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Thursday, July 16, 2015

Geopolitical Weekly: A Net Assessment of Europe, May 26, 2016

By George Friedman

Last week I began this series with a Net Assessment of the World, in which I focused on the growing destabilization of the Eurasian land mass. This week I continue the series, which will ultimately analyze each region in detail, with an analysis of Europe. I start here, rather than in the Middle East, because while the increasing successes of the Islamic State are significant, the region itself is secondary to Europe in the broader perspective. The Middle East matters, but Europe is as economically productive as the United States and, for the past 500 years, has been the force that has reshaped the world. The Middle East matters a great deal; European crises can destabilize the world. What happens between Greece and Germany, for example, can have consequences in multiple directions. Therefore, since we have to start somewhere, let me start with Europe.

Europe is undergoing two interconnected crises. The first is the crisis of the European Union. The bloc began as a system of economic integration, but it was also intended to be more than that: It was to be an institution that would create Europeans. The national distinctions between European nations is real and has proved destabilizing, since Europe has been filled with nations with diverging interests and historical grudges. The EU project did not intend to abolish these nations; the distinctions and tensions were too deep. Rather it was intended to overlay national identities with a European identity. There would be nations and they would retain ultimate sovereignty, but the citizens of these nations would increasingly come to see themselves as Europeans. That European identity would both create a common culture and diminish the particularity of states. The inducement to all of Europe was prosperity and peace. The European Union would create ongoing prosperity, which would eliminate the danger of conflict. The challenge to Europe in this sense was that prosperity is at best cyclical, and it is regional. Europe is struggling with integration because without general prosperity, the seduction of Europeans away from the parochial allure of nations will fail. Therefore, the crisis of the European Union, focused on the European Peninsula, is one of the destabilizing forces.

I use the term European Peninsula to denote the region that lies to the west of a line drawn from St. Petersburg to Rostov-on-Don, becoming increasingly narrow until it reaches Iberia and the Atlantic Ocean. France, Germany and Italy are on the peninsula, with its river systems of the Danube and Rhine. To the line’s east is Russia. Whereas the peninsula is intimately connected with the oceans and is therefore engaged in global trade, Russia is landlocked. It is very much land constrained, with its distant ports on the Pacific, the Turkish straits its only outlet to the Mediterranean, and its Baltic and Arctic access hampered by ice and weather. On the peninsula, particularly as you move west, no one is more than a few hundred miles from the sea. Russia, reliant upon land transportation, which is more difficult and expensive than maritime trade, tends to be substantially poorer than the peninsula.

The second crisis rests in the strategic structure of Europe and is less tractable than the first. Leaving aside the outlying islands and other peninsulas that make up Europe, the Continent’s primordial issue is the relationship between the largely unified but poorer mainland, dominated by Russia, and the wealthier but much more fragmented peninsula. Between Russia and the peninsula lies a borderland that at times as has been under the control of Russia or a peninsular power or, more often, divided. This borderland is occasionally independent and sovereign, but this is rare. More often, even in sovereignty, it is embedded in the spheres of influence of other countries. The borderland has two tiers: the first and furthest east is Belarus, Ukraine and portions of the Balkans, while the second consists of Poland, the Czech Republic, Slovakia, Hungary, Romania and Bulgaria. After World War II, Russia’s power extended to the second tier and beyond. After the collapse of the Soviet Union, these countries became sovereign, and the influence of the peninsula moved eastward as two peninsular institutions, the European Union and NATO, absorbed the second tier. As this happened, and the Baltics were included with the second tier, Belarus and particularly Ukraine became the dividing line and buffer.

Two things must be noted here. First, it was the existence of the European Union that gave the peninsula a framework for eastward expansion. NATO, in many ways, became moribund as it lost its rationale after the Cold War. However, in the years after Soviet collapse, the European Union was dynamic and seemed destined to unite the peninsula. As Soviet power collapsed and European power seemed to expand, the European Union provided a united framework for expansion and an attractive option for newly sovereign nations in the borderland.

