A NOTE CONCERNING FUTURE POSTS ABOUT RUSSIA ON THIS BLOG

I began this blog a few months ago partly in response to a lecture given at Foyle’s by the British journalist and “historian” Martin Sixsmith.  I found this lecture, which was about Russian history, so upsetting that I felt obliged to respond it, which I did in a post on this blog.  This in turn led to a whole series of other posts about Russian affairs.

When I started this blog I was not aware of the existence of other English language blogs on Russian affairs written by people who either are Russian or who speak Russian and who are therefore by definition far more qualified to write about Russian affairs than me.  Now that I have become aware of these blogs it seems to me that rather than simply duplicate what they say I will confine myself in future to commenting on  Russian affairs in responses to these blogs:

Sublime Oblivion (now split into Da Russophile and Anatoly Karlin)
Kremlin Stooge
The Ivanov Report
Russia Other Points of View

This will free me to write about matters closer to home or about which I have something distinctive to say, such as for example the eurozone crisis.

I should say that I intend to make two exceptions to this rule.  One concerns legal matters that pertain to Russian affairs.  For example I have been researching for some time the allegations that continue to appear in the British press concerning Putin’s personal wealth and the sources of it.  The other concerns questions of historical interest where my original training as a historian I feel does qualify me to comment.  I have  for example recently read what are in my opinion seriously flawed books about the Crimean War (by Orlando Figes) and about the Russo Japanese War (the latter a subject that particularly interests me).  I have also read an exceptional book about the Kirov murder published as part of the outstanding series on Soviet history by Yale University Press.  That series is unique in Soviet and Russian studies in that it combines proper use of archive material with consideration of the work of contemporary Russian historians working in the field.  Lastly I have read two popular histories about Rasputin (one by Edvard Radzinsky), which though largely worthless as works of historical interpretation and analysis do between them at least have the merit of making public the relevant archive material, making it possible for the first time to arrive at a proper assessment of Rasputin’s personality, his relationship with the Empress, the vexed question of the extent of his political influence and the circumstances of his murder.  I hope at some point to write reviews and commentaries on all of these books.

BRITAIN’S EXPULSION FROM THE EU AND THE DEATH OF EUROPE

The news today is dominated by the story of how David Cameron supposedly exercised a veto to prevent Britain becoming involved in the German proposed treaty to set up a fiscal union.

Media reporting is wrong.  What happened was far more significant.  Cameron did not wield a veto.  Had he wielded a veto there would be no new treaty.  Instead there will be a new treaty only Britain will not be involved in it.

This is so extraordinary that I can only assume that what happened is that Cameron sought to wield a veto but was told by the others that if he did his veto would be simply ignored.  In other words Britain’s veto was overriden by the other EU states.  To disguise Britain’s humiliation Cameron is presenting what happened as his decision even though it was one that was forced on him. 

In other words Britain has to all intents and purposes been expelled from the inner councils of the EU.  Whatever happens next it is difficult to believe that the other member states will ever let it back.  Even if Britain were to elect a pro Europe Labour government it is doubtful that the other EU states would trust Britain’s long term commitment to Europe and the EU sufficiently ever to let it back.  Given that this is so one has to wonder for how much longer Britain will remain a member of the EU.

This is all pretty momentous and its implications for Britain, Europe and the world will take some time to think out.  I would however make just a  few preliminary points.

1. The new EU treaty will not create a fiscal union.  As I said in an earlier post, it merely re asserts the old Maastricht criteria in a far more stringent form.  EU states are now given deadlines to bring their debt to GDP levels down to 60% and will supposedly be obliged to limit their budget deficits over the lifetime of an economic cycle to just 0.5% of GDP.  All this is to be administered by the European Commission and enforced by the European Court of Justice.

Various commentators have correctly pointed out that this will impose unprecedented and indefinite austerity on Europe.  No commentator has so far pointed out that what is being proposed is actually impossible.  There is no possibility that the targets will be met.  Italy has been running a primary budget surplus for years and yet its debt to GDP level is still 120%.  How can it bring it down to 60% in anything like the kind of time frame that is being talked about?  Yet that by law is what Italy is now be obliged to do.  The same point can be made about all other EU states.

