Nord Stream 2: Strategic Implications for the European Union

August 8, 2016

by Robert Swanson

Nord Stream 2

The proposed “Nord Stream 2” natural gas pipeline is one of the most controversial projects of post-Cold War Europe. Since the start of the project’s study phase in 2011, it has divided the EU between north and south, and east and west. It reveals the tenuous position of the EU following the resurgence of Russian intransigence under President Vladimir Putin: a beacon of political liberalism forced by necessity to rely on energy from an illiberal, increasingly hostile, and authoritarian state.

Background

Nord Stream 2 would mirror the existing “Nord Stream” pipeline, commissioned in 2011, almost exactly. The two proposed landfall points in Russia are the Soikinsky and Kurgalsky Peninsulas, both of which are close to the Estonian border. The German landfall for the expansion would be in the Bay of Greifswald, the same location as Nord Stream. The pipeline’s Baltic Sea route would traverse the Exclusive Economic Zones (EEZs) and/or the territorial waters of Finland, Denmark, Germany, and Sweden, which would need to give permission for the project’s construction.

Nord Stream AG, the Gazprom-dominated consortium that operates the existing Nord Stream infrastructure, proposed the expansion project in 2011. It noted the EU’s current and future needs for natural gas and claimed the expansion would increase the annual capacity of the infrastructure to 110 billion cubic meters – double the current 55 billion cubic meters capacity of Nord Stream. The project was cancelled in January 2015 due to EU concerns about Gazprom gaining a more dominant position over supply and infrastructure in Europe’s gas markets. After a June 2015 agreement brought multiple Western gas companies on board, including Royal Dutch Shell, OMV, and E. ON, the project was revived.

As few EU member states have large supplies of natural gas, geography and economic necessity allow Russian energy giant Gazprom to enjoy a dominant market position. In the Baltic states, Bulgaria, and the Visegrad nations (the Czech Republic, Hungary, Poland and Slovakia), it holds dominant positions in gas supply even though efforts directed at diversification are starting to alter this picture. In Western Europe, pipeline routes from Scandinavia, Britain, and North Africa, as well as local supply in Germany, ensure that there is more diversity of supply. But among Western Europe’s largest economies, Germany and Italy import significant portions of their supply from Gazprom – 45% and 35% respectively.

The main natural gas pipelines in Europe, moreover, are owned and operated by Gazprom, either directly or through consortiums. Approximately 19.5% of total EU natural gas imports, or almost 50% of all natural gas it imports from Russia, flows first through the Gazprom-owned Soyuz and Brotherhood pipelines in Ukraine, with the remainder going through its Nord Stream, Yamal-Europe, and Bluestream pipelines.

As the majority of Gazprom’s shareholders are entities of the Russian government, Gazprom is effectively an economic and political tool of the Kremlin. As a result, all EU foreign policy positions concerning Russia, including but not limited to sanctions – other forms of economic pressure, political pressure, and continued EU expansion – are complicated by the fact that Russia holds significant leverage over the economy and livelihood of the EU. While this leverage has diminished due to the EU’s construction of pipeline interconnectors with reverse-flow capability, historically low gas prices, and Gazprom’s inability to access the Chinese market until 2018, it remains potent.

Support

Aside from Gazprom and its co-investors, the largest source of support for Nord Stream 2 comes from the German government. It has broad support in the Bundestag, and support from Chancellor Merkel and former Chancellor Gerhard Schroeder. The latter is now the chairman of the board of Gazprom. Chancellor Merkel publically defended the project on multiple occasions, calling it a “commercial project” of “private investors,” suggesting that it should be off the table when discussing European energy security.

Dissent

Donald Tusk, the president of the European Council, has spoken out against Nord Stream 2 on multiple occasions. He noted that the project “does not help diversification, nor would it reduce…energy dependency,” and called on the EU to “confront” Russia’s near monopoly on gas. In the European Parliament, the center-right European Peoples’ Party, the largest bloc in the chamber, recently noted the pipeline’s “detrimental consequences for the gas supply in Central and Eastern Europe” and the danger it poses to the EU’s efforts to reform bordering states through its Eastern Partnership initiative.

Other critics highlight the project’s lack of concrete economic benefits. Maroš Šef?ovi?, the European Commissioner for Energy Union, pointed out that Nord Stream runs at only 50% capacity. The U.S. State Department’s Special Envoy for International Energy Affairs, Amos Hochstein, called Nord Stream 2 a project with little real economic significance that only enhances “the Russian narrative completely from all aspects…and it creates just the chasm [the Russians] want in the middle of Europe.”