Second, Russia was in a state of systemic shock in the 1990s. It was a period of chaos, characterized by the complete loss of both controls and plans. It was almost as though Russia was unconscious. From the European and American points of view, this was the new normal in Russia. In fact, it was inevitable that this was merely a transitory state. The single institution that historically had held Russia together was the secret police. In a poor country with minimal communications and transportation, the ability of the center to control the periphery is limited. The institution of an efficient security system would be indispensable if Russia were to avoid fragmentation. From the Czars onward, this is what held Russia together. It followed that when the first shock of collapse passed, the security apparatus would reassert itself and stabilize Russia. It was not the personality of Vladimir Putin that mattered; if not for him, another leader would have emerged and halted the disintegration of the Russian economy and polity.

This process inevitably led Russia to restructure itself, within the limits of its diminished power. The effort included an attempt to both stabilize the country’s economy and reassert its geopolitical interests, first in the Caucasus and then in Ukraine. Without a buffer in the eastern peninsula, Russia lacks strategic depth, and it has only been this strategic depth that has saved it from peninsular invasions in the past. Therefore, any attempt to stabilize Russia would necessitate a look westward to the borderlands, where the second tier was completely lost and even the Baltics had become part of the peninsular system, and an interpretation of eastern expansion as an existential threat to Russia.

The European Union’s position was that the Continent’s growing integration was completely benign. That might well have been the subjective intention of the Europeans, but the Russians saw something they had never seen before: integrated institutions, with ambitions among some members to become a federation of nation-states that might go well beyond economics. There had been sufficiently ample discussion of European defense systems and federation to cause concern in Moscow. Without buffers, a united Europe with a shifted intent might well pose an existential threat to Russia. This was particularly the case because the United States held a vague alliance with the Europeans and shared the fear of Russia’s power re-emerging.

Russia's Resurgence and Europe's Crisis

In 2008, two critical things happened. First, and less important, was the Russian war with Georgia that demonstrated—more than reality might require—the re-emergence of Russia as a significant and capable regional power. Second, and more important, the economic crisis triggered by the American sub-prime mortgage crisis led to the gradual fragmentation of European unity, causing a massive divergence of interests. The eastern movement of European influence, supported by the United States, continued in spite of the crisis. The Russians were forced to counter and were less concerned about the consequences.

The European crisis was simple, at its core. Germany had the fourth-largest economy in the world. It derived over 50 percent of its income from exports, half of which went to the European free trade zone. In addition, using its substantial influence, the euro maximized the interest of the European economy as a whole. Given the size of the German economy, it is only a slight overstatement to assert that its economic needs defined Europe’s economy. The euro helped stabilize and sustain German growth, as did the regulations created by Brussels. This limited entrepreneurial behavior in countries where low wages ought to have been the impetus for growth. Instead, these countries became opportunities for German investment.

All of this was bearable before 2008, because since EU members signed the Treaty of Maastricht in 1992, which led to a common currency, they had seen a period of extraordinary prosperity. A rising tide floats all ships. But in 2008, a routine financial crisis (from the standpoint of a century) tore apart the fabric of the peninsula. During any economic crisis, the most important question is who shall bear the burden, the creditors or debtors? Broadly speaking, Europe split along these lines. Germany was the peninsula’s major creditor. Southern Europe was its major debtor. Leaving aside the moral posturing over who committed what injustice against whom, the Germans insisted on austerity. International institutions, including the International Monetary Fund, aligned with Germany.

The interests of the European Peninsula diverged into four parts: those of Germanic Europe (Germany, Austria and, to some extent, the Czech Republic); Mediterranean Europe; the eastern frontier of the European Union; and the rest of northern Europe.

Germany has an overwhelming interest in the European Union and its free trade zone. It is an inherently weak nation, as are all countries that are dependent on exports. Germany's well-being depends on its ability to sell its products. If blocked by an economic downturn among its customers or political impediments to exports, Germany faces a declining economy that can create domestic social crises. Germany must do everything it can to discipline the European Union without motivating its members to leave. (The issue is not leaving the euro, but placing limits on German exports.) Thus Germanic Europe is walking a fine line. It is an economic engine of Europe, but also extremely insecure. Given the fragmentation in the European Union, it must reach out to others, particularly Russia, for alternatives. Russia is not an alternative in itself, but in a bad situation it could be part of a solution if Germany could craft one. This is, of course, a worst-case scenario, but the worst case is often the reality in Europe in the long run.

