Connect with us

Europe

Caucasus ceasefire cements Turkey as a power in Russia’s backyard

Published

on


With his fist raised in triumph, Azerbaijan’s defence minister put his arm around his Turkish counterpart, grinning while clad in military fatigues. “Commander-in-chief of the victorious army and defence minister of Azerbaijan’s closest ally!” read the caption of the official defence ministry photograph.

It is a head-turning statement by the former Soviet state that has previously looked north to Russia as its most important partner. But a six-week-long conflict with Armenia over the disputed region of Nagorno-Karabakh that has resulted in major gains for Azerbaijan and its Turkish-backed military, has recalibrated Baku’s regional perspective.

A truce announced on Monday evening freezes the conflict and Azerbaijan’s territorial advances, and includes agreements that Armenia, a defence ally of Russia, must hand over additional land to its neighbour by the end of this month.

Map showing Armenia to hand back land under ceasefire deal in Nagorno-Karabakh conflict

While the truce was brokered by Moscow — which has deployed peacekeepers — the scale of Azerbaijan’s success with Turkey’s support has cemented Ankara’s newfound influence in the Caucasus region, which the Kremlin views as its geopolitical back yard.

“The geopolitical consequences are disastrous not only for Armenia, but also for Russia,” said Ruslan Pukhov, director of Russian defence think-tank the Centre for Analysis of Strategies and Technologies. “The Russians’ client and ally was the loser. The Turkish ally won convincingly.”

“Behind the thin veil of a deceptive foreign policy triumph, namely successful mediation and bringing peacekeepers to the region, the harsh reality is that Moscow’s influence in the trans-Caucasus region has sharply decreased, while the prestige of a successful and pugnacious Turkey, on the contrary, has grown incredibly,” Mr Pukhov added.

Nagorno-Karabakh is internationally recognised as Azerbaijani territory, but it and a number of adjacent regions have been occupied by Armenian forces since the early 1990s. In the conflict that erupted in late September, Azerbaijan vowed to recapture all of the territory, and was on the brink of besieging the region’s capital before Armenia sued for peace.

While the truce affirms Russian president Vladimir Putin’s role as an indispensable regional arbiter, it comes at the cost of recognising Turkey as a geopolitical actor in the Caucasus whose support for Baku tipped the scales of a dispute that Moscow had kept balanced for more than 25 years.

The Kremlin’s influence over the post-Soviet region is based on trade ties (often involving cheap energy exports); financial assistance through loans and investments by Russian state-owned companies; and the threat of its massive military.

Turkish defence minister Hulusi Akar (left) and his Azerbaijani opposite number Zakir Hasanov attend a ceremony for the deal to halt fighting over Nagorno-Karabakh © Arif Akdogan/Anadolu Agency/Getty

This last element is the most powerful — but the hardest to wield. Azerbaijan took a calculated risk that, with Turkey’s backing, Moscow would not be prepared to intervene militarily in a conflict over Nagorno-Karabakh, and for more than six weeks it was proved right.

And through its major territorial gains, Baku has proved that Moscow is not the only military power capable of redrawing de facto borders in the post-Soviet space.

Turkish president Recep Tayyip Erdogan, who has been a cheerleader for the war over the past month, hailed the agreement in a speech on Wednesday: “The 28-year occupation of lands belonging to Karabakh and Azerbaijan has officially come to an end,” he said.

“[Mr] Erdogan . . . sees Turkey as a regional power. This is not something he will concede. Turkey will not return to becoming the Nato ally Turkey of the 1950s. I think Turkey is trying to stake out an autonomous path for itself,” said Onur Isci, assistant professor of international relations at Bilkent University in Ankara.

Russia and Turkey “will have political conflicts here and there. They don’t really agree on geopolitical issues. They’re trying to manage it,” he said, adding: “I don’t think that we will ever see, in Syria or the Caucasus, a full-blown . . . military alliance.”

Turkey’s incursion into the geopolitics of the Caucasus mirrors Moscow’s decisive entry into the war in Syria in 2015 and its ongoing activities in Libya — areas that Ankara views as its sphere of influence.

