The Emerging Crisis in Europe: Part Two

Publisher’s Note: Last week your Daily Reckoning editor Callum Newman interviewed geopolitical analyst George Friedman about his new book Flashpoints: The Emerging Crisis in Europe on the DR podcast. Yesterday we ran the first part of the conversation. Read on for the second part of the conversation or listen to the whole thing on iTunes here or Stitcher here. </e

Callum Newman: From a European perspective, they [the Europeans on Russia’s involvement in Ukraine] perceive it as Russia pushing west, and they’re going to push back on that. Is that roughly how you see it?
George Friedman: Most Europeans really just don’t care. There is a line of countries in Europe from the Baltics, Poland, Romania, Bulgaria, that care, and one of the things to really understand about Europe is that other members of NATO, like Spain, like Belgium, like Italy, they really don’t feel they have a stake in it.

This is one of the fragmentation points of Europe. One fragmentation point is Southern Europe suffering enormous unemployment compared to Northern Europe, in better shape. The other is those countries on the frontier with Russia or potentially on the frontier with Russia, and the countries to their rear. One of the reasons for the rise of Russia has been the fragmentation and the weakness of Europe they hold in no account.

On the other hand, what everybody think what really happened to Ukraine was a massive defeat of the Russians. A year ago, the Russians were the dominant outside force in Ukraine.

Uprising occurred, the elected president was deposed, and what happened was that you had a very pro-Western government. From the point of view of the Russians, where they once held all of the Ukraine, now they barely cling to Crimea and small parts of Eastern Russia.

Their view is not that they had become aggressive, it is that the West and particularly the United States has taken actions that can only be interpreted as an attempt to encircle and break the Russian Federation apart.

Callum Newman: You mention NATO there. You see that as something as a historical anomaly, is that correct?
George Friedman: NATO existed to confront the Soviet Union. It was a military alliance. It remains a military alliance, but it really isn’t one, because most of the European countries don’t have militaries.

NATO has become a kind of vague organization, a relic of the Cold War, where most of the members are not prepared to take the kind of risks and efforts that a military alliance requires, and where primarily it’s become the vehicle either to compel the United States to take action, or in other cases for the United States, to use it as a justification for taking action.

But to the extent that it’s a military alliance, other countries do have militaries to some extent, but it really is about the United States, and the United States has pretty much reached their conclusion that NATO is more of a problem than a solution.

In aiding the countries like in the Baltics or Poland, the United States has done it outside the structure of NATO. They’ve done it bilaterally. NATO, sort of parallel with the EU, has become a very problematic entity.

Callum Newman: One of the points you make in the book is you think that Germany will be forced to make a decision whether it rearms and becomes more militarily stronger. Do you think they will do that?
George Friedman: They have a tremendous problem. First, as I said, they export 50% of their GDP. That’s untenable. You can’t consistently, continually do that. In 1990, it was only about 22%.

Not only has the German economy surged in size over the previous years, but their dependence on exports has just gone astronomical. There are no other major countries that do that much. They can’t support that.

That’s not going to be sustainable in this world. They will have to reduce that, and that’s going to lead to internal political and social crisis and to unemployment in Germany. The Germans are going to be looking for new markets. One of the places they’re looking for is in Russia, and this current crises bothers them a great deal.

But I think the problem you always have with Germany is that it is very dangerous as it is, and too weak to solve the problem. Germany has become a huge economic danger to other countries in Europe, but is actually so vulnerable it can’t shift. The logic here is that more and more European countries are going to be hostile to Germany, and if you travel in Europe, the level of hostility towards Germany is really staggering. The Germans are highly contemptuous of the rest of Europe. While you haven’t yet gone to the point of arming, and the Germans certainly have no intention of arming, the logic here is, between the divergence of interest and the hostility between these countries, this is going to get bad, and in European history, things usually get bad.

Callum Newman: As an adjunct to that, you have a forecast that Poland is going to actually become one of the most important countries in Europe. Is that right?
George Friedman: Yes. During the period since 2008, Germany has done well, Austria has done well, Poland has done well. In fact, outside of Germany and Austria, Poland has been the most prolific. It is also taking the lead in the anti-Russian coalition that’s forming.

It is taking the lead in driving the Europeans in various directions. A Pole is now the President of the European Union, Donald Tusk. When you take a look at where Poland was when I made that forecast six or seven years ago and where they are now, they are certainly one of the major powers in Europe, one of the drivers, and they’ll continue to do so.

They’ll do so because someone on the North European plane must be powerful, and Germany is going to be having difficulty doing that. By default, they’re left.

Callum Newman: You also think that they had the backing of the US, is that correct?
George Friedman: Absolutely. From the American point of view, we’ve for 100 years had a consistent policy in the world, which is that no European hegemon will be allowed to take control of all the resources of Europe and Asia, if you will, because if there was, say Germany and Russia together, that would be the only combination that could have the capital, the technology, the manpower and the resources to challenge the United States globally.

We intervened at the last possible moment in World War I, we intervened fairly late in World War II, we fought the Cold War. It has been a driving principle of US strategic policy, aside from the peripheral things that we get involved in, that a country like Russia or a country like Germany, or any country, is simply not going to be permitted by the United States to dominate the entire continent.

Therefore, the United States is now involved in supporting the Ukrainian government, promising weapons, sending trainers, but more importantly, pre-positioning equipment in the Baltics, in Poland, in Romania and Bulgaria. The United States is building a coalition in the East, bilateral coalition with these countries that face the Russians, and they’re basically ignoring the rest of the Europeans.

Those Europeans that want to participate can, those that don’t want to don’t have to. But certainly the United States has, how should I put it, it’s had its bell chimed. In other words, the thing that scares the US most has happened, and the United States has gotten involved.

Callum Newman: In your book, it’s about Europe, but in some ways the countries that have dominated Europe — France, Britain, Spain, Italy — they seem a little bit more in the background here and you’re much more focussed on Eastern Europe. Is that all to do with the relationship between Russia and Europe?
George Friedman: If you go back to Napoleon, his future was decided in Russia. If we think about Hitler, his future was decided in Russia. It is the Russian relationship with what we could call the European Peninsula, the area between the Baltic and the Black Sea.

This is part of the world that faces Russia, and there’s a constant friction within those borderlines. Sometimes it’s low grade, sometimes it’s intense. Sometimes, as after World War II, the Russians move westward. Sometimes, as after 1991, they move far to the east. But this is the area where the fundamental wars break out and are fought.

From the standpoint of Germans, British and French, perhaps, particularly British and French, World War I was really all about fighting in France. World War II was all about North Africa. But in fact, these wars are between the Russians and the Peninsula, and that’s why I focus on this region.

If you’d like to hear the rest of the conversation, check out the Daily Reckoning podcast on iTunes here Stitcher here.


Callum Newman
for Markets and Money

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Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect.

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