Russia in the 21st Century [Superthread]

[The Bread Guy]

Here is a good preview of what we are really up against. Our thinking about defense and security needs to be updated:

www.naa.mil.lv/~/media/NAA/AZPC/Publikacijas/PP%2002-2014.ashx

Good piece - milpoints inbound for sharing.

 

[McG]

More confirmation that all is not well ... Rather, some of the posturing is reminiscent of that which contributed to the launch of the First World War.

Study reveals Russia's near misses in Europe
BBC NEWS
10 Nov 2014
By Jonathan Marcus
BBC diplomatic correspondent

The growing strains between Russia and the West prompted by the Ukraine crisis are now sending ripples of military tension across Europe.

Nato has responded to Russia's incursions into Ukraine by stepping up its ties with Kiev and bolstering air patrols and exercises with its eastern and central European members.

Russia in turn has decided to pursue a more active, many might say a more aggressive, military policy of its own, returning to the sorts of flights and activities from the Cold War years that were used to regularly test out Nato defences.

The European Leadership Network, a London-based think tank, has produced a detailed study of this more assertive Russian activity.

Entitled Dangerous Brinkmanship: Close Military Encounters Between Russia and the West in 2014, it chronicles almost 40 specific incidents that have occurred during the past eight months.

It says these "add up to a highly disturbing picture of violations of national airspace, emergency scrambles, narrowly avoided mid-air collisions, close encounters at sea and other dangerous actions happening on a regular basis over a very wide geographical area".

Apart from routine or near routine encounters, the report identifies "11 serious incidents of a more aggressive or unusually provocative nature, bringing a higher level risk of escalation".

These include harassment of reconnaissance planes, close over-flights over warships and Russian "mock bombing raid" missions.

It also singles out "three high-risk incidents which," in its view, "carried a high probability of causing casualties or a direct military confrontation".

The fact that one of these was a narrowly avoided collision between an SAS civil airliner taking off from Copenhagen and a Russian reconnaissance plane shows that these are not just military games.

There is a very real risk of calamity.

The Russian military aircraft was not using a transponder to identify its position.

The second high-risk incident involved the abduction of an Estonian security service operative from a border post on Estonian (and hence Nato) territory.

He was later taken to Moscow and accused of espionage.

Then of course there was the major submarine hunt by the Swedish authorities last month, with the Swedes warning that they were ready to use force to bring any submerged vessel to the surface.

The danger, the report indicates, comes from both sides.

"The mix of more aggressive Russian posturing and the readiness of Western forces to show resolve, increases the risk of unintended escalation and the danger of losing control over events."

The European Leadership Network makes three broad recommendations.

It says that "the Russian leadership should urgently re-evaluate the costs and risks of continuing its more assertive military posture, and western diplomacy should be aimed at persuading Russia to move in this direction".

It says that "all sides should exercise military and political restraint".

And it says that "all sides must improve military-to-military communication and transparency".

There is probably much that is sensible here.

But given the unresolved tensions over Ukraine, the overall trajectory of current Russian foreign policy and the pressures coming from those in Nato who feel most threatened, like the Poles, this pattern of behaviour risks becoming the new norm.

Indeed the growing frequency and scale of Nato military exercises in eastern and central Europe is only likely to encourage the Russians to bolster their own military manoeuvres.

Procedures and operational patterns from the Cold War may need to be re-learnt.

We are not back in the 1950s.

But in some ways the dangers of bravado leading to miscalculation or of genuine error make matters today every bit as dangerous.

http://www.bbc.co.uk/news/world-europe-29956277

 

[tomahawk6]

The crisis in the Ukraine is Russia's fault.They could have stayed out of that mess,but instead chose to take advantage of the crisis takeover the Ukraine.It hasnt gone well for Putin.Short of an all out invasion the crisis will continue until one side gives in.Putin would be well advised to turn his attention to Siberia as China is poised to grab more valuable land there.

 

[Edward Campbell]

1. The crisis in the Ukraine is Russia's fault.They could have stayed out of that mess,but instead chose to take advantage of the crisis takeover the Ukraine.

2. It hasnt gone well for Putin.Short of an all out invasion the crisis will continue until one side gives in.

3. Putin would be well advised to turn his attention to Siberia as China is poised to grab more valuable land there.

I agree wholly with your first two points. The Ukrainians are not, themselves, blameless, but Putin made an internal problem into a crisis.

The Chinese are unlikely to "grab" anything, but they will - already are I believe - assiduously undermine Russian sovereignty in the regions, and I emphasize the plural because I think the Chinese see Siberia as something other than a monolithic single entity. My guess is that the Chinese aim to have sundry "independent" Siberian republics emerge from out of Russia and into China's orbit.

How far does China want to go in "liberating" Asia from European domination?

There are three parts to Russia, Western (grey) Central (white on this map) and Eastern (also grey). My sense is that China sees the natural division to be in the middle of Central Russia, on the Yenisey River line. It helps that there are massive oil and gas fields in the parts of Russia (everything East of the Yenisey) that China would like to see as "independent" republics.

 

[Edward Campbell]

As a major oil exporter, I'm not sure Canadians should be cheering this.

Falling oil prices are, indeed, slowing the Canadian economy, but, see this and, also this: "Falling oil prices, sanctions push Russia to brink of recession".

 

[dimsum]

http://www.abc.net.au/news/2014-11-12/defence-monitors-russian-naval-vessels-north-of-australia/5887134

Interesting, but not entirely surprising, as the G20 is going on this weekend in Brisbane. 

 

[YZT580]

Short of an all out invasion the crisis will continue until one side gives in

NATO sources report large movements of tanks, mobile artillery and significant numbers of troops identified as Russian, into eastern Ukraine.  Russia of course denies any involvement but that is only for the two people left here in NA that actually what they say.

 

[a_majoor]

While the article is about the Stasi, it is important to remember the Stasi was one of the tools of the KGB to maintain their control over the Soviet Empire, and as we read in the article, the KGB and now FSB is utilizing many of the tactics developed by the Stasi:

http://pjmedia.com/lifestyle/2014/11/12/what-happened-to-east-germanys-brutally-effective-secret-police-after-the-wall-fell/?print=1

What Happened to East Germany’s Brutally Effective Secret Police After the Wall Fell?
Posted By Robert Wargas On November 12, 2014 @ 3:09 pm In Communism,Europe,Evil,History,Ideology,International,Marxism,Psychology,Radicalism,Religion,Sex,Spying | 19 Comments

On November 9, 2006, as the free world celebrated the seventeenth anniversary of the Berlin Wall’s demise, an 83-year-old man died in a peaceful slumber at his home in the German capital city. The man was Markus Wolf, who during the Cold War led the foreign-intelligence section of East Germany’s secret-police apparatus: the Ministry for State Security (Ministerium fuer Staatssicherheit), known colloquially as “the Stasi.” The Stasi’s most renowned spymaster, he controlled thousands of agents, whose purpose was to infiltrate important Western institutions and government positions. Often mistaken as the inspiration for John le Carre’s shadowy Karla character, Wolf for years remained a mystery to Western intelligence services, who didn’t even have a picture of him until the late 1970s—several decades into his career. Historians have marveled at his success in leading the Stasi’s foreign wing, known as the HVA, or Hauptverwaltung Aufklaerung. Perhaps his most well known accomplishment is having one of his agents, Gunter Guillaume, become a trusted aide to Willy Brandt, the West German chancellor.