The countries’ two strongmen leaders, while backing opposing sides in both conflicts, have sought to maintain uneasy, pragmatic relations based in part on their shared distrust of the west.

“Turkey’s actions [in Nagorno-Karabakh] are partly an answer for Russian activities in the Middle East. Turkey is trying to be a global player and to have a finger in every pie,” said Stanislav Pritchin, senior research fellow at the Center for Post-Soviet Studies at the Russian Academy of Sciences.

“From this perspective, the south Caucasus looks to Ankara like a comfortable zone without potential risks. But Turkey can count only on Azerbaijan and doesn’t have a good understanding of the regional complexities that have limited space for manoeuvre,” he added.

Russian peacekeeping troops near the border with Armenia, following the signing of a deal to end the military conflict © Francesco Brembati/Reuters

Russia’s deployment of almost 2,000 troops to Nagorno-Karabakh this week does affirm Moscow’s continued leverage, but will increase the Kremlin’s accountability for the future of the enclave.

“Azerbaijan gained a great deal of what it wanted — but part of the cost appears to be more, not less, Russian influence [inside its borders],” said Olga Oliker, director for Europe & Central Asia at the International Crisis Group. “At the same time, Russia now has far more responsibility for this conflict than it ever did before, and that is going to be a burden for some time to come.”

Russia and Turkey are haggling over details of the ceasefire settlement, including whether any Turkish troops will be involved in peacekeeping: something Baku wants but Moscow opposes.

Turkey will be involved in a “joint centre” for monitoring adherence to the ceasefire parameters, the Kremlin has said, but has denied a statement by Baku that it would be located in Nagorno-Karabakh.

“This does not tally with our understanding,” Mr Putin’s spokesman Dmitry Peskov said on Wednesday. “Some nuances have yet to be clarified.”

Ankara and Moscow were in “constant contact”, Turkey’s foreign minister Mevlut Cavusoglu said on Tuesday. “Our meetings continue on how this [agreement] will be monitored and regulated. We stood by our brother Azerbaijan throughout, be it in the field or at the table.”

Additional reporting by Ayla Jean Yackley in Istanbul



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Europe

European Commission upgrades economic forecasts

Published

on

By


The European Commission has sharply raised its economic forecasts for the coming two years, as an accelerating vaccination campaign helps the eurozone recover from the historic blow delivered by the pandemic.

The euro area will expand by 4.3 per cent this year and 4.4 per cent in 2022, Brussels said on Wednesday, compared with previous forecasts for 3.8 per cent growth in both years. As a result, all member states are now expected to regain their pre-crisis output levels by the end of next year, following a historic 6.6 per cent slump in 2020.

The stronger outlook was driven by the rising vaccination rates and the prospect of lockdowns easing across the region, as well as improving export demand driven by a global rebound. Brussels for the first time fully factored in the impact of the €800bn Next Generation EU economic relaunch package, which is expected to begin paying out in the second half of the year.

“The shadow of Covid-19 is beginning to lift from Europe’s economy,” said Paolo Gentiloni, the EU’s economics commissioner. “After a weak start to the year, we project strong growth in both 2021 and 2022. Unprecedented fiscal support has been — and remains — essential in helping Europe’s workers and companies to weather the storm.”

Europe slid into a double-dip recession early this year amid renewed lockdowns and a shaky start to the vaccination effort. However, evidence has been mounting more recently that the economy has “moved up a gear”, according to the commission, which cited improved business and consumer sentiment surveys.

Further easing of containment measures combined with the early payouts from the recovery fund should mean economies would accelerate in the third quarter — including those with big tourism sectors, which should benefit from the return to “quasi-normality of social activities over the summer”, according to the commission.

Stronger global growth, driven in part by the US stimulus packages and improved growth in China, will also help lift the EU’s export sector and contribute to the recovery. The broader EU economy will grow 4.2 per cent in 2021 and 4.4 per cent in 2022, according to the forecast, also an upgrade from the February outlook. The bloc’s unemployment rate will hit 7.6 per cent this year before heading back down to 7 per cent in 2021.

Spain, which was the hardest-hit EU economy last year, losing more than a tenth of its output, will grow 5.9 per cent in 2021 and 6.8 per cent in 2022, according to the new outlook. Italy is set to expand by 4.2 per cent this year and 4.4 per cent next.

