Europe

Yes, the Brexit vote has taken place. And yes, the British will leave the European Union.

Before the vote I speculated why I thought this would happen. I based my prediction on domestic trends in the UK and perceptions a wide variety of social groups there. And now, I believe more than ever, we should heed the impulses that led to this historic vote. Here is one quote sent to me by a prominent establishment figure in London—not a "small Englander" by any means: "I do believe that the current situation on the continent is dangerous and unsustainable and presents threat to global stability. We will never know what the alternative would have looked like, but I know that prospects for the younger generation on the continent are very poor precisely because of the current political orthodoxy. While the youth vote here (i.e. in the UK) does not see that, if they had been at dinner with the 25-35 year olds on the continent that I hosted around three months ago and heard their European contemporaries' despairing cri de coeur about their lack of prospects and how much more attractive the UK model was, they may have voted differently (i.e. to leave)."   

I interpret this to mean that many prominent leaders in the UK believe that Britain will find its way in the future, and that remaining tethered to the EU (in this case, economically) would have been a disaster. So there will certainly be disruption. Scotland may yet leave the UK. Economic arrangements may buckle. But it seems that a lot of British leaders believe in a global future rather than a European one. The question they might pose would be whether the EU leadership (and the citizens of other EU countries) will interpret the Brexit vote as a wake-up call that spurs reform in Brussels, or whether the emotional impact of the vote prevents a reasonable discussion about the very real problems of accountability and practicality of systems and habits that have accreted over the years in EU.  We know there will be an impact in Britain. Just what will be the impact in the EU?

From across the Atlantic, Brexit causes both consternation and sadness for those, like me, who have spent their lives committed to the success of a Europe whole and free that serves as a beacon to the rest of the world. Most notably, while the debate in Britain centered above all on identity issues such as migration and sovereignty, the impact of the British decision will be felt in other areas, among them security. What happens now to the balance of decisionmaking in Europe? How does Britain work with Germany and France? Will initiatives like the Normandy Group continue, or will foreign policy coordination (now unmoored from internal EU structures) diminish?  What kind of solidarity will we see on Russia, on Turkey, on counter-terrorism?

There will be hard feelings. Martin Schulz, European Parliamentary leader, has already called for the UK's departure sooner rather than later. And this may have an effect in other organizations as well. At the NATO's summit in Warsaw we saw that Britain, North Americans and EU partners have maintained the solidarity and cordial cooperation needed among Allies. Will this mean effective NATO?

Only over time will we truly understand what this will mean for our efforts to build trust and deliver results in our efforts to prevent global conflict.

As life imitates art in this chaotic election year, a recent satirical German film helps illuminate the resurgence of right-wing, nativist populism across Europe, demonstrating how easily hateful ideas that should have been discredited decades ago can be cleaned up, repackaged, and slipped back into a country's national discourse. It is unclear what role right-wing extremism may have played in inspiring the senseless murder of UK Member of Parliament Jo Cox on June 16. Nevertheless, at a minimum, the harsh tenor of today’s political debate in Europe risks provoking violence. Tackling this crisis requires the European center to mount a robust first-principles defense of the liberal international policies and institutions that rebuilt postwar Europe and won the Cold War, while acknowledging where tough reforms are needed to address the genuine societal discontent at the root of these movements. At the same time, popular media must resist mainstreaming xenophobia and nationalist rhetoric, and instead challenge outrageous statements from the far-right, however slyly they may be packaged.

The premise of David Wnendt’s "Look Who's Back" ("Er ist wieder da")—a 2015 German film based on Timur Vermes’ 2012 satirical novel of the same name—is that a shell-shocked Adolf Hitler inexplicably wakes up in present day Berlin. After an anachronistic fascist-out-of-water comic first act, in which Hitler orients himself to the changes of the past 70 years, the character  becomes a national media sensation on the German reality TV and talk show circuit by striking all the right(-wing) chords of postmodern European societal insecurity. Cynical German TV producers seize on the protagonist’s unexpected popularity to drive up ratings, mistaking his actual odious views for an edgy comic routine. Novelty, spectacle, and scandal ensure snowballing media coverage, which give his dangerous beliefs a national platform.

