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14 aprilie 2020 - Special reports - Weekly review

D.S.M. WEEKLY REPORT - Main Political and Military Developments (WEEK 15 of 2020)

Sandu Valentin Mateiu

I. ROMANIA / EUROPE / GLOBAL. Coronavirus pandemic. II. EUROPEAN UNION Foreign Ministers reach a common solution. III. OPEC+ member representatives decide to reduce oil production. IV. REPUBLIC OF MOLDOVA / UKRAINE / RUSSIA. Coronavirus crisis developments. V. Developments to track this Week 16 of 2020.

Sursă foto: Mediafax

English version by Mircea Mocanu

We continue to summarize the pandemic dynamics and effects. In two consecutive events with political impact, Eurozone finance ministers took decisions with political effects on EU future, and the OPEC+ representatives decided to reduce oil production in member countries. Close to Romania, we will assess the political situation in the Republic of Moldova, Ukraine and Russia, under Covid 19 circumstances.

I.ROMANIA / EUROPE / GLOBAL. Coronavirus pandemic.  

·Pandemic development. The pandemic starts to plateau and climb downhill in Western Europe, but it still climbs uphill in Eastern Europe. In Romania, we find ourselves in the Coronavirus war “attrition phase”, where stamina matters. Romania is slowly nearing the critical moment, then the number of contaminations is to settle and afterwards decrease. In the West, the pandemic dynamics is higher in the United States and Britain. In Eastern Europe, Belarus and Russia go faster, thus paying the price of ignoring reality for a too long time. Worldwide, pandemic invaded more and more countries. The governments in countries having crossed the peak (Austria first) now estimate the best pace of exiting the narrows and relaunch the economy as soon as possible, while preserving measures to keep off the danger of pandemic reactivation.  

·Romania has not yet reached the peak of the crisis, but current parameters are encouraging[1]. There were negative signals regarding the health system (contaminated hospitals and doctors) and new contamination hotbeds. However, these cases diminished, and the situation is under control, especially as result of population compliance and mobility restriction measures established by the authorities. Current situation can be summarized by the following parameters: 1) Romania fits the general European pattern; the doubling rate (the rate the contamination case number doubles), which is the main indicator, is now growing to 9.5 days, from 7.5 days mid last week (which is a positive development!). Of course, the total number of contaminations is still growing (April numbers are as follows: an additional 251 cases on April 05; 193 on 06; 360/07; 344/08; 441/09; 265/10; 523/11, 310/12), but the mean growth rate is decreasing

The light at the end of the tunnel will be visible when this number settles. Then this number will decrease, hopefully within a week, soon after the Orthodox Easter; 2) the contamination number vs population ratio is relatively low in Romania (in a European perspective), with 32.4 contaminations in 100,000 inhabitants; 3) on number of deaths, Romania ranks low in Europe, with 1.6 in 100,000 inhabitants, but this means a total of 306 deaths until April 12th, and as many tragedies. The number of tests is relevant for revealing the epidemic spread, and it also helps to quickly identify contamination hotbeds following epidemiologic investigations and enough tests[2] (this is the science and art of war which have to be utilized by the strategists committed to this struggle, which is the central and local level health system operators).      

·Europe. Overall, the shock wave hits now the Eastern Europe: The West shows signs of crossing the peak, Central Europe is generally on the plateau, and Eastern Europe is rising steeply. Thus, considering the doubling rate, we have: 1) the smoking hot group, Belarus (doubling every 3 days!) and Russia (6.5 days); 2) the high rate growing group, Turkey (6 days), Republic of Moldova, Ukraine and Serbia with 6.5 days; 3) the medium growth group Hungary 7.5 days), UK (the only in the west – 8 days), Poland (9 days), Romania (9.5 days); 4) the low growth rate group with France (13 days), Germany (16 days), Spain (18.5 days), Bulgaria (18.5 days), Italy (25 days) and Austria (30 days). Notably, Romania has almost all neighbors with higher contamination rates but Bulgaria. Some conclusions might come out from this and from the way authorities handled the problem in each country, but it is probably too soon. Due to the political impact of such conclusions, it seems wiser to leave the people in each nation judge the way their own authorities took decisions in this ongoing war. We will separately investigate only the visible political effects of the crisis in countries where other political problems make a short analysis become relevant for Romania.    

In European Union economy, financial recovery plans compete in ambition, according to each nation financial strength, and hinging on support possibilities (reaching a European financial solidarity). The EU finance minister reunion managed to overcome the North – South gap. The trade-off is a series of financial measures meant to help countries overcome the crisis (issuing ‘Corona Bonds’ is not among these measures, but it will likely show up again in a later phase of exiting the crisis).    