Germany, which suffered a much smaller 2020 contraction, could grow 3.4 per cent in 2021 and 4.1 per cent in 2022. France is tipped to expand by 5.7 per cent this year and 4.2 per cent next.

The outlook next year will be supported by the highest public investment levels as a share of gross domestic product in more than a decade. That will be driven in part by the Next Generation EU package, which is meant to start paying out in the summer once member states get their recovery plans signed off by the commission.

In total, the six-year programme should pay out about €140bn of grants over the two years covered by the commission’s forecasts. That should deliver a 1.2 per cent of GDP uplift, according to the outlook.

The crisis will still continue to exert a massive strain on public finances, however, with the overall eurozone deficit set to rise to 8 per cent of GDP this year. That is predicted to halve next year to 4 per cent, but the legacy of the vast government spending programmes will still loom large. The overall euro area public debt-to-GDP ratio will remain above 100 per cent this year and next, the commission said.

EU member states face a tense debate later this year over how to rapidly pare back their stimulus programmes and whether to reform the bloc’s fiscal rules, which are set to remain suspended until 2023.

Among the risks to the outlook, the commission said, was the possibility that governments would decide to start paring back their economic support packages too soon, undermining the recovery. The continued effectiveness of vaccines and the evolution of the pandemic will also play a critical role in determining whether the EU’s upgraded forecast proves justified.



Source link

Continue Reading

Europe

No, ‘hyperinflation’ is not here

Published

on

By


There’s a lot of concern out there about inflation right now. Including, unsurprisingly, here in Germany. And where not just talking about the Bund yield. This is this morning’s hot take from state broadcaster ZDF:

For non-German speakers, the headline reads ‘Fear of hyperinflation’.

The article is not entirely unreasonable, focusing on the pressures we’ve seen build up in producer prices over the course of the pandemic. As markets this morning are all too aware ahead of an important US print Wednesday, we are likely to see broader consumer price inflation surge in the coming months.

We’re betting that it’ll be a temporary blip. Round about this time last year, the West Texas Intermediate oil contract went sub zero. Twelve months on, we were always likely to see some dramatic CPI readings simply as a result of the slump in price pressures that happened when the pandemic first struck.

To boot, take away stimulus cheques and furlough schemes, and the labour market on either side of the Atlantic is nowhere near strong enough to trigger the sort of wage-price spiral that saw inflation surge into the double digits in the US and UK in the 1970s. Even in Germany, where manufacturing unions are still relatively strong, companies like Volkswagen say they don’t need to pay their workers more. Those are workers who did not get a pay rise in 2020, nor will they get one this year either — though they will see a 2.8 per cent bump from 2019 levels in 2022.

But our main point is this: Even if the price pressures seen in supply chains do spread more widely, and even if higher CPI readings do endure, raising the spectre of hyperinflation — which conjures up the cash-in-wheelbarrows images witnessed in the 1920s to many here — is completely overblown.

The article itself notes that hyperinflation is a phenomenon where prices shoot up by more than 50 per cent. We’re nowhere near that sort of situation — even over the next few months inflation readings are likely to remain in the single digits. To suggest otherwise is nothing short of scaremongering.



Source link

Continue Reading

Europe

The EU is trailing China’s trade distortions all round the world

Published

on

By


This article is an on-site version of our Trade Secrets newsletter. Sign up here to get the complete newsletter sent straight to your inbox every Monday to Thursday.

Hello from Brussels, and welcome to the first edition of the new and improved Trade Secrets.

We’re still feeling the reverberations from the US’s announcement last week supporting, in principle, a patent waiver for Covid-19 vaccines at the World Trade Organization. The EU’s incredibly indignant that it’s been outspun and made to look like the bad guy, and is letting everyone know about it. The problem is that, being the EU, it’s unable to convey a quite simple and entirely reasonable message — it’s fine to talk about patents, but tech transfer and exports are the main thing — without a bit of a cacophony and strange references to Anglo-Saxons.