One has to wonder whether those involved in drawing up these targets have any idea what they are doing.  What they are doing is planting a bomb under the European project.  Not only will what is proposed fail but it also entirely fails to address or indeed show any understanding of the eurozone crisis, which is a banking not a sovereign debt crisis.  At the same time by using laws and treaties to impose targets that cannot be met the European leaders are ensuring that those laws and treaties will be broken.  Given that the EU system is ultimately no more than a web of laws and treaties creating arrangements that are bound to fail and which will result in those laws and treaties being broken all but guarantees that this web will unravel.  The people of Europe will in the meantime have to pay the price.

2. Cameron has presented his attempted use of the veto as intended to protect the financial community based in the City of London.  This is untrue.  There is nothing in the treaty that would have threatened the financial community of the City of London in any serious way.  The real reason for Cameron’s opposition is that he knows that the government and his leadership would not survive the inevitable backlash from euroskeptics.  

3. I have always known that there was a possibility that Britain might leave or be ejected from the EU.  The one thing I never expected is that it might happen under a government with Liberal Democrat ministers.  Unless they now act that is the position the Liberal Democrats might now find themselves in.

BLAMING THE EUROPEAN CENTRAL BANK

The European Central Bank must at the moment be the most unpopular institution in the world. 

At a press conference today Mario Draghi the President of the European Central Bank announced a further cut in interest rates.  He also said that the European Central Bank would not be stepping up its buying programme of eurozone government bonds.  This is consistent with his earlier comments that the European Central Bank cannot act in such a way unless a proper fiscal union is first set up.

Mr. Draghi’s comments have been received with horror.  The financial markets, which had somehow convinced themselves that a massive bond buying spree was on the way, have gone into a tailspin. Financial pundits ranging from Paul Krugman on the left to Jeremy Warner on the right have reacted with similar horror.  Ultra Keynesians such as Mike Whitney, Dean Baker and Mark Weisbrot have been talking darkly for some time of a sinister plot by the European Central Bank to use the crisis to impose orthodoxy and austerity on Europe.

This abuse of Mr. Draghi and of the European Central Bank is misplaced.  The European Central Bank has been able to buy eurozone government bonds up to now because it is awash with money that European banks have placed on deposit with it because they do not trust each other.  News today of the fragile condition of the big German banks with Commerzbank apparently in especially severe trouble shows what a brittle basis for a bond buying programme this is.  Since the eurozone was anyway always intended to be merely a currency union as opposed to a transfer union, even the existing bond buying programme is technically illegal and has already caused the resignation of a German member of the board. 

In the light of this it is not surprising that Mr. Draghi and the European Central Bank are so unwilling to implement the kind of bond buying programme that is being demanded of them.  As for Mr. Draghi’s earlier comments that the European Central Bank cannot do more without a fiscal union, followers of this blog will know that he is only talking sense.

Jeremy Warner in an article in the Daily Telegraph makes a comment that expresses perfectly the naivety that exists concerning the European Central Bank.  He says that following Mr. Draghi’s latest comments the markets are beginning to suspect that the European Central Bank is not a real central bank like the Federal Reserve Board or the Bank of England but is a mere “apparatchik”.  If that is what the markets think then they are of course right and not before time.  A mere “apparatchik” is precisely what the European Central Bank is and always has been.  Given that that is what its charter and the treaties say why do so many people persist in thinking otherwise?

RUSSIAN PARLIAMENTARY ELECTIONS

The parliamentary elections that took place in Russia will I suspect one day be seen as the moment when western reporting of Russia tipped over from the merely mendacious to the completely delusional.  Reading western newspapers one would think that Russia is in a state of imminent revolution following a falsified election, which nonetheless recorded a massive slump in support for its government.