Seven years after Wolf’s death and twenty-five years after the Wall’s, the West still doesn’t appreciate the breadth and depth of the Stasi’s brutality. (The KGB still reigns in the popular imagination as the ultimate secret-police force.) Formed after the Second World War in the Soviet occupation zone of Germany, the Stasi grew to become the most potently effective Eastern bloc intelligence organization. They possessed a more impressive informant network than even the KGB. When East Germany crumbled, the Stasi employed upwards of 190,000 unofficial informants. By 1989, approximately one out of every 90 East German citizens was a Stasi informant. Referred to as inoffizielle Mitarbeiter (“unofficial collaborators”), most were simply ordinary German citizens, tasked with reporting everything they could about possible (real or imagined) anti-regime activity, as well as details about family and friends. Even children were involved in spying on their parents.

The Stasi’s methods of controlling the East German population were often wickedly creative. Even among those fairly knowledgeable of the German language, the word “Zersetzung,” used in a political context, is likely unfamiliar. Translated variously as “degradation,” “decomposition,” “disruptiveness,” or “disintegration,” the word is most often used in a biological sense. When it comes to espionage, Zersetzung refers to the Stasi’s practice of destroying a target’s personal life. The methods, however, were much more subtle than the word implies. The Stasi perfected their ability to torture people indirectly—a kind of psychological death by a thousand cuts. Zersetzung, for instance, often involved breaking into the homes of those considered enemies of the East German government. Stasi agents would then begin a series of bizarre and unorthodox moves, designed to delicately frighten and manipulate the target into anxiety and paranoia. This might include taking pictures off the wall or moving items in the house: small, often nearly imperceptible offenses that former officers said would demoralize the opposition by invading their private spaces without overtly threatening or harming anyone. One tactic, for instance, involved sending dildos or vibrators to the target’s spouse. Consider how finely tuned must be someone’s manipulative ability in order to think of such schemes.

As an important side note, the Russian FSB, successor to the KGB, has continued Zersetzung as a useful tactic against certain Westerners. Luke Harding, a correspondent for The Guardian, has documented the Russians’ harassment of British and American diplomats. Employing a strategy eerily redolent of Stasi activity, the FSB has broken into targets’ homes, moved certain items, and even purposely triggered alarms. The U.S State Department has acknowledged that “home intrusions” have become common, and one State Department cable was clear that “we have no doubt that this activity originates in the FSB.” It ought not to be forgotten that Vladimir Putin, in his salad days as a KGB officer, was stationed in the East German city of Dresden.

Since there was no Cold War analogue of the Nuremberg trials, nor any anti-Communist version of Simon Wiesenthal, it’s understandable to ask what happened to members of the Stasi after the East German regime disintegrated. Wolf fled to Russia, which denied him asylum, and he was eventually caught while traveling through Bavaria. He was charged with treason, though his sentence was suspended. In logic that one suspects would never be applied to Nazis, it was argued that Wolf’s activities were legal at the time he performed them.

Most other ex-Stasi agents simply re-entered German society, though not always smoothly, along with all the ex-politicos, border guards, and other Communist functionaries. Reporting not long after the Wall fell, Steven Emerson discovered that

With the disbanding of the Stasi, 85,000 full-time officers lost their jobs virtually overnight. No more than 10,000 have since found gainful employment, most of them in various Government ministries, including 2,000 in the Ministry of the Interior, which formerly oversaw the Stasi. The rest have joined the growing ranks of East Germany’s unemployed; some get by on standard unemployment benefits, while others receive no Government compensation at all. Many are embittered at finding themselves excluded, even ostracized, by their fellow citizens.

A quarter century on, many of them are not the slightest bit embarrassed by their past work for the secret police; on the contrary, they are boldly proud. There even exists an organization, the amusingly named Society for Legal and Humanitarian Support, dedicated to assisting ex-Stasi officers and other former East German bureaucrats. For them, the fall of the Berlin Wall was a tragedy rather than a triumph for liberty. “What happened that day has been a burden to people like us,” Hans Bauer, chairman of the group, told Reuters in 2009.

Though the post-Communist German government shied away from hiring too many ex-Stasi officers for state positions, pilfered documents from Wikileaks show that the German government does employ them in (of all places) the federally administered archive of Stasi records—a revelation that caused some dismay in German society. Many other ex-Stasi personnel eventually went on to careers in the private sector. After the Wall fell, it was, oddly enough, the newly reunified German government that urged corporations to absorb former Communist encryption experts, fearing they would otherwise be driven to aid Western enemies with their skills. One German company, Rohde & Schwarz SIT GmbH, a supplier of encryption and communications technology to NATO, employs plenty of former Stasi codebreakers.

Of course, most ex-Stasi employees are not figures like Wolf and Guillaume. They did not have careers full of secret intrigue and romantic exploits. Most did not kill, torture, or even tap phones. They were probably paper-pushers of one sort or another—doing their routine jobs to support families or, sadly, to avoid the suspicions of those for whom they worked. Still, it was Hannah Arendt who so ably explained what paper-pushers are capable of, and how evil is more likely to be living next door than lurking in the closet.

Editor’s note: this is part 5 in an ongoing series exploring the history of dictators, tyrants, criminals and their evil ideologies. See the previous installments: Part 1: “Why It’s OK to Be Intrigued by Evil Dictators“ and Part 2: “Does Everybody Want Freedom?” Part 3: “Like a Serial Killer, Mao Zedong Manipulated Everyone,” Part 4: ”Mike Tyson: He Has a New TV Show, But Does Anyone Care?.” Have ideas for who you’d like to see Robert explore next? Get in touch on Twitter: @RobertWargas and@DaveSwindle

Article printed from PJ Lifestyle: http://pjmedia.com/lifestyle

URL to article: http://pjmedia.com/lifestyle/2014/11/12/what-happened-to-east-germanys-brutally-effective-secret-police-after-the-wall-fell/

 

[Edward Campbell]

From the Globe & Mail:

Stephen Harper told Russian President Vladimir Putin flatly that he needs "to get out of Ukraine," when the two met at a Group of 20 summit of major economies in Brisbane.

A spokesman for the Canadian Prime Minister relayed the details of the encounter and, according to director of communications Jason MacDonald, "Mr. Putin did not respond positively."

(....)

Mr. Harper's encounter with Mr. Putin came Saturday morning when the Canadian Prime Minister was speaking to a group of leaders.

The Russian Leader stuck out his hand.

Mr. Harper accepted the gesture but said to the Russian Leader: "I guess I'll shake your hand but I have only one thing to say to you, you need to get out of Ukraine."‎ ....

I think Mr Putin is rather like the man in the fable who only has a hammer ... eventually every problem looks like a nail. Mr Putin's "hammer" is force, aggression ... and he sees, I think, every problem as being best addressed by force.

This creates two problems, in my opinion:

    1. While no one really wants to fight Russia, no one, not even Australia, Belgium, Canada and Denmark and so on, is afraid to fight Russia. Russia is a giant but it is a stupid, shambling giant ... big feet and fists but
        not a real threat; and

    2. China is "eating Russia's lunch." Chinese diplomacy is delicate and nuanced ... clever and it accomplishes China's aims. Russian 'diplomacy' (AKA bullying) just drives it farther and farther away from countries that might be good
        trading partners and into the arms of China ... and China is NOT Russia's friend.

