SITE SEARCH

I recently caught up with Alexander Mercouris and Glenn Diesen on their popular Duran geopolitics podcast, to discuss the recent elections in Georgia and Moldova. Conversation inevitably drifted to Ukraine as well. My key takeaway from our discussion was that European leaders have lost sight of the need for a pan-European peace. That will only change when there is a paradigm shift away from seeing elections in former Soviet States as a zero-sum choice between Europe and Russia. And remembering that focussing on economic relationships first is what helped Europe emerge stronger and more peacefully from the devastation of World War II. As we nudge ever closer to World War III, politicians on all sides need to get back to basics and remember that our collective security hinges on every country believing that its core strategic interests aren't threatened.

Since late 2013, when the Ukraine crisis first erupted, the British government has insisted that we need to support Ukrainian people in making a ‘European choice’. Setting aside the irony that the UK chose to leave the EU in 2016, many Brits might still consider it a good choice. I’m pro-European, possibly because I grew up in Germany during the height of the cold war, the son of a working-class British soldier. In my view, Britain gained considerable economic, social and cultural benefit, as a sovereign nation, within a wider peaceable European community of five hundred million people. What has never been clear to me is why, in ‘choosing’ Europe, Ukraine should cut its ties with Russia. When Britain joined the European Economic Community in 1971, our country was not asked to cut off our relationship with the USA. We could be friends with Europeans and Americans. I don’t think most people in Ukraine, whether they are native Ukrainian or Russian speakers, would have chosen to lose half a million men and women to death or injury in a war with Russia. Or twenty percent of their land, or seventy percent of their power generation and most of their heating during bitterly cold winters. Or for the Ukrainian economy to be smaller than it was in 2008 and unlikely to return to pre-war levels until after 2030. At the heart of this so-called European choice is a simple, unavoidable reality. Ukraine is too poor to join Europe on equal terms. Yet western leaders continue to press Ukraine to choose Europe and not Russia or, indeed, a balanced relationship with both (even better). In theory at least, there are good economic reasons why Ukraine might want to join the EU because it is significantly poorer than European member states. If Ukraine could match European economic development, it would undoubtedly be a good thing, you’d think. The problem is that the EU project is built on the rich countries subsidizing the poorer countries (and, actually, subsidizing some of the richer countries too). When only poor countries join the EU, the system needs to create more money to subsidize them, which means the rich countries pay even more to keep the club together. That’s one reason, as well as geography, that you don’t find rich countries queuing up to join the EU. If they did, the balancing effect would make it easier for poor countries like Ukraine to join. Ukrainian membership of the EU would throw everything into the air and inevitably force some countries that currently benefit from EU funding, to start paying in. Ukraine’s size and fecundity is its economic curse, when it comes to Europe. With a large, well-educated, pre-war population of forty-one million people, Ukraine would become Europe’s fourth largest country. It would have by far the largest area of agricultural land, which is also the most fertile in Europe, and account for over twenty percent of EU farmland. The Financial Times assessed in 2023 that it would cost the EU €196bn to bring Ukraine into the EU, on the same terms as other Member countries. That’s because Ukraine is so much poorer than the rest of the EU, with income just 13% of the EU average. Size matters when it comes to EU funding; the poorer you are, the more you get. Which seems fair. Unfortunately, that money would have to come out of the pockets of richer EU countries, actually, every EU country. Czechia, Estonia, Lithuania, Malta, Slovenia and Cyprus would between them lose around €11.2bn each year in cohesion funding alone if Ukraine joined on the current arrangement. Across the board, EU farmers would see twenty percent cuts in income from agricultural subsidies. The violent demonstrations by Polish farmers in March 2024 at the flood of cheap Ukrainian grain imports, would pale in comparison to unrest across the whole of the EU, should open access be granted to Ukraine’s farms. That’s why, just weeks after war in Ukraine started, French President Macron said that it would ‘take decades’ for Ukraine to join the EU; he understands precisely the social upheaval that would erupt among French farmers, by far the largest recipient of Common Agricultural Policy funds, at the prospect of big cuts to their incomes. While affluent Britain was an EU member, the issue of our net contributions to the European budget bedevilled a succession of governments until Brexit was forced upon us. It is my view that Ukrainian membership of the EU would stoke support for nationalist parties like the National Rally in France, Alternative für Deutschland and Bündnis Sahra Wagenknecht in Germany, not to mention the Law and Justice Party in Poland and elsewhere. So, Ukraine’s EU membership pathway (much like its NATO membership aspiration), is a big can of worms that is routinely kicked down the road by European states. Perhaps the biggest roadblock, ironically, would be Poland, one of the most steadfast countries in providing support to Ukraine since the war started. Poland’s economy has boomed since it joined the EU in 2004. Like Ukraine, Poland is big, and bountiful, yet its population is smaller than Ukraine’s by around 5 million and it possesses just a third of the agricultural land. Its income is below the EU average yet still five times higher than Ukraine’s. Poland receives by far the largest payouts from the EU in the form of grants and agricultural subsidies of around €16bn each year. Of this, Poland receives so much EU cohesion funding (almost €11bn each year) that it soaks up a quarter of the total, way ahead of its closest rivals Czechia and Romania. Poland would lose most of its EU funding if Ukraine joined the EU and may even creep into net-contributor territory. Poland would literally be paying for Ukraine to join the EU. Little wonder Poland’s war-hungry Foreign Minister Radek Sikorski was so keen for Ukraine to keep fighting Russia, long after it became obvious that Ukraine could not win. Poland doesn’t want Ukraine to join the EU and neither do other heavily subsidised EU Member States.