Southern Europe is seeking a path that will allow it to escape catastrophic austerity in a Europe that seems unable to generate significant economic growth. If that does not save Southern European nations, they must decide, in simplest terms, whether they are better off defaulting on debt than paying it. While Germany is currently inclined not to force them to this point, it is emerging on its own. This is the fundamental reality of Europe: Germany wants to save the free trade zone, but without absorbing Europe’s bad debts. Southern Europe needs to shift its burden and will eventually reconsider the viability of free trade, though it has not yet done so. Just as there are limits on agricultural trade, why not create the same environment that the Germans enjoyed in the 1950s, when they were able to protect themselves from American industrial exports, thereby growing their industry with minimal competition?

Central and Eastern European countries are in a complex position with the European Union, since they are generally members that are not in the eurozone. But for most of them, the question of Russia’s power and intentions is more important than the Greek crisis. For the east, there is an awareness that Europe never did progress to a common foreign and defense policy and that the European Union cannot defend them against Russia. They are also aware that NATO cannot defend them, except with American involvement, which is coming in very measured and slow increases.

Then there is the fourth part of Europe, particularly France, which is supposed to be Germany’s equal in the European Union but has fallen behind in recent decades, as it did in the 19th century. France is as much part of Southern Europe as Greece, along with high unemployment in the south. And along with the Southern Europeans, who are facing problems in the Mediterranean and North Africa alongside their economic woes, France is not drawn east, nor is it comfortable with German policies, but it is being drawn in multiple directions on economic and strategic issues.

A Continent Divided

A continent drawn in multiple directions is the best description of the European Union, and one that gives the Russians some relief. The collapse of oil prices and Russia’s inability to turn oil income into a diverse and sustainable economy are inherently limiting factors on Russia’s power. In Ukraine, the Russians are experiencing the twin problems of a failure of intelligence and the limits of their military forces. Their intelligence failed to detect or manage events in Ukraine, from anticipating the fall of the government to understanding that there would be no general uprising in eastern Ukraine. Russia’s military never invaded anything, albeit that Russia controlled and, to some degree, still controls warring militias. Russia was present in Crimea by treaty, and its minimal forces and operations in the east revealed both its aggressive intent and the limits of its power. The Russians did not do well in that campaign, nor in my view could they mount a successful invasion of Ukraine as a whole, given their limits on logistics and other capabilities.

But the Russians were saved by the fragmentation of the peninsula. The eastern Europeans wanted some definitive action from Europe. None came. Sanctions created pain, but they did not define Russia’s strategic policy. Thus, to the extent that the borderland has a patron, it is not Europe but the United States. The Germans have no desire to fundamentally alienate Russia over Ukraine. The French are torn in multiple directions and the Southern Europeans have no interest in non-EU issues aside from Muslim immigration. (This latter challenge, which solves problems of labor shortages but creates problems of immigration and some risk of terrorism, is important and a topic to which I will return in the future. Muslim immigration, however, does not threaten Europe's fundamental architecture, the elucidation of which is the purpose of a net assessment.)

The Net Assessment of Europe is that the Continent’s basic geographical split remains in place, and Russia still holds the weaker position. However, its relative strength has increased with the rise of divergent interests within the European Union, and its primary concern regarding the Continent is not Europe but the United States. Therefore, the crisis in the European Union will define the broader situation in Russia, and that fundamental crisis appears insoluble within the current framework of discussion. The discussion will move from debt and repayment to the creation of a sustainable European Union in which Germany may not get to export all it wants but must accept limits on its prosperity relative to its partners. Since politics makes that unlikely, the fragmentation of the peninsula will increase, and with it, Russia’s relative power will rise, drawing in the United States.

A Net Assessment of Europe is republished with permission of Stratfor.

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