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Posted by on Jun 7, 2014 in Banks, Breaking News, Energy, Featured, International, Russia | 1 comment

Obama’s red line — and likely hurdles


Russia’s Vladimir Putin seems to be on the way to greater success than he ever imagined by annexing Crimea and creating turmoil in Ukraine. President Barack Obama’s swing through Europe indicated his gains by unmasking the difficult rift between Obama and the main European allies.

After a G-7 Summit in Brussels (excluding Russia), Obama gave Putin one month to pressure pro-Russian separatists to lay down weapons and peacefully settle differences with the Kiev government. Failure will bring severe sanctions, including some affecting energy exports vital for Russia’s economy. He pledged help for European allies but insisted they would have to stand up to defend shared values “even if it creates some economic inconvenience”.

“I’ve now been president for five and a half years and I’ve learned a thing or two about the European Union,” he added. That is true but he may be misreading the closeness of key European leaders to his views about punishing Putin.

Setting a one-month deadline, albeit in the name of the G-7, might confront him with another situation where he is unable to honor a “red line”, because most European voters are unlikely to support a painful economic spat with Russia at this time.

For voters in Germany, France, Italy and other major European powers, Ukraine is not a central issue. It may be central for their governments but the people are much more interested in jobs, social welfare nets and economic well-being — all of which are declining or in doldrums, even in Germany.

The unprecedented and large successes of right wing and extreme left wing parties in the recent European Parliament elections demonstrate the growing anger of voters against mainstream politicians in most EU countries.

More importantly, right wing parties that used to be on the fringe of domestic politics in France, Britain, Holland, Belgium, Spain and Austria are gaining strength. So much that Marine le Pen of the right wing National Front thinks she might be able to win the presidential vote in France the next time or be the main opposition.

Obama may be capable of dealing with Putin forcefully because the US economy is reported to be on the threshold of steady growth after a long period of slump and uncertainty. But EU economies are on the edge of stagflation, which forced the European Central Bank to announce negative interest rates last week for money it holds in deposit for all kinds of banks. Its aim was to force them to stop hoarding money and lend more to businesses. It also lowered interest rates for borrowing banks to reduce the cost of credit for businesses.

Such circumstances are not propitious for Obama to hope that European leaders will cooperate with severe sanctions against Russia however committed they might be to “shared values”. No European government is secure enough to lead voters to an economic conflict with Russia that might cause them even slight pain.

Nor is Washington rich enough to provide the economic help European leaders would need to support Obama’s positions without increasing their voters’ ire and being booted out in coming cycles of local, state and national elections. Large upsets have already happened this year in Britain, France and Germany.

At the same time, the US Treasury and Internal Revenue Service are moving quickly towards creating serious problems for major European banks, including Deutsche Bank and BNP Paribas, which are accused of either helping Americans to avoid taxes or skirting US sanctions against Iran, Sudan and others. Expected penalties run into tens of billions of dollars as more European banks are put through the wringer.

Most of the accused banks are vital for the economies of their home countries and public outrage is increasing against them and government regulators for allowing things to get so bad. But populist politicians are also starting to rail against the US justice system for extending its penalties to entities deeply involved in the lives and livelihoods of their compatriots.

They are railing against the “subservience” of their sovereign governments to the US justice system’s “coercion” outside American borders.

The central reason for the Obama-Putin clash is violation of agreements signed in 1994 to persuade Ukraine to allow removal of nuclear weapons that accounted for nearly one-third of the former Soviet arsenal. In exchange, Russia, the US and Britain promised to:

• “Respect the independence and sovereignty and the existing borders of Ukraine;”
• “Reaffirm their obligation to refrain from the threat or use of force against the territorial integrity or political independence of Ukraine;”
• “Refrain from economic coercion designed to subordinate to their own interest the exercise by Ukraine of the rights inherent in its sovereignty and thus to secure advantages of any kind.”

Russia has violated the letter and spirit of all three accords. So Obama’s anger with Putin is justified but he seems to expect too much from allied European leaders beleaguered by domestic politics.

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