A large point of contention is Germany’s embrace of Nord Stream 2 at the expense of the cancelled South Stream project. The cancelled pipeline would have run under the Black Sea from Dzhubga on the Russian coast and through Bulgaria and the Balkans, ultimately terminating in Austria and Italy. It would have increased gas deliveries to Central and Southeastern Europe, but was ultimately cancelled by Russia after the EU expressed concerns about the monopolistic control of supply and infrastructure by Gazprom. While Nord Stream 2 was cancelled because of the EU’s opposition on similar grounds, Gazprom’s partners seem to have partly overcome these concerns. Pro-Putin and anti-Putin politicians alike have found common ground to criticize the EU for its indecision on the project.

Strategic Implications for the EU

While Nord Stream 2 would increase natural gas deliveries to the EU, the likely motives behind the project would negate any medium or long-term benefits. Gazprom, and by extension the Russian government, would gain two new and valuable forms of leverage over the EU with the completion of the project.

First, the project would breed dissent within Europe on geographical fault lines. Only Germany stands to gain from the project with the increased supply capacity. Central and Eastern Europe would lose transit fees, and potentially experience  decreases in supply, as Gazprom would likely shift vast amounts of natural gas from current continental routes to the Baltic. These developments could prompt these states to strike energy deals with Russia on their own, further undercutting the solidarity of the EU.

Also at stake for Germany is its commitment, through NATO, to Eastern Europe. Germany’s commitment to uphold NATO’s Article 5 collective defense provision is already shaky with 58% of the German public opposed to using military force to defend allies. If Germany should push forward with the pipeline, it would further diminish the credibility of its commitment to the alliance. With Eastern Europe facing Russian military pressure in the east, and German ambivalence to the west, the cohesion and future of NATO would be undermined.

Second, the project would serve Russia’s strategic objectives in Ukraine, and possibly other transit countries. With the “hot” aspect of the war in an effective stalemate, Russia would gain the means to weaken Ukraine’s government and its ability to resist Russian influence. Ukraine is currently embroiled in a pricing dispute with Gazprom, and previously diverted gas illegally from the pipelines in response to Gazprom crackdowns. Should Russia find another conduit for transporting gas to the EU, this limited leverage over Russia and $2 billion in transit fees would disappear.

Nord Stream 2 imperils the very core of the EU’s legitimacy as a common institution. Its economic contributions to the EU at-large would be negligible and likely amounts to a thinly disguised geopolitical calculation by Moscow to divide the EU, diminish the security afforded to it by NATO, and attain greater influence over Ukraine. By removing the prospect of Russian infiltration via natural gas, the EU would sustain its already limited ability to oppose Russian aggression from Eastern Europe to the Caucasus.

Robert Swanson is a Transatlantic Security Analyst at the Streit Council. Photo credit: Nord Stream 2

Where Does Europe End? Time to Talk Turkey

July 14, 2016

by Alex Roberds

EU and Turkey

As the European Union works to contain the fallout of last month’s Brexit vote, it has started a new round of membership talks with Turkey. Official negotiations on Turkey’s accession to the EU began more than ten years ago, but progress has been slow. The prospect of EU membership has been a major motivator for Turkey in its dealings with Europe – especially the recent EU-Turkey deal to address the migrant crisis, in which the two sides agreed to “re-energize” membership talks. But is Turkey really ready to join the EU, and is the EU ready to accept Turkey?

Copenhagen Membership Criteria

One of the first considerations for Turkey’s accession to the EU is the fulfillment of the “Copenhagen Criteria,” the standards for membership as laid down by the European Council in 1993. The requirements include stable institutions guaranteeing democracy, human rights, and the rule of law; a working market economy; and the ability to fulfill the obligations of membership in the Union. Turkey must fulfill all of these criteria to join, and there are several concerns at this point in time.

A recent law signed by Turkey’s President Recep Tayyip Erdo?an dealt a damaging blow to Turkey’s chances of meeting the Copenhagen Criteria as it seriously threatens democratic institutions in the country. The law removed lawmakers’ immunity from prosecution, which could allow more than 100 members of parliament who are under investigation to be prosecuted and jailed. These members of parliament are primarily from the pro-Kurdish HDP and CHP, the main opposition party to Erdo?an’s AKP. This move will eliminate major parliamentary opposition and allow Erdo?an to continue with his proposal to amend the country’s constitution in ways that would give the presidency more power, potentially undermining existing checks and balances within the government.

This is not the first time that President Erdo?an has threatened democratic institutions. Turkey was recently criticized by Freedom House for suppressing speech and press freedoms. The government has often punished critical reporting and exerted power over media owners to influence media content and prevent criticism. These actions have earned Turkey a 151st place ranking out of 180 nations on the 2016 World Press Freedom Index.

EU-Turkey migrant deal

While the March deal between the EU and Turkey was an opportunity to deepen cooperation between the two sides, it has instead increased tensions. Turkey agreed to alleviate the burden of migration on Europe by taking back migrants who make their way to Greece by way of smugglers. For every Syrian migrant sent back to Turkey, the EU agreed to take one already settled in Turkey and pay up to €6 billion to improve the lives of the refugees already in the country. Additionally, negotiations for Turkey’s accession to the EU would be restarted.

