Ukraine (closed; covers till August 2014)

[Dayuhan]

Ah the gas issue.

Perhaps now we can return to the earlier defence of Germany's strategic decision to place reliance on energy from Russia.

Did anyone defend that decision?

A massive strategic error. Who was responsible and whose heads should roll?

The Nordstream pipeline was first conceived in the late 90s, I believe... no idea if the risk of over-reliance on Russia was part of the discussion at that time. Fuchs might know. The individuals who made the decision are likely long since retired.

I find it quite strange that a country that consumes as much gas as Germany doesn't have a single LNG terminal. Japan has (from memory, could be a bit off) something like 30 of them. Pipelines are great, but tie to a specific source, while an LNG terminal can take tankers from anywhere. Norway can pick up some of the difference, but not all, and pipelines from Norway can't deliver gas from any other source. LNG terminals in France and Belgium can bring some, but capacity is limited and they have to balance German demand with that of other customers. Europe isn't using all of its LNG terminal capacity and could bring in more... but none of those terminals are under German control. Whether or not the Germans could tap that capacity and whether existing internal pipeline networks could deliver the gas from the pipelines to Germany) is another question. It could probably be done, but it would take time.

Germany's dependence on Russian gas is sometimes overstated: gas accounts for about 21% of Germany's primary energy supply and Russia provides about 35% of the gas. Losing that would still cause considerable pain, especially given the decision to shut down German nuclear plants.

The point I was trying to make is that relieving German dependence on Russian gas is not just a matter of finding gas suppliers. The replacement gas (from Qatar, the US, or almost any other potential supplier) would arrive as LNG, and Germany will need to invest in the infrastructure needed to support a switch from pipeline delivery to LNG tanker delivery.

[Fuchs]

4) And not unimportant. There was some kind of agreement that there is no integration of Ukraine into Nato and EU, this agreement was broken by western politicians, IMHO a stupid move.

A couple promises were broken, but this is incorrect. An association treaty (which wasn't even ratified) isn't the same as integration and IIRC the promises were actually about NATO expansion and Western troops in the former Warsaw Pact.

The only permanent Western troops presences in the former Warsaw pact that I know of are
* East Germany, which within limits was part of the agreement.
* Those two much criticized U.S. BMD installations
* the tiny air policing fighter flight NATO countries provide for the Baltic countries
* embassy-, liaison-, officer exchange- and intel-related personnel

[AmericanPride]

Here comes the pain, as promised. From Reuters:

Kiev opened the way for the IMF deal by announcing on Wednesday a radical 50-percent hike in the price of domestic gas from May 1 and promising to phase out remaining energy subsidies by 2016, an unpopular step Yanukovich had refused to take.

It also accepted a flexible exchange rate that is fuelling inflation, set to hit 12-14 percent this year, according to Yatseniuk, and a central bank monetary policy based on inflation targeting.

The prime minister, who took on the job a month ago saying his government was on a "kamikaze" mission to take painful decisions, said the price of Russian gas on which the nation depends may rise 79 percent - a recipe for popular discontent.

[Fuchs]

Both makes sense. They can set up a welfare program to help the poor if the heating costs go through the roof.
It's better to let the people feel the true price of energy than to shield them against it. They would otherwise never go for more efficiency.
Same problem in Iran; not understanding opportunity costs, oil-rich countries insist that oil ought to be cheap for their consumers - and end up with a horribly inefficient domestic oil consumption.

You need to rein in on this; the medium and long term benefits of letting markets force people into more efficient consumption are huge.


The exchange rate thing is even more important; a weak national currency makes imports and vacations abroad very expensive, but it boosts exports. An artificially strong currency only accumulates problems and pains over time. So far no country has sustained an artificially strong currency for long without showing great distress. Look at Southern Italy; it had an artificially strong currency for decades because its currency union with North Italy, and it never seems to be able to catch up.

[OUTLAW 09]

American Pride---all necessary if I heard his speech correctly due to the former President and his group of cronies that raped the Ukrainian economy to the tune of between 36 and 40B USD.

Am more concerned that Russia is going to indeed pull the trigger---based on unnamed US/European intel sources Russian troop count is now up to 30K this week up from 20K last week.