Below an article that was published in Responsible Statecraft on Wednesday. Ukraine is expending a simply extraordinary amount to prop up a war effort that it is losing. Free hand outs from the west have now been replaced with loans, as taxpayers rightly ask 'wouldn't it be better to end a losing war rather than spend billions of dollars each year which is either blown up (literally) or stolen by corrupt officials?' Despite recent indications from Zelensky that he is willing to make concessions, including accepting some form of partition along existing lines, it is clear to me that he has absolutely no desire to sue for peace any time soon. Arguments that Ukraine should wait until it is in a position of power are completely meaningless, given that every day that country's armed forces loses ground to the Russian advance. Ukraine will never have the level of resources or strength that it possesses today. So, waiting until Ukraine is strong enough is literally waiting for Godot. And, of course, the longer war continues, the longer Zelensky can remain in his job, elevated on a mountain of his own hubris, congratulated at every turn by fawning, brainless EU politicians, completely obliviously to the suffering of his people. And on that, please enjoy the article below... On Tuesday December 10, Treasury Secretary Janet Yellen announced the disbursement of a $20 billion loan to Ukraine. This represents the final chapter in the long-negotiated G7 $50 billion Extraordinary Revenue Acceleration (ERA) loan agreed at the G7 Summit in Puglia, in June. Biden had already confirmed America’s intention to provide this loan in October, so the payment this week represents the dotting of the “I” of that process. The G7 loans are now made up of $20 billion each from the U.S. and the EU, with the remaining $10 billion met by the UK, Canada, and Japan. To be clear, this U.S. loan represents no additional funding for Ukraine beyond what had already been agreed by the G7; it doesn’t raise the bar on the $50 billion pledged so far. The European Union had already made provision to fill the gap, had the U.S. not provided this lending. In that regard, it is encouraging that the U.S. is doing the right thing by following through on its earlier commitment. The U.S. loan cannot be allocated to the war effort, as it has been transferred into the World Bank which does not permit funding of military activity. This is a roll back from the U.S. position in October when it was hoped that around half of the $20 billion loan might be diverted towards Ukraine’s struggling military. In her remarks, Yellen said , “we are sending an unmistakable message of resolve by making Russia increasingly bear the costs of its illegal war, instead of taxpayers in our coalition.” But the notion that this loan won’t ultimately sit on the shoulders of U.S. taxpayers is highly speculative, and dependent on actions outside of America’s control. Repayment of the U.S. loan relies on the resilience of an EU instrument called the Ukraine Loan Cooperation Mechanism (ULCM). The ULCM disburses profits from $270 billion in frozen Russian assets in Belgium, so that Ukraine can make repayments to G7 creditor countries, including the U.S.. However, the ULCM can only do that for as long as EU sanctions maintain the freeze on Russia’s assets. In other words, once the Russian asset freeze ends, loan repayments to the U.S. will stop. U.S. officials tried to mitigate this financial risk by urging the EU to extend its sanctions renewal process against Russia from six months to three years, but failed in the teeth of a Hungarian veto. That puts repayment of the U.S. loan at the mercy of EU member states agreeing to extend the Russian asset freeze over the long-term which seems optimistic, at best. The equivalent EU loan of $20 billion includes a clause that Ukraine may ultimately have to repay the capital if the proceeds from frozen Russian assets or war reparations from Russia are not forthcoming. Yellen’s statement, therefore, that U.S. taxpayers won’t ultimately foot the bill for this $20 billion loan rests on shaky ground. Ukraine also has a track-record of not repaying its international debts. In July, Zelensky signed another declaration to defer payments on foreign debts, while a restructuring was underway. A Ukrainian agreement in July to restructure $20 billion in loans led to creditors writing off 37% of their capital. The much bigger problem, of course, is that the $50 billion G7 loan, which took six months to finalize, is just a band-aid on what Ukraine needs, just to keep the lights on in its flagging economy. According to the IMF, Ukraine’s budgetary situation is so dire that it will need between £122-£141 billion in external financing to meet its fiscal needs between 2023-2027. So, at best, the G7 loans meet 41% of that need. Unlike the EU loan, intricate details of which can be found on the Commission website , the U.S. Treasury has not revealed the details of how its loan is structured. The U.S. Treasury has simply paid the full $20 billion into the World Bank and appears to be hoping for the best. Just to be clear, loan repayments will need to be made to the U.S. government; the World Bank has pointedly made clear that it “does not handle or deal in any way with immobilized Russian assets or any investment earnings on those assets.” Where does this leave us? Anyone who thinks that Russia will simply forego its frozen $300 billion in assets in the interests of filling Ukraine’s huge fiscal gap is sorely mistaken. Russia continues to pursue through UK courts repayment of the $3 billion Eurobond paid to Victor Yanukovych’s government in December 2013, after Ukraine stepped back from signing the EU Association Agreement. Russia has consistently made it clear that it will not meet the cost of reparations as it considers that the war was precipitated by the West’s encouragement of Ukraine. Setting aside the war itself, a decade of conflict has had a devastating effect on ordinary Ukrainians. According to the World Bank , “more than a fifth of adults who were working before the invasion reported losing their jobs; some two thirds of households have neither savings nor labor income. A third of surveyed families reported modifying or skipping meals altogether. Three of every 10 Ukrainians now live in poverty.” Self-evidently, with 61% of its planned budget for 2025  earmarked for defense spending, the best way to relieve Ukraine’s dire budgetary situation (not to mention to stop the needless loss of life) will be to end the war. Rating agencies downgraded Ukraine into default territory in July, meaning that it is effectively cut off from access to new lending from international investors. Once the $50 billion from the G7 runs out, Zelensky, or whoever replaces him after a ceasefire and elections that he seems likely to lose , will need to come back for more. So, the issue of how this latest $20 billion handout to Ukraine will be paid seems entirely secondary to the point that it won’t be the end of U.S. funding to Ukraine. Despite what Secretary Yellen says, that means no end in sight to the financial burden on U.S. taxpayers from Biden’s war.