Since the deal was reached, Turkey has threatened to suspend it if certain demands are not met – specifically, that Turkish citizens be granted visa-free travel by the EU. Before being granted visa-free status, the EU asked Turkey to meet 72 criteria by a deadline set for early June. Rather than meet these criteria, the Turkish government demanded that they be weakened, which the European Commission rejected. As a result, Turkey was not granted visa-free status. This setback has the potential to derail the migrant deal and postpone negotiations for Turkey’s accession, but the outcome will depend on Turkey’s reaction to this recent development.

Cyprus

One of the largest potential problems for Turkey’s accession process is Cyprus, which Turkey currently does not recognize as a sovereign state. Roughly one third of the island nation was occupied by Turkey in 1974 and has been the self-proclaimed Turkish Republic of Northern Cyprus since 1983. Turkey is the sole recognizer of Northern Cyprus, thereby refusing to recognize the sovereignty of the Republic of Cyprus over that territory. The issue has been frozen for decades, during which time Cyprus became a member of the EU.

This presents a major challenge for Turkey as all EU members must approve Turkey’s accession if it to join the EU. The Cypriot government has made it clear that it will not approve Turkish membership unless Turkey recognizes its sovereignty and resolves the current conflict on the island. Unless significant progress is made on this issue, the probability of Turkey joining the EU is close to zero.

Rising euroskepticism

Another major factor that influences Turkey’s prospects for EU accession is the rise of euroskepticism across Europe, which is leading many member states to turn inward. This sentiment can be seen in the rise of euroskeptic political parties throughout the EU, which was most apparent in Britain’s recent vote to leave the EU. Additionally, a recent poll showed that majorities in France and Italy believe that their respective nations should deal with their own problems and let other nations do the same. Another survey found that a majority in France, and pluralities in Germany, Spain and Sweden, want their own membership referenda.

Citizens who are unsure if they want to be in the EU themselves are less likely to want to assume the perceived problems of Turkey and other potential candidates for EU membership. This was illustrated in the Netherlands’ recent referendum on the Ukraine-European Union Association Agreement, which would have been a significant step toward Ukrainian membership in the EU. Roughly 61% of Dutch voters rejected the treaty, preventing it from going into effect. Such a precedent does not bode well for Turkey’s membership bid, as the same voters would be unlikely to approve Turkish membership if they rejected a much less ambitious agreement with Ukraine.

Turkish membership was even an issue during the Brexit debate, as many in the “leave” camp expressed the concern that they would be unable to prevent its accession. While the prospect of Turkey’s accession to the EU was a minor component of the “leave” campaign, the fact that it played a role in convincing Britons to leave the Union altogether shows how difficult it would be to persuade the citizens of Europe to approve Turkish membership at this time.

Where does this leave Turkey?

Given the current state of Turkey’s accession to the EU, membership is a distant prospect. Under President Erdo?an, Turkey has moved further away from its democratic institutions, which could preclude membership altogether. The recent migrant deal has not fostered deeper cooperation between the two sides, but instead created tension that will not work in Turkey’s favor. Unless it changes its position on Cyprus, Turkey will also face open opposition by the Cypriot government and people, which alone is enough to prevent it from joining the EU.

EU leaders must remain clear and firm with Turkey about what needs to happen before it can proceed with the process. Turkey must go through radical changes before it is ready to become a part of the Union. The institutions of democracy must be strengthened rather than undermined by the ruling party, and civil liberties must be respected and protected rather than suppressed. Until these steps are taken, Turkey is more likely to be a neighbor of Europe than a member of it.

Alex Roberds is a Global Governance Analyst at the Streit Council. Photo credit: Ian Usher

The Potential Consequences of Brexit for British Energy Security

July 7, 2016

by Robert Swanson

Union Jack

After the victory of the “leave” campaign, there is no shortage of commentary on the wide-ranging social, political, and economic effects of Britain’s coming departure from the European Union. While the majority of Brexit’s supporters point to the benefits of greater national autonomy, controlling immigration, and charting a course away from the culturally distant Continent, little attention has been paid to the consequences of Brexit for the country’s energy security. Britain, nudged by EU guidelines, has made great strides in reforming its energy portfolio to include more renewables and less oil and gas. But it still imports the majority of its fuel in the form of coal, natural gas, and oil. By leaving the EU, Britain will, by necessity, likely reverse its progress on the greening of its energy mix and concurrently pay more for imported fossil fuels.

The UK’s Energy Disposition

The UK’s electricity mix, based on 2015 data, indicates a greater degree of source diversity than in 2014. Coal was the big loser of the mix, falling from 29.7% in 2014 to 22.6% in 2015. Natural gas and oil comprised 31.9% of the electric mix, slightly lower than the 32.4% of the previous year. Nuclear power comprised 20.8% of the mix, up from 18.8%, and renewables jumped from 19.1% to 24.7%. Large investments in bioenergy, offshore and onshore wind power, and solar photovoltaics over the last ten years accounted for the majority of the change. Transport fuel accounted for about 75% of UK’s total oil consumption in 2014 and 2015.

