Van Santos

International news wires are covered with a very interesting story – The EU will not bailout Eastern Europe.  I believe this quote sums up the view the powers of the EU have quite well:

“Saying that the situation is the same for all central and eastern European states, I don’t see that,” said Merkel, adding “you cannot compare” the dire situation in Hungary with that of other countries. 

Two thoughts come to mind with this statement, but I fully admit that my understanding the European Economic climate is limited to Germany, France, Poland and Hungary, so I may be missing key counterarguments.  

The first problem I see with the bail out on a case-by-case basis for Eastern European countries is much like the U.S. faces with banking and financial institutions.  When one situation pops up, you beat it down like a “whack-a-mole” but another one pops up in place of the original.  The governments of the EU end up trading one problem for another as the financial distress ripples from one country to another.  

What the U.S. needed to do at the outset of this crisis was establish a fund that addressed all the toxic debt in the financial system.  They failed to do so and each financial institution has become an endangered animal as a result.  The EU in the same position as the US, only months later and with the opportunity to do it right.  Instead of preventing the collapse of governments by proactive solutions, the EU elite will allow the smaller countries to suffer (and so will their people).

The second problem comes down to a matter of politics. What if the EU does not wish to see Eastern European countries succeed?  What if the European Union is looking for a reason to NOT admit additional Eastern European countries into the EU.  What better way to keep a county out because they do not qualify to join because of their economic status?

What if the EU is attempting to keep countries like the Ukraine, Belarus or Georgia out of the EU due to pressure from Russia?  

Think about this – Russia is against former Soviet Union countries from gaining further independence. As a result, Russia reminds the EU that the majority of energy resources the EU consumes comes from Russia.  The EU has strict policies on finical requirements in order to join the Union, and what better way to impede a countries entry into the Union than hitting their pocketbook.  

If the European Union truly feels each country needed help on a case by case basis, they risk creating a larger financial crisis, much like the U.S. intensified the situation by not creating a blanket solution.  On the other hand if this is a political move by Russia and the EU, it was created to break the back of smaller former soviet states which would allow Russia the opportunity to regain the territory.

Remember that whole Russian/Ukrainian natural gas dispute that caused Gazprom, the largest natural gas producer in the world and the largest company in Russia, to shut off natural gas delivery to the Ukraine? Well, the effects are being felt throughout the EU.

Nine countries are now experiencing problems with natural gas delivery – Slovakia, Greece, Croatia, The Czech Republic, Turkey, Poland, Hungary Romania and Bulgaria have suffered supply drops anywhere from 5 to 30%.    

Not that I am trying to be paranoid, but the leaders of the European countries need to be paying attention to this event as it has the ability to predict what an aggressive Russian government may chose to do if it decides to act aggressively in the future. As the world continues to consumer oil and natural gas, energy will be a source of conflict (more so than today).  The need for energy will, potentially, cause countries to become more aggressive, and what better way to paralyze your enemies than cutting off their energy sources?

As this disagreement continues to unfold, it will be interesting to see if European leaders decided to begin to find alternative sources for natural gas.  Will this be a trigger event that spurs change, or will the European governments remain complacent?

Let me just say, I have no issue with Russia – the comment yesterday about treasonous speak and this post on the gas conflict between Russia and the Ukraine are purely coincidental – I am simply pointing out a potential future that would I expect as natural resources become more scarce.

A few weeks back I bookmarked this story on a potential Russian treason law but never got around to putting my thoughts down.  The big thing that sticks out for me is this:

The bill would add non-governmental organizations based anywhere in the world that have an office in Russia to the list of banned recipients of state secrets. The government has repeatedly accused foreign spy agencies of using NGOs as a cover to foment dissent. 

For your records, an NGO = nongovernmental organization 

We are talking about organizations such as Amnesty International, Red Cross, or Human Rights Watch… The Russian Government fears that NGOs are tools of foreign governments that are attempting to influence events within Russia. 

That may or may not be true, but I would be hard presses to test the Russian government because…

In a separate development Wednesday, Russia’s upper house of parliament passed legislation that would end jury trials for those facing charges of terrorism and treason. Instead, they would face a panel of judges. 

That means due process is out the window.  If you are accused of terrorism or treason in Russia, you will face a panel of judges – not a jury trial. So, if a Russian based member of Amnesty International accuses Russia of Human Rights volitions in Chechnya you now have a treasonous act.

