Odyssey to the East

April 9, 2020 Francis Kett

The shift of power in post-coronavirus Europe

The Polish have a saying, “nie mój cyrk, nie moje malpy”, which translates to: “Not my circus, not my monkeys”.

The country has made huge and largely unnoticed economic strides since communism retreated from its borders, with the Palace of Culture and Science looming over Warsaw as a testament to Stalin’s lost grip on the region, his name struck off the placard before the building was completed.

Now, with Western Europe divided over the issue of eurobonds to help save its southern half from coronavirus, a near hundred-year old political concept is bieng dusted off to transfer power to the east: The Intermarium.

Poland is unique as the only country in the Eurozone which did not dive into recession in the wake of the global financial crisis (GFC) of 2008, enjoying an uninterrupted stream of economic growth, averaging 4.2% annually between 1992 and 2019.

It also has one other economic force going for it, the fact that it does not use the euro.

It is too early to tell how individual European countries will recover from the global coronavirus crisis, but even if the disease were to disappear tomorrow it is already clear that southern Europe is going to need drastic support from the Northern European countries.

The EU members hit hardest by the virus are calling for the socialisation of debt via Eurobonds (also called coronabonds in the popular press).

Now, as the seventh largest economy in Europe, Poland is able to increasingly look sideways at the ongoing circus starting from the doldrums of 2008 and culminating in the final performance which is the economic collapse taking place in 2020.

As the lines of divide between northern and southern European continue to deepen, Poland will claim fewer and fewer monkeys in the show as its own.

The New Hanseatic League

The splintering of Europe was already beginning to show itself before the coronavirus hit. At the end of 2017, at the initiative of the Netherlands and Ireland, some countries in the second group met to discuss economic policy.

The alliance formed at the meeting included the euro states Estonia, Finland, Ireland, Latvia, Lithuania, the Netherlands and the two countries which did not use the euro: Denmark and Sweden.

Later, it named itself the New Hanseatic League, and in a statement on March, 6, 2018 declared it was open to non-euro states, but with an emphasis on maintaining an internal monetary union.

The German institute for International and Security Affairs wrote on January 2019 that “the new alliance, which is becoming increasingly formalised, could take effect at [an EU] Council level, not only attempting to block proposals from other euro states, but also working towards curbing Franco-German dominance.”

One of the main aims of the New Hanseatic League (NHL) is to reduce the governments’ reliance on the banking sector, which, as the world showed in 2008, means that the union’s economic wellbeing is tied to the health of the global financial system.

This new northern-based union is having its legs kicked out before it even stands upright, though, because its main sponsor, the UK, is leaving. The Capital Markets Union - the initiative started to try and stop over reliance on banks - was started in 2015, a year before the Brexit referendum.

While the new league in the north will struggle to plug the UK-shaped hole and draw influence away from the Franco-German sphere, their neighbours in the south of Europe will call louder for the further socialisation of European debt as a means to support Italy and Spain after the coronavirus crisis.

The United States of Europe

The Netherlands has already flat-out rejected the proposal to share the cost of coronavirus, and the Germans are likewise not keen on paying the bills for its southern neighbours at a time when its own finance ministers are committing suicide as a result of covid-19-induced fallout.

Andreas Kluth wrote in Bloomberg on Thursday that Europe was at an “Alexander Hamilton moment”, quoting Paul Volker, who died last year after spending a decade implementing US financial policy to immunise US banks from 2008-type crashes.

After many public arguments with Thomas Jefferson, Hamilton created the Federal Reserve, granting the ability of US states to raise funding as one combined entity. The move set the foundations of what would eventually become the most economically successful nation on earth.

Now, the EU is facing the same crossroads, trying to muster the political willpower to issue EU-wide bonds which can raise money for the zone as whole.

Unless it pushes through a policy to agree mutualised debt, the EU will not be able to respond to the crisis as one economic force, but rather will remain a collection of nations turning inwardly to face the emergency on a national level.

Rough Estimate has written before on the problem between further integrating EU nations, and the conclusions even after coronavirus remain the same. If the greatest crisis this side of the 21st century does not compel the creation of a united Europe, it is hard to see what will.

As Kluth puts it: “The Americans in 1790 really did want a United States, whereas the Europeans of 2020 don’t.”

Unless unforeseen future events overcome the hurdle of unifying Europe, it is difficult to imagine the EU going back to functioning in the same way it did in the 1990s.