In 2014, the EU at large agreed on energy efficiency targets to cut emissions by at least 40% by 2030 compared to 1990 levels. The UK’s own targets are greater, as the Climate Change Act of 2008 seeks to reduce emissions by 80% in 2050 from 1990 levels. The UK is the largest recipient of proceeds from the European Investment Bank’s Climate Awareness Bonds, with nearly €7.8 billion in total loans going to the UK for renewable energy and efficiency projects.

The Energy Implications of Brexit

Two prominent Conservatives, former London Mayor Boris Johnson and Secretary of State for Justice Michael Gove, opined that Brexit would drastically lower the average consumer’s energy bills. Both pointed to the current 5% VAT on UK energy bills, which adds around £60 to the average bill per year. Under current EU regulations, VAT taxes on energy usage are required, and no government is allowed to reduce the tax to less than 5%. Both Johnson and Gove claimed the £2 billion per year generating tax cut could be funded from the overall £11 billion pounds per year the UK would save in fees currently paid to the EU.

The United Kingdom Independence Party (UKIP) has been uniform in its support for Brexit, particularly in its call to remove multiple energy regulations. UKIP’s 2016 Local Manifesto calls for an end to “renewable energy scams,” and seeks to bring back jobs in mining. MEP Roger Helmer, in an article from May, claimed that current UK energy policies, “dictated by Brussels” have “clo[sed] down proven, reliable, and cost-effective coal capacity” and replaced it with “expensive, unreliable and intermittent renewables.” He also pointed to “plant closures and job losses” in affected industries, and argued that the EU’s Large Combustion Plant Directive, a scheme to close old coal power plants, “threaten[s] the most almighty energy shortage in the UK.”

Chancellor of the Exchequer George Osbourne referred to Johnson and Gove’s VAT claims as “fantasy economics,” noting that the £11 billion the UK spends on EU membership cannot be so easily reapportioned. Citing the reality of “a smaller economy” and “a hole in public finances” after Brexit, the UK would be strapped for cash and would, by necessity, have to raise taxes on many goods and services. While the VAT would no longer go to Brussels, it would likely still exist and simply go to London instead.

 Further undermining the “leave” energy argument is the fact that Britain receives significant quantities of its oil, natural gas, and coal from other EU members or countries with which the EU has trade agreements. Brexit would invalidate its participation in the existing customs union with other EU members, and remove Britain from EU trade agreements with third parties, causing import prices for these energy sources to rise immediately. Consumers would see not only higher electricity bills, but higher prices for gasoline and potentially higher prices for air travel. Unless Britain can somehow conclude new trade agreements from a more disadvantageous negotiating position, prices will increase.

While Britain’s long term climate goals are more ambitious than the EU’s, Chatham House energy researcher Antony Froggatt praised the “double lock on…climate change policy” that the EU provides, and noted that without the “EU framework to keep it on that path,” Britain’s long-term climate change measures would be more susceptible to revision or outright cancellation.

According to a recent poll by the Energy Institute (EI), a majority of energy industry leaders are pessimistic about Brexit. In that poll, respondents predicted negative effects on “securing energy supplies, renewable energy development, climate change and sustainability, and air quality….” Amber Rudd, the UK’s energy secretary, projected that energy costs would increase by up to £500 million pounds per year if the UK leaves. Rudd also noted that Britain benefits from the collective ability of the EU to prevent bullying by energy exporters, particularly Russia. Without “a bloc of 500 million people” to “force Putin’s hand,” Rudd warned that the energy security of the country would be at greater risk.

Even if it develops domestic sources of energy, such as coal, and oil and gas in the North Sea, the energy costs for consumers would still increase. But these steps could be derailed if Scotland holds another independence referendum. If Scotland leaves, Britain would lose yet another major source of its oil and gas. Brexit will also elevate UKIP to a greater position of power, placing the future of Britain’s alternative energy program in doubt. In the longer term, should the Transatlantic Trade and Investment Partnership (TTIP) deal pass, Britain would miss out on lower prices for energy imported from the U.S.

Robert Swanson is a Transatlantic Security Analyst at the Streit Council. Photo credit: Openclipart

Brexit: The Day After. What Next for the Euro-Atlantic Area?

June 24, 2016

By Mitch Yoshida

Brexit

After three and a half years of waiting and months of intense campaigning, on June 23rd the British electorate voted, 52% to 48%, to leave the European Union. Concerns about immigration, sovereignty, the democratic accountability of the EU, and the economy merged into a narrative that led to this unprecedented outcome. The decision is potentially catastrophic for Britain, the European Union, and the United States, which have pursued deeper and wider integration as a means to successfully addressing common economic, security, and political challenges for more than 70 years.

