Eastern Europe is heating up

Berlin’s current frustration with Warsaw is a symptom of Eastern Europe’s growing geopolitical importance. The region is attracting attention from two key global players: the United States and China. Germany is mainly concerned with Poland’s rapprochement with the United States and hostility towards Berlin.

Warsaw’s ambitions – a detriment to Berlin

With Brexit on the table, Poland has views to replace Britain as Washington’s main EU ally.

The Polish political elite relies on American military support against Russia, in particular through NATO, and seeks to use a closer partnership with the United States to diversify its energy sources; the first shipment of Liquefied Natural Gas from the United States arrived in June 2017. Poland had been a leader in the campaign against the Nord Stream 2 project, which is set to supply Germany with natural gas directly from Russia. Nord Stream 2 would undermine American efforts to tease Gazprom out of its European market. Furthermore, Poland’s elite is currently probing American support for its project to engineer greater energy and defence cooperation in Eastern and Central Europe, for example though the Three Seas Summit initiative.

The Polish political elite has assiduously been courting the Trump administration: his visit to Warsaw before the G20 Summit in Hamburg earlier this summer was widely seen as a sign of support for the Polish administration. Polish Defence minister Antoni Macierewicz hailed the American President’s visit as a demonstration that Poland’s geopolitical position has greatly improved. Certain American and German news outlets subsequently interpreted President Trump’s visit to Warsaw as a move against Germany and the EU.

Polish demonstrations of hostility towards Berlin play at least two roles. First, they are a backlash against what is perceived to be unwarranted EU interference in Poland’s domestic affairs: following Polish attempts to increase political power over the judiciary, Brussels launched an unprecedented enquiry in 2016, and recently threatened to trigger Article 7 of the Lisbon Treaty. These moves, supported by Germany, were met with hostility by Poland’s ruling party. Second, hostility towards Berlin is an additional way to demonstrate Poland’s alignment with the Trump administration. Possible demands of German war reparations, for example, may be interpreted in at least these two ways. First, they may be seen as a backlash against Germany’s criticism of Polish legal reform attempts. Second, if the demands were to be implemented, these reparations would contribute to Germany’s economic weakening – in lines with Trump’s foreign policy.

The Polish anti-German vector is moreover bothersome for Berlin because on Germany’s other flank, President Emmanuel Macron is reaching out towards Washington to develop a cordial relationship. Earlier this summer, Macron invited President Trump on a personal visit to France for Bastille Day. Germany, which is experiencing tensions with the United States, finds itself caught between two neighbours looking increasingly towards Washington and in one case more obviously than in the other, away from Berlin.

Warsaw’s legal reforms provide a window of opportunity for Berlin to lash at its neighbour, without overtly addressing its geopolitical concerns.

Berlin vs Warsaw: a two-speed Europe on the move?

A number of European elites are critical of 2004 expansion to Eastern Europe. Indeed, Eastern European member states constitute a considerable investment from net contributors to the EU budget: between 2014 and 2020, Poland alone will receive around 100 billion euros from Brussels. Earlier this year, Germany proposed a bill to link EU funding to the respect of democratic principles and human rights. The proposal, which could potentially affect funding for Poland and Hungary, was blocked by the president of the European Commission Jean-Claude Juncker. Though it has been placed on hold for now, the legal project may well be taken up anew when Juncker retires from his position in 2019.

The existence of such a legal project is directly related to structural economic difficulties in the EU, which are unlikely to be solved. With economic resources running low, stripping Poland of its voting rights by triggering the Article 7 process may be another path to achieve a similar end: a two-speed Europe with reduced, conditional economic support for its periphery. If successful, such methods could be expanded to other member states, for example Hungary.

Eastern Europe on the margin: drawing in the Chinese

Numerous infrastructural and other economic projects in Eastern Europe depend on EU funding. Were the latter to decrease, the region would likely suffer an economic downturn with considerable risks of social unrest and political instability. Such a development is in the interest neither of Germany nor of Russia.