 

[a_majoor]

Buying and hoarding gold is the usual response to real or preceived economic calamity. I think one question to be asked here is does Russia see a calamity coming, or do they intend to start one? China's gold holdings are interesting as well:

http://finance.yahoo.com/news/why-putin-buying-much-gold-210532064.html

Why Putin is buying so much gold
By Everett Rosenfeld November 18, 2014 4:05 PM
Russian President Vladimir Putin is developing a taste for gold (CEC:Commodities Exchange Centre: @GC.1).

Wih all of its income from selling oil (Intercontinental Exchange Europe: @LCO.1), Russia is diversifying its reserves by buying massive amounts of gold, said William Rhind, CEO of the World Gold Trust Services.

Of all the central banks that make their reserve actions public, Russia has been the "largest, most active" gold accumulator, he explained. Still, Rhind said, the "elephant in the room" is how much gold China is buying, as Beijing does not publish these figures.

A recent report from the World Gold Council showed that many central banks, including Russia's , have beefed up their gold reserves. This investment, the report suggested, was "driven by a number of factors including a continued diversification away from the U.S. dollar and the backdrop of ongoing geopolitical tensions."

Read More Central banks: The new gold bugs?

Still, Rhind explained that the move towards gold buying does not represent a new trend for global currencies.

"I don't think it's moving to a de facto gold standard, it's just simply about diversification," he said. "In many ways they view it as being not too dissimilar from why anybody would own gold."

More than half of all the gold added to central bank reserve assets in the third quarter was purchased by Russia (55 of about 96 metric tons), the World Gold Council report said.

Read More Technical move in gold ETF could be short-term bullish


In total, Russia's central bank has bought about 150 metric tons of gold so far this year, Bank of Russia Chairwoman Elvira Nabiullina said on Tuesday

 

[Edward Campbell]

Of course we do ... all sane people are "seeking regime change" in Russia ...

... see the story, which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com//news/world/russian-foreign-minister-accuses-west-of-seeking-regime-change/article21717126/?cmpid=rss1&click=sf_globe#dashboard/follows/

Russian foreign minister accuses West of seeking ‘regime change’

Polina Devitt MOSCOW — Reuters

Published Saturday, Nov. 22 2014

Foreign Minister Sergei Lavrov accused the West on Saturday of trying to use sanctions imposed on Moscow in the Ukraine crisis to seek “regime change” in Russia.

His comments stepped up Moscow’s war of words with the United States and the European Union in their worst diplomatic standoff since the Cold War ended.

“As for the concept behind to the use of coercive measures, the West is making clear it does not want to force Russia to change policy but wants to secure regime change,” Tass news agency quoted Mr. Lavrov as telling a meeting of the advisory Foreign and Defence Policy Council in Moscow.

He said that when international sanctions had been used against other countries such as Iran and North Korea, they had been designed not to harm the national economy.

“Now public figures in Western countries say there is a need to impose sanctions that will destroy the economy and cause public protests,” Mr. Lavrov said.

His comments followed remarks on Thursday in which President Vladimir Putin said Moscow must guard against a “colour revolution” in Russia, referring to protests that toppled leaders in other former Soviet republics.

Western sanctions have limited access to foreign capital for some of Russia’s largest companies and banks, hit the defence and energy industries, and imposed asset freezes and travel bans on some of Putin’s allies.

The measures have aggravated an economic downturn, which has also been worsened by a fall in global oil prices and has helped cause a nearly 30-per-cent slide in the rouble against the dollar since the start of the year.

Mr. Putin’s popularity has soared in Russia since the annexation of Crimea from Ukraine in March.

He says Western powers were behind the overthrow of a Moscow-backed president in Ukraine in February after months of street protests, but the West blames Moscow for the crisis.

U.S. Vice President Joe Biden in Kiev on Friday termed Russia’s behaviour in Ukraine as “unacceptable”. He said Moscow must abide by a Sept. 5 ceasefire deal, which has failed to end a conflict that has killed more than 4,300 people since mid-April.

Mr. Biden urged Moscow to pull soldiers out of Russian-speaking eastern Ukraine, where pro-Russian separatists are fighting government forces, though Moscow denies supporting the rebels with troops and weapons.

Smart Russians, and there must be a few, should be looking for regime change, too - a change to a regime that is friendly to the West. The alternative, it seems to me, is that they will get a regime change imposed by China.

 

[George Wallace]

Reproduced under the Fair Dealing provisions of the Copyright Act from Bloomberg.com:

LINK

Russian War Games Spill Secrets, Spur Neighbors; 'Scared the Hell Out of NATO'

By Leon Mangasarian and Ott Ummelas  Nov 21, 2014 7:19 AM ET
Bloomberg News

Russian jets probing NATO airspace and supersized war drills are spilling Kremlin military secrets and scaring European nations into stiffening their armed forces.

Allied jets “have been scrambled over 400 times” this year to intercept Russian planes -- a 50 percent rise over 2013, North Atlantic Treaty Organization Secretary General Jens Stoltenberg said yesterday. A report by the European Leadership Network, a London-based security research group, termed the incidents “a highly disturbing picture of violations of national airspace” and “narrowly avoided mid-air collisions.”

Yet there are benefits for NATO.

“Clearly, every time we come into contact with Russian forces and every time we see their tactics and how they deploy, we do learn about them,” U.S. Air Force General Philip Breedlove, the 28-member NATO’s top military commander, said in Tallinn on Nov. 19. “They are just happening more often and occasionally, the size of the activities is larger.”

A worsening standoff is pitting Europe and the U.S. against Russia over Ukraine in the biggest crisis since the Cold War’s end 25 years ago. Even German Foreign Minister Frank-Walter Steinmeier -- a persistent proponent of dialog -- said on Nov. 18 after shuttle diplomacy in Kiev and Moscow, that he sees little reason for optimism.

‘Scared’ NATO

“The rapid mobilization of 20,000 to 40,000 Russian troops at the Ukrainian border scared the hell out of NATO,” Karl-Heinz Kamp, academic director at the German government’s Federal Academy for Security Policy in Berlin, said by phone.

Russian President Vladimir Putin said the U.S. wants “not to humiliate, but to subjugate” Russia, in remarks at a Nov. 18 meeting of his People’s Front party supporters in Moscow.

“We had such brilliant politicians like Nikita Khrushchev, who hammered the desk with his shoe at the United Nations,” Putin said in an Oct. 24 speech. “And the whole world, primarily the United States, and NATO thought: this Nikita is best left alone, he might just go and fire a missile.”

Monitoring drills and Russian aircraft flying along NATO or Finnish and Swedish airspace is yielding intelligence on command and control, communications and tactics, said Lukasz Kulesa, research director of the ELN in London and former deputy head of Poland’s National Security Bureau that advises the Polish president. Non-NATO members Finland and Sweden upgraded their alliance ties in September.

‘Complex Deployments’

“A Russian mission that sent planes on the same day to the Baltic, the North Sea and the Black Sea tells us what Russian capabilities have become,” Kulesa said by phone. “It gives us a much better understanding of Russian readiness and their ability to perform more complex deployments.”