I joined Judge Andrew Napolitano on his popular Judging Freedom podcast last week, among other things, to discuss the US $20bn to the World Bank as part of the G7's $50bn funding arrangement. In the financial arrangement that has been put in place, the US gives money to the World Bank to fund non-military projects in Ukraine. Ukraine is liable for the loan and repays that loan with funds provided to it by the EU, courtesy of the profits generated by around $270bn in frozen Russian assets in Belgium. Big question; when the war ends and Russia wants its money back, who will repay the loan?

The European Union and the Latin American grouping MERCOSUR recently agreed a Free Trade Agreement . If the agreement is finally ratified by European countries, it will create the largest free trade bloc in the world accounting for close to a quarter of global GDP and around 750 million people. This agreement has taken 25 years of on-off negotiations but offers the potential to reduce barriers from almost €110bn in two-way trade while also growing the business and investment relationship. It could be a win-win deal for both groupings, Trade between the EU and MERCOSUR is small compared to EU exports to the U.S., which are ten times greater . But at a time when Latin American countries are shifting focus towards greater trade with China, and as Donald Trump looks set to impose trade restrictions on European goods, it makes sense to diversify. However, there’s a hitch. Several European countries plan to block ratification of the agreement. Ratifying an FTA that allowed tariff-free access to Europe’s highly protected agricultural market, could stoke far-right sentiment across the EU. Decision makers fear exactly the sort of violent  demonstrations in Poland against the inflow of cheap Ukrainian agricultural imports in March. Poland is one of the countries currently blocking agreement of the MERCOSUR deal, along with France, Europe’s largest recipient of Common Agricultural Policy subsidies. French farmers have already come out in protest to say ‘mais non!’ to the proposed MERCOSUR agreement. Even before Michel Barnier’s government collapsed, the French Assemblée Nationale had voted to reject the EU-Mercosur deal, one lawmaker saying ‘there is no such thing as a good Mercosur agreement’. However, outside of agriculturally intensive France, Poland and the Netherlands, most European countries are in favour of the MERCOSUR deal. For Germany, it would provide for tariff-free access to precious minerals in Latin America that would be a boon to its flagging automotive industry. Free Trade Agreements are enjoying a minor return to favour led by countries outside of the U.S., which is likely to become the mother of all protectionist countries after Donald Trump comes to power. After the U.S. withdrew from the Trans-Pacific Partnership in 2017, the remaining countries created the Comprehensive and Progressive Agreement for Trans Pacific Partnership in 2018; the UK is going through the final stages of ratification to join (despite being nowhere near the Pacific). While the global COVID pandemic threw up barriers and walls between countries, further progress on global free trade offers scope gradually to tear them down. Pre-pandemic, the EU had developed a range of mutually beneficial Free Trade Agreements, for example with Japan, Vietnam and Singapore. While erroneously called a political agreement, the EU-MERCOSUR deal does not contain the political baggage that has bedevilled Europe’s attempts to forge Association Agreements with Eastern Partnership countries like Ukraine and Georgia. Helpfully, it includes none of the normative requirements on democracy, human rights and the rule of law, which more often than not are Trojan horses for the EU to impose its ways of life on other countries. For practically all of its other FTAs, the EU has focussed exclusively on trade and investment. This raises the question about the value of reigniting plans for a greater Eurasian Free Trade space. The Lisbon to Vladivostok concept died on the altar of the west’s drive to incorporate Ukraine at all costs, and as the U.S. pushed hard for Europe to buy its more expensive energy, rather than access cheap and plentiful minerals from Russia. Reinvigorated, Lisbon to Vladivostok would focus exclusively on trade and include the European Union, the Eurasian Economic Union, Ukraine, Georgia, Moldova and any other country in the Eurasian space that wished to participate. It would be inclusive, rather than exclusive. There are two obvious advantages to this approach. Firstly, it is abundantly clear, at least to me, that countries like Ukraine, Georgia and Moldova will be unable to join the European Union on equal terms. It is not just that their membership would cause the internal EU budgetary settlement to disintegrate under the pressure of integration. It would create intolerable and, frankly, entirely predictable, political friction among EU states like Poland and France that lost their generous subsidies. EU aspirant countries, over the longer term, could gain considerable economic benefit from membership of a wider free-trade group, without the risk of dislocation, either to themselves or to Europe, caused by ill-considered enlargement. Second, aspiring EU member countries seem unlikely at any time, if ever, to comply fully with the EU’s exacting political requirements. Ukraine remains deeply corrupt as a state and has been unable to make positive progress on reform since 2014. In one of the great ironies, Ukraine’s so-called European choice has led it no closer to looking and acting like a European country. That same European choice in Georgia is manifest today in a blatant attempt at regime change, of a related type to that witnessed in Kiev in February 2014. In Moldova the Presidential election was tampered with to ensure that Maia Sandu won, by de-facto excluding a large constituency of Moldovan voters who live in Russia. Yet, despite all the goodwill and election interference from Europe, I am deeply sceptical that any of these aspiring members – Ukraine, Moldova and Georgia – could really commit to the political requirements of membership anyway. In the past week, an EU-MERCOSUR deal has offered a reminder that Europe should abandon its efforts to enlarge and integrate countries like Georgia and Ukraine. Rather, it should return its focus to the Lisbon to Vladivostok idea. This has the potential to create the largest Free Trade Area in the world, comprising over 800 million citizens. It would avoid the obvious distortions and disruption of pushing for deeper political integration with Former Soviet States with the catastrophic results we see today, particularly in Ukraine. Critically, Lisbon to Vladivostok would finally put an end to the sheer folly of expecting countries like Ukraine, Georgia and Moldova to make a false choice between Europe and Russia.