Eastern Europe’s pivot towards Washington is hardly palatable not only from the perspective of Berlin, but also from that of Moscow. Growing US involvement in the region would most likely translate into increased NATO deployments along Russia’s border. Additionally, American liquefied gas providers are looking into Eastern Europe as a new market which would welcome diversification from Russian gas. European funding cuts would stimulate Eastern Europe’s pivot toward the US, a move at odds with Russian interests.

Despite these concerns, Russia is unlikely to compensate for a share of Eastern Europe’s losses, were cuts to be implemented. Moscow is cautious to limit the amount of resources it dedicates to the region, as shown by the stalemate in the Ukraine. Burdened by sanctions, Russia has neither the economic capacity nor the political will to finance Eastern European economies. To avoid a severe degradation in the stability of Eastern Europe, which would be against the interests of both Berlin and Moscow, Germany and Russia, along with net EU contributors such as France, would most certainly like to pass the burden of funding Eastern Europe elsewhere.

The Chinese have been eyeing Eastern Europe in the context of their One Belt One Road project. In order to be a reliable transit route for Chinese goods to comparatively rich Western European markets, the region must remain politically stable. Otherwise, the Chinese would face considerable difficulties in implementing their continental Silk Road. A failure of this initiative would not only be a blow on the international level, but also on the domestic level for Xi Jingping. The Chinese may therefore be interested in compensating for EU funding cuts if these cuts were severe enough to create a high risk of political degradation in Eastern Europe.

Where does this leave us?

Eastern Europe’s geopolitical importance is on the rise. The Germans are wary of Poland’s geopolitical aspirations and rapprochement with the United States. For net contributors to the EU, plans for a two-speed Europe are on the table. The Chinese are eyeing deeper involvement in the region to guarantee a stable transit zone for their goods. Current lashes against Poland over legal reforms are but the first gusts of a coming storm.

Originally published with the Russian International Affairs Council: http://russiancouncil.ru/en/analytics-and-comments/analytics/eastern-europe-is-heating-up/

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Mr. Macron – a pyrrhic victory for the EU?

Mr. Macron is likely to push for the revival of the German-French axis inside the EU. One of the central aims of this dual leadership will be European security integration. Security is at least in this case a two-headed entity. On the one hand the challenge of uncontrolled refugee flows will be central to Mr. Macron’s agenda because of the high risk of terrorism in France. On the other hand, under his leadership, Russia will continue to be pointed to as a major threat for Europe. Sanctions will be maintained as a demonstration of political will, but also as a convenient policy for bringing EU states together against a common challenge. With the departure of Britain from the EU, France will remain the only state capable of building a basis for further military and intelligence integration. Yet success is far from guaranteed, as it requires deeper integration moving towards political union, which in itself is problematic, as explained below. 

Considering Mr. Macron’s pro-European positions, he will likely attempt to salvage the euro. This, however, is likely to prove a failed battle for the following reasons: 

  1. The current eurozone incrementally faces structural problems due to the diverging economic models of Northern economies, based on the export of high-added-value products and Southern economies, based on low-added-value products and tourism from the north. Southern economies, before their integration into the eurozone, were dependent on domestic demand stimulation through expansive welfare and subsidy programs. Since their accession to the eurozone, they have become increasingly dependent on cheap credit from Northern states to stimulate domestic demand, in a situation where devaluation was no longer an option. It is difficult to envisage how Southern countries in the eurozone such as Spain or Italy may move beyond this credit-based economic stimulation model, considering the type of goods and services that drive their economies. Though the the bulk of their debt was accumulated in the period between the collapse of Bretton Woods and the advent of the euro, today’s precarious sovereign debt situation in Southern countries and their dependence on Northern credit to keep their economy running, endanger the stability of the entire eurozone. These issues are unlikely to disappear in the foreseeable future. To them must be added Eastern members’ considerable dependency on EU structural funds. The structural divergences between states in the current eurozone architecture render the common currency unstable and unreliable to deal with economic crisis, as was demonstrated in 2008.  
  2. The structural problems of the eurozone crisis may be addressed through full economic union, which includes a fiscal union. This step would increase coherence of economic policies within the eurozone but is unlikely to be attained without a full political union. This, in turn, is highly unlikely considering that it would entail the de facto demise of most national elites in Europe, who cannot all simultaneously be integrated into a federal elite. In case of a full political union in the EU, most national elites will therefore lose power. Since full political union would dependent on the agency and willingness of these same elites, such an outcome is highly unlikely.