There have been extensive sightings of Spatnaz and especially GRU/FSB security forces without uniform markings.

IF one is to believe Putin's statements in the Duma and in TV he is not moving on the Ukraine --then why the sudden buildup in one week?

Since Russian divisions are basically smaller than US he has right about now 5-7 depending on the count in a "CPX type field exercise".

Based on the article yesterday indicating the open window is closing in the next six weeks for an Russian invasion---Putin I think has made the decision that 1) western initial responses and sanctions were weak and ineffective even though S&P/Fitch has downgraded a large number of banks/companies to negative and 2) if he is going to take an economic hit then it is better to get it over with and argue in a nationalist form to his population they will have to suffer through as the West does not understand them but hey all Russians are now in the Federation--Hitler use to call that the "Heim ins Reich" program.

The last sentence in the article is the important one---"an invasion at this moment cannot be excluded"---sounds right out of what we used to call a Indications and Warnings briefing given to the National Command Authority.

Taken today from the German Focus Online:

12.53 Uhr: Russland treibt den Truppenaufbau an der Grenze zur Ukraine westlichen Sicherheitskreisen zufolge weiter voran. Es wird davon ausgegangen, dass mehr als 30.000 russische Soldaten dorthin verlegt worden seien, heit es aus europischen und US-Sicherheitskreisen. In der vergangenen Woche lag die Zahl Medienberichten zufolge noch bei 20.000. Unter den an die Ostgrenze der Ukraine verlegten Truppen seien Spezialeinheiten und Milizen mit Uniformen ohne Hoheitsabzeichen, verlautet es weiter aus den Kreisen. Auch die Einheiten, die die Kontrolle ber die ukrainische Halbinsel Krim bernommen hatten, seien nicht eindeutig als russische Soldaten zu erkennen gewesen. Die Eingliederung der Halbinsel in die russische Foerderation loest im Westen Befrchtungen aus, dass Russland auch in der Ost-Ukraine intervenieren koennte. Wie auch auf der Krim gibt es dort einen groessen russischstaemmigen Bevoelkerungsanteil. In US-Regierungskreisen heit es, es sei unklar, welches Ziel der russische Prsident Wladimir Putin mit der Truppenverlegung an die Grenze verfolge.

Eine Militraktion koenne nicht ausgeschlossen werden.

[Fuchs]

30k is not an awful lot, even if it's reinforcements only.

The Russians remember the Chechnya insurrection and how much personnel it took to drown it.
A 400k troop concentration would be a decent start for an invasion, but they won't be able to mass that many for months.

[OUTLAW 09]

Fuchs---5-7 divisions fully manned, equipped and critically having the necessary supplies in place for a quick charge to Moldavia and into the eastern portion is a breeze when the Ukrainians cannot get more than 20K together at any given time.

What the I&W guys look for is not the troop count but do the Russians have the supplies in place for extended operations and the answer is yes they do and in really large amounts which would be necessary for extended operations into the summer.

So the next question is if in fact it is just a CPX to exercise their staff as they claim then ending a CPX and heading home would be "normal"---but instead they are still increasing-and they no longer speak of a CPX in any PR releases via Interfax--so it is no longer in the realm if a "CPX"---so what is it then?

This small PR comment came in via Interfax:

14:18 Zyuganov: Russia should foster unity of Ukrainian forces resisting fascist nationalists

So when dealing with Russian OSINT and reading between the lines "what is fostering unity of Ukrainian forces resisting fascist nationalists" really mean?

So who then links up with those "unity forces resisting fascist nationalists"---and who are those "unity forces"--what the Ukrainian Army or Spatnaz and the GRU?

[Fuchs]

They don't have all that much in the Western Military District.
About seven brigade equivalents and one or two brigade equivalents airborne.
An equivalent force is at the Caucasus, but largely fixed there due to no less than four regional hot spots, two of which require military and not only paramilitary presence.

And an invasion would not be about facing the Ukrainian military only.


The utility of a troops concentration is that it could embolden Russians in Eastern Ukraine and deter Ukrainians from putting them down. It's also completely legal and legitimate and thus comes at no real political price.
I suppose that's what Putin is really doing. He looks like he's collecting bargaining chips for a border redefinition treaty that includes Ukrainian neutrality and trade provisions.
None of his recent coups de main had a published force build-up, after all.