That half of the movie alone would be worth watching as interesting if rather disquieting satire. But more powerful is Wnendt’s threading of unscripted footage throughout the film of the character interacting on the street with real Germans and tourists of today. Although you see many ordinary people shun a man walking around German public squares dressed as Hitler, others share their grievances on unemployment and immigration and nod their heads as the character suggests reinstituting labor camps or selective breeding as solutions. “Look Who’s Back” artfully poses the question of what is more unnerving: that people in one of the best educated, most prosperous, and most tolerant nations on the planet could still harbor simplistic, reactionary, and hateful sentiments; or that a garrulous and offensively charismatic TV personality could uncover them so easily.

Unlike in populist rhetoric itself, there are no easy scapegoats or silver bullets for today’s crisis of a resurgent far-right. The West must of course be vigilant against the malign foreign actors that quietly benefit from and support its rise and the fracturing of the political center in Europe. Yet, while a country like Russia can be viewed as opportunistically helping fan the flames (e.g. through loans funding Le Pen’s Front Nacionale in France or twitter trolls in St. Petersburg), it did not set the kindling or light the spark. The discontent at the heart of these movements is genuine among many people in Europe who do feel unmoored and vulnerable. For various reasons, these people do not feel or recognize the benefits afforded by a liberal post-war order anchored by open societies, free trade, social progress, institutions such as the European Union, or alliance structures such as NATO. A large part of the problem is that many of those who work within this system hold those benefits as a given. They take the progress Western societies have made for granted. In truth, recovery from the global financial crisis of eight years ago and ensuing Eurocrisis has been slow in coming and reached various European national economies and individuals unevenly. This lost decade comes on the heels of years of cumulative growth in Europe and has thus created a sense of inequality and unmet expectations akin to the socioeconomic conditions in which right-wing extremism flourished in the 1930s.

Some European centrist parties have responded by taking sharply right towards populist positions. This tactic appears to have backfired in several countries, boosting far-right parties (as in the case of Slovakian parliamentary elections in March), mainstreaming xenophobia in the public debate (as in France), or teeing up a wholly avoidable strategic blunder in the United Kingdom’s upcoming Brexit vote (a political own-goal in this year of Euro Cup). The European center would do better to define and mount a robust defense of its core values rather than shamefully (and apparently ineffectively) parrot those of the far-right.

This crisis presents a chance for those in system to challenge their assumptions so that they can appropriately modernize and improve the postwar system. On the economic side, this means better understanding the various structural, technological, and demographic roots of declining productivity and rising income inequality, as well as the strengths and deficiencies of our current policy toolbox to address them. On the security side, it means redoubling efforts to reinvigorate NATO to address the threats emanating from its Eastern and Southern flanks and bolstering the credibility of collective defense in the eyes of jittery transatlantic citizens and calculating adversaries. A hard scrub and earnest reform of the policies and institutions that have served most of the West well for the past 70 years will help us ensure benefits are more broadly felt for the next 70, and help update and strengthen the public arguments in their defense.

Part of making this argument also means inculcating in today’s generations a proper sense of historical perspective and an appreciation for “what could have been” had their Atlanticist forebears, surveying the global wreckage of two World Wars, not put forth up an international system that rejected isolationism and is guided by the values and norms of liberal democracies and multilateralism. This does not mean falling into the trap of the “End of History” triumphalism of the immediate post-Cold War 1990s, but instead giving a sober, basic principles defense of the best parts of the liberal international system and contrast them to what the past century has shown are the dreadful alternatives.

Finally, a new rigor is required in the policy analysis and broader societal conversation on these topics in the West to encourage audiences to ignore the spectacle of the messenger and keep focused on the content of the message. Voters must look past the slick packaging and smart suits of Europe’s new extreme right-wing parties and instead see their disgraceful heritage. And, as “Look Who’s Back” warns, the media must avoid embracing the sound and fury of these far-right populist campaigns as ratings-driving television or click-bait headlines (this no harmless tale told by an idiot), but rather relentlessly fact-check, dispute, and hold manipulative, nationalist politicians accountable for every claim they make.

