Department of a Thousand Words

Brainstorming Russian Reparations

I'd like to spend a little more time thinking about the proposal, discussed in my March 18 post, that we use Russia's money to rebuild Ukraine. The first mention I saw of this idea is in Robert E. Litan's article at the Brookings Institute website. By Litan's reckoning, Western countries and Japan are holding about $350 billion of Russia's foreign policy reserves; these reserves are currently "frozen" by the sanctions placed on Russia. The fact that the reserves are called "frozen" and not "seized" implies they will be "unfrozen" some day – presumably when Russian troops are withdrawn from Ukraine.

This chart from Statista illustrates the distribution of the reserves.

Source: Statista.com

 Litan wrote "the fact that many countries already have control over Russia's holdings of foreign currency means that, in effect, reparations for the Ukrainian invasion have been pre-funded by Russia itself." Moreover, "there is a basis in international law for enabling nations that hold these reserves to commit them to pay for damages."

Russia has committed on a massive scale what under U.S. law is considered an “intentional tort”: unprovoked violence, which requires at a minimum that the aggressor pay damages for human suffering, deaths, and property losses. In December 2005 the United Nations General Assembly adopted a resolution affirming a variation of intentional tort doctrine by providing a right to reparations to victims of human rights abuses under international law.

The U.N. resolution is not self-enforcing, however. Instead, it charges member states to establish “national programs for reparation and other assistance to victims in the event that the parties liable for the harm suffered are unable or unwilling to meet their obligations.” It’s a safe bet that Russia won’t be willing to meet these obligations, so other countries now holding Russian reserves can best enforce the reparations principle by agreeing on a common plan.

Litan's Brookings article was originally published at Bloomberg.

There are several things to recommend this approach:

• Turning all the frozen reserves back to Russia would mean that it gets to walk away from the damage it has done.

• Russia's failure to help rebuild Ukraine means it would be entirely on the hands of, and dependent upon the generosity of, other countries.

• The reserves can be used right now to provide help to Poland, Hungary, Slovakia, Romania, and Moldova, the nations that have generously welcomed 3 million Ukrainian refugees. They simply can't afford to do this forever, however, and who better to pay for it than Russia?

• Perhaps knowing that every school, hospital, and apartment building destroyed by a Russian bomb or missile will be replaced using Russia's own money might incentivize Putin to reconsider further aggressive activities and negotiate a withdrawal as soon as possible, to cut his loses.

But there are arguments against confiscating and using Russian reserves in this way:  

• Instead of making Putin anxious to conclude his invasion, the action might frustrate, humiliate, and infuriate Putin to the point that he takes a spiteful action that requires a NATO response.

• There is that old law of unintended consequences. We must ask ourselves how unsettling actual confiscation, as opposed to "freezing," will be to the world financial system. It is beyond my ability to even imagine.
  

There may be a way to use the threat of reserves confiscation without actually taking the action. Let's say an American congressman introduces a resolution in the House that the reserves should be seized for refugees and reparations. A resolution is not a law, and the State Department and our allies would be under no obligation to do it. But a resolution might get Putin's attention, and encourage him to get ahead of things by working harder at negotiations.

Alright, Who's Gonna Pay for This?

A common analysis of the Ukraine War is that Putin overestimated the ability of his military to cow the Ukrainians into submission, and as a consequence a humiliated and enraged Putin has decided that what he can't have, he'll raze to the ground. Then, when he is able, he will install a puppet government, declare victory, and withdraw most of his troops.

That's a pretty bleak scenario, to be sure. Maybe he realizes he will never be able to set up a sham government, and will withdraw once the country is reduced to cinders. No less bleak.

Mariupol Theatre (Daily Beast)

At the Brookings Institute, economist Robert E. Litan suggests a way to help Ukraine rebuild: use Russian money.

According to the most recent data supplied by Russia’s central bank as of June 30, 2021, Russia’s foreign currency reserves totaled $585 billion, though not all of this would be accessible to pay for damages. That’s because Russia holds a good portion of the total in gold at home (22%), a substantial amount of renminbi in China (14%), and some in international institutions (5%). Subtracting these amounts leaves about $350 billion in “available reserves” for distribution—mostly held by France (12%), Germany (10%), Japan (10%) and the U.S. (7%), with the rest scattered among many other countries.