The degree of damage will, to a large extent, hinge on the policy responses of these actors. Looking ahead, several open questions are central to assessing Brexit’s full impact on the Euro-Atlantic area:

  1. Will they manage the economic fallout effectively? The sudden psychological impact of the Brexit vote is likely to roil markets across the Euro-Atlantic area and beyond. Eurozone governments, especially those in the already-fragile periphery of the common currency area, are particularly vulnerable. Will they be able to cope with the shock?
  2. What is the timeline for withdrawal? A closely related question is when Britain will actually leave the EU. Under Article 50 of the Lisbon Treaty, this will hinge on the willingness of the European Council and the British government to conclude an agreement on withdrawal arrangements and future relations. Earlier today, Prime Minister David Cameron said that his successor, who he expects to assume office in October, will trigger this process. From that point, the wait could be as long as two years or more.
  3. Will the EU move toward deeper integration, disintegration, or maintain the status quo? A recent survey conducted before the Brexit vote found that a majority in France, and pluralities in Germany, Spain and Sweden, wanted their own membership referenda. The Brexit vote is likely to strengthen these calls, but it is not clear that they will be heeded by their governments. Another, though currently less likely, possibility is that the remaining EU member states will forge a more tightly knit union that is capable of dealing with internal and external challenges.
  4. How will Brexit affect U.S. relations with Britain and the EU? The U.S. has long turned to Britain as a facilitator of, or “bridge” to, cooperation with the continent – an important aspect of the “special relationship.” Will the U.S. instead turn to Germany and/or France as some analysts have suggested? While President Obama and officials in his administration repeatedly expressed their opposition to Brexit and stated that the Transatlantic Trade and Investment Partnership (TTIP) would take precedence over a new trade agreement with Britain, it is not clear that this position will be adopted by the next administration.

What can be said with a high degree of certainty at this point is that shared sovereignty, a key normative underpinning of the postwar European and transatlantic orders, and the broader liberal international order that the U.S. and Europe have upheld, is coming undone. This bedrock norm underpinned the formation of systemically important multilateral agreements and institutions, including NATO, the European Economic Community, the General Agreement on Tariffs and Trade, and successor organizations. It underwrote decades of rapid economic growth, stable governments, and effective military deterrence, and transformed the West into a zone of stability whose magnetic appeal continues to draw additional states into its orbit. It is an omnipresent yet largely unspoken basis for today’s liberal international order, which has so far managed to peacefully integrate rising powers. Brexit, and the renationalization of political life across the Euro-Atlantic area, place these achievements at risk.

What can be done?

This fundamental challenge requires substantial effort, at the highest political level, to counter absolutist conceptions of the national interest and reaffirm the merits of shared sovereignty. For the EU, successfully addressing the internal and external challenges of the day – mass migration, high rates of unemployment, slow economic growth, energy insecurity, a monetary union that is still highly vulnerable to economic shocks, and an arc of instability stretching from North Africa to Eastern and Northern Europe – requires nothing less than deeper integration in the form of a fiscal union of the Eurozone, a unified approach to energy security and migration, and greater democratic accountability in Brussels.

In the U.S., a reaffirmation of the indivisible character of Euro-Atlantic security and economic interests is needed to counter incipient calls for the dissolution of NATO and largely groundless opposition to past and pending trade agreements, which could come to include TTIP. Nearly 54 years ago, in his “declaration of interdependence” speech, President John F. Kennedy called on Americans to “think intercontinentally” and stressed the need to deepen the Atlantic Partnership beyond NATO for the sake of their own security and prosperity. Similar appeals are needed today.

Mitch Yoshida is a Research Fellow at the Streit Council. Photo credit: Paul Toxopeus

Enemy of My Enemy: Turkey and Ukraine Align

June 8, 2016

by Urte Peteris

Presidents Poroshenko and Erdogan

Turkey’s relations with Ukraine have never been particularly antagonistic. With recent announcements of wide-ranging economic and military cooperation from natural gas exports to joint naval maneuvers, however, neither have they been as overtly and actively amicable as they are now. What caused this change? Two long answers – Ukraine’s separatist conflicts in Crimea and the Donbas, and Turkey’s conflict on and beyond its border with Syria. One short answer – Russia.

A Growing Relationship

Since the end of the Cold War, Turkey has enjoyed a fairly stable relationship with Ukraine. Bilateral trade volume went up from $518 million in 1996 to $4.9 billion in 2014. There was talk of a possible Turkish-Ukrainian deal on liquefied natural gas in 2013. Even after crisis erupted in Ukraine’s eastern regions, Turkey offered a $50 million loan to the new Ukrainian government and refused to recognize Russia’s annexation of Crimea, which is heavily populated by Crimean Tatars – a Turkic ethnic group.