Ruslan Pukhov, director of the Moscow-based Center for Analysis of Strategies and Technologies and a member of the Russian Defense Ministry’s Public Council, said equipment being used in drills and missions is well-known to NATO.

“Russia is not at risk of revealing any secret information to NATO by conducting so many intensive drills and flights,” Pukhov said in an interview. “Russia can keep real secrets quite well, as proven by the surprise of the Crimea operation.”

Raised Spending

After suffering initial setbacks in the 2008 Georgia War, Russia has increased spending on its armed forces. The Kremlin increased military spending by 50 percent since 2005 while NATO has cut spending by 20 percent, according to NATO chief Stoltenberg.

“In 2008, Russian generals commanded their soldiers from Moscow in the war by running outside the Defense Ministry and calling them by cellphone. The lessons were learnt,” said Pukhov, who co-authored a book about military aspects of the Ukraine crisis titled Brothers Armed.

NATO, at its Sept. 4-5 Wales summit, shored up its eastern defenses against Russia as the U.S., which makes up two-thirds of alliance military spending, urged European allies to pay more. The alliance agreed to rotate more troops through eastern Europe and to set up a 5,000-soldier rapid-reaction force.

The Baltic states are bolstering their armed forces with Estonia vowing more troops on its border with Russia after a security officer was snatched and taken to Moscow.

NATO Target

Estonia, which already meets NATO’s military spending target of 2 percent of gross domestic product, plans to raise spending to 2.05 percent next year. Latvia and Lithuania -- both now spending less than 1 percent -- aim to reach the goal by 2020.

Alliance states including Denmark, Poland and Germany also plan to increase defense spending, though in the case of Germany only from 2016. Germany spends about 1.3 percent of gross domestic product on the military.

Denmark is poised to spend more than $4 billion in its biggest air defense upgrade on either Lockheed Martin Corp.’s F-35, ’s F-18 Super Hornet or Typhoon fighters, built by the Eurofighter consortium of [url=http://www.bloomberg.com/quote/AIR:FP]BAE Systems Plc, Airbus Group NV and Italy’s Finmeccanica SpA.

Poland, which shares borders with both Russia and Ukraine, will choose suppliers for helicopters and an air-defense system within a year as it begins a $27 billion program to overhaul the military and replace Soviet-era military equipment, Defense Minister Tomasz Siemoniak said in an Oct. 24 interview. It’s also bringing forward purchases of attack helicopters, drones and missiles for Lockheed F-16 jets.

‘Wake-Up Call’

Charly Salonius-Pasternak, a security expert at the Finnish Institute of International Affairs in Helsinki, termed Russia’s moves “quite a wake-up call” that makes it impossible for Finnish or Swedish politicians “who want to be taken seriously” to dismiss Russia’s buildup as low-level rearming.

“Russia’s armed forces can do things that they couldn’t do 10 years ago,” he said in an interview. “Russia has a much better ability to transport large units, long distances and have them arrive combat ready.”

That’s triggered a debate in both Finland and Sweden on whether to join NATO.

Putin, whose military has taken control of or holds territory that under international law belongs to Moldova and Georgia as well as annexing Ukraine’s Crimea in March, noted in his Oct. 24 Valdai speech that when Prussian statesman Otto von Bismarck first appeared in the European arena in the 19th century “they found him dangerous because he spoke his mind.”

“I also always try to say what I think,” Putin said.



To contact the reporters on this story: Leon Mangasarian in Berlin at lmangasarian@bloomberg.net; Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net James G. Neuger

More on LINK

 

[chanman]

I think Mr Putin is rather like the man in the fable who only has a hammer ... eventually every problem looks like a nail. Mr Putin's "hammer" is force, aggression ... and he sees, I think, every problem as being best addressed by force.

This creates two problems, in my opinion:

    1. While no one really wants to fight Russia, no one, not even Australia, Belgium, Canada and Denmark and so on, is afraid to fight Russia. Russia is a giant but it is a stupid, shambling giant ... big feet and fists but
        not a real threat; and

    2. China is "eating Russia's lunch." Chinese diplomacy is delicate and nuanced ... clever and it accomplishes China's aims. Russian 'diplomacy' (AKA bullying) just drives it farther and farther away from countries that might be good
        trading partners and into the arms of China ... and China is NOT Russia's friend.

I disagree that Putin's hammer is force - as a career KGB man, I think his preferred tool is intimidation - much like it is for organized crime. The periodic aggression serves as a reminder to other neighbours to pay their protection fees and to weaken neighbours that start to get uppity and a little too cozy with other powers.

I'd love to see an analysis of the Kremlin not by diplomats, but by experts in organized crime. I'm sure it would be illuminating.

 

[a_majoor]

We might be in for a wild ride. I have seen a few predictions that oil might drop radically (the lowest prediction is it could drop to $30/barrel), but the consensus seems to be around the $70/barrel mark. This would wreak havoc with our oil industry (particularly the oil sands), as well as high tech tracking and shale oil extraction in the US, but Russia could suffer even more:

http://blogs.wsj.com/moneybeat/2014/10/03/how-russias-debt-and-currency-markets-could-spiral-into-crisis/

How Russia’s Debt and Currency Markets Could Spiral into Crisis
By  MICHAEL J. CASEY

This week’s rumor that Russia would impose capital controls to protect a plummeting ruble has dissipated – with no less an authority than Vladimir Putin dismissing it as unfounded earlier Thursday.

But that doesn’t mean the Russian President won’t eventually have a major financial crisis on his hands, or that he won’t have to resort to even more draconian measures to contain it than limiting cross-border fund flows. It will just take longer for that crisis to gestate than was implied by the market’s selloff.

Fact 1: Russia had $465 billion in foreign reserves as of the end of August, the fifth largest stash in the world. That can buy the central bank an awful lot of rubles to prop up the currency.

Fact 2:Russia had $524 billion in reserves just 10 months earlier. That $69 billion depletion demands that you weigh Fact 1’s significance with skepticism.

In just five months during the global financial crisis of 2008-2009, Russia suffered $210 billion in reserve outflows. Indeed, the country has an almost unbroken history of capital flight – its wealthier citizens have always spirited their money offshore – and there’s plenty about the current environment that could cause that trend to pick up.

Oil prices are at two-year lows and would be lower if not for the conflict in the Middle East, which undermines Russian public revenue and private profits. What’s more, Mr. Putin faces some potentially expensive contingencies. A clandestine war in Ukraine could drain the public purse, as could bailouts of Russian banks and other politically important companies if European and U.S. sanctions restrict their actions too severely. Add the prospect of the central bank intervening as the ruble hits the lower end of its target basket price, and it’s not hard to imagine a vicious-cycle that accelerates the reserve depletion.

“Russia is a big a country, it has a lot of needs,” says Michael Cirami, co-director of global fixed income Eaton Vance , which has $288 billion in assets under management. “It’s not like it’s Ghana that has $500 billion in reserves.”

A few risk-hungry hedge funds, those from the “don’t bet against Putin” crowd, as London-based Standard Bank analyst Timothy Ash puts it, opportunistically snapped up beaten-down, high-yielding Russian bonds in September following a Ukraine ceasefire and a moderation in Mr. Putin’s rhetoric that stirred speculation over a softening in the U.S. and E.U. sanctions. But for a wider, more conservative group of institutional investors, the whole Ukraine episode, revealing Mr. Putin’s willingness to jeopardize the economy for the sake of a geopolitical power grab, has cemented a view that “Russia is just uninvestable,” Mr. Ash says.

