committed "gross human rights violations" but identify themselves with the Nazis and even with the SS, Matuskevich explains, "Unfortunately I can't comment anymore-I mean we have Leahy requirements and we ask for human rights vetting but I mean we don't individually interview everyone and ask them what their individual philosophies are because we know people could lie. But we do our utmost to abide by the Leahy vetting and we work with partners that you know we trust and have told us that none of them are members of those organizations."

As for the "partners" they work with, Matuskevich says that they work directly with the Ukrainian National Guard, "which coordinates all the trainees. They fall under the Ministry of Interior, so our political section at the embassy would be the ones who are dealing with them... The Ukrainian Government, and I guess it's in the form of the Ministry [of Interior] are the ones that nominate the candidates for the training."

When asked why the new House amendment would be necessary if the Leahy process was already in place, Ferentsevych said, "That's a good question, you should ask the congressman." So we did.

In an interview with The Daily Beast, Rep. John Conyers, Jr. (D-Mich.) said: "This is an important precautionary action. The Leahy Law takes the essential retroactive step of prohibiting assistance to units that are credibly alleged to have committed gross violations of human rights. The issue here concerns who is eligible for aid in the first place, and America must choose allies whose interests and ideas align with ours. Congress can-and should-provide additional guidance to the executive branch when candidates for U.S. security assistance are publicly associated with goals that conflict with our foreign policy."

Ferentsevych would seem to corroborate the need for the amendment, in effect, when she says, "If these guys have violated human rights, then you would think that you would know. But human rights and ideology are two different things. It's kind of like hate speech, people talk trash, it's one thing, but if they do something about it, oh my God..."

When asked whether the Leahy process would screen out people with Nazi tattoos, she responds, "I have no idea... I don't know. Is it on their neck where all the world can see it? Or is it on their bum, where nobody can see it? I don't know. I'm not a legal expert."

Jack Harris, the Official Opposition Critic for Defense for the New Democratic Party of Canada raised concerns about what forces Canada could end up training. "If they've integrated (Azov) into the larger organization, then we will be seeking clarification from Mr. Kenney [Canadian Minister of Defense] about what is happening here," Harris said. Retired Canadian diplomat turned consultant for the International Organization of Migration in Moscow, James Bissett has argued that it would not be possible to detect all the Azov members dispersed into the National Guard battalions. Bissett told the Ottawa Citizen, "These militias [such as Azov] are being merged with Ukraine's military so we won't be able to determine who we are training."

This is an issue that simply needs more attention than "I don't know" from the United States Government. Even those most closely connected to the process seem unclear on the specifics of it.

As Congressman Charlie Wilson, the godfather of American support for the Afghan mujahedeen once said, looking back on the disaster that followed their "victory," "These things happened. They were glorious and they changed the world... and then we fu-ked up the endgame." The United States' desire to train Ukrainian troops comes from the right place-the need to stop Russian covert and overt aggression. The problem is that the Azov battalion is nuzzled so deeply into the Ukrainian government that they are nearly impossible to weed out.

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 #26
Sputnik
July 7, 2015
Above the Law: Right Sector Says It Does Not Obey Ukrainian Army - OSCE

The Right Sector told OSCE that it does "not fall under the command of the Ukrainian Armed Forces."

Right Sector militants disrupted the work of the OSCE Monitoring Mission (SMM) in Donbass, the observers said in a report.

Armed Right Sector members denied the SMM's access to Avdeevka, 15 kilometers North-West of Donetsk, when the group was en route to a JCCC (Joint Center for Control and Coordination) observation post.

The SMM appealed to the Ukrainian Armed Forces Major General, head of the Ukrainian side to the JCCC, but the Right Sector members persisted and said they obeyed the orders of their own commanders and "did not fall under the command of the Ukrainian Armed Forces."

Earlier in June, the Right Sector barred OSCE monitors from entering the Communist Party office in the southern port city of Odessa after having seized it.

The Right Sector is a hardline nationalist union infamous for committing numerous human rights violations.

The Kiev authorities have been unsuccessfully trying to rein in militarized volunteer formations such as the Right Sector.

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 #27
Ukrainian radical lawmakers move to ban Russia-coined words for 'historical justice'

KIEV, July 7. /TASS/. The parliament of Ukraine, the Verkhovna Rada, registered on Tuesday a bill banning the use of words 'Rus' and its derivative 'Russia' in the official name of the sovereign territory of the Russian Federation.

Member of the Ukrainian Radical Party Oxana Korchinskaya, who initiated the bill, claims that lexical units 'Rus' and 'Russia' are the definitions for the historical territory of Ukraine.

"Until the contemporary times the territory of present-day Russian Federation has never been called by foreign sources or local residents as 'Rus' or 'Russia'," an accompanying statement to the bill, posted on the official website of the Verkhovna Rada, said.

The bill seeks to ban "using the historical name of the Ukrainian territory as the name or synonym for the Russian Federation."

The accompanying statement also said that "the aim of the bill is to restore the historical and social justice, to protect the historical and cultural heritage of the Ukrainian people, as well as to consolidate and develop the Ukrainian nation, its historical consciousness, traditions and culture.".

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 #28
Ukraine's constitutional reform expands Poroshenko's powers unlimitedly

MOSCOW, July 6 /TASS/. Ukraine's new constitutional reform gives absolute powers to Ukrainian President Petro Poroshenko, Oleg Bondarenko, director of the Strategic Communications Agency, said at a roundtable meeting at TASS on Monday.

"The constitutional reform has been announced by Poroshenko to strengthen and expand the presidential powers without pursuing a policy of decentralization. The word federalization is forbidden in Ukraine. That is why they are using the term decentralization to bring the presidential power closer to the communities' level," the expert said.

"Ukraine has a unitary communal system, in which there is no place for Donbas," Bondarenko said.

Another expert who took part in the roundtable meeting said that Kiev was forcing Donbas out of the constitutional space and was unwilling to talk to the self-proclaimed Donetsk People's Republic and Lugansk People's Republic.

"Kiev's steps are forcing Donbas out of the [Ukrainian] constitutional space. If the Ukrainian ruling class is not going to talk to the self-proclaimed republics [DPR and LPR], it is unlikely to succeed in incorporating Donbas on any terms," Alexey Chesnakov, the head of the Russian Center for Political Conjuncture, said adding it's time to show goodwill and take a political commitment not to let the constitutional process go beyond the point of no return.

"The authorities in Kiev are carrying out their own independent constitutional process, leaving few chances for Donbas to join it," Chesnakov said.

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 #29
Sputnik
July 6, 2015
Germany, Russia Two Countries Capable of De-escalating Conflict - Gorbachev

Former President of USSR Mikhail Gorbachev said that the Russian-German history goes back not decades, but centuries, hence it is necessary to search for and find any, even the most unconventional path to peace and cooperation.