[Ulenspiegel]

A couple promises were broken, but this is incorrect. An association treaty (which wasn't even ratified) isn't the same as integration and IIRC the promises were actually about NATO expansion and Western troops in the former Warsaw Pact.

The only permanent Western troops presences in the former Warsaw pact that I know of are
* East Germany, which within limits was part of the agreement.
* Those two much criticized U.S. BMD installations
* the tiny air policing fighter flight NATO countries provide for the Baltic countries
* embassy-, liaison-, officer exchange- and intel-related personnel

Sorry, here I disagree. An EU association of an European country always include the (slim) danger, that this country becomes a second Poland and will apply for full membership in around 15 years. And please do not tell me, we would and could object then. EU association is for me a red line, as it has hidden military implications. :-)

As Germans we should admit that one part of the deal with Gorbachow was the preservation of a glacis, something that was eroded in the last year. We can only discuss the motivations to do so, not the fact.

The correct sequence IMHO would have been to offer Russia NATO membership, then offer EU association to Ukraine.

[AmericanPride]

The correct sequence IMHO would have been to offer Russia NATO membership, then offer EU association to Ukraine.

This I agree with to a large extent., though I think the window for NATO membership was in the 1990s before the Putin assumed office with his nationalist-realist allies. Here's why:

Most important, Russian membership in NATO would all but mean the end of Russia’s dream of restoring its former superpower status. By joining NATO, Russia would effectively become “just another large European country” on the same level as Germany, Britain or France — a “sacrilege” for the derzhavniki, or great-power nationalists, who remember when the Soviet Union was much larger and more powerful than these three countries combined.

Some other obstacles:

1.Due to NATO's consensus-based decision-making, Russia would have to accept the terms that the alliance's East European novices would throw in as prerequisites for Russia's admission.

2.Switching to NATO's standards would cause huge damage to Russia's own military-industrial complex.

3.Georgia and Japan would certainly take advantage of Russia considering that a NATO candidate must be free of unsettled territorial disputes with its neighbors.

4.Russia's own turn to NATO would render meaningless its endeavors to debar a number of post-Soviet republics – Ukraine, Georgia, and Azerbaijan – from the alliance.

[AmericanPride]

American Pride---all necessary if I heard his speech correctly due to the former President and his group of cronies that raped the Ukrainian economy to the tune of between 36 and 40B USD.

There is no doubt that Yanukoych was corrupt. But in the context of Ukrainian politics, that does not make him unique. Whatever his merits and transgressions, were his policies any worse than austerity? You express your outrage about his corruption and political practices - why is there no moral offense to austerity? But since Yatseniuk has already made his decision, the question really now is which political officials in the new Kiev government will survive the coming storm with their legitimacy and reputation intact. Yatseniuk has stated his belief that his political career will not last this episode; so that makes him a useful idiot for Washington since he can push whatever policies, no matter how radical or absurd, without regard for his own future. It makes me wonder what's in it for him. Firing Tenyukh from the Defense Ministry could be a blessing in disguise for Svoboda if this new government collapses under the weight of popular discontent due to the coming austerity measures since they will not be associated with the failure.

[carl]

Outlaw 09:

When the Russians roll into eastern Ukraine, what will Poland do? I mean specifically other than going bonkers. Will they start some kind of UW campaign? Will any of the other frontline NATO states?

How much of the Russian army is fully manned equipped and trained? In the old days I believe they had reserve, skeleton type divisions. Is that still the case?

[carl]

There is no doubt that Yanukoych was corrupt. But in the context of Ukrainian politics, that does not make him unique. Whatever his merits and transgressions, were his policies any worse than austerity? You express your outrage about his corruption and political practices - why is there no moral offense to austerity? But since Yatseniuk has already made his decision, the question really now is which political officials in the new Kiev government will survive the coming storm with their legitimacy and reputation intact. Yatseniuk has stated his belief that his political career will not last this episode; so that makes him a useful idiot for Washington since he can push whatever policies, no matter how radical or absurd, without regard for his own future. It makes me wonder what's in it for him. Firing Tenyukh from the Defense Ministry could be a blessing in disguise for Svoboda if this new government collapses under the weight of popular discontent due to the coming austerity measures since they will not be associated with the failure.