·Global.  The pandemic reached all the world, the highest growth rate is now in Bangladesh (2.5 days), Belarus (3 days), Peru (3.5 days), Niger (4 days), Russia (4.5 days), Uzbekistan (5 days) and India (5 days). The virus reaches impoverished regions of the world, where its spread will be more difficult to control, for lack of necessary means. Although with a low contamination rate (9 days), the United States faces many deaths (the highest number reported by one country[3]).

Economic effects are visible, the question being only how deep and how long will the following recession be, in the aftermath of Coronavirus pandemic (the head of IMF says it is worse than the Great Depression). Financing programs put together by governments start to be implemented, according to financial possibilities and credit score, as well as according to foreign support. Some trends can be already identified: 1) recession led to a top number of unemployed, and global trade was severely hit; 2) poor countries will suffer more, as they lack the financial capacity to face the crisis; 3) authoritarian governments, but also certain democratic governments try to use the Coronavirus crisis for gaining support to solve economic problems generated prior to the pandemic, for other economic and political causes; 4) an effect of this recession is the increase in a problem preceding the Coronavirus pandemic, that is the fall of crude oil price; 5) a first element noticed after the stock exchange fall is the attempt of taking over share packages of western companies in key fields, ranging from high tech to energy, and the governments took protection measures (Germany, Romania).

In politics, the West passed the Coronavirus test without significant political elements, as the Europeans managed to reach compromise in the issue of building a financial rescue program which was antagonizing the South (Italy first) and the North – i.e. Germany, but especially the Netherlands. Hungary is an exception which can easily disappear if Viktor Orbán renounces the sweeping powers immediately after the end of the Covid 19 crisis. In the United States, the way President Trump coordinates the crisis response will make an important element in the race for his second mandate. The name of his opponent is already known, it is Joe Biden. In many states, political effects of Covid 19 pandemic start to surface, but they will become visible, even concerningly obvious, immediately after the Coronavirus crisis has crossed over its peak. Such effects are generated by a poor management of Coronavirus crisis and the augmentation of previous problems by this crisis.

On security, there was no cooperation on Coronavirus crisis at global level. The UN Security Council (UNSC) did not work as a world decision forum, and a recent reunion did not provide anything new. Two resolution drafts circulate in the UNSC: one offered by France and supported by the UNSC permanent members, and another draft submitted by a group of nations spearheaded by Germany. This situation speaks volumes, even about the European Union cohesion! The dispute between the United States and China, which focuses on the pandemic outburst and other less visible developments, gains momentum and reflects larger divergences between the two large powers. This dispute also reflects less visible developments: although President Trump exaggerated when accusing World Health Organization leaders, the public later learned about China’s “cadre policy” at global organizations’ level: Beijing’s policy promotes, in the boards and bodies of international organizations, individuals who support China’s policy, including in the case of Coronavirus crisis.

In the military domain, there is still one week of reduced military activities, especially Russian military activities IVO Romania (although a NATO naval group visited the Black Sea); Saudi Arabia announced it would continue the cease-fire requested by the United Nations in Yemen; in Afghanistan, the power in Kabul liberated 100 Taliban fighters, after initially the process was believed to be jammed, and the U.S. force commander in Afghanistan conducted negotiations with the Taliban in Doha.

II. EUROPEAN UNION Foreign Ministers reach a common solution.

After several hesitations, a solution was identified for yanking the Eurozone countries out of the Coronavirus crisis. The program includes three important measures but rules out printing ‘Corona Bonds’. For the moment, the southerners shelved this idea, and the northerners insignificantly softened the conditions they had attached to their financing package. As expected, Germany played the lead role in finding a solution. Berlin conveyed the solidarity message (Merkel: “Germany is ready for this solidarity and committed to it. Germany’s wellbeing depends on Europe being well”), but she made no mention about the... Corona Bonds

On April 10th, Eurozone finance ministers agreed upon the financial measure package meant to control the Coronavirus crisis economic effects. This package is worth 540 billion Euros and will act as a ‘safety net’ for European countries, businesses and workers. This package offers three support elements for national economies: 1) the use of 410 billion Euros of the European Stability Mechanism (ESM); 2) the use of European Investment Fund; 3) 100 billion Euros from SURE, a European Commission (EC) mechanism for supporting businesses and workers. These are to be supplemented with measures taken by the European Central Bank, which will spend up to 750 billion Euros to purchase bonds from the market (to calm and control European nation sovereign debts), in a Pandemic Emergency Purchase Programme (PEPP). Finally, the North put its foot down not only in shelving the Corona Bonds, but also to set conditions for financing, such as hinged access to credits from the ESM bailout fund. The agreement also establishes a “Recovery Fund” within the European budget, which would be “temporary, targeted and commensurate with the extraordinary costs of the current crisis”. European leaders are to decide financing sources of this Recovery Fund, including whether “innovative financial instruments” would be used (an elegant moniker for the Corona Bonds). The door seems to be wide open, but, in fact, the North takes care to keep it just ajar, very carefully supervising the access to cheap or free money.