The reality is that this is the first fully free election held in Russian history, which has not been held in conditions of crisis.  The government party won a convincing victory but there has also been a significant and probably permanent swing to the left.  Support for the government party fell from the previous election in 2007 but that was to be expected given the very unusual circumstances in which that earlier election had been fought.  Russia was then on the brink of a transition with Putin ceding the Presidency to Medvedev who was untested and little known. Disputed elections in the Ukraine, Georgia, Kyrghyzia and Serbia had been used as a pretext to stage colour revolutions.  There were also serious foreign policy challenges with the Bush administration pushing to admit the Ukraine and Georgia to the NATO membership programme and planning to install interceptor missiles in eastern Europe. A strong government majority in the parliament was therefore deemed essential.  Putin accordingly took direct charge of the election campaign.  The stops were pulled out and the Russian electorate, which is sophisticated and mature, understanding the urgency gave the government party an overwhelming mandate with 64% of the vote.

The situation this year is completely different.  Putin is returning to the Presidency and there is no transition.  The colour revolutions are discredited.  The attempt to bring the Ukraine and Georgia into NATO has been seen off.  Russia has even managed to gain entry to the World Trade Organisation on favourable terms.  Not surprisingly with the return to more normal politics the vote for the government party has fallen from a lopsided 64% to a still impressive 49%.  This is still substantially more than the 37% the governing party had won in the parliamentary election of 2003, which it was deemed to have won. 

Whilst this is the main result of the election there are a number of other things that can be said about it:

1. Notwithstanding ritual criticisms of the elections by some people in the west and some of the opposition parties there is no reason to doubt the overall honesty of the election and of the results.  The outcome is consistent with pre election opinion polls and with the two big exit polls.  Whilst there may have been a number of violations in a number of places they cannot therefore have been on such a scale as to affect the overall result.  Nor has there been any significant alienation from the election process as some western media commentators allege.  The Times has claimed in an editorial that due to pervasive cynicism turnout has been much lower this year but in reality at 60% turnout is roughly at the same level as it was in 2007 when it was 63%. 

2. There is nothing in these elections that suggests that Putin will have any difficulty winning the Presidential election next year.  His popularity has consistently been greater than the government party’s, which nonetheless won 49% of the vote.  He should therefore have no difficulty obtaining the 50% he needs to win the election without a run off.

3. The big winners in the election were the two left wing parties, the Communist Party and A Just Russia.  The latter is a socialist party but one which judging from its programme (which calls for selective nationalisation and a progressive tax system to equalise incomes) is considerably to the left of socialist or social democratic parties in western Europe. 

The Communist Party increased its share of the vote from 11% to 19% and A Just Russia from just under 8% to 13%.  It seems both parties were successful in winning over large numbers of young voters.  The western media and what passes for liberal opinion in Russia largely ignores these parties and is writing off their increased vote as a protest vote.  Such a view is unwarranted and anyway fails to explain why if there was a protest vote the beneficiaries should have been these two parties rather than the two liberal parties that fought the election, Yabloko and Right Cause, which the western media and liberal opinion broadly support.  If Putin and the government were facing an uprising by an irate middle class angry about its loss of freedom, as much of the western media claims, then it should have been the liberal parties that ought logically to have been the beneficiaries of the protest vote.

4. The vote for Yabloko and Right Cause was derisory.  Yabloko is the more left wing of the various liberal groups and parties and was led in this election by its founder Grigori Yavlinsky, who is the only liberal politician to have come out of the 1990s with honour.  Despite this Yabloko’s share of the vote was just over 3%.  The more right wing, business oriented, free market supporting Right Cause managed just 0.6%.

The failure of the liberal parties is usually explained in the west by supposedly unfair media coverage.  The truth is the diametric opposite.  Though the liberal parties have failed to win as much 4% of the total vote they receive a totally disproportionate amount of attention in both the Russian and the western media and on the internet.  They get far more attention than does the Communist Party even though it gets five times their number of votes. 

 I recently read somewhere that the total liberal electorate in Russia is 15% of the total electorate.  There is no support for this claim from these election results or indeed from the results of previous elections and this claim appears to have no basis.

5. A constant western media trope in reporting Russia, which also from time to time finds its way into the Russian media, is of the supposed rise of the nationalist ultra right.  A huge amount of attention is devoted to this phenomenon.  Protests last year by football fans were reported in connection with it and a supposed anti immigration mood allegedly sweeping the country has been talked about in lurid terms. 