The current backdrop of slowing growth, mounting inflation and a falling ruble stems from flaws that precede the Ukraine-spurred sanctions, says Frances Hudson, global thematic strategist at Standard Life Investments , which has $313 billion assets under management. She points to an over-reliance on commodity exports and failure to take advantage of past booms to diversify the economy.

Foreign investors would be wise to review that history.

Not only are foreign lenders proven over the time to be “pretty low on the food chain,” says Standard Bank’s Mr. Ash, but past records also show a generalized opposition to creditor interests, backed up by debtor-friendly courts inherited from the Soviet era. He notes that during the recent global crisis, banks’ non-performing loans surged disproportionately in Russia even though the overall economy’s balance sheet was in a relatively healthy state before. It is evidence, Mr. Ash says, of an ingrained “unwillingness to pay.”

Given that cultural predilection, the grinding economic pain of sanctions, along with waning oil and gas revenues and a falling ruble – which makes foreign debt payments more expensive – could easily foster a dangerous, self-reinforcing cycle.

Mistrust in the ruble has left Russian companies reliant on foreign-currency bonds. At some point, a whole host of them could slip into default. Sure, Mr. Putin might bail out those considered strategically or politically important, but that would in turn mean that his big pool of reserves could disappear very quickly and that the capital controls option is put back on the table.

– Follow Michael J. Casey on Twitter: @mikejcasey.

and more about massive drops in oil prices:

http://nextbigfuture.com/2014/12/cheap-oil-shock-could-see-30-per-barrel.html

https://www.bloomberg.com/news/2014-11-30/oil-at-40-possible-as-market-transforms-caracas-to-iran.html

Oil Shock Streaks Across Globe From Moscow to Tehran to Caracas. Ready for $40?
By Gregory Viscusi, Tara Patel and Simon Kennedy  Dec 1, 2014 4:53 AM ET  918 Comments  Email  Print
Facebook
Twitter
Google+
LinkedIn
Save

Dec. 1 (Bloomberg) –- In today’s “Bart Chart,” Bloomberg’s Mark Barton takes a look at Brent Crude prices since the beginning of 2014 on “Countdown.” (Source: Bloomberg)
Related
How Oil's Price Plunge Impacts Wall Street
Cheaper Oil Prices: Are They Good for Global Economy?
Which Nations Are Most Vulnerable to Cheaper Oil Prices?
Oil’s decline is proving to be the worst since the collapse of the financial system in 2008 and threatening to have the same global impact of falling prices three decades ago that led to the Mexican debt crisis and the end of the Soviet Union.

Russia, the world’s largest producer, can no longer rely on the same oil revenues to rescue an economy suffering from European and U.S. sanctions. Iran, also reeling from similar sanctions, will need to reduce subsidies that have partly insulated its growing population. Nigeria, fighting an Islamic insurgency, and Venezuela, crippled by failing political and economic policies, also rank among the biggest losers from the decision by the Organization of Petroleum Exporting Countries last week to let the force of the market determine what some experts say will be the first free-fall in decades.

“This is a big shock in Caracas, it’s a shock in Tehran, it’s a shock in Abuja,” Daniel Yergin, vice chairman of Englewood, Colorado-based consultant IHS Inc. and author of a Pulitzer Prize-winning history of oil, told Bloomberg Radio. “There’s a change in psychology. There’s going to be a higher degree of uncertainty.”

Related:

OPEC Inaction Spurs Survival of Fittest as Oil Below $65
ECB Confronts Cheaper Oil Spilling Onto Stimulus Debate
A world already unsettled by Russian-inspired insurrection in Ukraine to the onslaught of Islamic State in the Middle East is about be roiled further as crude prices plunge. Global energy markets have been upended by an unprecedented North American oil boom brought on by hydraulic fracturing, the process of blasting shale rocks to release oil and gas.


Photographer: Susana Gonzalez/Bloomberg
Gas is flared from a tower on an oil drilling rig operated by Petroleos Mexicans in the... Read More
Cheap Gasoline

Few expected the extent or speed of the U.S. oil resurgence. As wildcatters unlocked new energy supplies, some oil exporters abroad failed to invest in diversifying their economies. Coddled by years of $100 crude, governments instead spent that windfall subsidizing everything from 5 cents-per-gallon gasoline to cheap housing that kept a growing population of underemployed citizens content.

Oil Prices

Those handouts are now at risk.

“If the governments aren’t able to spend to keep the kids off the streets they will go back to the streets, and we could start to see political disruption and upheaval,” said Paul Stevens, distinguished fellow for energy, environment and resources at Chatham House in London, a U.K. policy group. “The majority of members of OPEC need well over $100 a barrel to balance their budgets. If they start cutting expenditure, this is likely to cause problems.”


Photographer: John Moore/AP Photo
An official of the Saudi oil company at a rig near Howta, Saudi Arabia.
Costs as Benchmark

Oil has dropped 38 percent this year and, in theory, production can continue to flow until prices fall below the day-to-day costs at existing wells. Stevens said some U.S. shale producers may break even at $40 a barrel or less. The International Energy Agency estimates most drilling in the Bakken formation -- the shale producers that OPEC seeks to drive out of business -- return cash at $42 a barrel.

Canadian Natural Resources Ltd. Chairman Murray Edwards said crude may sink as low as $30 a barrel before rebounding to stabilize at $70 to $75 a barrel, the Financial Post reported.

“Right now we’re seeing a price shock coming out of the meeting and it will be a couple of weeks until we see where the price really falls,” said Yergin. Officials “have to figure out where the new price range is, and that’s the drama that’s going to play out in the weeks ahead.”

Brent crude was down $1.40 at $68.75 as of 9:14 a.m. in London, while New York oil lost $1.47 to $64.68. Brent is now at its lowest since the financial crisis -- when it bottomed around $36.

Not All Suffer

To be sure, not all oil producers are suffering. The International Monetary Fund in October assessed the oil price different governments needed to balance their budgets. At one end were Kuwait, Qatar and the United Arab Emirates, which can break even with oil at about $70 a barrel. At the other extreme: Iran needs $136, and Venezuela and Nigeria $120. Russia can manage at $101 a barrel, the IMF said.

“Saudi Arabia, U.A.E. and Qatar can live with relatively lower oil prices for a while, but this isn’t the case for Iran, Iraq, Nigeria, Venezuela, Algeria and Angola,” said Marie-Claire Aoun, director of the energy center at the French Institute for International Relations in Paris. “Strong demographic pressure is feeding their energy and budgetary requirements. The price of crude is paramount for their economies because they have failed to diversify.”

Brent crude is poised for the biggest annual decline since 2008 after OPEC last week rejected calls for production cuts that would address a global glut.

Like this year’s decline, oil’s crash in the 1980s was brought on by a Saudi-led decision to defend its market share, sending crude to about $12 a barrel.

Russia Vulnerable

“Russia in particular seems vulnerable,” said Allan von Mehren, chief analyst at Danske Banke A/S in Copenhagen. “A big decline in the oil price in 1997-98 was one factor causing pressure that eventually led to Russian default in August 1998.”

