Not Just Another Recession
Why the Global Economy May Never Be the Same
Even now, gazing back through the jaundiced lens of subsequent experience, Barack Obama’s 2008 campaign speech in Berlin still seems an extraordinary occasion. Tens of thousands of mostly young Germans gathered in the center of the city to listen to the American presidential candidate, in an atmosphere The Guardian described as “a pop festival, a summer gathering of peace, love—and loathing of George Bush.” Streets were closed for the occasion. Bands played to warm up the crowd.
When he spoke, Obama said just what the Germans, and so many other Europeans, wanted to hear. He reaffirmed the United States’ commitment to Europe, evoking the Berlin airlift and the fall of the Berlin Wall. He praised the virtues of “allies who will listen to each other, learn from each other and, most of all, trust each other.” He listed a series of global problems and declared that “no one nation, no matter how large or how powerful, can defeat such challenges alone.” That one phrase—again, according to The Guardian’s gushing account—prompted long and hearty cheers.
Germany was not alone in its rapture. Soon after he was elected president, Obama was awarded the Nobel Peace Prize—simply, it seems, for the fact that he was not George W. Bush. With those kinds of absurd expectations surrounding his presidency, it was clearly impossible for Obama to avoid disappointing the Europeans. What is only surprising, in retrospect, is the speed with which he did so—and with which the Europeans disappointed him.
Three early incidents illustrate the nature of the problem. The first was the so-called reset with Russia. In March 2009, U.S. Secretary of State Hillary Clinton met with her Russian counterpart, Sergey Lavrov, and presented him with a gift: a giant red “reset button,” made especially for the occasion. Despite an unfortunate mistranslation (the Russian word printed on the gift actually meant “overcharge,” not “reset”), they smiled and pressed the button together for the cameras. The implication of the stunt was clear: U.S.-Russian relations, inexplicably damaged by the Bush administration, could now begin afresh. Surely, there were no fundamental differences or important divides that could not be bridged with dialogue.
The second important event was the NATO summit of April 2009, which also happened to mark the 60th anniversary of the alliance. Like so many NATO events, this one seemed designed to bore. Each of the members had sent its head of state, and all of them felt they had the right to make a long speech, with the usual words about commitment, significance, and so on. Nothing important was said or decided at the event. An American request for more troops in Afghanistan met with almost no response.
The third was the Obama administration’s decision, in September 2009, to cancel the eastern European missile defense program, which had been proposed by Bush and which would have required the placement of hardware in the Czech Republic and Poland. The decision was not altogether surprising: Obama had expressed perfectly reasonable doubts about the value and feasibility of the expensive program earlier. But the manner of the announcement caused some distress. Apparently reacting to what they thought was a leak, White House officials roused the Czech prime minister in the middle of the night to tell him about the decision; the Polish prime minister refused to take a similar call. Both governments had invested a large amount of political capital in the program, not for its own sake but because both wanted a U.S. military presence on their soil for their security. Both were unprepared for the decision and embarrassed by it.
Looking back at 2009, in other words, the patterns that would determine the shape of relations among the United States, Europe, and Russia over the next five years were already visible. At least until nearly the second half of Obama’s second term, neither the president nor anyone on his foreign policy team took European security seriously. The continent was considered safe and dull, a place for photo opportunities rather than real debate. NATO, which even then was desperately in need of radical institutional change, was thought too uninteresting to bother reforming. Europe’s refusal to contribute more troops to Afghanistan created not concern but a kind of disgust. The security fears of central Europe and the Baltic states were an afterthought, not even worth any extra diplomatic effort. Although the EU was slowly developing a deeper relationship with Kiev, Ukraine scarcely figured in U.S. thinking at that time. Despite the support that Europeans had given him during his election campaign, the president seems to have quickly concluded that his real efforts should lie elsewhere.
The patterns that would determine the shape of relations among the United States, Europe, and Russia over the next five years were already visible in 2009.
As for Russia, the analysis was straightforward: all the problems in U.S.-Russian relations were the fault of the previous president, with his bellicose rhetoric and his missile defense shield. Russia’s 2008 war with Georgia was quietly blamed on Mikheil Saakashvili, Georgia’s president. The profound differences in psychology, philosophy, and policy that had actually been the central sources of friction between the U.S. and Russian governments for the previous decade were dismissed or downplayed.