Alton V. Buland is Country Director for Turkey, Cyprus, and Malta in the Office of the Under Secretary of Defense for Policy and holds degrees in modern European history and strategic studies from Harvard and the Johns Hopkins University School of Advanced International Studies. The views herein are his own and do not represent those of the United States Department of Defense or the United States government.

The views expressed in this post reflect those of the author and not that of the EastWest Institute.

Roughly ten years ago Russia began reconsidering its energy transit policy. The Commonwealth of Independent States (CIS) summit in Kazan, Russia, in 2005 was an important turning point. An important policy shift — known as the “strategy of transit avoidance” — was implemented in order to directly link Russian oil and gas resources to Moscow’s major clients in Europe, bypassing potentially unstable transit countries in the former Soviet space.

In this context, a reduction in the natural gas transit via Ukraine became an issue of strategic importance for both the Kremlin and Gazprom, which consider Ukraine’s gas transmission system the weakest link in Russia’s gas supply chain. Naftogaz’s recent decision to breach its transit contract with Gazprom and to impose a 50 percent increase in transit fees for exporting Russian gas across its territory to Europe seems to confirm Gazprom’s suspicions. It undoubtedly further increases Moscow’s desire to build the Nord Stream 2 gas pipeline in order to circumvent Ukraine.

The decision to put the Turkish Stream gas pipeline on hold announced in early December 2015 further increases the strategic importance of Nord Stream 2 as the only new natural gas route circumventing Ukraine and shifting the transit fees into construction of the Nord Stream 2.

Should a new transit fee ($4.5/1000 cubic metres (cm)/100 km) be implemented by Naftogaz, Gazprom will have to pay over $50 per 1000 cm for the transit of its gas via Ukraine. The re-direction of these volumes to the Nord Stream 2, will allow Gazprom to save up to $2.75 billion per year in transit fees. From the CAPEX point of view, the Nord Stream 2 pipeline is an expensive undertaking, but the project’s OPEX will not be so high: the main compressor station in Russia can be fueled by cheap gas supplied at domestic prices.

Quite expensive

Apart from saving on (excessively) high transit fees, there is an additional economic rationale justifying investment in this otherwise quite expensive transportation project. Most of domestic gas supplies in the EU originate from the rapidly depleting fields situated in the United Kingdom and the Netherlands. UK gas production declined from 96.4 billion cubic metres (bcm) in 2004 to 36.6 bcm in 2014. Despite an unprecedented increase in UK natural gas production in 2015 – to an estimated 44 bcm – UK output is likely to significantly decrease in the nearest future.

During the same period, Netherlands’ gas output fell from 68.5 bcm to 55.8 bcm, mostly due to an earthquake–related production cap imposed on the Groningen gas field. Overall indigenous production in Europe (EU plus Norway) has decreased from 345.6 bcm in 2004 to estimated 258.8 bcm in 2015.

Natural gas from Nord Stream 2 could close the gap between gas supply and demand in the Northwest of Europe. Currency devaluation also had a positive impact on Gazprom’s lifting costs, thus increasing the competitiveness of Russian gas in Europe. Gazprom’s lifting cost (excluding MET) went down  from $17.7 per 1000 cm in 2014 to (estimated) $14.1 per 1000 cm in 2015.

These numbers allow Gazprom to easily compete with US Liquefied Natural Gas (LNG) supplies (expected in 2016) even with high transportation/taxation cost and at current pricing conditions in the U.S. (NYMEX at around $70–75/1000 cm and average LNG transportation costs at $35/1000 cm).

Bureaucratic hurdles

However, it must be noted that all is not so rosy for this trans-Baltic undersea pipeline. Economic crisis and low energy prices affect Gazprom and other consortium members’ ability to finance the construction of Nord Stream 2. Furthermore, economic sanctions imposed by the EU and the US on Moscow – although not directly aimed at Nord Stream 2 – affect the pipeline’s ability to raise long-term financing through debt capital markets, while funds are also becoming scarce in Russia.

In addition, the project might face a number of bureaucratic hurdles linked with its (in)compatibility with the EU 3rd Energy Package, while a number of new EU Member States have called upon Brussels to take action to ban the pipeline altogether.