Much has been written on the breakup of the European Union, but rather than some great calamitous event bringing the union collapsing to its knees, the breakup of political unions is often far more mundane.

If one were to approach the settlements close to the frontiers of Rome at the start of fifth century, and talk to the Goths and Visigoths inhabiting the lands where Roman soldiers once lived, and accuse them of invading the Roman empire and bringing it to the point of collapse, you might be met with the following response:

‘What are you talking about?’ they might ask you, and with good reason. ‘We are Roman generals. Our troops were invited here and made full citizens. The empire is more or less the same as it was in my father’s time, or his father before him.’

And they would be right. Sure, demographics had changed. Roman generals and even emperors had been killed in battle, but civil wars had been commonplace for centuries. On the surface, what made the empire the empire still existed. None of this changed with the sacking of Rome in 410AD.

Similarly, while the political administration might still exist in Western Europe in its current form going forwards, the projection of power will be further carved up between the Franco-German union, the Hanseatic lead, the United Kingdom, and the individual southern nations.

A union which cannot meaningfully project power in times of crisis will see influence slowly leak away from its institutions until all that remains are symbols and slogans where once a grander political project was spoken of in the halls of Brussels.

Just as the Western Roman Empire shifted towards the east as its military and political power declined, where the capital of the empire became Constantinople instead of Rome, so too might the EU see its centre of gravity shift away from the west and towards the east.

This is unlikely to reach as far as Turkey this time, however, but instead the new power might lie closer to home. Hence, we come full circle to Poland, and the rest of Eastern Europe.

The Intermarium and the Three Seas Initiative

Some political concepts have many lives. Some political projects never really die, but instead slumber and reform after they were long ago written off for dead.

The political concept of the Intermarium is one such project, better known by its modern name: the Three Seas Initiative.

On February 11, 2019, US ambassadors from twelve EU member states met in Warsaw to discuss the ways in which the United States can help the Three Seas Initiative (TSI), seeking interconnectivity on energy, infrastructure, and digitalization projects across Central and Eastern Europe.

“The Three Seas Initiative will not only empower your people to prosper, but it will ensure that your nations remain sovereign, secure and free from foreign coercion,” said US President Donald Trump, speaking of the treaty in Warsaw. “The Three Seas nations will stand stronger than they ever have stood before.”

Croatia and Poland jointly proposed the initiative in 2015, which gets its name from the three seas that border the region: the Baltic, Black, and Adriatic Seas.

The twelve states that are part of the initiative are Austria, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia.

The project, in a nutshell, is designed to subvert Russian and Chinese influence over the eastern European nations.

Gas lines, oil pipelines, railways, water corridors and telecommunication networks will be built all across Eastern Europe as a means of solidifying interdependence between Eastern European nations, boosting their potential to resist promises of foreign investment, much in the same way the Chinese have done for Africa.

It has been repackaged, but TSI still comprises a dream devised of after World War One, a block of eastern nations led by Poland with the ability to stand up to Russia independent of the United States and Germany.

The Polish-Lithuanian Union lasted for 410 years, fighting off threats from the Teutonic Order and the Golden Hord, coming to a close finally in 1795.

Poland had been partitioned three times by the time world war one arrived, and four times if you asked some of the Polish themselves, and so the prospect of a Polish-led Federation was born: the Intermarium (Latin for between seas.)

Leader of the Second Polish Republic Józef Klemens Piłsudski created the vision for the union which he would call Prometheism (or Promethianism).

The proposal was meant to emulate the Polish-Lithuanian Commonwealth, but was soon crushed after the invasion of Poland by Nazi Germany.

The idea would lay dormant for decades, until persistent Russian presence from the north would lead the idea to re-emerge in the form of the TSI.

The Motherland

After the fall of the Soviet Union, total fertility per female in Russia dropped to 1.15 in 1999, reducing its ability to replace its working population and, more importantly, its ability to replenish the Red Army with new troops of the same quality and quantity.

Another factor, as a result of the economic defaults post-Glasnost Russia, is that the education system also collapsed. The Soviet Union relied on an apprenticeship programme compulsory for all college-attendees which trained its population in specialist fields, supplying it with the high-skilled labour force needed to run defence systems, complex engineering and military-related technical training.

The system collapsed in 1988, and because of the subsequent economic woes was never reinstated, leaving Russia without the high-skilled labour pool to maintain its defences within generations.

These two factors among others put pressure on the Kremlin to plug geopolitical gaps along its border and strengthen its influence in Eastern Europe.