"It is necessary to look for any, even the most unconventional opportunities for cooperation between Russia and Germany, as the words 'Moscow' and 'Berlin' have a considerable weightage in the world and the two countries can contribute to the settlement of crisis in Ukraine," former Soviet President Mikhail Gorbachev said.

According to the Gorbachev Foundation's website, a book published by German politician Wilfried Sharnaglya, 'On the Brink', was published in May 2015. The book is dedicated to the topical issues of Russian-German relations. At the request of the author and publisher, Gorbachev wrote the foreword to this book.

In the preface, Gorbachev wrote that the Russian-German history goes back not decades, but centuries; during this time relations between the countries were characterized by mostly good-neighborliness. "There was conflict period also; the most critical time was during Hitler's regime and the Second World War."

"The memory of the brutal war, of great sacrifices, imposes upon us the duty to prevent the loss of life in our time. It is necessary to search for and find any, even the most unconventional path to peace and cooperation. Twenty-five years ago we were able to find them. This is our common heritage. It is necessary to protect it," the former president of the USSR stressed.

He recalled that at one point it was possible to end the 'Cold War' and to come to an agreement on the reunification of Germany.

Gorbachev said that the years after the Second World War were not calm, but just like back then, the two countries are able and must cooperate in order to find a solution to the crisis.

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 #30
Moscow Times
July 6, 2015
Russia Must Focus Less on Ukraine, More on IS
By Natalia Antonova
Natalia Antonova is an American playwright and journalist.

Mainstream discourse in Russia these days is overwhelmingly dominated by Ukraine. Ukraine this. Ukraine that. Look, a Russian rock star waved a Ukrainian flag on stage - let's burn her at the stake or at least strip her of her citizenship.

Ukrainian politicians, even boring, non-nationalist ones, are spoken of in tones of horror and disgust usually reserved for pedophiles and people who post animal abuse videos on the Internet.

Almost every Russian seems to have a story about how they have a wonderful Ukrainian friend/ex-classmate/third cousin on their dad's side whom they sadly can't talk to anymore, because - and here a dramatic pause is usually warranted - "they're all crazy over there now."

That's just what's happening on the surface, of course.

Even the sincerest supporter of Russia's loud denials of military involvement in Ukraine's east will probably agree that vast Russian intelligence resources have been engaged by the Ukraine crisis.

Spies, strategists, public thinkers and private advisers - how many useful people on the Russian side are currently devoting vast amounts of energy to Ukraine? The number is disturbing to consider due to the possibility that they're all wasting their time on the wrong problem.

The real problem is the Islamic State.

Now, I realize that it's become fashionable to point out that the threat of the IS is "overstated." The IS is so fond of gory spectacle that a lot of people take a glance in their direction and assume that they're just compensating for military weaknesses - forgetting what a powerful tool violent propaganda in itself can be.

A sizable social media presence also makes the IS threat seem unbelievable at times. We're used to thinking of Islamic extremists as mysterious beings hiding in caves - not as people who get constantly retweeted into our feeds.

Perhaps so-called "Bloody Friday" on June 26, which saw deadly IS attacks take place in France, Tunisia and Kuwait can serve as a reminder that a terrorist who uses Twitter hashtags is still a terrorist.

Meanwhile, some countries are more vulnerable to the IS than others. Terror cells are scary enough - but Russia, for example, has its own political and geographic realities to think about. The North Caucasus region, already home to a number of extremists, is Russia's soft underbelly, a place where Moscow's influence has regularly been in flux.

The news that former al-Qaida militants in the North Caucasus have pledged allegiance to the IS was greeted with the usual complacency in Russia. "Oh, there's another message from crazy people pledging to slaughter us all - must be Tuesday," the weary nation says before switching the channel.

Yet it was exactly complacency over the IS that allowed the group so many unexpected military victories. And the North Caucasus, used to a steady diet of violence, is a fertile breeding ground for exactly the kind of apocalyptic message the IS brings.

That's besides reports that Muslims from Central Asia are radicalizing at alarming rates. There are millions of Central Asian migrants in Russia. Overall, they are an underpaid, exploited and alienated group. These are exactly the people the IS preys on by offering them a twisted kind of glory, as opposed to a life spent working thankless jobs for miniscule wages.

Since the annexation of Crimea and the onset of sanctions, both Russian foreign and domestic policy have been infused with a sense of exaggerated bravado and pointed anti-Western rhetoric.

In this atmosphere, Ukraine is the ideal "proxy enemy" - easy to demonize, but not nearly as imposing as the U.S., which is, polls show, considered to be the "ultimate enemy."

Russia can't really hurt the U.S., but in using Ukraine as a whipping boy it can hurt U.S. interests. It's also a great short-term tool for mobilizing society against an outside threat.

Admitting that Russia now shares with the West a particularly prolific and ruthless enemy - the IS, its sympathizers, and potential recruits - is an uncomfortable task. A common ground doesn't fit with the anti-Western narrative as neatly.

It also means toning down the bravado as far as Russia is concerned, which would go against the image of mighty Moscow, first rescuing Crimea from its Ukrainian captors and now ready to take on the world.

Russians can certainly point the finger at destructive U.S. misadventures in the Middle East as having given rise to the IS in the first place, but that can't and won't make the IS go away.

Titanic metaphors are appropriate here. Thomas Hardy was criticizing general human vanity when he wrote "And as the smart ship grew / In stature, grace, and hue, / In shadowy silent distance grew the Iceberg too" - but these lines are just as appropriate for geopolitics.

So Russia puffs its chest out in the direction of Ukraine while the extremist cancer continues to grow - and where it could all end up is getting scary to contemplate.

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 #31
Reuters
July 6, 2015
How to empower Ukraine and bring Moscow back to the table
By Jan H. Kalicki
Jan H. Kalicki is a former White House ombudsman for the New Independent States and counselor to the Commerce Department in the Clinton administration. He is now a public policy fellow at the Woodrow Wilson International Center for Scholars.

Despite strong pressure from the Kremlin, the European Union voted to support the United States in maintaining targeted sanctions on Russia because of its occupation of Ukrainian land. But just continuing the current sanctions on Moscow is not enough to restore Kiev's territorial integrity.

What is needed is a series of steps that would strengthen Ukraine's economy and security - as well as re-engage Russia in a broader relationship with the West. A viable strategy could combine an array of pressures and incentives that would extend far beyond the current sanctions.
ThirdMan2-best

At the core of this strategy is the proposition that Ukraine can fashion a viable future, territorially intact, between Russia and Europe. This was possible for Austria at the height of the Cold War, though it was positioned at the crossroads of East and West. The 1955 State Treaty reestablished Austria as an independent nation and removed Soviet (as well as Western) occupation forces. This should also be possible for Ukraine today.

To achieve this goal, Ukrainian President Petro Poroshenko needs greater international support in his efforts to institute government reform. Economically, this would mean more concrete assistance from the International Monetary Fund, the European Union and the United States.  Militarily, this would mean  defensive assistance to Ukraine if Russian heavy weaponry is not removed from the eastern separatist regions.

