MOSCOW BLOG: The end of globalisation

MOSCOW BLOG: The end of globalisation
Meeting between then PM of Turkey Recep Tayyip Erdogan and President of Russia Vladimir Putin in Moscow.
By Ben Aris in Moscow May 9, 2016

​Has the globalisation trend of the last two decades just passed its high watermark? Is the EU falling apart? It certainly looks like it. That is bad news for global growth but good news for the more autocratic regimes like Russia and North Korea at least.

The first and most obvious victim is the EU. "EU enlargement process is over, post the Dutch Ukraine referendum. Amazing no one focusing on this key anchor for reform and peace has gone," the head of emerging markets strategy at Nomura International, Tim Ash, said in a tweet.

However, that list is very long indeed, containing 72 conditions and in reality no one is expecting Turkey to meet them anytime soon – if ever. In fact, the whole proposal of Turkey's EU membership has never seriously been on the cards.

German Chancellor Angela Merkel has said explicitly that Turkey will never join the EU on her watch and reiterated those views recently. But in the depths of the refugee negotiations she softened her tone considerably.

This sort of flim-flam has become the norm. Politicians will either promise membership when talking to Turkey, but deny it when talking to their home audiences. UK Prime Minister David Cameron did just this, telling the UK population ahead of a crucial vote on Brexit: "I don't think the accession of Turkey [to the EU] is remotely on the cards," adding if voters were worried about this ahead of the imminent Brexit vote, they should put it out of their minds.

However, about a year earlier, when the EU was trying to rally support in Turkey to prevent refugees from Syria passing through and in their increasingly vitriolic battle with Russian President Vladimir Putin over the fate of Syrian President Bashar al-Assad,  Cameron presented a very different message.

"I believe it is wrong to say that Turkey can guard the camp but not sit in the tent. So I will remain your strongest possible advocate for EU membership and greater influence at the top table or European diplomacy," the British leader said in a speech in Ankara.

Ukraine has found itself duped in the same way. Caught between Russia's demands that it join the Eurasian Economic Union (EEU) and an offer of an EU Association Agreement negotiated by  Orange Revolution president Viktor Yushchenko but never ratified, Ukraine finally decided to go with Brussels and "move westwards" in an endeavour to "adopt European values". The vagueness of the language was part of the con, as many European politicians have said from the start that EU membership was never on the table and never will be. That has not stopped President Petro Poroshenko holding referendums on the topic and promising that an application will be filed in 2020. It's a move that wins him brownie points at home, but is sufficiently far in the future that everyone can ignore it now.

In the meantime, like with the Turks, the EU on March 17 "accepted" Ukraine into its visa-free scheme, with talk of being "implemented by the end of this year" – although Ukraine is not being required to meet as many conditions as Turkey.

The promise of membership has been used as political leverage for the EU to impose changes it wants to see on aspirant countries and it has been extremely effective in some cases. Romania was fast tracked into the EU, joining in 2007, but at the time was considered one of the most corrupt countries on the continent. It then completely made itself over and set up the National Anticorruption Directorate (DNA), which has brought charges against everyone up to and including former prime ministers.

As eventually everyone comes to acknowledge the accession promises as empty, this will remove Europe's leverage over the smaller countries in Central and Eastern Europe (CEE). Ukraine's Poroshenko may talk about his country's eventual membership, but he pointed failed to sack former prosecutor general Viktor Shokin, who had failed to prosecute a single person for corruption in the ousted regim eof ex-president Viktor Yanukovych, and even sacked the only truly anti-corruption deputies that he had on his team.

Without the prospect of joining the EU, life is going to look a lot more scary for the smaller countries in CEE. Russia has not only rejected Europe's liberal economic model, it has put its explicitly into confrontation with the Washington consensus ideas and the US. Politics on the continent is increasingly fragmented and is becoming an us-or-them deal.

This process was already well underway before Russia's showdown with the West began in Ukraine and is apparent in many places. Russia's accession to the World Trade Organisation (WTO) in 2012 probably represents the high-water mark for globalisation, but it has all been downhill since then. Within two years, Russia had closed its borders to EU agricultural imports, which is protectionism on steroids, and this has been a huge boon to domestic agricultural producers for one. As Alfa Bank's chief economist Natalia Orlova pointed out in an interview with bne IntelliNews recently, two years ago the talk was all about attracting foreign investment and global integration. Now it's all about import substitution and self-sufficiency.

But the same is happening in the rest of the Continent. First Scotland had a referendum to leave the UK, now Britain is having a referendum to leave the EU. Illiberalism, a rejection of the EU cooperative model, is festering across Europe from Marine Le Pen in France and Geert Wilders in Holland, to the increasingly authoritarian governments in Hungary and Poland.

The Dutch rejection in April of the EU's free trade and association deal with Ukraine should have been expected. Brussels doyens have found themselves on the wrong side of the story. People like Merkel who were so prominent pushing the Ukraine deal and welcoming Syrian refugees have all disappeared from view as they turn inwards to deal with growing rebellions at home that are endangering their parties' popularity.

The same phenomena is also apparent in the US presidential race, where Donald Trump has tapped a deep well of resentment and campaigned on a platform that includes distancing the US relationship with Europe, reducing its role as global policemen and, most significantly, drastically cutting spending on Nato.

And most recently, President Recep Tayyip Erdogan caused Turkey's stock market to sell off the most in 20 years after he clashed with his prime minister Ahmet Davutoglu, who has now quit. The hollowness of the EU accession promises have resulted in Erdogan single-mindedly pursuing more power without restraint. In terms of ideology, Erdogan is clearly paying more attention to the Moscow model than the Brussels version.

"Short term, the market might still be able to ride out Davutoglu's exit, but for me if this means a slow down in [the] EU reform agenda, then this is bad for long term growth and development. Cameron did not help the EU anchor this week by telling the domestic British electorate that Turkish EU membership is miles away, if ever," Nomura International's Ash said in a note.  

All of this is fine with Putin, who made Russia a pariah following the annexation of Crimea in 2014. As the EU fragments it is a lot of easier for Russia to punch above its weight by snapping individual twigs instead of having to deal with a untied bundle of sticks. Russia refused to accept the EU and Ukraine's decision to ignore Russia's interests in the trade deal and had already committed himself to confrontation, but by luck or design he has been lucky once again as the increasing fragmentation of the global system has made his combative stance possible to maintain, despite Russia's increasing economic weakness. It has also created natural allies in the form of the other BRIC countries that were still dealing on their own terms and are not well integrated into the global system led by the US.

The world is entering a period similar to that post-industrial revolution, when growing protectionism and isolation hurt global growth, and led to growing political and ultimately military tensions. Worryingly these signs are already also apparent.

The Nato alliance is weighing rotating four battalions of troops through eastern member states, US Defense Secretary Ash Carter said in the last days of April, in the latest proposal by allies to guard against aggressive behaviour by Russia. The Baltic states - Estonia, Latvia and Lithuania - which joined Nato in 2004, have requested greater presence of the alliance, fearing a threat from Russia after it annexed the Crimea peninsula from Ukraine in 2014.

While the chances of Russia invading the Baltics are next to nil, says bne IntelliNews contributing editor Mark Galeotti, the prospect of more Nato troops on Russia's border caused a knee-jerk reaction from the Kremlin, which says it will create three new military divisions on the same border if Nato goes ahead with its plan.

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