Until this year, however, relations with Russia still trumped Turkish and Ukrainian interest in each other. Russia and Turkey’s economic relationship bloomed under the leadership of Turkish President Recep Tayyip Erdo?an, with Russia planning a Turkish Stream project in 2015 to bypass Eastern Europe, and Ukraine in particular, in the flow of Russian natural gas. A steady supply of Russian energy appealed to Turkey as well, as the country’s growing economy demanded higher volumes of gas. Until recently, Russia provided 60 percent of the gas Turkey consumed. A 2010 deal introduced Russian nuclear energy into the mix, with Turkey agreeing to the construction of its first nuclear power plant by a Russian state-owned company.

Meanwhile, Ukraine faced the deterioration of its energy relationships. Not only did Turkey refuse to allow passage of Ukrainian gas tankers through Turkish straits to promote Ukrainian energy independence, but Ukraine’s access to Russian energy became increasingly volatile in light of its separatist crises. Turkey’s initial reactions to these events were noncommittal at best. Though Turkey condemned Crimea’s annexation, it did not join Western sanctions on Russia.

Currently, Ukraine and Turkey are on friendlier terms than they have ever been. High-level talks between Turkey and Ukraine’s defense secretaries, foreign ministers, and presidents take place regularly. Turkey seeks to transport gas through Ukraine. A free trade agreement is on the table. Joint Turkish-Ukrainian military exercises take place in the Black Sea. Such is the fallout from Russian intervention in Syria.

If there was a critical juncture, it was the downing of a Russian warplane by Turkish forces in November 2015. The incident resulted in the rapid deterioration of the Russian-Turkish relationship – threats of retaliation, a political standoff, and economic sanctions against Turkish goods. Turkey had repeatedly accused Russia of violating Turkish airspace in its Syrian campaign, but this was a fragment of a much wider Turkish opposition to Russia’s intervention. Russia’s bombing campaigns came uncomfortably close to the Turkish border, caused an influx of refugees, and decimated Turkish-supported moderate Syrian opposition groups.

Since then, Turkey has found an ally in Ukraine. With both countries seeing their trade sanctioned by Russia and their prospects for joining the EU as increasingly dim, the two have turned to strengthening bilateral ties in order to minimize losses. Sharing opposition to Russian interventionism, a Ukrainian official stated that that the two countries “are turning a new page in their relationship.” Turkey’s then-Prime Minister Ahmet Davuto?lu discussed “common threats” with Ukrainian President Petro Poroshenko in January, and announced the resumption of previously frozen free trade talks in February.

Turkey and Ukraine also announced plans to cooperate in transporting and storing natural gas, including Caspian and Iranian gas export projects and Turkish access to Ukraine’s underground gas storage facilities. Work on the Trans-Anatolian pipeline is scheduled to begin in 2018, and a surplus of Caspian gas stored in Ukraine could allow Turkey to re-export the gas to Europe.

This newfound friendship is not just economic in nature. In February, Kiev and Ankara announced cooperation in the production and procurement of defense equipment, including aircraft engines, radars, communications technologies, and navigation systems. A March high-level strategic council including presidents Erdogan and Poroshenko condemned Russian aggression against Ukraine, enhanced cooperation between defense ministries, and called for the “de-occupation” of Crimea.  The parties’ joint declaration focused almost entirely on security, with a majority of the declaration’s points addressing mutual security in the Black Sea – just one day after joint naval maneuvers.

Mutual security interests in the Black Sea also stem directly from Ukrainian and Turkish opposition to Russia. When Ukraine lost Crimea, it also lost a major naval base in Sevastopol and was forced to relocate to the much smaller Odessa. Sevastopol has since been the site of major Russian military buildup in the Black Sea, which threatens Turkey’s substantial military presence in the waters. This threat ties in with broader Ukrainian and Turkish concerns. Russia continues to back separatists in a conflict in eastern Ukraine, undermining Ukraine’s territorial integrity and drawing out a costly military conflict. Russian bombing campaigns in Syria support Syrian President Bashar al Assad and empower Kurdish forces, directly aiding Turkish enemies and compromising Turkey’s ability to project power in the Middle East. The result is threat-driven interest overlap for Ukraine and Turkey that created a balancing coalition.

Such a coalition allows for both countries to reap economic and military gains. Ukraine’s faltering economy is in desperate need for an influx of cash – something Turkey is willing to provide. Turkey, meanwhile, can foster increased access to European energy markets, not only aiding Ukrainian energy independence but also growing its own status as a regional energy hub. Military cooperation and joint procurement allows for both countries to project power in the Black Sea.

A Fleeting Alignment?

A common enemy hardly yields permanent relations, especially when an apparent sea change takes the shape of many broad declarations and few concrete actions. When a relationship such as Turkey and Ukraine’s solidifies under threat, it runs the risk of dissolving if its underlying basis is removed and its costs exceeds its benefits. This is especially true when these benefits exist largely as tentative plans that are currently neither particularly quantifiable nor institutionalized.