In his article “Why Nordstream 2 risks failure”, published on Energy Post in December, Alan Riley mentions the fact that EU energy law might be also applied to the Baltic’s seabed. Professor Riley mentions the fact that the “European Court of Justice in Commission v. United Kingdom (case)  in discussing the application of the EU Habitats Directive, was clear that EU law applied with respect to territorial seas.”

Gazprom already faces similar problems with the full unrestricted access to the OPAL gas pipeline in Germany and the company is likely to face similar difficulties with both onshore and offshore segments of Nord Stream 2. Should this option become reality, Nord Stream 2 will be forced to keep 50% of its capacity reserved for non-Gazprom suppliers both in submarine offshore and onshore pipelines. Needless to say this will seriously undermine the commercial viability of the new pipeline.

Elegant solution

An elegant solution to this problem is one that requires less time and work than trying to get an exemption from the existing EU energy rules. Russia has already liberalized its LNG exports and no one prevents Moscow from allowing Russian independent gas producers to book 50% of the Nord Stream-2 transportation capacity.

Such a decision might become a win-win situation to all parties concerned: the project will be fully compatible with the EU Law; Gazprom will have its guaranteed share of gas supplies (minimum 27.5 bcm) and could also share the pipeline construction bill with Russian independent gas suppliers; the participation of non-Gazprom suppliers will allow Russia to export more Russian gas to Europe and consequently increase the Government’s revenues.

Last but not least: export liberalisation for Nord Stream 2 may also allow foreign buyers to purchase some volumes on Russia’s largest commodity exchange SPIMEX (St. Petersburg International Mercantile Exchange).  SPIMEX launched its first trading in natural gas in October 2014. Despite relatively small volumes – 8.2 bcm between Oct. 2014 and Dec. 2015 – SPIMEX already offers month- and day-ahead physical trading and plans to launch forward (for 2-6 month period) and futures (2-72 month period) trading in 2017-18. Thus by 2020, SPIMEX will transform itself into an important trading hub offering a fair price-setting mechanism for natural gas both in Europe and Russia.

Could this usher in the end of the endless discussion on the pricing of Russian gas?

To read this article on Energy Post, click here. 

DW: This year's Munich Security Conference is taking place in turbulent times. What do you see as the key issue that participants will be dealing with when they gather in the Bavarian capital?

Wolfgang Ischinger: The boundlessness of current conflicts makes conflict management so challenging. The war in Syria, which has turned into a regional conflict, the refugee crisis, cyberthreats, jihadist terrorism - all these issues transcend borders, and we struggle with how to work together to deal with them effectively. Some try to look for national solutions, but there really aren't any.

DW: NATO Secretary-General Jens Stoltenberg recently advocated reinstating the NATO-Russia council, a move you supported. The ball is now in Russia's court. Do you think Moscow will agree given the fact that Germany announced a steep increase in military spending and the US also upped its investments into European defense?

Why wouldn't Russia agree? It cannot surprise anyone in Moscow that NATO members are now beginning to invest more in their militaries. This is long overdue.

DW: Europe's refugee crisis is not only still unresolved, but EU members are still deeply divided on the issue. What could a solution look like?

There are three different levels we need to tackle. On the distribution of refugees, everyone will need to compromise. We also need to agree on a strategy to stop the war in Syria. This will only be possible with a common understanding with all key parties, including Moscow, Tehran and Riyadh. The EU has been inactive far too long and should play a more central role. Finally, we also need much more refugee assistance on the ground.

DW: While the grip of the "Islamic State" on Syria and Iraq has apparently been reduced, the group has gained traction in Libya and elsewhere. How big of a threat is IS today for the region and beyond?

IS has successfully filled power vacuums throughout big parts of the Middle East and is stronger than al Qaeda has ever been, especially with its network in Europe and its digital prowess when it comes to propaganda and recruitment. The group will be a huge challenge for Europe for a long time. In Libya, for example, the EU may not have a choice but to engage militarily if the IS continues its advance there. This, by the way, is just one reason why the EU needs the necessary capacities to be able to present a credible common security and defense policy.

To read this interview on DW, click here.