For the moment, the package of economic measures seems to be comprehensive, and the Eurozone, respectively the EU seems ready to cross this difficult political moment. However, there is no guarantee that the economic and financial lack of trust between the competitive North and the financially impaired South will not return, albeit in the form of bringing Rome’s Corona Bond idea back on the table. Eurozone’s big problem, single currency but not single economy, became a persisting political problem, which is reactivated with each crisis, generated either by the populists or by pandemic now. The problem is simple though: on one side, nations with effective economies and a sustainable level of debts (Germany, the Netherlands, Austria, Denmark, Finland), and, on the other side, nations with structural economic problems and a high level of debts (Italy, with debts of 133% of the GDP, Spain, Portugal, Greece). The southerners request solidarity, practically meaning future burden sharing, while the North demands, in exchange, economic reforms. Such reform measures would provide guarantees that common money to be injected into southern economies will lead to solving longstanding economic problems and not sink into a black hole. A German official summarized: “we are right to oppose Corona Bonds, economically speaking, but emotionally (read politically!) we are wrong”. On the other hand, Italian Prime Minister Giuseppe Conte, who issued the Corona Bond idea, failed to provide a reform plan for the Italian economy both when leading a populist – far-right government blackmailing Brussels, and now, when he leads a populist – center-left government during a full swing Covid 19 crisis.  

The EU crossed the bridge, but the problem is here to stay: we are just at the beginning of the deep post-Coronavirus crisis, but with each crisis, the voice of the South, which requests money without implementing reforms, will bump into reluctance by the North, which wants reforms with few money thrown to the South. Economic solidarity will come only if EU proves a political solidarity generated from a common set of principles applied in solidarity by everybody in economy, the place where everything comes together. Compared to the economic problems, the second issue, purely political, of EU newcomer “political naughtiness” seems just childhood deceases, although this childhood should come to an end, though. Such misbehavior is Hungary’s authoritarian drift, and Poland’s milder misdeeds (Warsaw was again reprimanded by the European Court of Justice).

For Romania, this is a lesson to pay attention to, in view of later joining the Eurozone. After having wasted almost all resources, we should mind the two arguments we still own: low foreign debt, and the potential of a labor force we can educate. Finally, in order to further integrate into the EU by joining the Eurozone, Romania should probably build a competitive economy, which will set the foundation of a domestic political stability and an adequate defense capability.

III. OPEC+ member representatives decide to reduce oil production.

The OPEC+ (OPEC and Russia) decided to reduce the oil production, after Russia and Saudi Arabia agreed on the way to proceed in that direction. This reunion was followed by an OPEC++ / G20 meeting, meant to include the other oil producers in this arrangement. This means the western oil producers, especially the United States, who played an essential role in finding a solution (including in resuming negotiations between Russia and Saudi Arabia). But, because there is a “but”, Mexico refused to reduce its oil production to the level requested by the OPEC+. Interestingly, the U.S. would offer to take a part of Mexico’s burden, but even this did not make Mexico change its mind. Mexico will likely yield though, as this is the only obstacle in finding a global agreement on reduced production. However, such reduction would not guarantee a decrease in crude oil price. From a political point of view, we witness the end of an era, as the OPEC+ cartel is revealing its limits. For Russia, who used ‘petroeuros’ to finance not only its economy, but also its rearming and an aggressive foreign policy, it is a turning point. Ironically, the very United States made a solution possible, by pressing Saudi Arabia to quit the oil production war with Russia, considering that Russia and Saudi Arabia started this oil price dispute precisely for leaving the American producers behind, then they ended up in a bilateral quarrel. Even more ironically, the Kremlin launched its rearming based on the strategic assumption that, starting with year 2020, the fight for resources would begin, and now… few people come to buy Russian oil!   