Ukraine and Turkey may have a converging strategic priority now, but this combines fairly distinct national interests. Turkey sees Russian action in Syria as a threat to its position as a political and economic leader in the Middle East. Ukraine sees Russian involvement in its eastern regions as a threat to its territorial integrity. Neither country has much at stake in each other’s conflicts outside of an opportunity to counter Russia. This is best exemplified in Davuto?lu’s insistence that the welfare of Crimean Tatars in the Russian-controlled peninsula is Ankara’s “strategic priority.” Not humanitarian, not democratic, strategic.

If the normalization of ties with Russia becomes a realistic option, Turkey would likely be more than happy to oblige. Russia provides a much larger market for energy and other goods than Ukraine, and offers a more direct opportunity for Turkey to grow its regional role. If Ukraine seeks to establish enduring ties with Turkey, joint meetings and declarations must be cemented by action.

The Trans-Anatolian pipeline is promising in its implications for Turkish, Ukrainian, and European energy independence. Turkey can also pursue a position as a leading transit country in aiding the export of goods to Ukraine and Europe, also allowing Ukraine to more easily export to Asia. Though it may invoke Russia’s ire, defense cooperation and the sale of arms and military technology can support a balance of power in the Black Sea and in Ukraine and Turkey’s regional conflicts at their respective borders.

Economically and politically, Ukraine and Turkey have far more to gain from their emerging alliance outside of serving as a counter to Russia. Such gains could provide great bilateral benefits in the long-run, but they can only be realized through a concerted effort to build the relationship.

Urte Peteris is a Transatlantic Security Analyst at the Streit Council. Photo credit: Svyatoslav Tsegolko

The Far-Reaching Costs of Brexit

June 3, 2016

by Jeremy Weiss

UK flag

As the Brexit referendum looms on June 23rd, polling indicates a recent swing in favor of the “Remain” campaign. Recent polling shows the Brexit campaign losing support among key groups, such as older voters, while Remain enjoys a 13% lead among those who say they will definitely vote in the referendum, expanding to 20% among all voters. Though Tory voters are perceived as the more euroskeptic of Britain’s two largest parties, the Telegraph poll shows Remain with a 17% lead among Tory supporters. In March, the same poll revealed 52% overall support for Brexit, with this figure falling to 46% by the end of April to only 42% two weeks ago. These numbers illustrate a continuing shift against Brexit.

The UK Economy and Brexit

Much of the media attention surrounding Brexit has focused on the potential implications for Britain should it leave the European Union. Remain campaigners buttress their calls for a “no” vote with a considerable amount of economic research. The National Institute of Economic and Social Research (NIESR) released a study last month forecasting serious negative economic consequences in the event of Brexit. These include a potential 3.7% decline in GDP and a 6.3% decline in wages by 2030 relative to Britain maintaining the status quo. The NIESR also warned that controlling immigration would remain difficult for Britain even if it quits Brussels, while Chancellor George Osborne’s Treasury compiled a litany of its own economic statistics on the potential fallout of Brexit. These include a potential loss of £36 billion in tax revenue per year and a loss of 6.2% of GDP even if Britain negotiates a new free trade agreement with Brussels along the lines of that enjoyed by Canada, which would provide access to the common market without freedom of movement.

On the other side of the debate, a group called “Economists for Brexit” makes the opposite case, writing that Brexit would increase GDP by 4% while a loss in value for the pound would make UK services and high tech exports more competitive, though they shrug off continued losses in the heavy manufacturing sector. The General Secretary of the Trades Union Congress had harsh words for Economists for Brexit, noting that their analysis contradicted nearly all other economic predictions. Indeed, virtually every other analysis, including the IMF’s most recent World Economic Outlook, portends poorly for Britain in the event of Brexit. From a historical perspective, Brunel University and Sorbonne economists Nauro Campos and Fabrizio Coricelli illustrated that Britain’s economic performance between 1945 and its accession to the EU in 1973 lagged well behind that of the EU’s early members, who converged with and surpassed Britain’s GDP per capita during postwar reconstruction. The end of Britain’s relative decline coincided with EU membership and the abandonment of trade policies linked to the flagging Commonwealth. The authors conclude: “Today, advocates of Britain leaving the EU parade two economic alternatives, one based on the Commonwealth and another on bilateral free trade treaties….these did not work as well, so it is unclear why they would now be superior to EU membership.”

Brexit’s Broader Effects

As the referendum campaigns continue apace, however, the potential impact of Brexit on the rest of the EU is largely overlooked. Few, at least in the “Anglosphere,” appear to contemplate the scale and nature of the unavoidable economic and political impact that Brexit would have on the EU.