The babble managed to overshadow some quite big news at the EU-India summit over the weekend. As the Financial Times predicted last week, Brussels and Delhi launched (or technically renewed) talks on a trade deal, plus ambitious notions about co-operating on digital connectivity, geopolitics and so on, plus an investment treaty of the kind that’s gone down so well since the EU signed it with China. Speaking of which, today’s main piece is on the EU’s determined campaign to create legal tools to take on Chinese trade distortions, complicated by the fact that the problem keeps changing shape.

Charted Waters takes a look at trade flows over the past decade.

We want to hear from you. Send any thoughts to trade.secrets@ft.com or email me at alan.beattie@ft.com

New answers to the ever-changing China question

There’s been a finely tuned humming heard around Brussels over the past few years, like a high-performance engine being run at speed. It’s the legal brains of the European Commission designing new “autonomous” (unilateral) tools to counter what the EU regards as the unfair trade and investment distortions produced by Chinese state capitalism. (They don’t say China, but that’s what they mean.)

Whether you support the campaign’s underlying philosophy — free-traders are sceptical about it — the process is impressive to watch. Frankly, we wouldn’t want the lawyers of the trade and competition directorates after us. The latest contrivance was wheeled out of the hangar last week, in the form of a subsidies instrument to be used against state-supported foreign companies operating in the EU.

Assuming it gets adopted, and depending on how it’s used, it’s a big deal, bringing competition tools to bear on international trade. Essentially, it extends the reach of the EU’s state aid regime abroad where foreign handouts distort the European market. It can be applied to market competition, mergers and acquisitions, and public procurement. 

The anti-subsidy tool is the latest in the following list of China-unfriendly initiatives implemented or proposed by the EU over the past five or so years. If you’re taking notes: sharpening up trade defence instruments (anti-dumping and anti-subsidy duties); allowing those duties to be used against companies subsidised by the Chinese government but exporting from another country; tightening up screening of inward foreign direct investment (FDI) for national security reasons; developing an anti-coercion tool (aimed more at Donald Trump’s administration, to be fair) to use against foreign governments acting illegally; producing a toolbox for member states to manage risky entities (Huawei) from 5G networks; banning imports made with forced labour; and requiring European companies to exercise “due diligence” in eliminating labour and environmental abuses from their supply chains. Quite a list.

You have to admire the commission’s stamina and ingenuity, finding ways to tackle one alleged distortion after the other. You’d also think that, what with China and the EU becoming ever closer trading partners, Brussels’ stance would somewhat rattle Beijing. But it’s hard to conclude that the EU’s tools, along with a bunch of similar actions by the US and other countries, have pushed the Chinese growth model towards a market economy. In fact, President Xi Jinping’s going the other way, with a “dual circulation” growth strategy, one of the aims of which is to use heavy government intervention to build up high-tech capacity in China in an insulated domestic market.

Why? Well, some of the explanations are political. These tools are housed in the commission, but some require EU member state acquiescence to create and/or use. Powers over national security FDI and 5G screening, for example, reside at national level: China can pick off individual countries with carrots and sticks. 

Some explanations are institutional. The ability to use anti-dumping and anti-subsidy duties against Chinese companies based in third countries has been tried just a few times (glass fibre fabric and reinforcements from Egypt and steel from Indonesia and India) and only partially succeeded. Antidumping lawyers grumble that the commission makes it too hard to bring new cases.

Some are practical. The subsidy instrument will involve complex investigations, trying to apply existing EU state aid disciplines to the myriad opaque ways that China hands out money to its companies. The thresholds for action also have to be set high enough not to deter benign investments, especially since a foreign business attempting to acquire a company in the EU may also have to file separate national FDI notifications.

But one of the hardest issues is that the creation of the instruments generally lags behind the evolution of the Chinese trade and growth model by a few years. While Europe’s trade defence tools were being strengthened against exports from China, Beijing was instead building industrial capacity abroad through the Belt and Road Initiative. Then, just as the EU started to apply those duties against Chinese companies outside China, Beijing was rethinking the Belt and Road Initiative and reducing its foreign exposure. The subsidy tool arrives several years after Chinese FDI into the EU started falling and many European governments became disenchanted with China. You can very plausibly argue the EU now needs more rather than less Chinese FDI.