It would be unrealistic to seek a military balance, which would likely prompt escalation. But the West cannot consign Kiev to an economic and security vacuum, which could only invite more aggressive steps by the separatists and their Russian supporters.  In return for international support, Kiev must maintain and intensify its own reforms.

General Philip Breedlove, military commander of the North Atlantic Treaty Organization, warns that Russian forces have "reset and repositioned" and may be preparing for a fresh offensive in Ukraine. To deter such a move, the West would need not only to reaffirm existing sanctions but also to demonstrate it is ready to increase them by preparing an expanded list of Russian firms and individuals to be sanctioned. Defensive military support of Ukraine, including training, intelligence and equipment, should be an integral part of any robust Western response.

At the same time, an effective Western strategy could re-engage Russia productively. The starting point is to lay out which programs would be implemented  if Ukraine's territorial integrity is restored - working with Moscow to establish an economic and security relationship based on respect and mutual benefit.
Working dinner of the G7 Summit in Germany

It is critical for the building blocks to be mutually defined, but past East-West agreements suggest some likely contours. Economically, higher value investment and trade, with added technology, can be restored in a post-sanctions environment in which Russia would also undertake the necessary economic and legal reforms that are in its own interest. One example, ruled out under present sanctions, would be nonconventional-energy development in Siberia and Russia's far north.

In security terms, both sides would benefit from de-escalating tensions along NATO borders, on everything from military deployments to cyberattacks. Adequate progress in post-sanctions relations could be reflected, in turn, by reactivating Russia's membership in the G-8 as well as the NATO-Russia Council.

Against this backdrop, the future of Ukraine could be approached in a more hopeful vein. Kiev's reformers have their work cut out for them, but tangible Western support could reinforce their position at this critical point. The Kremlin, meanwhile, would have the choice of re-engaging with the West in a concretely positive way rather than confronting sanctions and other strictures.

Like Austria with its State Treaty, Ukraine could then pursue trade and investment ties with the East as well as the West. Kiev would mirror Vienna in that it also would not join NATO. But Kiev could qualify for association with - and perhaps ultimately membership in - the European Union. Ukraine could then be removed as a major point of East-West contention, as Austria was during the Cold War, with positive benefits for the entire region.

Would the Kremlin come to support such an approach? Here, the jury is still out.  President Vladimir Putin's third term has been characterized by strong criticism of the West, moves to engage with the East and failure to implement the Minsk II agreement restoring the territorial integrity of Ukraine.

Sanctions alone have not been able to change this situation. Only a strategy that provides a positive framework for both sides could lead to a different outcome.

There is, potentially, much to gain and little to lose by trying it.

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 #32
Empty treasury explains why Ukraine refuses to buy Russian gas
By Tamara Zamyatina

MOSCOW, July 2. /TASS/. Kiev has no money to pay for Russian gas, but to save face the Ukrainian authorities have had to put on airs in their price dispute with Gazprom, thereby trying to attain political aims, polled experts have told TASS.

Gazprom terminated gas supplies to Ukraine at 10:00 Moscow time on July 1 because it had received no prepayment, the gas giant's CEO Aleksei Miller said on Wednesday.

"Gazprom will not supply gas to Ukraine whatever the price as long as there is no prepayment," Miller said. Ukraine's Naftogaz said that it was terminating gas purchases from Gazprom starting from July 1 until the conditions that failed to be agreed at trilateral negotiations in Vienna on June 30 have been settled.

In the first and second quarters of this year Ukraine was entitled to a $100 discount off the price of gas for 1,000 cubic meters. In fact, Ukraine was importing gas at $247.2 per 1,000 cubic meters. The price of oil in the second half of last year slumped heavily, pulling down the price of gas, too. Russia said that it was unable to prolong the $100 discount for Ukraine, adding that it could afford a $40 cut at the most, while the actual price of gas should stay at the level of the second quarter: $247.12. Ukraine refused to pay. In its opinion the fair price is $200 for 1,000 cubic meters.

The president of the Globalization Problems Institute, Mikhail Delyagin, believes that Kiev's demand for setting the price at $200 for 1,000 cubic meters is devoid of any sensible reasons but one: the treasury is empty.

"Kiev is bargaining with Gazprom over the price of gas because the demand from Ukraine's largely eliminated industry is meager, while 40% of the demand in the housing and utilities' sector can be met with domestically produced low calorie gas, which is no good for industrial use," Delyagin, a member of the discussion club Valdai, told TASS.

He stressed the fact that the $100 discount off the price of one thousand cubic meters had been proposed by Russia to Ukraine's former president, Viktor Yanukovych, and not the current authorities. "Moscow then proceeded from the understanding that Russia and Ukraine would have a common economy and for that reason it agreed to sell gas to Kiev at prices pretty close to the internal ones. But Ukraine's current authorities have in fact disrupted economic cooperation with Russia. But then a childish question arises: why should Russia keep intact the integration discount for Ukraine at a time when there is no hope for integration?" Delyagin says.

"Kiev's mode of behavior has remained unchanged over years: as production has slumped, particularly so in the metal and chemical industries, Ukraine's demand for gas is moderate. Usually Kiev tends to get more pliable towards wintertime, precisely the way it happened in the previous years," another member of the Valdai club, Vladimir Averchev, has told TASS.

"Gazprom's price of gas for Ukraine set at 247.2 dollars for 1,000 cubic meters is approximately equivalent to what Ukraine would have to pay for reverse gas supplies from Slovakia, Hungary or Poland," says Averchev, the director of research at BP Russia. "Possibly Kiev finds this pattern preferable, as it does not have to make any prepayments. In the meantime Ukraine has no money even to pay the current interest on debts."

"Guaranteed supplies of Russian gas in wintertime are a real problem for Ukraine and the European Union. Kiev would like the end customer as represented by Brussels to pay for the winter supplies to Europe. But Brussels has no money to spare at the moment, the financial crisis in Greece being its main headache.

In case winter consumption peaks Brussels would like to have 15-18 billion cubic meters of gas stored in Ukraine's gas holders. Russian Energy Minister Aleksandr Novak says 12.5 billion cubic meters of gas is already there, but there is no money to pay for the still missing 6 billion cubic meters," Averchev said.

"Kiev is using its current tug-of-war with Gazprom for purely internal political purposes, just to show the ordinary people President Poroshenko is a vehement crusader for Ukraine's national interests. This ostensibly irreconcilable stance also pursues the aim of squeezing out of the European bureaucrats the one-billion-dollar loan Kiev needs to make prepayments for Russian gas. Behind this fuss there is nothing but Kiev's wish to put a good face on a bad game," Averchev said.

And the chief of the World Economy unit at the Skolkovo Centre, Tatyana Mitrova, remarks it is any client's unalienable right to refuse to buy a commodity at the offered price. Naturally, in this type of situation the seller is unable go ahead with the supplies. "But then it is utterly wrong to reproach Russia for turning off Ukraine's gas valve. As last year's experience indicates, Ukraine can do pretty well without Russian supplies during several summer months. But one can be certain that the gas talks will be resumed in the end," Mitrova said.

