What's nestling inside?

-Analysis-

During his presidential campaign, Donald Trump had promised to improve U.S. relations with Russia. His supporters said it was just the kind of bold move the world needed as escalating hostilities between the two nations stood in the way of solving major global issues from Syria to cybersecurity. Trump's opponents, to this day, see his rhetorical olive branch to Moscow as nothing less than a debt being repaid for alleged Russian meddling during last year's campaign — and who knows what other favors exchanged over the years.

But now, six months into Trump's presidency, the prospect of building a strong U.S.-Russia alliance (for whatever motivation) are looking slim. Vladimir Putin announced yesterday that he was forcing Washington to cut 755 diplomatic staff in Russia in what seems to be a tit-for-tat response to the latest sanctions bill against Russia.

Speaking to the state-run Rossiya 1 television network, the Russian president made his disappointment with Washington clear. "We waited for quite a long time that, perhaps, something will change for the better, we held out hope that the situation would somehow change," he said. "But, judging by everything, if it changes, it will not be soon."

Russia in general, has an irrational fear of weakness.

Putin characterized the measures as "biting," and warned that more options were at his disposal. Still, some analysts have a very different reading of Moscow's counter-sanctions. Quoted in The New York Times, Vladimir Frolov, a foreign affairs analyst and columnist, said this was "the least painful response that Russia could have come up with." AlexanderBaunov, an analyst at the Carnegie Moscow Center, noted that the timing made the measures look more "like a response to Congress, not to Trump."

Either way, if the move tells us little about the meanderings of ever-more complex U.S.-Russia (and Trump-Putin) relations, it offers an interesting insight into the Russian president's mindset.

Putin is often described as a "bully" with a penchant for macho poses, whose policy in both Syria and Ukraine are signs of an emboldened and imperial Russia. Yet, this is not the full picture. In a piece penned for Le Monde by Fyodor Lukyanov, Editor-in-Chief of Russia in Global Affairs, explains that Putin, and for historical reasons Russia in general, has an "irrational fear of weakness."

For better or worse, Putin has managed to restore Moscow as a diplomatic and military power to be reckoned with. But to be truly successful, Lukyanov writes, Russia needs "more than military and political force."

A quick glance at the declining rate of U.S.-Russia trade over the past six years, which began even before the first wave of sanctions linked to the Ukraine crisis, can help fill out the picture. From that angle, we can start to understand Putin's mix of tough-guy messages and almost wistful tone in describing relations with the world's biggest economy. Ultimately, for any world leader, the situation on the homefront is what matters most. And, as Lukyanov notes, Russia "is beginning to understand that the efforts it deploys in foreign policy can no longer compensate for its economic and social weakness."

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Economy

European Debt? The First Question For Merkel's Successor

Across southern Europe, all eyes are on the German elections, as they hope a change of government might bring about reforms to the EU Stability Pact.

Angela Merkel at a campaign event of CDU party, Stralsund, Sep 2021

Tobias Kaiser, Virginia Kirst, Martina Meister


-Analysis-

BERLIN — Finance Minister Olaf Scholz (SPD) is the front-runner, according to recent polls, to become Germany's next chancellor. Little wonder then that he's attracting attention not just within the country, but from neighbors across Europe who are watching and listening to his every word.

That was certainly the case this past weekend in Brdo, Slovenia, where the minister met with his European counterparts. And of particular interest for those in attendance is where Scholz stands on the issue of debt-rule reform for the eurozone, a subject that is expected to be hotly debated among EU members in the coming months.

France, which holds its own elections early next year, has already made its position clear. "When it comes to the Stability and Growth Pact, we need new rules," said Bruno Le Maire, France's minister of the economy and finance, at the meeting in Slovenia. "We need simpler rules that take the economic reality into account. That is what France will be arguing for in the coming weeks."

The economic reality for eurozone countries is an average national debt of 100% of GDP. Only Luxemburg is currently meeting the two central requirements of the Maastricht Treaty: That national debt must be less than 60% of GDP and the deficit should be no more than 3%. For the moment, these rules have been set aside due to the coronavirus crisis, but next year national leaders must decide how to go forward and whether the rules should be reinstated in 2023.

Europe's north-south divide lives on

The debate looks set to be intense. Fiscally conservative countries, above all Austria and the Netherlands, are against relaxing the rules as they recently made very clear in a joint position paper on the subject. In contrast, southern European countries that are dealing with high levels of national debt believe that now is the moment to relax the rules.

Those governments are calling for countries to be given more freedom over their levels of national debt so that the economy, which is recovering remarkably quickly thanks to coronavirus spending and the European Central Bank's relaxation of its fiscal policy, can continue to grow.

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive.

The rules must be "adapted to fit the new reality," said Spanish Finance Minister Nadia Calviño in Brdo. She says the eurozone needs "new rules that work." Her Belgian counterpart agreed. The national debts in both countries currently stand at over 100% of GDP. The same is true of France, Italy, Portugal, Greece and Cyprus.

Officials there will be keeping a close eye on the German elections — and the subsequent coalition negotiations. Along with France, Germany still sets the tone in the EU, and Berlin's stance on the brewing conflict will depend largely on what the coalition government looks like.

A key question is which party Germany's next finance minister comes from. In their election campaign, the Greens have called for the debt rules to be revised so that in the future they support rather than hinder public investment. The FDP, however, wants to reinstate the Maastricht Treaty rules exactly as they were and ensure they are more strictly enforced than before.

This demand is unlikely to gain traction at the EU level because too many countries would still be breaking the rules for years to come. There is already a consensus that they should be reformed; what is still at stake is how far these reforms should go.

Mario Draghi on stage in Bologna

Prime Minister Mario Draghi at an event in Bologna, Italy — Photo: Brancolini/ROPI/ZUMA

Time for Draghi to step up?

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive. That having been said, starting in January, France will take over the presidency of the EU Council for a period that will coincide with its presidential election campaign. And it's likely that Macron's main rival, right-wing populist Marine Le Pen, will put the reforms front and center, especially since she has long argued against Germany and in favor of more freedom.

Rome is putting its faith in the negotiating skills of Prime Minister Mario Draghi, a former head of the European Central Bank. Draghi is a respected EU finance expert at the debating table and can be of great service to Italy precisely at a moment when Merkel's departure may see Germany represented by a politician with less experience at these kinds of drawn-out summits, where discussions go on long into the night.

The Stability and Growth pact may survive unscathed.

Regardless of how heated the debates turn out to be, the Stability and Growth Pact may well survive the conflict unscathed, as its symbolic value may make revising the agreement itself practically impossible. Instead, the aim will be to rewrite the rules that govern how the Pact should be interpreted: regulations, in other words, about how the deficit and national debt should be calculated.

One possible change would be to allow future borrowing for environmental investments to be discounted. France is not alone in calling for that. European Commissioner for Economy Paolo Gentiloni has also added his voice.

The European Commission is assuming that the debate may drag on for some time. The rules — set aside during the pandemic — are supposed to come into force again at the start of 2023.

The Commission is already preparing for the possibility that they could be reactivated without any reforms. They are investigating how the flexibility that has already been built into the debt laws could be used to ensure that a large swathe of eurozone countries don't automatically find themselves contravening them, representatives explained.

The Commission will present its recommendations for reforms, which will serve as a basis for the countries' negotiations, in December. By that point, the results of the German elections will be known, as well as possibly the coalition negotiations. And we might have a clearer idea of how intense the fight over Europe's debt rules could become — and whether the hopes of the southern countries could become reality.

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