As the EU-China Comprehensive Agreement on Investment shows, China is less interested in getting market access in the EU than securing European inward investment in intellectual property-intensive sectors such as electric vehicles, and we can guess what for. The agreement has provisions to prevent forced technology transfer, and the EU has brought cases on the issue at the WTO, but winning dispute settlement cases rather than wielding a unilateral tool is a slow and uncertain business.

This isn’t a counsel of despair: there are still plenty of Chinese exports and investment in the EU that can be regulated, assuming that’s a good idea. But the EU’s critiques of the latest phase of Chinese development — dominating advanced markets through huge government support and weaponising trade for geopolitical ends — will be even harder to address than the previous ones. And that’s before we get to the question of human rights.

We’ll take a deeper look at the EU’s anti-subsidy initiative in future newsletters: there’s a lot to examine. For now, we’ll just say that there’s been a lot of painstaking legal engineering going on, but the devices that result are already looking a little dated.

Charted waters

This is about as big a picture on global trade as you can get. The data, from the CPB Netherlands Bureau for Economic Policy Analysis, track trade flows over the past ten years and show two things.

Line chart of 2010=100 showing World trade has recovered from the pandemic, but not Trump

First, the good news (for those of you who are fans of globalisation at least). The recovery from the early months of the pandemic has been remarkable, with flows now at their pre-Covid mark.

This is a point that we don’t think is made often enough. While semiconductor chip shortages and high shipping costs often make headlines (including, we confess, in Trade Secrets), global manufacturing and logistics should be given an awful lot of credit for ensuring that the rebound seen over the past three quarters has been so strong.

The bad news is that broader geopolitical tensions were clearly affecting flows in the run-up to the pandemic. We don’t see those tensions dissipating soon, so expect growth to stutter even if we manage to get Covid under control. Claire Jones

Trade links

Welcome to our new Trade Links section, a round-up of the best content we’ve come across over the past few days.

Today’s must-read comes from the European Centre for International Political Economy and covers the trade implications of the radical shift in technology turning manufacturing giants, such as Volkswagen, into software developers. It’s well written and has some great charts that help support the case that, when it comes to trade and technology, the future is now. 

We’d highly recommend this FT piece, which takes an in-depth look at why the Serum Institute of India, the world’s top vaccine maker, is struggling. One of the reasons being that it’s at the sharp end of the vaccine trade wars. Also worth a look is this Big Read from Andrew Hill, explaining why the UK’s services sector is taking a big hit from Brexit. This is a massive deal. And — as Lionel Barber, formerly of this parish, notes — it is a story too few are talking about given that services makes up a whopping 80 per cent of UK output. Expect this to change, and the services sector’s woes to rise in prominence, as economies on both sides of the Channel begin to reopen. 

This morning’s edition of the FT’s excellent Europe Express newsletter focuses on the transatlantic spat over the vaccine waiver, which Mehreen Khan concludes will do little to help poorer countries in desperate need of more jabs. For those of you interested in European policy and politics beyond trade, sign up here for a daily guide to what’s driving the European agenda, available for premium subscribers Monday to Friday at 7am CET. Nikkei Asian Review looks at ($ — subscription needed) why bureaucratic timidity led to the withering of Japan’s pharmaceuticals industry, leaving it reliant on foreign countries for vaccine supplies. For fans of the chip story (who isn’t?), Nikkei has dug into how Korean electronics group Samsung lost its lead to Taiwanese chipmaker TSMC. 

Elsewhere, the International Economic Law and Policy Blog asks what if the US can’t create consensus around a vaccine waiver. (There are some interesting recommendations for further reading in the comments too.) This week’s Economist delves into the topic ($) of vaccine donations. While Covax has made almost 50m vaccination donations, this is well short of its target. One of the reasons for that being the tragedy unfolding in India. China, meanwhile, has doled out 13.4m doses to 45 different countries, and India more than 10m vaccines. Alan Beattie and Claire Jones 

Any recommendations on articles to include in Trade Links? Send your tips here.

Recommended newsletters for you

Europe Express — Your essential guide to what matters in Europe today. Sign up here

#fintechFT — The latest on the most pressing issues in the tech sector. Sign up here





Source link

Continue Reading

Trending