Scary, no?  

That said, the United States hasn’t been the best when it comes to due process the last few years…

As energy prices rose over the last 4 years, so did Russia’s desire to once again become a major player in world politics.  This time, however, the country could actually afford to do so because the huge amounts of capital the sale of oil and gas provided to its government.  The new found money allowed Russia to start expanding their military once again, and it also provided them a means of purchasing (for lack of better words) it’s way into situations.  Think of it as a pay for play.

Now that energy prices are falling, and the demand for oil and natural gas is low in Europe (and in the world in general at this moment) Russia finds that all may not be as positive as they had previously expected.  In order to counteract the decline in energy and the credit crisis, Russia has devalued their current – the rouble – 9 times.  This has the potential to cause inflation/hyperinflation if energy prices to not improve, not to mention that fact that it also can wipe out the savings of the average Russian citizen.  

Russia is vulnerable simply because their empire is built on natural resources. They have no major industry to speak of, no goods that are produced and consumed on a mass world wide scale, so what is the country to do when their base is threatened?  Use it as a weapon – be it for self-preservation or aggression.

If you take note, Russia is talking about cutting off natural gas supplies to the Ukraine once again.  The last time this took place was in 2006.  Both sides have their own version of what is taking place.  Russia says the Ukraine is expecting unrealistic prices and that they pay off their debt.  The Ukraine says they’ve paid their debts and believes the cost of gas it too high.

I am not saying Russia is in the wrong, just imagine if Russia was acting with purely political interests in mind.  “We don’t like the President you chose, ok, we are shutting off your supply to gas.” or “You didn’t vote in our favor during the last session of the UN, your oil transfers now will come in at 10% of what you were previously getting” all suddenly become possible tools within their power.  

Not a big deal, you may be thinking – wrong.  Russia provides roughly 25% of the EUs natural gas.  If it wanted to make life difficult as an act of aggression or self-preservation, it could do so really quickly.

This is the power Russia truly has.  Unless the EU takes steps to prevent dependence on Russia, they run the risk of being help at Russia mercy. I hope that someone in Europe is paying attention to this…

About a month ago, right after the predictions of Gerald Celente came out, a Russian academic came out stating that the United States was going to break apart in 2010 due to our poor economic situation.

“There’s a 55-45% chance right now that disintegration will occur,” he says. “One could rejoice in that process,” he adds, poker-faced. “But if we’re talking reasonably, it’s not the best scenario — for Russia.” Though Russia would become more powerful on the global stage, he says, its economy would suffer because it currently depends heavily on the dollar and on trade with the U.S. 

Right away it seems odd that he puts it at a 50% chance – I mean, isn’t there a 50% chance of something happening at any point to begin with?  Anyway, here is how he expects the break-up to shake out:

(via WSJ)

I also find it interesting that Russia is facing, and using the military to put an end to, dissent due to the devaluation of the ruble because of the plunging price of oil….

Anything can happen, don’t get me wrong, but it looks like Russia has more issues right now than the US.

The collapse of the commodities market, specifically the major drops in the price of oil and natural gas, has caused an economic crisis in Russia due to their high dependence on both commodities.  Add in the falling price of the ruble and roughly 70 banks going under, Russia now faces their version of the 2008 collapse.  

While their government tries to calm investors by saying the volatility is due world economic conditions, the falling price of oil may significantly impact their ability to quickly – and independently – come out of the crisis on their own.

Last Friday, the World Bank came out and ward that Russia may need a bailout of their own.  

“If oil prices in 2009 and 2010 average $30 a barrel, that would be a nightmare scenario for a global economy,” Zeljko Bogetic, the World Bank’s chief economist in Russia told investors on Friday. “The pressures on the current account and public finances in Russia would quickly rise to a point where the financing constraint would become so sharp that it’s possible even to envisage Russia’s return from a creditor to international organizations to (that of) a borrower.” 

Translation – if oil continues to fall the Russian government will have revenue decline significantly, and as a result, the government will need to turn to the World Bank or other governments for loans in order to continue to function.

I believe this is exactly why OPEC countries decided to cut output as drastically as they did recently. Each country relies of oil revenue in order to fund government activity.  As the money dries up, so does the ability for the governments in question to provide funding for needed programs – like military spending.  