In the light of this analysis it is difficult to envisage any policies that Mr. Macron would adopt that would, indeed salvage the euro without running into unsurmountable challenges. 

Mr. Macron’s attempts at greater integration of the EU, and those to revive the German-French axis will only kindle support for anti-integrationist parties at home, even more so considering 1) the unlikely tangible improvement in the French economy over the next five years in relation to the eurozone crisis, 2) the feeble concrete success his European integration policies may achieve in the period of 5 years and 3) the continued inflow of refuges and economic migrants into France with little restriction. 

The election of Mme le Pen may actually have been a better outcome for supporters of EU integration, in the long-term perspective because 1) she would face a cordon républicain in the parliament which would considerably hamper her projects. 2) In order to implement policies, she would therefore have to water them down and compromise with the political establishment. 3) If she would refuse to do so, the government would face a deadlock. 4) In both cases, her voters would be gravely disappointed by her performance. 5) Support for a mainstream perceived as more ‘competent’ would actually be galvanised at the next election. 

As it now stands, support for Mme le Pen and Mr. Mélenchon is only likely to increase over the next five years as Mr. Macron struggles in a move towards European integration. 

The uncertainty of Mr. Macron’s position is further heightened by the possibility that he may not obtain a working majority in the parliamentary elections next month. If so, he will have to face challenges not only from the Mr. Mélenchon’s and Mme. le Pen’s parties, but also, importantly, from the Républicains. In order to retain voter support and win votes back from the National Front, the Républicains will have an electoral strategic interest in being a vocal opposition party in the next five year. Mr. Macron is in a difficult situation to negotiate the forming coalitions with his political rivals due to the apparent malleability of his program, which his benefited him electorally, but will probably be a challenge to gain the trust of other political factions. Because of the flexibility of his program, the latter are likely to doubt how closely he is likely to keep coalition commitments

Considering these challenges, it is highly uncertain whether the revival of the French-German axis will be lasting. With results slow to come, personal relations between the French President and the German Chancellor may well deteriorate. In addition, Mr. Macron is likely to advance the interest of French business, which are not necessarily aligned with those of German counterparts. 

Solving incoherence within EU integration by creating a multi-speed Europe is advanced by some as a solution but will unlikely be greeted well by states which will be cast out of the ‘core’. States classified in the ‘slower-speed’ categories are likely to be perceive this system as a challenge to the EU’s principle of equal cooperation. A multi-speed solution may also reinforce the idea of the EU as an empire, widespread among populists. In this line of thinking, the ‘fast lane’ states will be portrayed as a metropolis and the ‘slower-speed’ states as colonies. Though this comparison is unlikely to be adopted by the mainstream, it will certainly shape the political debate in numerous member states against the proposal of a multi-speed Europe. 

The victory of Mr. Macron in the French presidential elections is seen by many pro-Europeans as a sign of hope. Yet whether this hope will transform itself into concrete achievements is highly questionable. There appears to be a strong chance that the presidency of Mr. Macron will further empower forces of disintegration within the EU. 

Some thoughts: Where does this leave Britain?

A worsening situation in the EU may actually bring certain advantages to Britain. For example: 

  1. At home, it will dampen enthusiasm for the EU, and contribute to keeping at bay the looming threat of a successful Scottish referendum.
  2. Were the EU to break apart this will cause geopolitical chaos for a while on the continent. Yet it might be an opportunity to seize for divide et impera. For a political economy standpoint, though this may mean more treaties to negotiate in the absolute, Britain may achieve more advantageous free trade deals with closer political partners in northern Europe and with states in Eastern Europe, in particular with the Baltics, that strongly depend on British military support, than with the EU as a whole during the Brexit process.

Published with the International Analytical Centre Rethinking Russia: http://rethinkingrussia.ru/en/2017/07/is-macron-a-pyrrhic-victory-for-the-eu/