I recently spoke with Lasha Kasradze about the economic backdrop to Georgia's recent elections, and why Georgia is right to stick to its current path of economic development, and to avoid a binary choice between Europe and Russia. This piece was aired on Imedi TV in Georgia.

My recent chat with Larry Johnson on his countercurrents podcast. A nice opportunity for you to get to know me a bit better.

Coalition countries are giving Kyiv money that helps prolong a losing war while saddling the suffering country with enormous debt. Below an article that I recently published in Responsible Statecraft . President-elect Trump says he can end the war in Ukraine in a day . But there is a catch. Washington institutions and EU policy makers have Trump-proofed the war for at least another year. This idea — that hard-wired Western support for President Volodymyr Zelenskyy’s fight against Russia could be insulated from the incoming U.S. president — has been cooking for the past year. In the month before the first votes had been cast in this week’s U.S. election, policy makers on both sides of the Atlantic had been solidifying their fortifications against the risk of a Trump victory. In its October report , the International Monetary Fund — which the developing world often sees as a rich country club serving Western interests — made a baseline assumption that war in Ukraine would “wind down in late 2025,” at the earliest, one year after the U.S. election. Provisional Western funding for another year of war had already been secured in June in the form of the G7’s $50 billion lending package for Ukraine. That gives Zelenskyy enough to plug the yawning hole in his state finances sufficiently to keep fighting. He will still need to manage other significant risks along the way, not least of which include the country’s energy infrastructure and military mobilization. Ukraine recently announced a plan to mobilize a further 160,000 troops following the April decision to lower the age of military draftees from 27 to 25. But the EU has been working hard to ensure that Zelenskyy can take the risk, underwritten with European money. Although what they have created is catastrophically ill-thought through. The European Union loan itself — up to a maximumof €35 billion (around $38 billion) — is so high precisely because of the uncertainty about whether the U.S. would match the funding of other G7 nations. This is Trump-proofing in action. In essence, even if Trump doesn’t agree to the proposed $20 billion U.S. contribution made by Biden, Europe is prepared to cover the cost of another year of devastating war. Little matter that, for Ukraine itself, $50 billion in extra debt represents around 30% of GDP for one year of fighting — if the country hasn’t collapsed in that time. According to the IMF, if war does indeed end in late 2025, Ukrainian debt will hit 108% of GDP and only start to fall in 2028. In this scenario, Ukraine’s economy wouldn’t return to its pre-war size until 2031, representing nine years of lost growth. If war continues into 2026 (the IMF downside scenario), debt will hit a massive 136% of GDP, and Ukraine’s economy will be further stunted. The G7 funding was made on the naive assumption that Ukraine would never have to repay it, or, in the IMF’s words, “to ensure debt sustainability.” In late October, the European Parliament agreed on a Ukraine Loan Cooperation Mechanism as “non-repayable financial support” to cover any repayments Ukraine needs to make against the G7 loan package of $50 billion. Separate from the G7 loans, it is the pot of funds made up of the profits from seized Russian assets of €210 billion (about $225 billion) held in EuroClear in Belgium. These funds currently generate around €4-5 billion ($4.3-5.4 billion) in profit each year although some of that profit is already being used , for example, in restoring Ukraine’s energy infrastructure. However, this Loan Cooperation Mechanism could easily fall apart in the coming year. Self-evidently, if a ceasefire is agreed in Ukraine and a peace process, finally, launched, Russia will press hard for the return of these assets as part of staged sanctions relief. U.S. officials under the Biden administration had been pressuring the EU to agree to a longer freezing of Russian assets of 3-5 years, although Hungary blocked a decision to change EU policy on sanctions renewal until after the U.S. election. With Trump now elected, Hungary, and possibly others, likely won’t want to set the Russian asset freeze in stone. Look at the EU small print, and you’ll see that if funds from frozen Russian assets run out or if no funds are received from Russia for war reparations, then Ukraine will have to service the loan itself.That would explode the IMF’s claim that this debt is sustainable and put significant additional pressure on Ukraine’s flagging finances. Economies rebound after wars though, so, perhaps, some might argue, this is worth the risk. Growth over time would help to reduce the massive Ukrainian debts brought on by war. But what benefit is another year of fighting when Ukraine is losing the war in its east? Russia’s Donbas offensive sped up ahead of the U.S. election with a major southern push towards Khurakove. Around 50% of Donetsk remains under Ukrainian control, including major centers such as Kramatorsk and Pokrovsk. At the current rate of military progress, it would, according to some commentators, take Russia at least another year to complete its conquest of the Donbas. Although with Ukraine potentially demoralized by the change in power in Washington, Russia will continue to press its advantage and gobble up more ground before Trump takes office. There is no foreseeable military scenario at the moment which predicts that Ukraine will reverse the tide of Russian advances. Despite stop-start talks in Qatar, Russia will continue to pummel Ukraine’s critical national infrastructure, rendering life miserable for even more Ukrainian people as the winter grows colder. By giving Ukraine an extra $50 billion in lending, Europe will simply be helping Ukraine manage to sacrifice more of its land, at a huge cost in death and destruction. As Vice President-elect JD Vance pointed out in April, the math doesn’t add up . And with a now significant possibility that U.S. weapon supplies will dry up, the risk of a complete collapse of Ukraine’s front line will grow. The best way to stand with the glorious country of Ukraine is to end this nonsense and finally sue for peace. That will require difficult conversations between the 47th president of the United States and his war-hungry European colleagues. But first, he needs to pick up the phone to Putin and Zelenskyy.