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#33
Interfax-Ukraine
July 7, 2015
Poroshenko certain Russian gas transit will continue via Ukraine after 2019
 
President of Ukraine Petro Poroshenko has said he is confident that transit of Russian gas through Ukraine will continue after 2019.

"I am confident that transit through Ukraine and the transit agreement between Naftogaz and Gazprom after 2019 will also be extended, as there is no other economic alternative," he said at a press conference with Bulgarian President Rosen Plevneliev in Kyiv.

Poroshenko stressed the importance of ensuring the energy security of the European Union.

"I can assure you that any projects bypassing Ukraine make gas in Europe more expensive, which means that prices are not competitive... We will not support this. Ukraine is interested in long-term, market-based prices, ensuring the energy security of the European Union. I do not rule out that if this does not occur and we agree with the European Union, then we will buy gas for Europe on the Ukrainian-Russian border and this will allow deprive anyone of monopoly," he said.

Poroshenko went on to note the prospects of using gas storage facilities in Bulgaria and Ukraine for gas supplies to Europe

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 #34
Local Elections in Ukraine Could Work to Moscow's Advantage and Undermine Ukraine's Ability to Function
Paul Goble     

Staunton, July 7 - Many analysts have warned that local referenda on autonomy in the Donbas could lead to "a parade of sovereignties" in Ukraine, threatening its survival (svpressa.ru/politic/article/126718/).  But now Oleg Rybachuk says that local elections scheduled for this fall could also weaken Ukraine because the country is "not prepared for them."

In a commentary for Kyiv's "Novoye vremya," the former deputy prime minister for European integration, says that "by means of democratic institutions, it is possible to bring to power absolutely anti-Ukrainian politicians" unless Kyiv establishes new rules for these contests (nv.ua/opinion/rybachuk/novye-narodnye-respubliki-chem-opasny-mestnye-vybory--57771.html).

At the present time, he says, Ukrainians are "completely disoriented and likely are not even prepared to make a conscious choice." The explosive growth in information "does not give them the opportunity to rationally assess the situation and analyze all the candidates." After all, "the war is continuing and Russian television channels are working."

"In such situations," Rybachuk says, the population almost requires "psychological rehabilitation." But that may not happen in time because political technologists are going to be working overtime to manipulate the people, something that will be all the easier because "normal European parties with real political culture and responsibility haven't appeared in Ukraine yet."

That means that even those who oppose Ukraine's current course can present themselves as supporters, and many will not have the ability to make the necessary distinctions. If that happens, "absolutely anti-Ukrainian politicians who do not want to see Ukraine being a strong European state could come to power via democratic institutions."

There is a related "potential threat to democracy" and that is Russia, Rybachuk says. "The goal of Putin is to make Ukraine a state that cannot be administered, to transform it from a unitary country into something like Bosnia and Herzegovina with a mass of semi-feudal administrative formations over which the state has no influence."

Unless something happens soon, the local elections will not be "a competition of political parties but a series of appeals to emotions, fears, the youth of voters and so on." Kyiv needs to "change the laws and rules of the game in order that the electors can be prepared for a rational choice."

Among the steps that might involve would be a sharp reduction in political advertising on television, given how that is used as a means of manipulation, Rybachuk says. Unfortunately, at present, the elections are only a few months away, and Ukraine does not even have a corresponding law for them.

"In order to reduce the negative consequences" of this election, he argues in conclusion, "it was necessary to have done our homework earlier. But today," he says, he "fears that the new and untried law about local elections will bring us legalized 'peoples republics' in local councils," something that will not work to the advantage of Ukraine or Ukrainians.

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 #35
Kyiv Post
July 7, 2015
Critics of Ukraine's government get propaganda mileage out of hoax letter
By Brian Bonner and Veronika Melkozerova

As the famous saying goes: "A lie can travel halfway around the world before the truth can get its boots on." It goes even farther in the Internet era.

A fake letter from U.S. Sen. Dick Durbin, which purported to dictate the American government's preferences in ministers to Prime Minister Arseniy Yatsenyuk, became fodder for Russian propagandists and critics of Ukraine's government before the Illinois Democrat was able to bat it down as a hoax.

Ben Marter, the senator's spokesman, issued this statement on July 6: "Senator Durbin has been outspoken in his criticism of Russia's invasion of Ukraine and supportive of Ukrainian efforts to reform their economy and defend their nation. This letter is a forgery and was obviously written by somebody with a tenuous grasp of the English language. We've referred the matter to the FBI and CIA."

Marter also noted that the forged letterhead states Durbin's position as "assistant minority leader" while authentic letterhead has "assistant Democratic leader."

One of the people who most actively spread the bogus letter as truth was Leonid Kozhara, the last foreign minister under fugitive ex-President Viktor Yanukovych, who fled power on Feb. 22, 2014, during the EuroMaidan Revolution. He posted the letter with the comment: "This is who is the real puppet master of Ukrainian politics."

Kozhara, reached for comment, said he simply reposted the letter from a German friend without checking its authenticity. While he accepts Durbin's statement that the letter is a hoax, he said the underlying truth is that the United States calls the shots with the current Ukraine government.

"This is how Facebook works. Facebook doesn't need any proof, so I picked it up and posted it," Kozhara said.

The underlying truth, in his view, remains: "This government in Ukraine is 100 percent dependent on U.S. policy regarding Ukraine today. Our government depends on loans from the International Monetary Fund, so I also know for sure that the appointment of Mr. Yatsenyuk was promoted by the United States as well," Kozhara said.

His argument looks to be part of the campaign theme in the autumn local elections in which his Socialist Party, where he serves as vice president, plans to field a team of candidates.

Russians also derived propaganda value out of the letter as "proof" of extensive U.S. meddling into Ukrainian politics.

Pravdorub. info shared and translated the text of the letter, without any fact-checking. The Russian newspaper Komsomolskaya Pravda published an article with the headline: "Ukrainian ministers are appointed from USA."

In the story, journalist Sergei Semushkin used such phrases as there are no more "illusions about the independence of Kyiv authorities." The journalist also seized on the bogus letter to remind readers of the leaked telephone conversation between Deputy U.S. Secretary of State Victoria Nuland and U.S. Ambassador Geoffrey R. Pyatt in which Nuland said she favored Prime Minister Arseniy Yatsenyuk over Kyiv Mayor Vitali Klitschko and sought to marginalize Svoboda Party leader Oleh Tyahnybok.

"In fact, they do not hide the interests of Western corporations, with the support of Washington are actively involved today in an aggressive buying up Ukrainian land for a pittance," writes Semushkin without any verification.

Another Top Russian newspaper, Moscovsky Komsomolets, also published a story headlined: "USA give advice to Yatsenyuk about which ministers should be appointed and which ones should be dismissed." The source cited was Kozhara's Facebook page.