In the past, reparations have been paid after hostilities ended by the aggressor country—that was Germany in the first two world wars. Now, the fact that many countries already have control over Russia’s holdings of foreign currency means that, in effect, reparations for the Ukrainian invasion have been pre-funded by Russia itself. This is an admittedly unique circumstance, but there is a basis in international law for enabling nations that hold these reserves to commit them to pay for damages.

Okay, the first thing we need to say is, "Watch out for the law of unintended consequences." But it's an interesting idea, and there's an added appeal: If Team USA/Europe announces this plan beforehand, it could very well make Putin reconsider the wisdom of his scorched earth strategy. The less he destroys, and the sooner he gets out, the less he has to pay.

When Will the Lesson Be Learned?

In our dining room there is a bust of Winston Churchill, a family heirloom. My father was an admirer of Churchill. My (French, maternal) grandmother was not. I'm not sure why, but my theory is that it was related to her feelings about Mers-el-Kébir.

My grandmother lived with us for several months each year. When she was there, she and Dad engaged in a silent war. He would find the Churchill bust turned to face the back of the breakfront. He would turn it around to face the front again, only to find the next day that it had been turned around again. This went on for years, I think.

Winston was a very controversial figure before he led Great Britain's survival in World War II, and remained controversial in many quarters afterward. There is much to admire in the man, and much not to. He was a man.

There is a danger in using the "lessons of history" to guide our current actions. Too often we learn the wrong lesson, or apply it poorly. For example, how many times did Neville Chamberlain and Munich get mentioned as justification for the war in Vietnam. [Okay, one or two readers might be too young to remember, so I'll tell you: they were mentioned a lot!] If you put the wrong grid on a problem, you're likely to come up with the wrong answer. We lost that war, yet today Americans who served in it take their families there on vacation trips. As Kurt Vonnegut would say, "So it goes."

By the way, the movie, Munich: The Edge of War, does a fine job of telling the story from Chamberlain's point of view; a point of view that was shared by the British public (dramatic pause here) until it wasn't. Munich: The Edge of War is available on Netflix.

So back to Churchill.

Last week I mentioned Darkest Hour, also available on Netflix, a movie about the critical month of May 1940, when Churchill became Prime Minister. The British mood had changed from Hitler avoidance to Hitler confrontation. Still, Chamberlain and Lord Halifax counseled negotiation.

 

Here's a climactic scene from the movie (2 minutes):

 

 

I remembered this scene when reading Fareed Zakaria's March 10 column in the Washington Post, which concluded:

The greatest strategic opportunity lies with Europe, which could use this challenge to stop being the passive international actor it has been for decades. We now see signs that the Europeans are ready to end the era of free security by raising defense spending and securing NATO’s eastern border. Germany’s remarkable turnaround is a start. If Europe becomes a strategic player on the world stage, that could be the biggest geopolitical shift to emerge from this war. A United States joined by a focused and unified Europe would be a super-alliance in support of liberal values.

But for the West to become newly united and powerful, there is one essential condition: It must succeed in Ukraine. That is why the urgent necessity of the moment is to do what it takes — bearing costs and risks — to ensure that Putin does not prevail.

The emphasis is mine.

How Does This End?

I don't know why, because I haven't a butterfly's chance of changing anything, but I've been consumed this past week with trying to understand the different ways the Russian invasion of Ukraine could pan out. Since I am not an original thinker, this has required me to search out and read articles from places I don't usually go.

I would generalize that most articles see three possible outcomes: complete Ukraine victory, complete Putin victory, or negotiation. But I think there's more subtlety than that allows for, so I read on.

In one one of those places I don't usually go, the Financial Times, I found this article by "Henry Foy in Brussels and Demetri Sevastopulo in Washington": Endgame in Ukraine: how could the war play out? Foy and Sevastolpulo say "western capitals are discussing a range of scenarios for how the conflict could progress," and offer five of the possibilities.

They are:

• Russians win 

And probably continue into Moldova

• Russians mostly win, but Zelensky and Ukraine survive

• Russians retreat, Putin removed

• Negotiated settlement

Russia probably gets the east and southeast parts of Ukraine, connecting Crimea to the Motherland

• Broader NATO-Russia war

to all of which I would add:

• Armageddon. Mother Earth gets to start over.

The New York Times reported today that: 

In interviews with senior American and European officials, there is a consensus on one point: Just as the last two weeks revealed that Russia's vaunted military faltered in it's invasion plan, the next two or three may reveal whether Ukraine can survive as a state, and negotiate an end to the war.