The United States, Germany and their allies proposed the Three Seas Initiative as a means to prevent this.

Economic forecasters suggest that Germany will dominate the agenda of the TSI, as its most significant economic contributor, in a similar fashion to how it dominates the agenda of the EU.

This is not, as may have been the case decades ago, a reassertion of power from the US to stamp out Russian dominance in the region, but rather a compromise brought about via a softening of US-Russian relations, while simultaneously recognising the needs of Europe to protect its member states.

Monkey-funding dries up

As the shale boom in the US intensifies, the country is less willing to fulfil its NATO obligations and less likely to send ground troops to the Baltics or Eastern Europe if Russia decides to move quicker than anticipated.

Geopolitical forecaster Peter Zeihan predicts that once the US reaches energy independence on the back of its shale industry, forecast to happen within years, less than 2% of US GDP will be dependent on trade with the eastern hemisphere.

Add to that the fact that Eastern Europe buys more natural gas from Russia than it ever did during the Soviet years, and there is little incentive for the US to commit armed forces if Russia invades.

As the Polish might put it: “Not my circus, not my monkeys.”

TSI, supported by Germany, is a means of leaving Europe to resist Russia with tacit support from the US, but in reality will consist of a mix of Eastern European nations left to fend for themselves.

This is a gambit which could either result in Germany holding the bag to direct coordinated policy against Russia in the region, after further antagonisation or EU weakening, or, the policy could go a different way.

By empowering the east, Germany has signed away its means of using the EU as the primary mechanism by which it compels Eastern Europe to act in line with the west.

Those nations have their own national interest, though, and a union created to ward off Russia has the potential to slip through German fingers after the US has taken a back seat.

It’s important to understand that this is not a process of which the coronavirus is the instigator, but rather an additional catalyst which speeds along a process which was already happening.

Eventually, a reckoning will come for the region in terms of which nations chose to resist Russia's soft power (or hard power) and which come together to use their own alliance to face the threat.

A final irony of the outbreak could be that by emboldening nations within the EU to resist foreign power, both from the US and Russia, the policy may end up working all too well.

What Russia decides to do when a weakened Europe emerges from the crisis will serve as an indicator for which direction the union may take. Only time will tell.

But, if Western Europe proves unable to stand united against one of its age-old threats from the north, it may fall to the east to take up the mantle.

In that scenario, the EU may find that it has created a rival far stronger than it bargained for.

The fall of political unions rarely happened overnight, nor over the space of a few months. Those pointing to coronavirus as a melting pot of political and economic forces culminating in the breakup of the EU may want to take a more subdued view of history.

As with any point in the past, an arbitrary date can be set for the fall of the Western Roman Empire. Historically, we see the Byzantine empire as the historical successor of Rome, but the people inhabiting the Byzantine empire did not call themselves ‘Byzantines’ the moment Rome was sacked, they called themselves ‘Romans’.

So too with the European Union. The new order which supplants the German-dominated model which has emerge over the past fifty years may still call itself the EU, but it won’t be the EU; not in the way it exists today.

Sources:

· German institute: https://www.swp-berlin.org/10.18449/2019C03/

· Deutsche bank research on the EU economy’s overreliance on banking: https://www.dbresearch.com/PROD/RPS_EN-PROD/PROD0000000000488973/How_to_fix_European_banking%E2%80%A6_and_why_it_matters.pdf

· German finance minister commits suicide:

· https://www.washingtonexaminer.com/news/german-finance-minister-commits-suicide-after-worrying-day-and-night-about-coronavirus-economic-fallout

· https://www.aljazeera.com/news/2020/03/german-state-minister-kills-coronavirus-hits-economy-200329165242615.html

· Bloomberg and Europe’s Alexander Hamilton moment: https://www.bloomberg.com/opinion/articles/2020-04-02/coronavirus-coronabonds-could-save-europe-or-sink-it

· Future of Russian military: https://www.rand.org/content/dam/rand/pubs/research_reports/RR3000/RR3099/RAND_RR3099.pdf

· Peter Ziehan: https://www.youtube.com/watch?v=MIdUSqsz0Io

· Three Seas investment fund established: https://www.ceep.be/three-seas-initiative-investment-fund-established/

· TSI explained: https://www.atlanticcouncil.org/blogs/new-atlanticist/the-three-seas-initiative-explained-2/

· The Accidental Superpower by Peter Ziehan