VTB Group, Russia’s second-largest bank, OAO Gazprombank, its third-largest lender, and Russian Agricultural Bank are already seeking government aid to replenish capital after sanctions cut them off from international financial markets. Now with sputtering economic growth, they also face a rise in bad loans.

Oil and gas provide 68 percent of Russia’s exports and 50 percent of its federal budget. Russia has already lost almost $90 billion of its currency reserves this year, equal to 4.5 percent of its economy, as it tried to prevent the ruble from tumbling after Western countries imposed sanctions to punish Russian meddling in Ukraine. The ruble is down 35 percent against the dollar since June.

This Will Pass

While the country’s economy minister and some oil executives have warned of tough times ahead, President Vladimir Putin is sanguine, suggesting falling oil won’t force him to meet Western demands that he curb his country’s interference in Ukraine.

“Winter is coming and I am sure the market will come into balance again in the first quarter or toward the middle of next year,” he said Nov. 28 in Sochi.

Even before the price tumble, Iran’s oil exports were already crumbling because of sanctions imposed over its nuclear program. Production is at a 20-year low, exports have fallen by half since early 2012 to 1 million barrels a day, and the rial has plummeted 80 percent on the black market, says the IMF.

Lower oil may increase the pain on Iran’s population, though it may be insufficient to push its leaders to accept an end to the nuclear program, which they insist is peaceful.

‘Already Losing’

“The oil price decline is not a game changer for Iran,” said Suzanne Maloney, senior fellow at the Brookings Institution, a Washington-based research organization, who specializes on Iran. “The Iranians were already losing so many billions of dollars because of the sanctions that the oil price decline is just icing on the cake.”

While oil’s decline wrenches oil-rich nations that squandered the profits from recent high prices, the world economy overall may benefit. The Organization for Economic Cooperation and Development estimates a $20 drop in price adds 0.4 percentage point to growth of its members after two years. By knocking down inflation by 0.5 point over the same period, cheaper oil could also persuade central banks to either keep interest rates low or even add stimulus.

Energy accounts for 10 percent to 12 percent of consumer spending in European countries such as France and Germany, HSBC Holdings Plc said.

Nigerian Woes

As developed oil-importing nations benefit, some of the world’s poorest suffer. Nigeria’s authorities, which rely on oil for 75 percent of government revenue, have tightened monetary policy, devalued the naira and plan to cut public spending by 6 percent next year. Oil and gas account for 35 percent of Nigeria’s economic output and 90 percent of its exports, according to OPEC.

“The current drop in oil prices poses stark challenges for Nigeria’s external and fiscal accounts and puts heavy pressure on the exchange rate,” Oliver Masetti, an economist at Deutsche Bank AG, said in a report this month. “If oil prices remain at their current lows, Nigeria will face tough choices.”

Even before oil’s rout, Venezuela was teetering.

The nation is running a budget deficit of 16 percent of gross domestic product, partly because much of its declining oil production is sold domestically at subsidized prices. Oil is 95 percent of exports and 25 percent of GDP, OPEC says.

“Venezuela already qualifies for fiscal chaos,” Yergin said.

Venezuelan Rioting

The country was paralyzed by deadly riots earlier this year after police repressed protests about spiraling inflation, shortages of consumer goods and worsening crime.

“The dire state of the economy is likely to trigger renewed social unrest, while it seems that the government is running out of hard currency,” Capital Economics, a London research firm, wrote in a Nov. 28 report.

Declining oil may force the government to take steps to avoid a default including devaluing the currency, cutting imports, raising domestic energy prices and cutting subsidies shipments to poorer countries in the region, according to Francisco Rodriguez, an economist at Bank of America Merrill Lynch.

“Though all these entail difficult choices, default is not an appealing alternative,” he said. “Were Venezuela to default, bondholders would almost surely move to attach the country’s refineries and oil shipments abroad.”

China Bailout?

In an address on state television Nov. 28, President Nicolas Maduro said Venezuela would maintain social spending while pledging to form a commission to identify unnecessary spending to cut. He also said he was sending the economy minister to China to discuss development projects.

Mexico shows how an oil nation can build new industries and avoid relying on one commodity. Falling crude demand and prices in the early 1980s helped send the nation into a debt crisis.

Oil’s share of Mexico’s exports fell to 13 percent in 2013 from 38 percent in 1990, even as total exports more than quadrupled. Electronics and cars now account for a greater share of the country’s shipments. Though oil still accounts for 32 percent of government revenue, the Mexican government has based its 2015 budget on an average price of $79 a barrel.

 

[Flanker]

Of course we do ... all sane people are "seeking regime change" in Russia ...

Just a question Mr Campbell.
Who authorized you to talk on the name of "all sane people"?

 

[CougarKing]

Turkey's not only playing the multi-sided ISIS conflict (ISIS vs West/Gulf States vs Iran/Assad vs Kurds), but also playing the game between Russia and the EU/NATO/the US.

Source: CNBC

One NATO state wins big from clashes with Putin
By Everett Rosenfeld | CNBC – 13 hours ago

(...SNIPPED)

Russia scrapped plans for a pipeline into Southern and Central Europe, and instead announced this week a new pipeline to carry discounted natural gas into Turkey . Moscow has already spent $4.5 billion on the so-called South Stream project, which would have seen Gazprom (Moscow Interbank Currency Exchange: SBNF-MZ) transport its product under the Black Sea and potentially all the way to Italy by way of several countries.

Turkey will be getting gas at what some have suggested may be a double-digit discount, while furthering its aspirations to be a regional energy hub.

"Turkey is looking out for itself," said Lauren Goodrich, senior Eurasia analyst at global intelligence and advisory firm Stratfor. "It's good for Russia to have a country that has a stake in Ukraine and a stake in the Black Sea and a NATO member that isn't putting sanctions on Russia...Turkey is standing on its own and they're going to reap the benefits from it."

Following Russia's announcement it was abandoning the project, some European politicians have already suggested that the South Stream project could be revived.

Gazprom has reported that discounts could be about 6 percent for Turkish customers, Goodrich said, but Russian energy minister Aleksandr Novak reportedly said an arrangement could settle on a 15 percent discount.

"Turkey is in a very interesting position," Goodrich said. "They see an opportunity that the rest of the world is kind of against Russia right now, so if they work with Russia they can get a better deal."

Russia previously announced a gas deal with China that many have said favored Beijing because of the geopolitical pressure on Moscow from Europe and the United States.

Still, experts stressed that those deals do not mean Russia is desperate, but simply playing its cards as well as it possibly can.

Putin's Monday announcement of the $30 billion South Stream pipeline's cancellation marked the culmination of increasing difficulties for the project, which began in 2007. Bulgaria ceased construction on its part of the line in June following pressure from the European Commission that the deal would violate the Third Energy Package legislation, and other E.U. states were being similarly influence, Goodrich explained.