Just as most British voters list the economy as their primary concern when weighing their decision on Brexit, the continent will also have much at stake economically on June 23rd. The OECD provided an overview of the risks facing Europe and the UK in its recent report, The Economic Consequences of Brexit: A Taxing Decision. The report offers a series of warnings for both sides of the English Channel, noting that Britain is responsible for the largest share of foreign direct investment (FDI) inflows into the EU, and that Britain owes much of this appeal to its EU links, which offer investors a gateway to the wider European marketplace. Thus, not only would Britain suffer economically from Brexit, but the remaining EU states would lose the greatest magnet for FDI in their Single Market. More generally, the authors note that while the EU currently boasts the largest proportion of world GDP and trade, the withdrawal of Britain – the world’s fifth-largest economy and with it approximately 8% of the EU’s total imports and exports – would place the EU behind both the U.S. and China in these categories. 

The OECD report also assessed the broader economic risks of Brexit: “Centrifugal forces within countries and within the reduced EU are not quantified fully, but would be a major downside risk. Following the UK decision to exit, there could be doubts about the future of the Single Market, and more broadly, of the EU. The UK itself would also face the possibility of a break up, with political leaders in Scotland having indicated that they would seek a new referendum on Scottish independence.” A Labour MP from the Liverpool area, Frank Field, warned Britons that potential post-referendum negotiations for British withdrawal have the potential to “unravel” the EU. This specter has also been raised by German Chancellor Angela Merkel, who in addition to calling the referendum an “unnecessary risk” also said Brexit would be the “ultimate disaster” for Europe.

The nature of this potential “disaster” and the “centrifugal forces” alluded to in the OECD report become clear when observers consider recent polling data from across Europe. According to a recent Ipsos-MORI online poll of more than 6,000 EU residents, 45% of respondents in Belgium, France, Germany, Hungary, Italy, Poland, Spain and Sweden said they would like a referendum on EU membership in their own countries. Europhiles can take comfort, however, in the fact that only one third of those polled said they would opt to leave the EU. The poll’s director remarked that “[t]he Italians in particular hope to have their own opportunity to go to the polls on their EU membership, which lends a sense that even if the [UK] vote is to stick with the status quo in June, it will not be the end of the EU’s challenges.”

Assessing even broader implications, earlier this month the BBC reported that a group of prominent Czech citizens drafted an open letter to Britons asking them to remain in Europe, citing Britain’s balancing role that has prevented “any large European power from playing a hegemonistic role.” As reported in the Washington Post, German policymakers and observers are aware of this reality, and fear Brexit would dismantle a power-sharing triumvirate of Germany, France and Britain that has enabled Berlin to exercise leadership without making Germans or other Europeans uncomfortable. Wolfgang Schauble, Germany’s foreign minister, remarked that a “yes” vote in Britain would bring him to tears. The Post also quotes Almut Möller, the European Council on Foreign Relations’ Berlin office chief, who warns “EU membership gave Germany liberation from its past and permission to reenter the family of Western states….To lose Britain now would signal to the rest of the world — including to Russia and China — that the EU is dismantling.” The Guardian also recently featured analyses from commentators in Spain, Germany and Sweden that outlined the damaging effects that Brexit would have on their respective countries.

While each EU member would doubtlessly have their own reaction to Brexit, the health of the EU in general should remain foremost in the minds of observers across the Atlantic. Though polling data currently shows the idea of leaving the EU has little appeal among continental voters, anyone who appreciates the peace and stability that union has brought to Europe is right to fear the signal that Brexit would send. No EU member, large or small, has ever left the Union. There can be no way to minimize the moral and political blow that the departure of a leading power such as Britain would inflict on the idea of Europe “whole and free” – or at least on the first component of President George H.W. Bush’s 1989 statement about the future of a continent approaching the end of Cold War division.

A Downward Spiral?

Since then, the European Union has maintained its appeal as a cornerstone of economic progress and political democratization, and drawn into itself many members of the former Communist sphere. The EU was founded on economic integration and freedom of movement. For it to face even the prospect of losing members over its handling of the Eurozone Crisis, the current refugee influx, and the consequences of free movement from countries such as Poland to the UK demonstrates weakness at the EU’s political and intellectual core. The reality of a British departure that would cost Europe economically, inject further instability into Europe generally, and potentially create the impression that Europe is becoming a German economic fiefdom, can only be greeted with the most serious misgivings when it will pile these problems atop Europe’s already lengthy list of challenges.

The Brexit referendum is, at least, a rebuke of the idea that the EU tramples upon member states’ democratic rights, and British voters have every right to prioritize what they see as the well-being of their own country on June 23rd. European leaders and the English-speaking media are not, however, giving the British electorate a full appreciation of the choice they face in the upcoming referendum by continuing to downplay the serious risks that Brexit poses to Europe as a whole.

Jeremy Weiss is a guest contributor to Streit Talk. He holds a Ph.D. in Political Science from Boston University. Photo credit: c.art

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