Below a copy of my article published in Responsible Statecraf t. Closer ties to Europe have not helped Tbilisi on the fiscal front, just look at the numbers Indignant western armchair pundits and politicians have fallen into collective rage, signallng that the general election result in Georgia equated to the theft of a European choice. The opposition to the apparent winner, the ruling Georgia Dream party, is now being joined by international voices, including the U.S ., calling for an investigation into claims of election violations. But Western politicians, journalists, and NGOs have cynically, and in a way, willfully ignored the wider economic picture, and have instead spun up the election as an existential struggle between Europe (European Union) and Russia. There is so much nuance here that needs to be examined and is not. For one, study the vast amount of credible economic data and you’ll uncover the unpalatable truth that Georgia has been a net loser from closer EU economic ties thus far. And that the war in Ukraine, which the EU is helping to bankroll, has halted progress on key economic priorities in Georgia, including reducing unemployment. Taking a step back, Georgia has become an economic dynamo since 2012 through its sovereign endeavors. This small, proud nation with a population of 3.1 million, ranks number 7 in the World Bank’s ease of doing business index, ahead of the UK and every EU country except Denmark. Average economic growth has been a throaty 5.2%, 6.2% percent if you subtract the pandemic contraction in 2020. GDP per capita has increased by 79%. According to the World Bank, poverty reduced from 70.6% to 40.1% between 2010 and 2023, through sound macroeconomic management. There’s still more work to do to get it lower. Georgia’s economic growth performance has largely been driven by domestic investment. As a percentage of GDP, investment has averaged a brisk 26.6% per year since 1996, compared to the EU (21.8%) and the UK (18.8%). Yet signing the EU Deep and Comprehensive Free Trade Agreement (DCFTA) in 2014 didn’t unleash a tidal wave of new European investment into Georgia . EU foreign direct investment in 2024 was only $65k higher than in 2014, at an average 29.6% of total FDI in Georgia over that period. Russia is a significant but not key investment player, accounting for just 5.4% of FDI in 2023. If we look at trade, the signing of the DCFTA, in theory at least, should have driven a mutually beneficial surge in trade. But that simply hasn’t happened. The European Commission website proudly announces that Europe is Georgia’s biggest trade partner. But EU trade with Georgia accounts for just 20.9% of the total. And that is only because Georgia has been flooded with European exports since 2016. In fact, western European states have been eating Georgia’s lunch when it comes to trade. On average, Georgia’s eight largest western European trade partners (including the UK) now export four times as much to Georgia than they import. The biggest culprit is Germany which in 2022 exported 7.8 times more ($673 million) to Georgia than it received in imports ($86 million). European exports to Georgia had quadrupled to 3.6 billion Euros by 2023 and are still rising. Yet, Georgian exports to the EU have stood still. Why? Look on the EU website and you will find 58 separate trade defense investigations by Europe against Georgia since 2021, looking to restrict imports of everything from tires to tinplate and tableware. Europe actively places barriers against Georgian imports. Georgia has been accused of helping Russia evade export sanctions, but the evidence for that is weak . Look East and you will see a different picture. Bulgaria exports as much to Georgia as the powerful western EU nations combined, yet is the only EU trading nation that imports more from Georgia than it exports. Because trade is all about gravity. Sofia is much closer to Tbilisi than Strasbourg. Countries trade more with those countries closer to their borders because the cost of trade is lower. Through a mix of gravity and history, 62.2% of Georgia’s exports go to its eight biggest Eurasian trade partners (former Soviet states, Turkey, China and India). And the trade balance is more even than it is with Europe, as Eurasian states export 1.8 times more to Georgia than they import. Russia exported 2.9 times more than Georgia in 2022 because of a surge in fuel exports. However, Georgian exports to Russia have also increased by 56% since 2017 and now make up 9.4% of the total. The major economic shock Georgia has had to confront has been the war in Ukraine. A net 87,200 people from Russia, Ukraine and Belarus emigrated to Georgia between 2022 and 2023, two thirds of them Russian. Historically, Georgia had fairly even net migration, but the war-induced influx prompted unprecedented house price inflation of around 35% with rents up by as much as 50%. High inflation during the first two years of the Ukraine war appears to have been tamed by the National Bank of Georgia which hiked interest rates to their highest level since the Global Financial Crisis. An economic flip side, is that Georgia saw a much needed boost in its current account which recorded its only significant surplus since the Soviet period in the third quarter of 2022. This was driven by surging service exports, that is, foreign money spent by migrants in Georgia. Foreign Exchange reserves also rose to a post-Soviet high. But the influx of Russians fleeing the draft undoubtedly increased resentment and social tension in part driven by historical enmity, including around the 2008 Georgian war. But it runs deeper. Georgia’s impressive reduction in unemployment has also flat-lined, having dropped from 20.6% in 2009 to 11.6% in 2020. Worryingly, 26.7% of Georgia’s young people are unemployed, and have seen young, digitally nomadic, middle class Russians crowding out opportunities in high-valued-added sectors. The West has framed the election and its results in almost Manichean terms, a battle of light and dark, between Europe and Russia. They have positioned Georgia Dream’s founder Bidzina Ivanishvili, as a Kremlin stooge. Yes, Ivanishvili, like many oligarchs, gained his wealth during the chaos of Soviet collapse. His nationalism is rooted in a conservatism that has echoes of Putin’s Russia and Orban’s Hungary. But his economic approach in Georgia has been driven by specifically Georgian considerations. And elections always, ultimately, get tipped by domestic issues. By today’s election count, it would seem a majority of Georgian people chose prosperity over war. It’s time to let Georgia’s government get back to the task of strengthening their wonderful country still further.