So as we look at Russia potentially turning to the world for money to survive, other countries dependent on oil revenue may not be far behind.

While out reading financial news of the day, I happened to find an article quoting a Russian Professor, Igor Panarin. He is expecting the U.S. to break up into separate nations due to the financial climate facing the U.S. and world economies (kinda sound like Gerald Celente, no?).

Ok, more doom and gloom much like everything else going around these days. Nothing new. While I cannot find any background on Professor Igor Panarin he lost me with the following:

“we could claim Alaska - it was only granted on lease, after all.”

Sorry, Alaska was purchased – not leased. At least he’s not predicting that all front yards will be turned into gardens by the year 2000. Who know, maybe he’s drinking some vodka poisoned by Chernobyl.

Just a quick reality check.

Iran has the second largest proven natural gas reserve in the world, second to to Russia. Iran also roughly 10 percent of the world’s total proven petroleum reserves and sits on one of the largest oil fields in the world so, when the Iranian government says their nuclear program is of a “Peaceful nature” I am a bit skeptical.

Now Mohamed ElBaradei, head of the the UN’s International Atomic Energy Agency, has “serious concern” and stated:

Iran needs to give the agency substantive information to clear up suspicions…We need, however, to make use of all relevant information to be able to confirm that no no nuclear material is being used for nuclear weapons purposes”

I have no issues with the Iranian people, I simply have a great deal of skepticism of government (Iranian or otherwise) at this point. Furthermore, the U.N. has proven itself to be a lame duck organization, unable to govern itself out of a paper bag, which only raises my doubts even more.

At this point the E.U. needs to wake up and look at what is in their back yard. The only way Iran will disclose their activities is from financial pressure from Europe.

UPDATE:

Here is an interesting WSJ Opinion write up by Richard Holbrooke, James Woolsey, Dennis Ross and Mark Wallace - a good bi-partisan group of highly qualified individuals. The article can be summed up by this paragraph:

Tehran claims that it is enriching uranium only for peaceful energy uses. These claims exceed the boundaries of credibility and science. Iran’s enrichment program is far larger than reasonably necessary for an energy program. In past inspections of Iranian nuclear sites, U.N. inspectors found rare elements that only have utility in nuclear weapons and not in a peaceful nuclear energy program. Iran’s persistent rejection of offers from outside energy suppliers or private bidders to supply it with nuclear fuel suggests it has a motive other than energy in developing its nuclear program. Tehran’s continual refusal to answer questions from the International Atomic Energy Agency (IAEA) about this troublesome part of its nuclear program suggests that it has something to hide.

This one is brought to you by the “because a TV show can really harm your citizens” category, there is an article saying Russia is trying to ban  Southpark for showing “signs of extremist activity”.

Nothing like freedom of speech, huh?

Russian Prime Minister Vladimir Putin cranked up the rhetoric again today by accusing the United States of orchestrating the Georgian conflict in order to benefit a presidential candidate. While I do no believe this claim I wondered what, exactly, are the facts surrounding the conflict. Is Russia the “bad guy” in the story, is Russia trying to bring together the old communist union or is this country simply defending their rights as an independent nation.

Who attacked who?

The tension between Russia and Georgia has existed since 1991, if not longer. In this conflict, Georgia attacked the Russian backed Ossetian militia on or about August 7th. Russia responded by sending tanks in to support the militia. (source)

What has the rest of the world done in response?

The United States and NATO called on Russia to suspend it’s military operations. Furthermore, the US has sent two shipments of aid to Georgia.

Will the U.S. join in this conflict?

While I do not have a crystal ball, I do know that Georgia is not a member of NATO. My guess would be no.

My take on the situation is this: you have years of emotion and national pride on both sides. It looks like Georgia attacked Ossetia first, but not Russian territory and, as a results, both sides are pointing fingers attempting to lay the blame on the other party.

Did the U.S. orchestrate this attack? No. Did the U.S. do anything to stop this attack? No. Why? I think it is safe to say simply because the U.S. has no control over the Georgian government, they can choose their own path as an independent country.

With the cold war talk flying around between Russia and the US, I can see how tension between our two countries has grown. Russia has quickly turned from poor communist country into a wealthy power to be reckoned with due to their abundance of natural resources and it seems that as their wealth has grown, so has their desire to set the political tone in Eastern Europe. In this case, however, I believe the national pride on both sides (Russia and Georgia) are to blame.