(...SNIPPED)

 

[a_majoor]

A possible response to Russian aggression: "Ghost Airports". Instapundit suggests these airports are infrastructure for a possible air bridge in the event we need to support Poland or Eastern Europe (much like some people think the "String of Pearls" naval facilities in the Indian Ocean are to support Chinese naval activities should the need arise at some future time). Military airfield don't need such elaborate facilities (C-17's and C-130's can land on dirt airstrips, after all), but this adds more "noise" to the signal, and certainly leaves questions in people's minds. A more likely explanation is these airports are part of the "stimulus package" to help bail out the EUZone from recession, but now that they are there, NATO planners have more options:

http://www.reuters.com/article/2014/12/14/us-poland-airports-specialreport-idUSKBN0JS06K20141214

Special Report: EU funds help Poland build 'ghost' airports
BY CHRISTIAN LOWE AND WIKTOR SZARY
LODZ, Poland Sun Dec 14, 2014 3:29am EST

(Reuters) - The European Union has given Poland more than 100 million euros ($125 million) to build at least three "ghost" airports in places where there are not enough passengers to keep them in business.

The result is gleaming new airport terminals which, even at the peak of the holiday season, echo to the sound of empty concourses and spend millions trying to attract airlines.

Poland is not the only country in Europe to have built airports that struggle to attract flights. Around 80 airports in Europe attract fewer than 1 million passengers a year, and about three-quarters of those are in the red, according to industry body Airports Council International. Some cost much more to build than the Polish projects. One airport in eastern Spain, open for three years, has so far received not a single flight.

But Poland is striking because the country received so much money for its projects from EU funds.

Poland received 615.7 million euros in EU support for airports between 2007 and 2013, according to figures supplied to Reuters by the European Commission. That was almost twice as much as the next biggest recipient, Spain, and more than a third of all member states’ money for airports. The government declined to provide all the information on which it based its decisions to invest in the airports, but Reuters has reviewed data on three sites where traffic fell dramatically short of forecasts.

Poland is often touted by Brussels as one of the most efficient users of EU aid, and there is no suggestion the country used EU airport money corruptly. European help has been vital in improving Poland's aviation infrastructure, only a small share of the country’s airport spending has been on white elephants, and passenger shortfalls may have been exacerbated by the 2008 global financial crisis. Spokespeople at some airports said the projects could be considered a success because they were creating jobs, bringing in tourists, and driving investment in the regional economy.

But it is clear mistakes were made in Poland, planning officials and aviation executives say. The whole experience raises questions about how the government will handle the next big injection of EU money, which it expects to be 82 billion euros over the next seven years.

The problem is most striking at the recently rebuilt Lodz passenger terminal, where passenger numbers in 2013 fell almost one million short of forecasts, according to European Commission documents examined by Reuters.

On a relatively busy day this summer, just four flights arrived and four departed. In between, the place was almost deserted. In the early afternoon a single passenger, a woman in a blue-and-white striped T-shirt, sat in a 72-seat waiting area. Outside on the tarmac, five sets of movable steps stood waiting for a jet to land.

Where there aren’t enough passengers to make an airport viable, local governments keep them on life support through subsidies, according to a report by CEE Bankwatch Network, a non-governmental watchdog. The beneficiaries have often been the airlines that use them.

Jacek Krawczyk, the former chairman of the board of Polish national airline LOT who sometimes advises the European Commission on aviation policy, said Poland was no worse than other EU countries at building airports, but the sheer volume of EU money it was trying to absorb in a short space of time explained some problems. The European Union has now tightened up the rules on state aid that airports can receive.

Krawczyk, who was not directly involved in planning any of the airport investments, said that in those Polish cases where things did go wrong, “there was no corruption, just wrong priorities.”

FAULTY FORECASTS

Between 2007 and 2013, the European Union promised funding to help build and upgrade 12 Polish airports. Some of the projections underlying the plans were highly ambitious.

The government declined to detail its predictions for passenger numbers. But figures for three of the airports – Lodz, Rzeszow and Lublin – are contained in letters on a related topic sent by the European Commission to the Polish foreign minister. The letters show Polish authorities projected combined passenger numbers for the airports to be more than 3 million passengers a year. In 2013, the actual number was just over 1.1 million.

Together, the investments in the three airports totaled about 245 million euros. Around 105 million of that came from the European Union. The rest came from central government in Warsaw, local governments and the airports themselves.

The airport with the biggest projected traffic was in Lodz.

In its heyday, the city was a thriving textile manufacturing center. Now, many of the elegant 19th-century merchant’s houses lining the main drag, Piotrkowska Street, are crumbling.

Jerzy Kropiwnicki, mayor of Lodz between 2002 and 2010, wanted to attract foreign investment and tourists. The city had a small airport that handled domestic flights; but Kropiwnicki felt a big international terminal would revive the local economy.

"I used to endlessly answer questions like: 'How do we get to you?' and 'How do we fly there?'" Kropiwnicki told Reuters.

Poland, which had joined the European Union in 2004, was gearing up for a massive injection of EU cash to be spent on development projects between 2007 and 2014. To get the funds, the country had to prepare a strategic plan for civil aviation. At the Transport Ministry, this task fell mainly to Andrzej Korzeniowski.

He was given three months to draft the plan and meet the EU funding deadline. “I slept on a camping mattress under my desk," Korzeniowski, now retired, told Reuters. "I had no time to eat."

Looking back on the 160-page document he drafted, Korzeniowski says it was, under the circumstances, a good program. But it had a big shortcoming: It let local governments decide where new airports should be built, and how big they would be. “That was the biggest mistake, for which we’re now paying the price,” he said. “The local governments decided, 'I’m a prince in my domain, the government doesn’t tell me what I’m supposed to do, we do what we want.’”

By 2005, passenger numbers in Lodz were shooting up. Wojciech Laszkiewicz, an adviser to the mayor who went on to be deputy chief executive of the airport, said the team decided to rebuild the terminal entirely.

The airport commissioned a feasibility study from advisory firm Ernst & Young (EY), published in November, 2009. EY predicted a minimum of 1.042 million passengers in 2013 for Lodz. That was less than the government forecast but many more than the 353,633 who actually passed through the airport last year. EY declined to comment.

Lodz’s mayor, Kropiwnicki, left office in 2010, two years before the new terminal opened. The aim of the airport was to help stimulate the local economy, he said, and it is achieving that. "From my point of view, the airport wasn't supposed to make a profit."

“CANNIBALIZATION”

The problem, say aviation industry officials and consultants, is that passenger numbers for any individual airport are impossible to predict with confidence. Even if national forecasts hold true, local factors can pull passengers away from one airport and attract them to another.

Lodz quickly became a victim of this "cannibalization,” as the airline industry calls it, because Warsaw airport was also upgraded, and a new highway built which brought the capital within 50 minutes’ drive of Lodz.

“To have an airport in Lodz from that point of view makes no sense at all," said Krawczyk, the former airline chairman. He is now president of the Employers’ Group of the  European Economic and Social Committee, a Brussels-based consultative body that advises on EU decision-making.

In a statement, a spokesman for the Ministry of Infrastructure and Development said it could issue guidelines, but could not directly influence local authorities: "A decision on expanding or building an airport for a particular region is the prerogative of the local authorities."

Under EU rules, though, the initial cash for airports comes from national governments. They are reimbursed by the EU when it approves a scheme.

Only investments worth over 50 million euros have to seek the Commission’s prior approval, and many of the Polish airport investments were below that threshold. The Commission has since said its approach to funding the airports will undergo a radical change. In February, it introduced stricter criteria, and said loss-making airports will be forced to wean themselves off state aid. It did not name any countries.