Wars, after all, are won by economies, not armies. Growing up on a British Army base in West Germany, I was conscious, even as a child, of being situated in a country that was booming. When the Berlin wall fell, the huge difference in economic development between West Germany and East Germany was something that could be elucidated not only through data, but also visually, by observing the drab buildings and beaten down citizens from the east. While it may be impossible to replicate the West German economic miracle today, a partitioned Ukraine can nevertheless move on to secure a brighter, more prosperous future for its citizens. It is worth remembering that the very point of the Maidan movement which started in 2013, was to secure prosperity for Ukraine through greater economic integration into Europe and the wider world. That hasn’t happened, not just since 2022, but since 2014. It is no great surprise that Ukraine’s economy today  is smaller than it was  before war began. Yet Ukraine has received over  $380bn in foreign aid  during that time. Imagine Ukraine’s prosperity today, if the $190bn economy of 2019 has received a foreign injection amounting to 200% of GDP? Most of that money has vanished into thin air and the flames of war. Some of it will have gone into rampant  corruption . Hardly any of it has gone into productive investment. Yet investment was a key pillar of West Germany’s success.  Investment alone contributed  an average of almost 2.2% per year to GDP growth in West Germany in the 39 years before the Berlin wall fell. As I’ve  reported before , investment is an issue that Ukrainian leaders have consistently failed to grip since 2014, when the policy of western-backed confrontation with Russia began. With cities and over half of its  electricity generation  destroyed, there is huge scope in Ukraine to generate catch up growth by investing in the basics of infrastructure. Indeed, it is the degradation of Ukraine’s infrastructure that is  slowing the growth  that it can create today. Investment needs people. A major factor in West Germany’s success was the rapid increase in its population after the war. West Germany’s labour force rose by  almost 44%  in the decade from 1950-1960, with much of the labour coming from disaffected Germans in the east. Ukraine could benefit from that same windfall of labour should it decide to end the war, having seen huge depopulation since the outbreak of war of up to  10 million  people. Agreeing a ceasefire would allow the slow process of Ukrainian citizens returning to their homeland including the at least 1 million men of fighting age who have avoided the draft. The return of citizens would also relieve the drag on Ukraine’s current account deficit from Ukrainians spending their money in foreign countries. West Germany kick started business productivity and exports, seeing export growth average 17.5% between 1950-55 as businesses reformed and increased productivity. Germany remains, today, a global exporting powerhouse. Despite its productive agriculture, rich mineral wealth and talented workforce, Ukraine has been stuck in a toxic combination of low investment and import dependence (see my earlier article) since 2014. Ukraine’s  Finance Minister  recently said that 30% of businesses in Ukraine have stopped functioning while 45% have decreased production. This lack of a clear economic strategy from Ukraine’s leaders is not a factor of the current war; Ukraine’s leaders haven’t set out a clear strategy for growth over the past decade. That lack of economic leadership will continue at least for as long as this war continues. Yet the military facts on the ground have not changed significantly. That delicate balance, in which Russia is making progressive, but nonetheless small gains, is held in place both by Ukraine’s dire military logistical situation and by Russia’s decision not to go all in. There is a palpable sense from Russia military bloggers of the Kremlin wanting to avoid a large scale mobilisation, and steering clear of the  extreme tactics  that Ukraine has pursued to press gang men into military service. However, with Russia set to  spend even more on defence  in 2025, the imbalance in the two forces may shift further in its favour, whoever wins the U.S. Presidential election. So the situation, inexorably, will continue to worsen against Ukraine. Having been fairly static for the past month, because of the distraction of Kursk, the front line in the Donbas is shifting westwards again at an increased tempo. The  fall of Vuhledar  in the south has precipitated a rapid (by the slow standards of the front line) push north, the  Pokrovsk salient is broadening , and Toretsk is being gradually consumed. Ukraine today has become locked in self-fulfilling militarism and a state of dependency on outside help, focussed only on the chimera of victory against Russia. Zelensky’s personal fate is closely linked to the continuation of the war, the cessation of which would bring a close to martial law in Ukraine, and the consequent pause in elections. Yet looking back, West Germany’s economic miracle, or  Wirtschaftswunder , started when German leaders took back economic control; they did so after a period of disastrous military rule that saw  cigarettes  become a tradeable currency. Ukraine is not at that stage, yet. However, it’s worth remembering that one of the reasons East Germany failed as a state project was that few people of working age wanted to live there. Indeed, it’s this  feeling of being left behind  which has fuelled a rise in popular support for the BSW and AfD parties. Ukraine needs its people to come home and to reengage in the reconstruction and political rehabilitation of their magnificent country. Nothing, no Ukrainian victory plan, no injection of additional weapons or authorisation to strike slightly deeper into Russia, will change the basic mathematics of Ukraine’s disadvantage. Wars, after all, are  won by economies , not armies. The cold, unpalatable reality is that some form of partition will be imposed on Ukraine when hostilities finally draw to a close. When that happens, Ukrainian leaders will need, finally, to refocus on their economy, as West German leaders did in 1949. This article was published in Strategic Culture .