In its April 9th reunion, the OPEC+ countries decided to reduce their oil production by 10 million barrels/day, which is 10% of the world production. OPEC+ announced it wants the other oil producers, including the United States and Canada, reduce their production with 5% of the world yield. OPEC+ nations will reduce their production with 23%, Russia and Saudi Arabia will cut 2.5 million barrels/day, and Iraq 1 million barrels/day, during May and June 2020. Saudi Arabia yielded by accepting the October 2018 figures (11 million barrels/day) as reduction reference, although Riyadh had increased its production to 12.3 million barrels/day this month. Then, OPEC+ countries will maintain a 12.3 million barrels/day low production from July to December 2020, and down to 6 million barrels/day from January 2021 to April 2022. The April 10th OPEC++ / G20 meeting confirmed the outcome of OPEC+ reunion, and additional oil producers, especially westerners, agreed a reduction in oil production (United States, United Kingdom, Canada and Norway). Norway and Canada suggested they would proceed to reduce their production as soon as OPEC+ reaches a final agreement. 

These efforts were limited by Mexico’s decision to reduce its oil production by only a quarter of the quantity requested by the OPEC+. Mexico showed readiness to reduce only 100,000 barrels/day, not the requested 400,000. The dispute moved between Saudi Arabia and Mexico, as the latter is more interested in keeping a high production than reducing the price. The United States stepped in to mediate, and President Trump announced that Washington was ready to transfer part of Mexico’s reduction quota (perhaps assuming that U.S. would soon decrease its production anyway), but Mexico still held its position. On April 11th, Vladimir Putin and Donald Trump talked again, after Mexico had refused to join the agreement. Through Dmitry Peskov, the Kremlin announced that involvement by other countries was ‘inevitable’, although the U.S. anti-trust act prevents the production reduction by American producers. However, although the U.S. would decrease production by 15%, there are slim chances to see oil price rise, since the market demand decreased by 30%, and stocks touch the ceiling. 

In a global perspective, the OPEC+ cartel shows signs it lost control, as the United States and other westerners had to intervene to reach a reduction in world production, although this might not secure an increase in oil price. For Romania, the economic opportunity offered by the low oil price is not affected by issues linked to the decrease in production (as Romania is no longer a player in the oil market). In addition, NATO’s adversary, Russia, will have a reduced financing for its rearming plans, although the Kremlin will make rearming a priority anyway, before securing a decent living standard for the Russian population.

IV. REPUBLIC OF MOLDOVA / UKRAINE / RUSSIA. Coronavirus crisis developments.

Covid 19 crisis took a toll on our neighbors too, on top of longstanding political and economic problems. Russia reacted in an autocratic manner, tardily and with a minimal implication from the central power, in a strategy of reducing the political costs for the Kremlin, no matter how high these costs would be for Russia’s population. Ukraine reacted somewhat adequately, but this crisis rushes the need for an IMF loan, respectively the urgency to pass the IMF request: to vote the banking bill, in the second reading. Oligarch Ihor Kolomoisky, the main loser of this bill, wants to resort to extreme measures to stop the bill. The only good news is that a new prisoner exchange is being prepared, but this is just a symbolic gesture, with no effects on the Donbass conflict. In the Republic of Moldova (RM), the power reacted poorly to the crisis, being busy with its own machinations, which are not Moldovan citizens’ concern at all. This presses Romania to act, as soon as it can, in direct support of RM inhabitants.

RUSSIA. The tardy and limited reaction by Russia’s central power caused a high rate of contaminations (a short doubling period, only 4.5 days). Vladimir Putin preferred to keep a low profile, then, after a brief absence, he came back with a patriotic speech (“Everything passes, and this will pass. Our country has been through serious tests more than once: when tormented by the Pechenegs and the Cumans, Russia coped with everything… We will defeat this coronavirus infection. Together we will overcome everything”… rather far-fetched, one might say!). He also offered an extended holiday to the Russians, transferring the responsibility to region governors. Moscow’s mayor, Sergey Sobyanin came in close-up to fence the quick spread of SARS CoV2: he took urgent measures accepted by Putin and approved by the State Duma, which hastily passed necessary legislation. But this positive element is shaded by administrative ineffectiveness, with two command centers to fight this novel Coronavirus: one is led by Sobyanin, and the second is led by Prime Minister Mikhail Mishustin. However, Mishustin has a limited power, since Putin has decided to ‘federalize’ the responsibility to fight against Covid 19 to regional governors. Such attitude, apparently surprising, seems natural when noticing that Moscow prepared itself to create crises for others, not to control the crises that might surface at home. Perhaps the Kremlin thinks it erased any political crisis at home by eliminating the opposition, and it also thinks that Moscow can solve any economic crisis as long as Russia possesses oil and gas to export, without foreseeing the price plummeting, as it happens right now.