RIA Novosti wrote that it didn't even need a letter since everyone knows that "Kyiv authorities cannot make a step" without Washington's approval and that "calls for Americans to buy Ukrainian energy companies only confirms that Ukraine has long lost all its independence."

American Brian Mefford, a long-time political analyst in Ukraine, said he was able to determine the letter was fake simply by reading it.

"Anyone who has ever written to their congressman knows that their response letters are never so specific. Congressmen are masters of broad platitudes and generalities," Mefford said. "Even a freshman congressman would not be so direct in a conversation - let alone a veteran Senator in an official written response. This letter is a lot like an 'alien sighting.' That is, those who already believe in aliens will see it as confirmation they exist, while the other 98 percent of the galaxy will know it's a fake. In the long run it's just the Kremlin's latest weapon in the public relations war. "

The aim of the forgery, dated June 25, looks to be stirring up a scandal over a purported feud between President Petro Poroshenko and Yatsenyuk.

"I write to assure you that the U.S. Senate extends its trust in you and shares your concerns over the ongoing dismissal by President Petro Porosehnko of key figures in Ukraine leadership who have been entirely commited to promoting democracy," the letter starts.

It goes on to defend Minister of Agriculture Oleksiy Pavlenko, who is believed to be in disfavor with Poroshenko. It also endorses Yuriy Nedashkovsky as president of the Energoatom Company.

The hoax also criticizes Energy Minister Volodymyr Demchyshyn and says there is "no clear-cut solution to the problem of" Interior Minister Arseniy Avakov, since senators "differ in theri opinions. I consider it appropriate to postpone the issue for some time."

It's easy to see why Durbin became a target. He represents a state with a sizeable Ukrainian-American population, especially in Chicago. He also has pushed U.S. President Barack Obama for a tougher response to Russia's annexation of Crimea and war against eastern Ukraine.

As Reuters reported, last month both Democrats and Republicans in Congress backed legislation that would authorize $300 million for Ukrainian security assistance, but specifies that half the money would be withheld unless at least 20 percent of it is spent on lethal aid for the Kyiv government.

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#36
Fort Russ
http://fortruss.blogspot.com
July 6, 2015
Ukrainian economy after a year of "reforms": Banana republic without bananas
[Charts here http://fortruss.blogspot.com/2015/07/ukrainian-economy-after-year-of-reforms.html]
Translated by Tatzhit.   7/5/15
Original by Yuri Lukashin
http://blogs.korrespondent.net/blog/politics/3514298/

Preface by the translator

What is the key take-home point of this article?

It shows that, even if there was minimal resistance to the coup from Russians inside and outside Ukraine, turning Ukraine into a banana republic would inevitably bring economic ruin and collapse.

The same collapse that recently got the Pro-American, Pro-Kiev fugitive Georgian ex-president Saakashvili to declare "If we achieve 4% economic growth per year, it would take us 20 years to get to pre-Maidan levels".

The same collapse that is doing more damage to the Ukrainian nation than the smoldering war in Donbass.

As they say, a picture is worth a thousand words. So I posted both.

Pictures first - see for yourself how "good" Western reforms were for Ukraine... Bulgaria, Moldova, Georgia, Serbia, Libya, Syria, Iraq - how many countries does it take to realize the talk about "prosperity" is just empty promises?

Detailed stats (everything you need to know in one picture - courtesy of Yuri Lukashin):

====
When "foolproofing" fails: Banana republic without bananas
by Yuri Lukashin
http://blogs.korrespondent.net/blog/politics/3514298/

As we all know, the so-called "evolution of dignity" put the Ukrainian economy in unprecedented state of depression and decay. On top of the destruction of a once-promising country, the stunning insistence with which Ukraine is committing suicide is simply surprising; if the current Ukraine goes down in history at all, it will most likely be as one of the most striking examples of mass delusion.

By now, the mid-level organizers and foot soldiers of the coup are voicing surprise at the outcome. They're saying: "Look, we took a course for radical westernization and we even accepted the role of Washington's tool in attacking Moscow!". And, in fact, Ukraine has been leaning that way for a quarter century, just not so rabidly. But despite such huge sacrifices, the standards of living and economic indicators go down to African levels - promises of democratic paradise proven false yet again (which could be easily predicted by anyone with an understanding of history and economics).

So, how can an average inmate of this giant insane asylum come to terms with what happened? How can one even wrap his mind around it all?

Causes

Let me explain:

In simple terms, 2014 Ukraine is a country where "foolproofing" measures have failed. Or, to be more precise, were overwhelmed by an invasion of aggressive, highly violent imbeciles - ones that, in normal countries, are kept away not only from politics, but from people in general.


For those who don't know, "foolproofing measures" is a technical term for designing any complicated device or structure to try to prevent accidental or intentional sabotage (to protect both the device and the overly inquisitive fool).

This principle is nowadays used in pretty much all mechanisms around us - from a microwave to an airplane. So, if some fool suddenly decides to stick his hand in a running microwave, or jump out of a plane midflight, almost all modern devices are designed to make this extremely difficult.

All normal governments and complicated social structures (armies, secret services, corporations, churches, etc.) try to establish similar safety measures to protect themselves from internal idiots. Because an imbecile can, for example, be put in a position of power due to some unfortunate circumstance; then - regardless of his intentions, simply due to stupidity - he would do irreparable damage to huge numbers of innocent people.

However, what happens if idiots organize into a mob, united, for example, by some moronic notions of ethnic/ideological superiority, declare themselves the "elite of the nation", and take over the government by force? And keep in mind their leaders would be subject to negative selection - the highest positions would be occupied by the most extreme and zealous idiots*.

As we can see, the country of Ukraine and its population were completely defenseless against such a scenario, so now we see the result.

<*Talking about negative selection, one cannot help but remember the example of Oleg Lyashko: a man with two fraud convictions who admitted to homosexual prostitution on video and interrogated naked "suspected separatists" without any legal justification, etc... Came in third in presidential election and has 5th largest party in Rada - ed. >

Effects

In the year since the great "revolution of dignity" Ukraine has been successfully moving towards building a specific type of economy, most similar to a "banana republic". In fact, there is only one thing different between current Ukraine and its banana brethren in faraway Africa, Latin America, and Asia, and that is complete lack of bananas. Otherwise, a lot of characteristic features of "bananization", including some specific changes in economic and political systems, have become very obvious.
 
By the way, the term "banana republic" has been invented by the writer O. Henry in "Cabbages and Kings", and the one in the novel is very similar to what we see in the real world. The novel takes place in a fictional Latin American country named "Anchuria", which mostly exists by exporting tropical fruit to the United States. The population lives in extreme poverty, while the elites regularly stage popular revolutions and palace coups against one another. However, no matter how many times the "corrupt regime" is replaced during yet another "revolution of dignity", the people just keep getting poorer, and the government more corrupt. The government is, in fact, a puppet of an American megacorporation called "Vesuvius Fruit Company", which runs the whole show.