Below a copy of my article published by Responsible Statecraft today. Moldova’s election result has left incumbent President Maia Sandu damaged. An EU referendum delivered only a wafer-thin vote in favor of membership of the bloc. And in the first round of a presidential vote that Western commentators predicted Sandu might edge narrowly, she fell some way short of the 50% vote share she’d need to land a second presidential term. She will now face a unified group of opposition parties in the second round with her chances of remaining in office in the balance. Where did it all go wrong? Sandu’s mistake was in making the Moldovan election about a binary choice between Europe and Russia. Even before the final votes were counted, Sandu was claiming widespread electoral fraud sponsored by pro-Russian oligarch Ilan Shor. Reports that pro-Russian groups paid voters to come out to vote are credible. If that achieved anything, it was to mobilize voters in Moldova naturally inclined to want ties with Russia, rather than flipping votes of pro-Europeans. With a 33% turnout needed to legitimize the plebiscite, a final roll of just 50% hinted at widespread voter apathy in Moldova. In a country where only 9% of the population identifies as ethnically Russian, an almost 50% vote against EU membership illustrates wider concerns that the government in Chisinau has not addressed domestic issues important to ordinary people. For example, many Moldovans are worried about the race to EU membership undermining small farmers and local traditions. Sandu’s claims of interference must also be set against a concerted effort by Moldovan authorities to make it harder for Moldovan voters in Russia and breakaway Transnistria, to vote. A mere 10,000 ballot papers were sent to Russia, where the Moldovan population is thought to number over 150,000 people. The population of Transnistria is 367,000, but they were only allowed to vote in Moldova itself. (For the record, Moldova insists that Transnistria is part of Moldova .) Meanwhile, Shor’s political party was banned and media channels linked to him closed down. In the end, the pro-European referendum passed with a tiny majority, made possible by a large number of pro-European votes by members of the Moldovan diaspora, who don’t live in Russia. This will make it difficult for Sandu to claim a resounding endorsement of future EU membership. It will almost certainly stoke anti-EU sentiment in the Russia-backed breakaway Transnistria where a majority of the ethnically diverse population wants closer ties with Russia . Pro-Russian sentiment will also be fueled in the autonomous status of Gagauzia in the south, where 95% of voters did not choose a European future in the referendum. Of course, the Transnistria question, nor, to a lesser extent, that of Gagauzia, shouldn’t necessarily create a bar on possible future EU membership by Moldova, as Cyprus has shown. But by making the referendum about ethno-nationalist politics, Sandu will have stimulated the secessionist tendencies there, making the process of EU integration more problematic. She also exposes herself to the accusation of letting Moldova become a geo-strategic test-tube for Western influence, something that Russia will undoubtedly look to exploit. European Commission President Ursula Von der Leyen was in Chisinau shortly before the vote exhorting Moldovans to express their free choice. NATO Secretary General Mark Rutte chose to weigh in with concerns about Russian efforts to derail Moldova’s European future. These pronouncements are imbued with notions that Moldovan membership of the EU would stabilize Europe’s eastern border and strengthen security against Russia. But that ignores the lessons of history. Those same arguments were used in Ukraine in 2014. Making the Moldovan election a zero sum tussle between Europe and Russia — rather than a vote about what ordinary Moldovans want to see happen domestically — risks making Moldova a new, much smaller, more economically vulnerable, version of Ukraine. And the critical point is that Sandu has yet to make the economic case that EU membership, rather than Moldova maintaining balanced relations with all countries, including Russia, will provide the boost that the country needs. A pro-European report from 2014 shows that significant economic benefits accrue to countries in anticipation of possible membership, but that EU membership won’t necessarily benefit every new member, mentioning Greece. The reality is that annual economic growth in Moldova since the signing of the Deep and Comprehensive Free Trade Agreement with the EU in 2014 has been significantly lower, on average, than in the first 10 years of the Millennium. That anticipation effect has not yet been seen in Moldova. A key reason is that Moldova’s trade with Russia has fallen sharply since the DCFTA was signed. Sandu talks about 65% of Moldovan exports going to Europe as a triumph. In fact, Moldova imports twice as much from Europe, stoking a stubborn current account deficit. To some extent, that has been offset by inflows of foreign investment into Moldova. But it is nevertheless clear that strengthened relations with Europe haven’t been enough to make up for the cutting of trading relations with a country — Russia — that had previously been a key trading partner with Moldova. The other key reason is demographic. Moldova has the fastest shrinking population in the world. Over a quarter of Moldova’s population have taken advantage of EU citizenship, by virtue of their entitlement to Romanian passports. That has led to an emptying of talent from Moldova as young, talented workers seek better pay elsewhere, mostly in Europe, but also in Russia. The economy would need to be growing at a brisker rate than it is to entice the most talented Moldovans back to their country. But, making Moldova the next frontier state for the West’s battle with Russia will place a heavy drag on encouraging diaspora Moldovans to return. Moldova is a country that I am deeply fond of and have visited many times. As it happens, I have always considered that it is a country that would benefit from closer economic ties with Europe. I also believe that a politically stable and economically prosperous future for Moldova rests on that beautiful country maintaining close relations with Europe and with Russia. Maia Sandu may come to rue her failure to make this election about Moldova itself.