Yet even in early 2009, those differences were growing sharper. Given what came later, it is worth looking at remarks that Lavrov made at the German Marshall Fund’s March 2009 forum in Brussels. Speaking to past and present policymakers—several of whom had helped dismember the Warsaw Pact and expand NATO in the 1990s—Lavrov suggested that the West had lied to Russia, that NATO remained a threat to Russia, that the Organization for Security and Cooperation in Europe should replace NATO as the primary Western security organization, and that Russia would have plenty of potential clients for its gas in East Asia should its Western customers ever become problematic.
None of that sounded like the rhetoric of a country ready for a reset, and Russia’s evolving military strategy wasn’t any more comforting. During Zapad 2009, major military exercises that Russia held in 2009, the Russian army practiced a particularly aggressive scenario: the defense of a Baltic invasion of Belarus and a war with NATO-like forces, culminating in a first-use nuclear attack on Warsaw. Alarmed by this, Poland and the Baltic states stepped up their lobbying for a greater NATO presence in the region. In private, many officials worried that Russia would, sooner or later, do what its military had exercised. That was certainly what had happened in Georgia. But neither NATO nor the Obama administration was yet inclined to take such extreme scenarios seriously. The idea that Russia might again pose a real military threat to Europe still seemed absurd.
This is not to say that the Obama administration was motivated entirely by naiveté. Even in 2009 and 2010, there were few illusions about the nature of the Russian regime. In July 2009, when Obama had his first meeting with Vladimir Putin, the Russian leader rudely lectured the American president, and the two exchanged frank words about missile defense, Georgia, and other sore spots. But the White House still thought that it could work around Putin and deal directly with Dmitry Medvedev, who, although he was president at the time, held very little power. Early on, an Obama administration official told me that the White House’s policy was to “pretend Medvedev is really president.” The idea was to try to get business done with Russia—the delivery of supplies to U.S. troops in Afghanistan or help with negotiations with Iran, for instance—and not pick pointless fights.
It’s also important to note that the United States’ allies were doing the same. German Chancellor Angela Merkel earnestly tried to develop a real relationship with Medvedev, and German industry was at that time investing heavily in Russia. Italian Prime Minister Silvio Berlusconi partied with Putin in Sardinia. The central European and Baltic states maintained civil relations with Russia during this period and tried to keep open a wide range of contacts. Putin himself toned down some of his rhetoric. In 2009, he even attended the anniversary of the outbreak of World War II in Westerplatte, Poland—the first time a Russian leader had gone to an event that formally acknowledged that the war began in 1939, with the joint German-Soviet invasion of Poland, rather than 1941, when Germany turned around and invaded the Soviet Union.
Nevertheless, the Obama administration can certainly be faulted for complacency. Behind the scenes, some central European states did try to warn the Americans that beneath the surface, Russia’s strategic posture was changing. But no one felt any sense of urgency or need to prepare, not even when the Russians conducted Zapad 2013, a military exercise similar to Zapad 2009, only larger. Some 70,000 troops were involved in that exercise; reservists from St. Petersburg were mobilized. The scale of the operation was a reflection of the hundreds of millions of dollars that Russia had invested in its armed forces over the previous four years.
The two concessions to central European jitters made at this time were contingency plans for an invasion of NATO’s new eastern flank—during no previous U.S. administration had NATO ever tried to make any—and a NATO military exercise in the fall of 2013 in the new eastern part of the alliance, the first major exercise to take place there. But Steadfast Jazz, as the exercise was known, was a disappointment. The United States sent only 160 troops. Germany sent 55. The biggest contributions came from France and Poland, with over 1,000 soldiers each. This was a larger effort than anything NATO had put together since 2006, but in light of the shift in Russian military doctrine, it still seemed very thin.
Moscow used the good relations of the reset era to rebuild Russia’s military and strengthen its internal repression.
In fact, Moscow had used the relatively good relations of the reset era and the Medvedev presidency to rebuild Russia’s military, strengthen its internal repression, and invest in media and other companies all across Europe. Russian state companies began openly trying to buy influence; Gazprom, the Russian energy behemoth, put the former German chancellor, Gerhard Schröder, on its payroll. But in reaction, instead of focusing on deterrence, as it had done in the past, NATO, with exceptions in a few nervous countries, such as Estonia and Poland, began to dismantle itself.