PAYMENTS TO AIRLINES

For now, the Polish airports still need help, and that can be expensive. Senior managers in the Polish aviation industry said the cost of running a small regional airport would be at least 3 million euros a year. At the moment in Europe, they are often propped up through financial injections from local authorities, which are often their biggest shareholders.

The state also has indirect methods of helping the airports, in particular by giving money to the airlines – mainly low-cost carriers like Ryanair.

"In practice, these payments serve as an incentive for airlines," CEE Bankwatch Network, the non-governmental watchdog, said in its report.

Lodz and Rzeszow airports did not respond to questions about how much they pay airlines. A spokesman for Lublin airport said only that it was successfully boosting communications to help the local economy.

But public records for Podkarpackie, the mountainous, forested region where Rzeszow airport sits, show that between 2011 and 2014 its government paid 5.7 million euros to Ryanair in exchange for advertisements promoting the region, which appeared on Ryanair’s web site and in its in-flight magazines. Podkarpackie spent another 3 million euros to advertise with Polish carrier Eurolot over a three-year period.

In all, 70 percent of the region’s 2013 promotional budget went to airlines that fly into Rzeszow airport.

These payments are problematic, say several people involved in Polish aviation, because the airports are at the mercy of the airlines. With so many airports to choose from, airlines can easily shift routes.

“The relationship between the local airports and low-cost carriers is suicidal,” said Krawczyk, the former airline chairman. For low-cost carriers, he said, “nothing will ever be enough. ... At some point they will say, ‘If you don’t give us more, we’ll go.’ And they go.”

A spokesman for the region where Rzeszow is located said the deals were good value because they allowed it to target the kind of travelers it wants. He said tourist numbers in 2013 were double the level in 2010.  A Eurolot spokeswoman said such marketing deals were widely used in the aviation business in Europe. She said the airline provided marketing exposure for the region, for example by painting its jets in the region’s colors.

Ryanair chief executive Michael O'Leary told Reuters such advertising was a good deal for local governments because the Ryanair website reached a huge audience. He said Ryanair brought economic benefits to places that are off the beaten track, in part by flying in tourists. But “if the airport doesn’t want me, that’s fine. I’ve 80 other airports in Europe who want the growth. We don’t force any airports" to pay.

"If Rzeszow has enough low fares, Rzeszow can grow to 1 million visitors, 5 million visitors, 10 million visitors,” said O’Leary. “They provide – well, I don’t know what Rzeszow is famous for, but it's famous for something."

(Additional reporting by Robert Hetz in Madrid and Rene Wagner in Berlin; Edited by Sara Ledwith)

 

[Kirkhill]

>

The Poles are amateurs in comparison to Spain.

The Spaniards build airports then don't have to waste money on maintaining them because no one uses them.

However the Spaniards are still not in the league of the true professionals.  The Greeks.  They get money to build airports and then don't build them, thereby saving themselves both capital and operating costs.

>

The problem with an airfield as a military asset is that it benefits he who gets there fustest with the mostest.  The Poles should be in good shape as long as they maintain a solid air defence capability.  Otherwise a chap named Vlad could be tempted to leap over Donetsk and Lviv to Lodz.

 

[CougarKing]

The KGB agent in power seems stumped:

Reuters

Putin says Russia economy will be cured, offers no remedy
By Timothy Heritage and Alexei Anishchuk

MOSCOW (Reuters) - President Vladimir Putin assured Russians on Thursday that the economy would rebound after the ruble's dramatic slide this year but offered no remedy for a deepening financial crisis.

Defiant and confident at a three-hour news conference, Putin blamed the economic problems on external factors and said the crisis over Ukraine was caused by the West, which he accused of building a "virtual" Berlin Wall to contain Russia.

At times sneering, at others cracking jokes, he ignored pressure to say how he will fix an economy facing what his economy minister calls a "perfect storm" of low oil prices, Western sanctions over Ukraine and global financial problems.

(...SNIPPED)

 

[Edward Campbell]

The Economist weighs in with this article which is reproduced under the Fair Dealing provisions of the Copyright Act from that newspaper:

http://www.economist.com/news/leaders/21636747-collapse-rouble-caused-vladimir-putins-belligerence-greed-and-paranoia-ye

Russia and the rouble
As ye sow, so shall ye reap
The collapse in the rouble is caused by Vladimir Putin’s belligerence, greed and paranoia

Dec 20th 2014 | From the print edition

VLADIMIR PUTIN has successfully suppressed dissent, squeezed out opposition and clamped down on the media, but he has not been able to control global financial markets. In recent days the rouble has collapsed; it has lost almost 40% of its value over three weeks. This is the biggest crisis of Mr Putin’s reign—and it is entirely his fault.

Mr Putin will no doubt blame all the usual suspects—Western speculators who bet against his currency, Western imperialists who imposed sanctions on his economy, Western economists who failed to forecast that the oil price (down by half over six months) would fall as far as it has and, of course, Western newspapers that told him that his policies would lead to disaster. But the crisis is the inevitable consequence of Putinism—of aggression abroad and a corrupt-and-control economy at home.

Kleptocracy and its consequences

The sanctions were imposed by the West because of his conduct in the Ukraine, where he has, among many things, seized territory, engineered a war and refused to investigate the shooting down of a civilian airliner. Meanwhile, he has failed to reform Russia’s economy, leaving it dependent on the energy industry that he has carved up among his friends. Had he chosen to build an economy based on the rule of law and competition rather than patronage and corruption, things would have looked very different.

In the short term, there is not a great deal that Mr Putin can do to get his country out of the mess that he has made. A huge interest-rate rise this week, following previous large increases, has not worked. Capital controls are not the answer. They can sometimes be effectively employed against short-term speculation, but in this case investors are rightly worried about an economy that is so reliant on one sector. Anyway, in such a lawless place, capital controls would be porous and could trigger runs on the banks (see article) which the country could ill afford. Russia still has reserves of $370 billion, but it also has foreign-currency debts of more than $600 billion.

To improve the long-term prospects of an economy that is heading into a deep recession, two bigger changes are needed. The first is that Russia should pull back from eastern Ukraine and seek some accommodation with the government in Kiev and the West that could lead to the lifting of sanctions. The second is a change to the country’s economic model. Mr Putin needs to take advantage of the fall in the value of the currency to diversify away from excess dependence on oil and gas, which make up two-thirds of exports; to improve the competitiveness of manufacturing and high-tech industry; to strengthen the rule of law; and to clean up corruption. To implement all this he should replace his pliant prime minister (and previous president), Dmitry Medvedev, with a credible economist such as Alexei Kudrin, who was a respected finance minister for 11 years. His oligarch chums might not like this, but Russians would be better off.

Sadly, none of this is likely to happen. Mr Putin will probably double down, railing against Western iniquity, stifling all dissent at home, destabilising Ukraine still more and interfering further in other neighbouring countries. And he will pursue a course of growing autarky, severing as many of Russia’s economic and financial links to the West as he can.

A brazenly nationalist course will impoverish Russia further, making it impossible for Mr Putin to keep delivering rising living standards. He will gamble that the Russian people are foolish enough to trade prosperity for nationalistic fervour. This newspaper hopes he is wrong.

In my opinion, and many will differ, Mr Putin is a prototypical Russian: a bully and a bit thick, to boot; but the Russian people support him, and his aggression, and that just proves my point.