I had a sense of déjà vu with Russia’s decision to kick out six alleged British spies in August. After the Salisbury nerve agent attack in March 2018, I sweated for a week in Moscow, waiting to hear if I’d be kicked out in the diplomatic tit-for-tat. Russia’s announcement was timed to embarrass Keir Starmer as he travelled to Washington last week for talks with Joe Biden. It was also a blow to the critically small pool of Russia experts in the British government. In the hostile goldfish bowl of UK-Russia relations, both sides are constantly on the lookout for ‘undeclared’ intelligence officers (i.e. spies) working covertly by masquerading as diplomatically accredited staff in the respective Embassies. We kicked out the Russian Defence Attaché earlier this year. The Russians run a huge ‘guess-the-spy’ game around the clock, with all manner of covert and overt surveillance. I was regularly followed by Russian intelligence, including a fun chase round central Moscow on the day that the post-Salisbury expulsions were announced, with my kids in the back of the car.   Russia’s domestic intelligence service the FSB gleefully revealed details about the six expelled British diplomats and their inexplicable jogging habits around Moscow’s third ring road or curious meetings in towns close to Moscow. In a strange departure from the convention of keeping the details out of the public gaze, the names and photos of the expelled Brits have been flying around social media.  That’s why Russia’s Ambassador Andrei Keilin was hauled into the Foreign Office for a tongue lashing. But there was a big dose of ‘nothing to see here’ in the revelations. Russia hasn’t caught anyone red-handed, not now, or recently, even though they’ve laid on the charm with honey-traps and kompromat. Yes, both sides work hard to gather secrets; the Head of MI6 recently called on Russians to spy for Britain.   The relationship between diplomacy and intelligence is symbiotic; UK and Russian intelligence do have ‘declared’ channels to talk when they really have to.  But the Russians are winning in the real ground game of espionage and diplomacy anyway. Much like in war, having an edge can come down to a bigger supply of the right people with the right skills in the right places. And Russia has a significant advantage over us in the number of staff they employ in the UK compared to our outfit in Moscow. It’s quite simple. Russia only employees Russians at its Embassy. Most staff at the British Embassy in Moscow are also Russian, because of the Foreign Office’s model of employing less expensive local staff. That’s a good model in friendly nations. Less so in Moscow where the FSB has been known to harass locally employed Russian staff.  When I left Moscow in February 2019, almost 90 per cent of the staff across the Russia and British Embassies were Russian.  Add to that, a community of over 150,000 Russians in the UK against a small number of British expats in Russia.   There are seldom more than a few dozen diplomatically accredited Brits at our Embassy Moscow.  After Salisbury, the loss of twenty-three colleagues cleaned out the political wing of the Embassy, leaving a few people like me, with mere months left on their postings, in a two for the price of one deal. Kicking out six political officers in August will have put a bit dent in the Embassy’s ability to function again. Where those officers liked to go jogging in Moscow is really a secondary issue. I took a lunchtime run from the Embassy once surrounded by a crowd of twenty agents, in one of the weirder stunts they pulled on me. The point is, it will take months for replacement staff to get diplomatic visas, if they ever do. So, this is really about degrading the UK’s ability to have a functioning Embassy in Moscow. Russia plays this game better than us.  Fewer Brits in Moscow, means less insight for London policy makers and weaker advice being put to David Lammy. And the UK struggles to generate officers with the right skills to fill the jobs we have at the Embassy in Moscow, as Russia expertise has been hollowed out over the last three decades. The Foreign Office has a poor record in ensuring political staff arrive in Moscow with the Russian language and diplomatic skills they need. I saw no real thought put into a strategic workforce plan to maintain a pipeline of Russia expertise over the longer-term. British universities are slowly cutting back on Russian language degrees.  When I arrived in Moscow in July 2014, the Foreign Office spoke often about the need to ‘rebuild’ after a period of post-Cold War disinvestment. This challenge has yet to be gripped with any vigour or purpose. Russia, on the other hand, has no shortage of English-speaking staff queuing up to work in London. They are generally better qualified, as their Foreign Ministry invests seriously in its Diplomatic Academy and runs a feeder Diplomatic University, which some people call ‘spy school’.   There is a wider problem, too. In recent days, Russian military bloggers have taken great delight in circulating what they claim to be detailed organisation charts of the ‘massive’ Foreign Office’s Eastern Europe and Central Asia Directorate (EECAD), following an FSB information hack. But in my experience, most staff in this Whitehall Russia machine lack real experience of working on Russia or with Russians. So, Starmer and Lammy are chest-beating their way around the world, reliant on advice from kids in London and a barely staffed Potemkin Embassy in Moscow. Little wonder they’ve brought no new ideas of their own to the table. Meanwhile, Russia is gaining friends in the global south with a systematic and well organised diplomatic charm offensive, as war rages in Ukraine. By putting insufficient emphasis on our diplomatic capabilities, the UK has rendered itself a global bit part player on Russia behind the US, China, India, France and Germany. We need a better plan for Russia expertise if we really want to outsmart Putin. This article was published by the Spectator on 20 September 2024.