Still, it is possible that the status quo might have been preserved at least a little longer had it not been for two important events. The first was the Western decision to come to the aid of Libyan rebels during the revolution of 2011. Ironically, the operation itself was a stark illustration of NATO’s military deficits. Largely a British and French project—Germany and Turkey opposed it, and a White House official described the United States as leading, lackadaisically, “from behind”—the bombing campaign just barely outlasted the Libyan regime. During the Kosovo campaign in 1999, NATO had flown some 800 missions a day, using 1,200 aircraft. In Libya, the alliance “struggled”—that was the word used by U.S. Secretary of Defense Robert Gates—to launch 150 missions a day using 250 aircraft. Even that limited number was made possible only thanks to the last-minute arrival of U.S. specialists in targeting and intelligence. Several countries ran out of ammunition and had to borrow it from others.
But what was in the end a successful campaign, on its own terms—it did force the Libyan leader Muammar al-Qaddafi from power—spooked Russia for different reasons. When East Germany collapsed in 1989, Putin was a KGB officer in Dresden and watched crowds sacking the Stasi headquarters. Ever since, he has evinced a distinct dislike and fear of street demonstrations. That paranoia was reinforced by the Orange Revolution in Ukraine in 2004, when crowds took to the streets to protest a falsified presidential election and managed to secure the annulment of its result. The Libyan revolution showed an even more frightening prospect: street mobs, supported by the West, chasing out and then murdering a dictator who only months earlier had seemed to be in total control.
Soon afterward, following contested legislative elections in Russia and Putin’s announcement that he would seek a constitutionally dubious third presidential term, the feared demonstrations came. Large crowds appeared in the streets all across Russia, in Moscow, St. Petersburg, and several dozen other cities. The demonstrators alleged electoral fraud, for which there was certainly evidence. Their protests also reflected the success of a growing anticorruption campaign led by the activist Alexei Navalny, among others. The profoundly kleptocratic nature of Putin’s Russia was for the first time exposed widely on the Internet, through publications and online campaigns. Publicly, Putin blamed the Obama administration for organizing the demonstrations and declared that Clinton had given activists “a signal” for them to begin.
In fact, the Russian street demonstrations were easily crushed. The mostly middle-class demonstrators hardly formed a majority. But that the protests had occurred at all in what had seemed a well-controlled semi-police state helps explain the extreme reaction that Putin had to the events in Ukraine in February 2014, when another street crowd persuaded the Ukrainian president, Viktor Yanukovych, to flee the country. Although the demonstrations had been sparked by Yanukovych’s refusal to sign a trade agreement with the EU, their deeper motivation was the same kind of anticorruption anger and activism that had driven the Russian demonstrators two years earlier. This was clear enough to the Kremlin, which decided it needed an overwhelming, shocking response.
Russia’s subsequent seizure of Crimea, followed by its invasion of eastern Ukraine, stunned leaders on both sides of the Atlantic, redrew a European border by force, and led the Obama administration to reassess its policy toward Russia. As the invasion proceeded and deepened, Russia issued a new series of threats and carried out a new wave of aggressive military exercises, especially targeting the Baltic region—not only Estonia, Latvia, and Lithuania, which had joined NATO in 2004, but also Finland and Sweden, which are not NATO members. For the first time since the collapse of the Soviet Union, the transatlantic alliance was forced to seriously consider the physical security of some of its members, including the possibility of a hybrid war—for example, a phony Russian-minority uprising in one of the Baltic states or a struggle over the rail corridor that runs through Lithuania between Kaliningrad and the rest of Russia.
Rhetorically and symbolically, Obama has responded to these changes. He gave stirring speeches in both Tallinn and Warsaw in the summer of 2014. In Poland, where he attended the 25th anniversary of the first free elections there, he declared that he had come not only on behalf of the United States but also on behalf of the NATO alliance, “to reaffirm our unwavering commitment to Poland’s security.” He continued: “Article 5 is clear—an attack on one is an attack on all. And as allies, we have a solemn duty—a binding treaty obligation—to defend your territorial integrity.” The administration has also continued to support economic sanctions targeting Russian oligarchs and banks with ties to Putin. At the same time, Obama and his administration continue to refer to the Ukraine crisis as a regional problem, which seems to stress the United States’ distance from Europe.