UKRAINE. While the virus spread is somewhat controlled (doubling rate is 6.5 days), the political situation demands urgent action. The power must pass the banking bill in the Rada, in the second reading. Oligarch Ihor Kolomoisky controls about thirty deputies of Zelenskiy’s party (this is what Zelenskiy counts as the chunk of his ‘Servants of the People” party serving, in fact, one sole oligarch!). In order to prevent the bill from passing in the Rada, Kolomoisky resorted to the cynical filibuster procedure: they introduced about 10,000 amendments to the bill. Although these are rejected, they still need to be debated in the Rada, which takes time. European ambassadors in Kyiv intervened by conveying a support message and underlining that the banking bill is a “vital test” for Ukraine.

In the field, incidents continue along the contact line, where Donbass separatists show signs that they are afraid Russian subsidies might end. The danger is significant, as Kyiv started a coherent action of reducing its dependence on Russia regarding Ukraine’s import of raw materials and energy: Kyiv announced that, beginning with April 15th, Ukraine will introduce a 65% tariff on coal imports, in view of protecting its market from Russian coal. More, a new tariff is to be introduced on energy imported from Russia, and ‘optimization’ measures are considered for the Russian gas transit system, in view of reducing this transit.

REPUBLIC OF MOLDOVA. Even during the full swing Covid 19 crisis, Dodon regime’s tragic comedy goes on. The power’s focus is not country administration, especially in such unforeseen circumstances, but preserving and consolidating his power. RM has a relatively high contamination rate (doubling rate is 6.5 days), with a high percentage of contaminated population (44 in 100,000 inhabitants). Fortunately, RM has a low mortality rate of only 0.8 in 100,000 inhabitants. The power reacted poorly, and the legislative package assumed by Igor Dodon’s government was declared non-constitutional by the Constitutional Court controlled by Dodon himself. In Chişinău, the word is that the power took this decision after finding it had not enough money in the chest for the measures they wrote in the proposed bills. However, the European Union will provide a lifeline of emergency aid (no further word about the loan from Russia. Anyway, such Russian support would have been hinged on important political concessions). And then? It seems that Igor Dodon has his own plans for preserving power, which is more important than the way RM populations copes with the crisis: 1) resuming the rule of electing the president by the parliament is brought forth; Dumitru Diacov made proposition in that direction (Vladimir Voronin declared that the dice have been cast already, and the necessary deputies to make this happen have already been bought); 2) Hungary promoted within Visegrad Group the initiative of having the EU help Eastern Europe nations. With this support, attempts are made to access European funds without having complied with Brussels’ requirements regarding democratic and economic reforms (Budapest states that accusations against Chişinău regarding the failure to implement reforms are not founded). May such funds reach RM population at least! The Moldovans have enough problems even without the Coronavirus pandemic. One thing is clear: Romania must help RM population, especially in current Covid 19 crisis circumstances.

V. Developments to track this Week 16 of 2020.

This week 16, as nations prepare to climb downhill the Coronavirus crisis, both domestic and international political effects will begin to show. Romania must still wait, but let’s hope we will exit with a quite low number of victims.

► RUSSIA. The pandemic wave reached Russia and might trigger significant domestic problems. Since it is known that Moscow usually reacts aggressively abroad when it has domestic problems, we are now to see whether the Kremlin seeks to gain leverage by aggressive actions abroad, in order to compensate domestic issues. Such actions might rise the tensions with NATO and cast a new light on old issues, like the SSC-8 missile deployment.

► UNITED STATES. The name of Democrat presidential candidate is now known: Joe Biden. Immediately after exiting the Coronavirus crisis, the United States will enter the electoral campaign. President Donald Trump must rapidly solve the economic problems caused by the Covid 19 pandemic, and his management of the crisis in the U.S. is not outstanding. We should watch whether China will be the campaign main topic, together with the economic recovery, as the pandemic increased the tensions between the two countries, especially the political tensions. 

► TURKEY / CYPRUS. One month earlier than planned, Turkey withdrew its drill rig it had deployed in Cyprus’ south-eastern Exclusive Economic Zone. Is it an indication of détente in Turkish / Cypriot, Greek tensions? Overall, in full-fledged fight against Coronavirus, it is interesting to watch the way Ankara would try to turn back to its traditional position of ally of the West, after the cold shower Turkey received from Russia, in Syria.  

[1] Source of these assessments: New York Times maps.

[2] This is the explanation for relatively low numbers which some days interrupt the increase trend.

[3] French press estimates the number of Coronavirus victims in China as tweenty times higher than the number declared by Chinese authorities.