And all of that makes no difference at all about what to do when Ivan rolls west.

[davidbfpo]

Cited in part:

The only permanent Western troops presences in the former Warsaw pact that I know of are: Those two much criticized U.S. BMD installations

My recollection was that these two items were cancelled sometime ago, much to the annoyance of the Czech and Polish governments who had fought hard to persuade their public.

I am slightly puzzled that no use has been made of the 'on call' NATO elements, or at least announce planning for exercises.

[AmericanPride]

Both makes sense. They can set up a welfare program to help the poor if the heating costs go through the roof.

They could... but they won't. Austerity is not a humanist program. It's not even intended to salvage sinking economies; the economic literature and recent experiences in Greece, Spain, Italy, Portugal, Ireland, UK, and US all make this clear. It's meant to secure whatever remains in a dying economy for the creditors... at the expense of pensioners, the poor, the sick, workers, veterans, the unemployed, and so on. Even the IMF's own economists admit as much. Austerity will not save Ukraine.

But now that Yatseniuk has decided on this path, we're now left with the political question of who will survive to govern Ukraine after it's all said and done. Combined with Moscow's pressure on Kiev, Yatseniuk's position is untenable in the long-term. Someone will break and it won't be Putin.

[AmericanPride]

And all of that makes no difference at all about what to do when Ivan rolls west.

I doubt that he will. He doesn't need to. I suspect that political agitation will continue. At this moment, as far as Russian-Ukrainian relations are concerned, Moscow has all the cards. It physically occupies Ukrainian territory. It has 30,000+ troops massed on the border. It has provocateurs throughout the country. Ukraine has no allies. It's entering into an unstable economic period. It's army is virtually non-existent. Yatseniuk was unelected and has no care about the future - he's the perfect man to push as far as possible in implementing the Washington Concensus in the short window that the West has to do so. For both Washington and Moscow, this is about securing of much as Ukraine as possible before the music stops.

[OUTLAW 09]

If one looks at the announcements today out of Kiev---they did include a protection for the lower working class and poor, it looks like they are cutting 10% of the bloated government which was the old Soviet overhang anyway, and are wanting to have the oligarchs' be taxed (no argument of out them was heard) to support the rest of the population and they are rising natural gas prices which were the cheapest in the east bloc together with raising gasoline prices also the cheapest in the east.

Then it appears they are shifting their natural gas purchases towards the EU via the Slovakian gas line that is being set up and they are while saying publicly they will be paying over $400 for gas they are still holding to the legal treaty rate of $285 and are threatening to take Russia to court for the 1.4B in military equipment Russia took effectively locking up Russia in an ongoing court case they will in fact lose in the end.

On top of that they are raising the water and electrical rates to the Crimea, and by having dropped out of the CIS they can hit Russia shipments to the Crimea which go through the Ukraine twice once at the Russian border and again at the Crimea border with custom charges. On the top of that Ukrainian banks hold over 20B in Crimea assets ie mortgages, business loans etc that the Crimea will have to work out if they would to reregister all their companies and properties inside Russia otherwise they cannot sell a thing to any outside investor due to the inherent risks of not knowing who owns what which has been the problem with the Georgian and Moldaivan enclaves.

The EU dropping of customs on Ukrainian products hits mid to end of April saving another 600M USD on their exports and will draw exports once headed to Russia towards the EU--by the way Russia has been blockading their exports now for a number of weeks ie meat and wheat for "safety" reasons--started before the Crimea.

And they have formed a money chasing team to track down the embezzled monies of the former President and company which should recoup another 200-300M.

So I am not so worried about the financial immediate future ---it is the ongoing proRussian provocations and the underlying assumption by Putin and Co. that they have a right in rewriting the Ukrainian constitution which they have voiced a number of times in the last two weeks.

While Russian claims to hold to the 21 Feb agreements they in fact never signed them.