Admiral James Stavridis, who retired from service as supreme allied commander for Europe, believes "the most probable endgame, sadly, is a partition of Ukraine."

If you'd like to dig even deeper into this, I recommend spending an hour with this interview with Ian Bremmer, president of the Eurasia Group, a respected foreign policy "think tank".

Among the things he sees:

• The decoupling of Europe and the U.S. with Russia is permanent.
• A lot of companies that have left Russia will not return while Putin is in power, regardless of a negotiated peace.
• Decisions by European nations to increase defense spending will be permanent.
• Europe will "unwind" its energy dependence on Russia.
• Russia will be a Chinese supplicant, economically, financially, and technologically.
• This has improved the UK/Europe relationship.
• Kyiv will fall in the next couple of weeks.
• The Chinese ambassador to Russia recently held a meeting with top Chinese investors in Russia, and said this is a unique opportunity: the West is leaving Russia. We can buy it for a song.
• A lot of the world is not with NATO on the sanctions.
• The Chinese media are "relentlessly" pro-Putin; Chinese media are embedded with Russian troops in Ukraine.
  

The Law of Unintended Consequences

In economics, the law of unintended consequences holds that economic actions may have unexpected outcomes. It has been my experience it's a rule that holds true for anything we do, and in the field of international relations it's a rule that translates as "Think before you jump." Think Iraq, as if you needed that prompt. 

Over at The Atlantic magazine, Derek Thompson does some thinking about what are likely to be some unintended consequences of the massive economic sanctions levied on Russia, governmentally and commercially.

The immediate consequences are already breathtaking. On both sides of this new iron curtain, commodity prices are skyrocketing and economic indicators are falling. Oil is at all-time highs, and the Nasdaq is in bear territory. Nickel prices went vertical, and the ruble crashed by 50 percent. Wholesale energy prices in Europe have blown past historic records, and a European recession looks almost certain. Yesterday, the economist Mark Zandi put the odds of a U.S. recession this year at “one-in-three.”

Yikes!

But Thompson looks into his crystal ball and sees three big things that might be on the horizon:

• The Green Energy Revolution Goes into Warp Speed.
• A New Chinese Empire.
• A Global Food Fight. 

To which we will add a fourth:

China, like Russia, was probably shocked to see how western financial institutions were able to collapse a large country's financial system in a world where the dollar is the de facto international currency.

In his book, The World: A Brief Introduction, Richard Haass wrote (in 2020):

As other econmies grow and become more open, they may be both willing and able to take on the role of a reserve currency. China obviously comes to mind here....

...[T]here is the increasing U.S. propensity to "weaponize" international financial transactions to sanction select governments and individuals, a practice that could well hasten a move to dollar alternatives.

China has certainly looked at this in the past, more as a financial powerplay than anything else. They're probably looking at it as a security issue now.

We heard one commentator recently opine that, as a result of the world reaction to Russia's invasion of Ukraine, invading Taiwan has moved from second to seventh place on China's to-do list. Although we cannot dismiss the possibility that China may decide to take advantage of the uncertain state of things to launch such an attack, we think the demotion is correct.

Be sure to read Derek Thompson's article, then do your own thinking about it. It's alternately fun and terrifying.

Oligarchs

Sorry for the lack of posting this week. The truth is, I've been trying to figure out the different ways the war in Ukraine could end. Still working on that.

In the meantime, enjoy Jonathan Pie from The New York Times:

Rhyming History

Many readers have already seen Darkest Hour, the movie about events in the fateful month of May 1940, when Winston Church became British Prime Minister. The Nazis invaded Netherlands and Belgium, then swept through the Ardennes Forest into France. The French Army collapsed almost immediately, and 300,000 British solders (for all intents and purposes, the entire British Army) fell back and were trapped on the beach at Dunkirk.

If you have not seen Darkest Hour yet, now is an excellent time to watch it. It is available for streaming on Netflix. Spoiler Alert: The Brits escape with the help of a citizens' flotilla of small boats, and live to fight another day.

Mark Twain said, "History doesn't repeat itself, but it often rhymes," and we're hearing rhymes of Dunkirk in the impressive resistance of the Ukrainian people to Russia's invading forces.

Although Darkest Hour does not mention it, one reason the British troops succeeded in escaping is that on May 24 Hitler ordered a halt to the advance of the German Army, though it was only 25 kilometers from Dunkirk. Historians of the war understandably point to this as a decisive event in the war. If the British Army had been captured, the war – and world history, for that matter – would have gone in an entirely different direction.