Therefore, according to the original novel, a classic banana republic does not actually have real sovereignty, elections, mass media, politics - all of this is just a show for the natives, orchestrated by the greedy shareholders of the monstrous neocolonial corporations.

Why do banana republics exist? Why, in the real world, the majority of countries have been "bananized" to some extent, and a minority are "first world countries" - where the puppeteers are based and where the benefits of this system concentrate?

As they say, nothing personal - only business. Someone has to gather tropical fruit for pennies, right? Otherwise, the world will not have cheap tropical fruit. And someone has to run the controlling corporation...

The population of countries being "bananized" is therefore driven to plantations, telling them that if they work for pennies just a little bit longer and put their country under the control of Western corporations, they will all soon work in comfortable corporate offices, earning huge salaries and drinking coffee instead of gathering bananas under the scorching sun.

This can be called a "banana republic pyramid scheme", and like any Ponzi scheme, it relies on large numbers of gullible fools. Rich countries make others into their colonies not because they are planning to feed them at their own expense, but because, to remain rich, they need cheap resources and labor from colonies**.

An economic note to be made here:

Soviet "second-world" economy was often called inferior because Soviet citizens didn't live quite as well as those in the first world.... but that is not exactly the right perspective.

Yes, Europerans&Americans had better cheaper goods, but they were only part of their system. A Frenchman had good cheap shoes, but the Asian men who grew the cows and cotton the shoes were made of, or the child laborers who made the shoes, often had no shoes at all. Outsourcing the underclass to the third world isn't the same as prosperity.
By contrast, USSR provided everyone in the "food chain" with average-quality shoes.

USA lived better than USSR - but USA's colonies in the region lived worse than USSR's Cuban friends. Until USSR fell, anyway. -ed.>

Sadly, there's usually no shortage of natives willing to exchange their fertile soil and natural resources for glass beads or pretty speeches about democracy. Such is the way of the world throughout known history and, unfortunately, for the foreseeable future.

Specific examples

Recently, in an interview with an American portal "Christian Science Monitor", an advisor to the genius reformer Yatsenuk, one Alexander Kirsh, declared that the course for dismantling Ukrainian industry is completely intentional:

"A huge number of laborers in these dying factories is preventing Ukraine from moving towards Europe... Yes, this is going to be a painful change. But the alternative - keeping the industry, and staying friends with Russia - is much worse".

And these are not empty threats, not at all. All the industrial complexes, as well as some key areas of infrastructure, have already closed or are on the verge of default and bankruptcy: Yuzhmash, Zaparozie car factory, Sumy factory complex, Antonov plane manufacturer, TurboAtom, Motor Sich, Kharkov Tractor plant, ElectroTyazhMash, etc. etc [huge companies, like GM or Boeing in the USA - ed.].

The metallurgical complex "MetInvest", owned by Ahmetov, which unifies the leading metallurgical companies, declared default back in April. Recently, the country's railroad monopolist "UkrZaliznytsya" has also declared technical default. A number of similar hugely important companies such as "Ukraine NefteGaz [Oil&Gas]", "UkrAutoDor [Roads]", "EnergoAtom" [Nuclear] are in the same situation, but for now they are being kept afloat with billions from state budget.

In fact, there are no large manufacturing companies in the Ukraine that have not either collapsed or on the verge of collapse.

A few numbers: In the year since the revolution, the purchases of new cars have decreased by 76%, and the production of cars and other vehicles has decreased by whole 93.5%!

Steel production, which previously gave over 30% of country's hard currency income, has been reduced by over a third compared to the previous year.

Another indicator: the sales of gasoline at gas stations (without Crimea) have decreased by 40.7% (March 2015 compared to March 2014, according to Ukraine's State Statistics Bureau). This is a great marker of the real economic situation, much better than the abstract GDP numbers.

Another example: in just a year, Ukraine lost almost a third of its banks (49 out of 180). Moreover, some of the ones that went bankrupt were "majors" (Delta Bank for example). Actually, the whole of Ukraine's banking system is technically bankrupt, because those banks still afloat (even the "majors" such as Privatbank, OshadBank, UkrEximBank) are mostly staying solvent through huge hard currency injections from the government. There's lots of talk about 15 more banks on the brink of bankruptcy; some of the "key" ones may be in there. It's worth pointing out that the Bank Account Insurance Fund has run dry some time ago, so if another big bank collapses, all previous financial panics will pale in comparison.

And of course, the "domino effect" set in motion by the "revolutionary reforms" won't only affect industry and banks, but will do ever-increasing damage everywhere. Whatever numbers Yatsenuk's band of reformers makes up, Ukraine's nominal GDP in dollars has fallen three-fold due to currency collapse. Simple arithmetic: nominal GDP 2013 - 1.566 trillion hryvna, so about $180 billion at the exchange rate of 8.1 h/d. 2014 GDP was 1.465 trillion hryvna, at the current exchange rate that's about $62 billion. Last time the country saw such collapse was over two decades ago.

As a result of general economic collapse and systemic infrastructure problems, small business suffers hugely as well. It is estimated that at least a third of small companies have either closed or are about to. The trade sector is doing especially poorly, which is problematic because it employed several million people, and those people are the vulnerable part of the population - those that have been reduced to working as sales clerks by the previous quarter-century of "genius reforms".

Another indicator is that over 30 international brands have closed down their distribution networks and completely left Ukraine. For example, Esprit (Germany), River Island (UK), OVS (Italy), New Look (UK), Minelli (France), Lee Cooper (UK), Mexx (Netherlands), IAM and SIX (Germany).

Over the last year, roughly a third of restaurants in the country have closed down.

Of course, apart from factory and customer service industry workers, there are also those that like to call themselves the "creative class", also known as "glorified office workers". [They don't care much for the well-being of the industrial workers and those in the service industry, and expected European- level salaries and open border with the EU], so they were the main backers of the "revolution of dignity". But, even if they keep their jobs in the next few months (which, considering the current tendencies, is uncertain), the sharp drop in real earnings will severely cut down on their purchases of fashionable clothes, new gadgets, and the free travel they so desperately wanted.

Everything is extremely simple: prices go up, purchasing power goes down. In a single year (April 2014 to April 2015) even the official inflation figure is at 60.9%, and the 37.4% inflation we've seen in the first four months of 2015 is the highest in 19 years.

For reference, inflation under Yanukovich's "corrupt regime": 2013 to 2014 - 1.2%, 2012 to 2013 - 0.5%, 2011 to 2012 - 3%.

The previous inflation record was set under another team of pro-Western "economic reform geniuses" (Timoshenko's government), 2007 to 2008, when it hit 31.1%.
In fact, every time an "honest and modern reform government" replaces the "corrupt and incompetent old regime", it immediately starts breaking off ties with Russia and snuggling up to US and EU. By some completely unrelated coincidence, this is always immediately followed by economic collapse, ballooning prices and reduced standard of living, which supposedly symbolize "progress" and "restored national dignity".