[davidbfpo]

Via a "lurker" the viewpoint of a Crimean resident, who on reflection supports unification with Russia:

10 guarantees to the Crimea after joining Russia:

1. The main principle of the future accession - the inhabitants of the Crimea have nothing to lose, even in small things, acquiring at the same time many new features. Winning in the main, without losing anything of value!
2. All social payments and benefits previously granted by the Ukraine are guaranteed in the Russian budget. After joining both national currencies remain in use; the Ruble and Hryvnia, and all deposits, savings accounts are given guarantees.
3. All previously obtained certificates, certificates, diplomas and permits issued on behalf of the public authorities of Crimea and Ukraine remain in force and recognized by the Russian Federation. Their replacement will be made to the Russian way of notification, after a long transition period.
4. Entrepreneurs do not need to worry! All legal documents for Crimean enterprises are given Russian recognition, without any tedious re-registration procedures and licensing, and they will be subject to replacement by Russian documents on their expiration dates.
5. All higher education institutions and their branches are located at the time of the referendum on the peninsula, will continue to teach their students and after the transition to Russian jurisdiction grant diplomas etc as Russian documents.
6. All Crimean students will have the opportunity to fully prepare for the unified state exam. Russians know that after taking the exam for admission to universities is greatly simplified.
7. Those who are retired in the Crimea, including the military, receiving benefits, pensions and allowances, as well as veterans of the Armed Forces of Ukraine, retain their privileges, and the size of their pensions will increase substantially. In Russia welfare of veterans and retirees – is a stated, public national priority.
8. All land and real estate in Crimea, owned by individuals and organizations to remain at the current owners without any additional confirmations and checks. Private property in Russia is sacrosanct!
9. Health services are provided in the Crimea on a free basis, and will remain so after turning into the Crimea region of the Russian Federation. Free healthcare for all Russian citizens is enshrined in the Russian Constitution.
10. Free passage from the Crimea to other regions of Ukraine should be maintained – without the need for a visa. Crimean residents can still go to their relatives and friends residing in the territory of Ukraine. Russia and Ukraine – should have a mutual visa-free regime, Russia does not intend to revise neighbourly relations with the fraternal Ukrainian people.

Now whether Moscow has even considered such items is a moot point.

[carl]

David:

The last sentence in number 8 is the best one.

"Private property in Russia is sacrosanct!"

[Firn]

More on the budget, from the Kyivpost:

In a dramatic 30-minute speech today, Ukrainian Prime Minister Arseniy Yatsenyuk asked parliament to support a range of belt-tightening measures for the nation to stay solvent and overcome the after-effects of the looting by overthrown President Viktor Yanukovych and his team.

“If the country were a commercial entity, we would be bankrupt,” Yatsenyuk said, adding that the nation will be some Hr 289 billion in the red this year, or $26 billion at the current exchange rate, an enormous figure considering the national budget is only about $50 billion.

Yatseniuk's government suggested a package of laws that would help to meet the financial and economic challenges, and parliament is expected to vote on these suggestions later in the day. The prime minister predicted that the nation's gross domestic product will drop 3 percent this year if parliament accepts the austerity measures, and 10 percent if it does not.

That the Ukrainian economy is in turmoil after all those events is all too natural. We need of course more informations but my quick personal observations:

a) Never waste a bitter crisis, kicking off key reforms and slashing subventions like on the enemys gas is smart if they execute it well with direct transfers to avoid too big of an demand shock.

b) A truly 'big bath' accounting wise, they must have written off immense amounts and 'restated' other items to come up with a deficit of -50%!

c) In any case Yatsenjuk will get much of the blame, deflecting it from a newly elected one

d) Higher taxes on tabacco and alcohol are staple stuff

Lots of things to add but it will be key to not have a heavy depression before the long-needed necessary reforms and the aid kick off growth. The Ukrainian situation is of course totally different from the circumstances in practically all European countries who sufferd and are suffering a depression.

Perhaps it is the perfect time to tackle the big issues, with an enemy at the borders, strong financial support coming in and the iterim government taking most of the blame. There is no doubt that the IMF, EU and USA have to deliver, the strategy is mostly sound and it depends now on the hard task of executing it. Does anybody have an up-to-date account about how much is pledged to Ukraine? Lots of different entities and programs.

It is btw likely that those billions 'due' to Russia and likely Gazprom will just written off with Western help against the backdrop of the Crimean robbery.