Nothing in these elections gives support to these fears.  The one party that seems to have made an effort to pander to this supposed nationalist mood was Zhirinovsky’s misnamed Liberal Democratic Party.  Significantly of the three opposiiton parties in the Russian parliament Zhirinovsky’s party was the party that made the least progress, increasing its share of the vote from 9% to 11%.  This figure of 11% is the same as the one it achieved in the parliamentary elections of 2003 whereas the other two opposition parties have substantially improved on the share of the vote they achieved in that year.  In other words unlike the other two opposition parties in the parliament Zhirinovsky’s party is standing still. 

There undoubtedly are some dangerous and racist individuals in Russia as there are in every country but on the evidence of this election the spectre of a large and sinister nationalist ultra right movement is revealed as largely a figment of the imagination of the reporters who write about it. 

In other words what this election shows is that Russia is roughly evenly divided between a large block of conservative voters who are not right wing but who are patriotic and who favour stability and who can be relied upon to support the government and another rather smaller block of voters, which is more idealistic and which consciously adheres to or is attracted by socialist ideas.  

As a force of unideological conservatism the party that  represents the first block, the governing party United Russia, will never arouse much in the way of enthusiasm.  It will always be a but for criticism especially on the part of younger people.  This should not however blind one to its underlying strengths, which explain its presently dominant position in Russian politics.

Russian political activism has however not gone away.  Talk of stagnation (a nebulous concept at best) is misplaced.  That activism is however to be found on the left.  This incidentally has been broadly true in Russia since the Nineteenth Century.  Since the conservative block that governs the country has no ideology of its own it is receptive to ideas coming from the left.  The result is that all the major parties in Russia are now broadly committed to a similar range of policies that could be broadly defined certainly in western terms as left wing.  These include a strong welfare system, strong employment protection rights, an active role for the state in economy, free state provided health and education (up to school level), the introduction of a progressive system of taxation, greater provision of kindergartens and child care facilities and the political and economic reintegration and possibly eventual reunification of the former Soviet space.    

As for the sort of right wing, free market, neo liberal ideas that have become the orthodoxies in the US and Britain and indeed elsewhere in the west, the abysmal electoral showing of the liberal parties that support these ideas shows that there is no significant constituency for these ideas in Russia at all.

Perhaps it is this latter fact that western commentators find so difficult to accept or understand.  Perhaps that is why whilst trumpeting the supposed electoral setback Putin has suffered these commentators ignore the most obvious point of this election, which is the advance of the left.  May be it is why these same commentators simply refuse to accept the validity of Russian election results and retreat instead into the bizarre phantasmagoria I have been reading in the newspapers today.

THE EUROZONE AND THE PLANS TO SAVE IT

At every twist and turn in the eurozone crisis we hear news of some cunning plan to solve the eurozone’s problems.  The latest plan is the so called fiscal union, which as I explained in a recent post is not actually a fiscal union at all.  Meanwhile the newspapers in feature articles and letter columns are awash with more such plans offered by various thinkers, pundits and economists.  I have long since lost count of the number of plans.

What all these plans have in common is their quite extraordinary complexity.  They remind me of the similarly complex plans of the 1920s such as the Dawes Plan and the Young Plan, which were designed to enable Germany to go on borrowing money whilst running a trade deficit so that it could continue to make reparations payments.  In the end all these plans failed and Germany defaulted on its reparations payments.  It is now generally acknowledged that what these plans instead did was weaken the financial system and help pave the way for the Depression.

Speaking for myself I am at a complete loss to understand the need for these plans or why the sovereign debt problems of some eurozone countries should have become a problem for the eurozone at all.  What would have been simpler when Greece ran into difficulties last year than for Greece to be told that since the eurozone is only a currency union Greece’s debt problems did not concern it and that Greece needed to resolve its debt problems by itself by talking directly with its creditors?  Possibly Greece might have defaulted but why should that have affected the euro?  Some of Greece’s creditors might have found themselves in trouble but given that all the relevant treaties and the repeated statements of the German government say that the eurozone is not a transfer union the creditors would in that case have had no one to blame but themselves.  If the creditors had gone bust then it would have been for the governments of the states in which they were based to decide what to do.  Any of the creditors that were banks could for example have been quickly nationalised with steps taken to protect their depositors.  If the banks had been allowed to go bust this would not have cost much money at all. 