Final indicator: the agricultural sector is apparently in big trouble as well. The average cost of planting 1 hectare of grain has nearly doubled over the last year, from 2.1 thousand hryvna to around 3.7. According to the first Deputy Minister of Agriculture Yaroslav Krasnopol'ski, this is due to increased prices of imports - seeds, fertilizers, fuel.
Increased production costs will certainly reach the consumer within months. The supposedly "high food prices" of today will be remembered with great fondness come fall. How would government employees and retirees survive this, when the "reformed" utility bills are severely limiting their food options even now - nobody knows.

And, as a finishing move, the "reform government" is now heading down the path of other colonial regimes: selling off everything still remaining after the previous pro-Western "reformers" to foreign corporations - at rock-bottom prices. Including local energy plants, Odessa shipyards, and all Black Sea ports. For the first time in history, all Ukrainian agricultural lands are also up for grabs, [so the Ukrainian people soon be paying Western corporations for electricity coming from power stations built by their fathers and working as low-paid servants in their grandfather's farms... "Banana republic", eh? - ed.].

If this mad dash to sell off anything and everything isn't a "closing sale" of a bankrupt state, then what else could it be?

Errors in Interpretation

An idiot who firmly believes that, whatever the bumps in the road, the overall direction to Europe is correct, would respond to everything above with something like this: "the country needed to get rid of the totalitarian heritage sooner or later, and killing the accursed Muscovite mentality within ourselves is painful but necessary. The glorious European tomorrow demands harsh reform today."

To them, the closures of factories and businesses which fed the country and themselves are, apparently, "necessary reforms". Of course, we've heard it all before, and many times. It hasn't worked for a quarter century, and it's not about to start working now. But if imbeciles were able to learn from their mistakes, they wouldn't be imbeciles.

The smart people, of course, have explained to them before that their desire to somehow fit into EU (or rather, the imaginary version Europe that needs them and will care for them), dead or alive, whole or in part, will not work regardless of what they do - even if they start a war with Russia in their groveling.
Because that's fitting a huge square peg into a small round hole.

There are numerous reasons while EU and the West in general do not need Ukraine its current form. It simply doesn't fit EU's political, economic, or cultural framework. If it did, Ukraine would have successfully eurointegrated in the previous 24 years of trying. If it did, EU wouldn't let Ukrainian standards of living drop to African levels after the "pro-European" violent takeover, and Ukraine would enjoy the open borders, economic benefits, and other hallmarks of European acceptance it thought it would receive shortly after "choosing Europe".

Imbeciles don't understand the very simple thing: EU has plenty of its own industry without the giant Ukrainian factories. EU has plenty of its own population, it doesn't need 45 million more unemployed - and it doesn't need the products these people know how to produce huge amounts of: coal, metal, Soviet nuclear reactors and military hardware.

Ukraine was built for a different economic model, with different markets and economic partners in mind. Specifically, the giant Russian market, which supported Ukraine through mutually beneficial trade, huge fossil fuel discounts, and Soviet-era economic connections. Cooperation with Russia kept Ukraine afloat until now and even provided an economic base which, as it turned out, allowed the country to grow a sizable population of hipsters and office workers that forgot why they needed all this unfashionable and smelly industry ( even though it's obvious to any sane person that the rest of Ukrainian jobs - customer service, offices, banks, etc. - merely exist to serve the needs of the local industry and agriculture).

Trying to become a "service economy", where other areas are key, is not feasible for Ukraine: as mentioned above, EU doesn't need 45 million more unemployed, and the world market has plenty of call center workers with better English skills at far lower prices - in India, for example.

A Case Study

I'll share a simple example - Ukrainian aviation industry. Of course I don't expect to convince imbeciles of anything, but this high-tech industry exemplifies the degradation of what used to be Ukrainian economy and economic / industrial might.

After the collapse of the Soviet Union there were only three countries in the world which were capable of designing and independently building heavy civilian and military transport planes: USA (Lockheed Martin), Russia (OAK) and Ukraine ("Antonov"). Despite the fact that Ukraine had unique capabilities in producing passenger and cargo civilian airplanes, the production of aircraft has quickly dropped to less than one-tenth of former capacity, for some kinds - less than one percent. By 2000s, Ukraine could produce at most two aircraft a year - and even that was accompanied by huge problems, constant government supervision, and huge subsidies from state budget.

World aviation industry was developing exclusively in the direction of growing monopolies (mergers and acquisitions). Centralized planning and economies of scale, controlled by supposedly commercial corporations (although those are, ultimately, controlled by national governments), turned out to be necessary for surviving and staying competitive on the world market in this high-tech era, where victor is the one who can concentrate the most expertise and industrial capacity in his hands. The costs are extremely high, and staying competitive requires not just large, but gigantic super-scale production.

Currently, the "Boeing" airliners are being made across eight countries, even if they are technically "made in the USA" (some parts and alloys are even provided by the Russian aircraft industry). European "Airbus" is a work of 16 countries (mostly Germany, France, Italy and Spain).

So while these mergers and acquisitions of Western aerospace corporations and industrial capacities were going on... Ukrainian aircraft industry broke off their segment from a larger whole and went looking for mythical "Western investors". Why did they keep believing such fairytales is still not entirely clear.

Back in the day, USSR aircraft industry produced a third of the world's aircraft. After the Union's collapse, this market was divided between the victors, and countries like Ukraine, with its fractured industry, have no hope of catching up.

So basically the village idiots that came to power in newly independent fragments of the Union chose fairytales over scientific and industrial integration with the rest of industrial base, preferring to believe that the West will come and throw money at them. And while they were waiting, the lion's share of the world market has passed under control of the two aforementioned megacorporations - Boeing (49% of sales) and Airbus Industries (43%). So now they reap all the rewards, and all the other countries combined produce only 8% of the world's aircraft.

That's what "bananization" looks like in practice - first world gets high-tech monopolies, the rest are divided and get to grow bananas for minimum wage. And even those bananas are generally owned by foreign corporations.

What can we expect in the future?

In the next few weeks, the new, "European", utility bills. This may be the biggest shock yet. Of course, there has been a lot of talk about that, but talk is one thing and holding a utility bill equal to half your salary is quite another [average salary in Ukraine is 4000 UAH now, or about $180 - considerably lower than Zimbabwe - ed.]. This is unsustainable for retirees, and very bad news for everybody, including any sort of a large enterprise that needs to pay for electricity, heating, water etc. This would again force a bunch of businesses to close down or flee the "new European economic reforms".

On top of doubling the utility costs right now, to around 1500 - 4000 UAH, they will increase by another 30 to 40% in the fall - this has already been scheduled with the IMF, so it will certainly happen.

So, utility costs in the fall may get higher than the average salary, and greatly surpass the pensions of the 13 million retirees. And it's already obvious that the currently bankrupt state will not be able to subsidize more than a tenth of those who should receive subsidies according to law.