To date, the sanctions have stuck, largely because Merkel has also thrown her authority behind them. In practice, she is now leading Western policy toward Russia. Merkel was the main negotiator with Putin in Minsk in 2014 and early this year, where Russian, Ukrainian, and European leaders attempted to secure a cease-fire in eastern Ukraine, and she has maintained more contact with him than any other leader has. She deserves enormous credit for doing so, particularly given how much pressure she has been put under by German companies doing business in Russia. At long last, Europe’s economic powerhouse has taken on some foreign policy responsibilities as well.
The only downside to German leadership is that Germany, for understandable historical reasons, will not contemplate the use of military force, even in defense or for deterrence. Germany has steadily resisted the movement of NATO troops and bases into Poland, Romania, and the Baltic states. But if Putin should decide to move beyond Ukraine—as he continuously threatens to do—there will have to be a response, which only the United States or NATO can deliver. The United States, the United Kingdom, and Poland—the last of which, together with Sweden, previously led Europe’s eastern policy—have not been part of Merkel’s diplomatic efforts. French President François Hollande has been brought along as an afterthought. The absence of serious military partners has weakened Merkel’s hand considerably, and it undermined the Minsk negotiations.
Many years of neglect of European defense have taken their toll.
Belatedly, NATO has begun to make strategic adjustments, most notably by putting some heavy weaponry in states that border Russia. Having removed all its tanks from Europe less than a year before, the U.S. Army brought some back in early 2014. Both U.S. and NATO military leaders have repeatedly restated the alliance’s commitment to collective defense. Yet it is impossible not to ask whether some of these things should have been done earlier. Had NATO moved some equipment or even set up bases on its eastern border during the past decade, before tensions increased, it might have deterred Russian aggression, at least toward NATO states and possibly even toward Ukraine.
Instead, the many years of neglect of European defense—on the part of not only the Obama administration but also the Bush administration and the European political establishment—have taken their toll. Russian influence is now on the rise, and not only in the post-Soviet world. Russia supports, financially and otherwise, a wide range of anti-EU, anti-NATO far-right and far-left political parties in Europe, from France’s National Front and Austria’s Freedom Party to Hungary’s Jobbik and Greece’s Syriza. Sophisticated Russian disinformation now filters into mainstream media in many European countries. Russian efforts to undermine Ukraine continue; financial catastrophe, as well as more fighting, may follow. In the current atmosphere, Russia doesn’t need to invent Europe’s problems; it just needs to exacerbate them.
Right now, none of this is anybody’s priority: Europe is preoccupied with the Greek debt crisis, the coming British referendum on EU membership, and the wave of refugees crossing the Mediterranean in an effort to reach Europe. The United States has a major stake in all these crises. In particular, Greece’s travails are helping destabilize the Balkans. Russia is working hard to spread its influence there, most notably in Serbia, where Russian companies have invested heavily in the energy industry.
Yet the American role in the Greek drama has been mostly limited to friendly advice—the United States pushed for Europe to bail out Greece—which has generally been ignored, if even heard at all. In any case, the United States was always going to have limited influence over the far-left Syriza government, and Congress would surely have resisted major expenditures on Greece, which is generally seen as Europe’s problem.
It is possible, of course, that time is on the side of the Western alliance. The Russian economy is in decline, thanks largely to low oil prices rather than the sanctions. Deterrence and containment may well protect Europe, as they have in the past, until Russian policy or Russian leadership changes once again. The great unknown is Putin himself: If he feels his personal authority is truly threatened, how will he react? He may decide that he needs another crisis—perhaps a bigger one—to mobilize the public and stay in power. The most catastrophic scenarios, of course, are the ones that the Russians themselves have been preparing for, through military exercises, during the past six years.
Looking back, Obama’s evolving attitude toward Russia has followed a familiar arc. President Jimmy Carter started with détente and ended up arming the mujahideen in Afghanistan and boycotting the Moscow Olympics. Bush started with seeing Putin’s “soul” and ended up backing Georgia in its war with Russia, at least rhetorically. Obama, likewise, started with a reset and wound up with sanctions. The question for the next president is whether he or she can avoid repeating this pattern and find ways to engage the entire European continent in the long-term project of sustaining the Western alliance and protecting it from what could be a long era of Russian revanchism.