Can you hear a rhyme in the stalled column of Russian tanks and troop carriers pointed at Kyiv? The longer the column is stalled, the more vulnerable it is to Ukrainian attacks, and the more time supporting nations have to provide arms. When the history of the Russian invasion is written, might this be pointed to as a decisive factor?

Darkest Hour does mention a peculiar episode of American support for the Allied cause. In May 1940 the United States was still a year and a half from being in the war. Even so, President Roosevelt knew what was at stake and wanted to provide Britain with whatever military assistance he could. An isolationist Congress kept throwing up roadblocks to that. Britain had purchased planes from the United States, but Congress passed a law which prevented them from being delivered. In the movie, there is a conversation between Roosevelt and Churchill in which Roosevelt says the planes could be taken to the Canadian border, and the Canadians could then use horse teams to pull them across the border.

This actually happened.

Can you hear a rhyme in the current discussion of providing Polish MiG-29 fighters to Ukraine? Ukrainian pilots are not trained to fly American F-16s, but are very familiar with the Russian-made MiGs. The idea is that Poland transfers its jet fighters to the Ukrainian air force, and the United States  replaces them with F-16s.

But how do the jets get delivered? Polish pilots cannot fly them into Ukraine, because that would be a NATO pilot entering Ukrainian air space, an action that would trigger a wider war. It is probably not that big of a problem (hide it in a hay wagon?), but it is kind of a rhyme, isn't it?

Has the Third World War Begun?

You will remember Fiona Hill, a National Security Council Russian specialist who testified in the former president's first impeachment trial.  This image of her is from The New Yorker magazine.

Hill is what I would call a steely-eyed realist about Russia, as opposed to the Pootin Poodles, whose membership includes the former president, Tucker Carlson, Sen. Josh Harkins, and professional Christian Pat Robertson.

In this interview in Politico, Hill points out that history is a continuum, despite our habit of dividing it into neat, unrelated episodes. 

Reynolds: The more we talk, the more we’re using World War II analogies. There are people who are saying we’re on the brink of a World War III.

Hill: We’re already in it. We have been for some time. We keep thinking of World War I, World War II as these huge great big set pieces, but World War II was a consequence of World War I. And we had an interwar period between them. And in a way, we had that again after the Cold War. Many of the things that we’re talking about here have their roots in the carving up of the Austro-Hungarian Empire and the Russian Empire at the end of World War I. At the end of World War II, we had another reconfiguration and some of the issues that we have been dealing with recently go back to that immediate post-war period. We’ve had war in Syria, which is in part the consequence of the collapse of the Ottoman Empire, same with Iraq and Kuwait.

All of the conflicts that we’re seeing have roots in those earlier conflicts. We are already in a hot war over Ukraine, which started in 2014. People shouldn’t delude themselves into thinking that we’re just on the brink of something. We’ve been well and truly in it for quite a long period of time.

What we have been able to do, since World War II, is establish a rules-based world order.

Ukraine has become the front line in a struggle, not just for which countries can or cannot be in NATO, or between democracies and autocracies, but in a struggle for maintaining a rules-based system in which the things that countries want are not taken by force. Every country in the world should be paying close attention to this. Yes, there may be countries like China and others who might think that this is permissible, but overall, most countries have benefited from the current international system in terms of trade and economic growth, from investment and an interdependent globalized world. 

This is pretty much the end of this. That’s what Russia has done. 

It is important to point out – especially to China – that China's rise, too, was based on this rules-based system. Forty years ago China was weak. They were able to grow into the manufacturing powerhouse they are only because American ships plied Asian waters and protected all those container ships on their way to create a Chinese trade surplus with the United States. China will upset the rules-based system (as they seemed determined to do) at the risk of their own economy.

Anyway, read the whole interview with Fiona Hill here.

Servant of the People

 

Sempringham readers being among the most intelligent people on the internets, I'm sure you're aware that the president of Ukraine, Volodymir Zelensky, was a comedian before he was elected his president.  He starred in a television series about a teacher whose rant about Ukraine's politics was caught on video, became viral, and led to his election as president. Talk about life imitating art!

The series is available on YouTube with good enough English subtitles. This is the first episode. Why don't you give it five or ten minutes, at least, just to get the flavor of it?

 If you click on the words You Tube in the video, you can get a bigger screen.