Maybe some people still think that the increased utility costs are totally manageable for them and not a big deal.
But even for them, I would recommend against celebrating their personal "switch to European standards", because the effects of further collapse of economic and financial system are completely unpredictable. For example: once enough people refuse to pay utilities that would trigger another state budget crisis, which could easily topple banks that handle the savings and company finances of the "successful businessmen". And if the state eventually does declare default, it would lead to collapse of all financial activity, international and domestic.

So what is the conclusion? As they say, you have to pay for everything - including turning one of the richest industrial parts of former USSR into a banana republic.

The social and economic catastrophe that the country keeps sliding towards is, to large extent, the consequence of our citizens support of the governments that got them there, the political ideals they worshipped, as well as Ukrainians believing that everybody else owes them something: USA owes them because Ukraine is supposedly fighting Russia, Europe - because Ukraine supposedly protects it from Russia's supposed aggression, and Russia - simply because Ukrainians are so wise and great that Russians should admire and serve them naturally.

The moral of this story is very simple: as the Ukrainian experience has once again shown, the common wisdom that teaches us whoring is a despised activity is true in geopolitics, as well. In the end, you get screwed, not paid, abandoned, and embarrassed to look honest people in the eyes. Lots of hassle, lots of shame, very little profit. Only village fools willingly go down that path.

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 #37
Newsweek.com
July 6, 2015
Putin's War on Ukraine Is More Important Than Greek Debt
BY ANDERS ÅSLUND
Anders Åslund is a senior fellow at the Atlantic Council and author of the new book Ukraine: What Went Wrong and How to Fix It. This article was originally published in German by Capital and has been abridged. It also appeared on the Atlantic Council site.

For one year, Russia has pursued a long, costly war of aggression against Ukraine. Its objective is obvious: to destabilize Ukraine so that the new democratic regime fails. Therefore, the West should adjust its goals accordingly to offer Ukraine financial support.

The Kremlin has presented one false objective after the other for this aggression. On February 27, 2014, "little green men"-that is, Russian special forces in Russian uniforms but without insignia-occupied the Crimean regional parliament. The next day, they took over the peninsula's two international airports. Within two weeks, these troops had skillfully occupied all of Crimea.

Initially, Moscow presented its occupation as a separatist uprising, but Russian President Vladimir Putin has admitted that his troops participated en masse. The Russian people-for whom Crimea was a lost Soviet holiday paradise-supported this naked, unprovoked aggression. And because it was a complete surprise, conquering Crimea was easy.

Interpreting the rest of Moscow's war on Ukraine is more complex. Russian leaders discussed three major strategies.

One was an early leaked plan from the National Security Council, reportedly connected with Putin's Chief of Staff Sergei Ivanov, about taking 10 eastern and southern Ukrainian regions-including Kiev-to unify the Soviet military-industrial complex. That would have required a march on Kiev in the spring of 2014, which did not happen.

Putin publicly presented a second idea April 17: the seizure of "Novorossiya," the Catherine II-era term for eight eastern and southern regions of Ukraine. That would also have involved a major spring attack, but this did not take place either.

Instead, the Kremlin opted for a third strategy, identified with Putin's diabolic aide Vladislav Surkov: a limited but bloody war in the eastern and southern part of only two of Ukraine's 25 regions, Luhansk and Donetsk, known as the Donbas.

The destruction has been horrendous. The territory now occupied by Russian troops or their subordinates once harbored 3.3 million people, but most have since fled-1.3 million to other parts of Ukraine, 500,000 to Russia, and 100,000 to other countries, according to the United Nations High Commissioner for Refugees. Only pensioners, the destitute and criminals remain.

The economy in this rustbelt of dangerous coal mines and obsolete steel mills is stagnant, but it accounted for 10 percent of Ukraine's GDP in 2013. The war is the main reason for Ukraine's economic catastrophe. However, Moscow's drastic trade sanctions have also crippled the country's economy.

Last year, Ukraine's exports to Russia fell by half, equivalent to 12 percent of total exports. That caused Ukraine's GDP (excluding Crimea) to shrink by 6.8 percent. This year, GDP is likely to drop by a further 9 percent. About 75 percent of this contraction is due to the fighting in the Donbas and Russian trade sanctions against Ukraine.

With its war of destruction, the Kremlin's apparent objective is to destabilize Ukraine to the point of political collapse. In his documentary film about the capture of Crimea, Putin said he acted when Ukrainian President Viktor Yanukovych was falling. Yet he also piled scorn on Yanukovych.

Clearly, Putin attacked Ukraine's democratic breakthrough as a preemptive strike against democratization in Russia. Rather than a sign of political strength, this was proof of his political weakness-combined with relative military strength and Western cluelessness.

The European Union and its March 2014 Association Agreement with Ukraine was completely irrelevant. Putin has made clear that he views the EU as a political dwarf.

Yet the EU was important in other ways. Incredibly, the European Commission sees the Russia-Ukraine gas conflict as a commercial dispute rather than an act of war. That's why, late last year, it made Ukraine pay Gazprom $3.1 billion in disputed arrears, depleting Kiev's reserves and forcing the collapse of Ukraine's currency, the hryvnia. It also obligated Ukraine to buy gas from Russia without offering any competition for its harmful acts.

Ukraine should stop trading with Gazprom, which corrupts Ukraine and the rest of Eastern Europe. Tellingly, during the Minsk peace talks, Russia urged Kiev's destitute government to pay pensions and subsidies to the occupied Donbas, where Ukrainian officials can neither enter nor collect taxes. Russia wants the Ukrainian government to bleed.

Last spring, the EU proudly announced that it had opened its markets to Ukraine, but some 40 key quotas remain, causing its imports from Ukraine to fall sharply in the last quarter of 2014. Europe must open its markets to Ukrainian exports more widely, especially since Russia has closed its own markets as an act of war-and especially since the EU has delayed launching its vital Deep and Comprehensive Free Trade Agreement with Ukraine at Russia's behest.

Meanwhile, Ukraine's first serious, able government in years has quickly adopted vital reforms the West had called for. It quadrupled household gas prices on April 1 without sparking any popular protests. It abolished corrupt coal subsidies and has opened up public procurement for competition, and it has cut the oligarchs down to size.

Kiev is doing exactly what it's supposed to do, but what is the EU doing? It has committed merely €5 billion in loans to Ukraine, compared with €200 billion for Greece. This makes no sense.

Ukraine does all the reforms, while Greece has ignored similar demands for years and now openly opposes them. Ukraine has more than four times as many people as Greece, and it is far more strategically important for Europe.

Having lost Greece, Brussels needs a success story-and Ukraine is the obvious choice. But the EU must do far more.

If it won't give Ukraine the military aid it badly needs, it could at least offer crucial financial aid. The European central banks could easily give Ukraine a €10 billion credit swap, which would stabilize the hryvnia without costing the EU anything, because the ECB could impose strict conditions that force Kyiv to change policies before it needs the swap. The money would stay with the ECB in Frankfurt.

There is no reason not to offer such assistance.

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