If a Greek default had led to a contagion effect so that other eurozone governments were forced into default the same principle would apply.  Though even more banks might have had to be nationalised in the end the debts of the defaulting countries would have been written off.  Since the eurozone is only a currency union there is no reason why any eurozone state that had defaulted on its debts would have had to leave it.  There would have been no need to impose austerity on the defaulting states or large transfers on the remaining solvent states. 

It seems to me that the course I have just outlined would not only have saved everyone a great deal of time and trouble but is a great deal simpler than any of the plans proposed.  It also has the advantage of being the course that was originally envisaged in the treaties as well as being consistent with the prevailing free market economic philosophy of our times.  A large number of bankers would have lost their jobs and their shareholders would have lost their money but given that they foolishly lent money on the assumption that the eurozone is a transfer union when the treaties clearly say otherwise they would have had no one to blame but themselves.  Isn’t accepting responsibility for one’s mistakes what capitalism is supposed to be about? 

Instead we have a never ending succession of plans.  Perhaps some genius somewhere will come up with the plan that works.  Or possibly, in the spirit of Mr. Micawber, something else will turn up.  I suppose we will have to wait and see.

FRENCH BANK CRASH?

Last week the US Federal Reserve Board announced that it would help liquidity by making dollars available to other central banks.  This announcement followed days of speculation that the Federal Reserve Board was about to ride to the rescue of the eurozone possibly by buying eurozone government bonds.  The Federal Reserve Board’s announcement triggered a wave of buying in the international money markets, which continued until Friday.

On the face of it all this is baffling.  As Paul Krugman for one correctly says in his blog the Federal Reserve Board merely announced that it would do what it routinely does anyway.  Given that this is so it is unclear why the Federal Reserve Board felt the need to announce it.  As for the idea that the Federal Reserve Board might buy eurozone government bonds, at a time when the US government is struggling with its own deficit this would be impossible if only for political reasons.

Over the last day or so I have however heard a rumour, which might explain the mystery.  This is that the Federal Reserve Board’s announcement was made to provide cover for an international bailout of a major French bank, which was on the brink of collapse. 

I do not know whether or not this rumour is true.  I do however remember how similar rumours were circulating in the summer of 2008 about problems at a US bank.  The eventual collapse of Lehman Brothers showed that those rumours were true.

US UNEMPLOYMENT – DEPRESSION STATISTICS

The other piece of economic news that appears to have cheered financial markets today is information that US unemployment has fallen from 9% to 8.6% with 120,000 new jobs being created in November, which has been interpreted as a sign of a strengthening of the economic recovery in the US.

Alas these figures do not mean what they appear to mean.  Whilst 120,000 jobs were indeed created in November the reason for the decline in the unemployment totals appears to be largely statistical.  US unemployment figures measure the number of people who are unemployed and looking for work.  It seems that the major reason for the seeming improvement in the unemployment figures is that 315,000 people who were previously looking for work in November stopped doing so.  If they stopped doing so because they have given up hope of finding work then the latest figures may actually be pointing to a deteriorating picture.  It seems that such a sharp fall in the number of people looking for work is very unusual, which suggests that the more pessimistic interpretation may by the correct one.  If so the financial markets have misunderstood the figures and have been cheered by figures that are actually turning bad.

I understand that the US Department of Labor, which publishes the US’s unemployment figures actually publishes another set of figures, which attempts to show the proportion of the total available workforce, which is not working.  These figures, which on the face of it seem more accurate, suggest that the true rate of unemployment in the US is actually  around 15%.  I have even read somewhere that if unemployment today were calculated in the way that it was in the 1930s it would come to around 25% or a quarter of the workfrorce, roughty what it was at the height of the Depression.  That may be going too far.  Differences in the labour market between then and now are so great that such comparisons seem to me dubious.