04.04.2022 Author: James ONeill

Economic Reality Confronts Europe With Some Hard Choices

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After a brief period of depression, the Russian rouble has recovered back to the position held in December 2021 and is currently trading at around 84 roubles to the US dollar. It was not a recovery foreseen by the Americans who have made a determined effort to attack the rouble and by that means mount an attack upon the Russian economy.

The latest move by the Russians is to require purchases of their gas to be made in roubles. Initially this created consternation in European capitals who have loyally followed the dictates of the Americans in making life difficult for Russian traders, whether in gas, oil or any other commodity. In fact, the device signed by Russia’s President Putin is not as draconian as the first reactions suggested. Purchasers in Europe of Russian goods are still able to pay in Euros. The funds are paid into the Gazprom bank which then converts the sum paid into roubles and pays that some to the supplier of the goods.

One of the immediate benefits of this transaction to the Russians is that they instantly receive payment for all goods supplied, rather than the payment being deposited in a European bank where it is subject to confiscation. This recently happened to the approximately $300 billion the Russians held in United States dollars which the Americans have seized.

Quite why the Russians permitted themselves to be exposed to this blatant theft is unclear. It is not as if it was without precedent. The United States has done exactly the same with the currencies of Cuba, Iran and Venezuela. The correct term to apply is theft, and it is a principal reason why the world is now switching from holding its foreign reserves in United States dollars. Fall foul of the Americans and they will simply seize your financial reserves is a lesson that is finally being heard around the world. It accounts for example, for the recent arrangements between Saudi Arabia and China to deal with each other in their respective currencies. Members of the EAEU have made the same decision and a large number of countries that belong to the Chinese inspired Belt and Road Initiative are following suit.

What the Russians proposed to the Europeans was not rocket science. The panicked reaction of the Europeans to the Russian proposals (and now requirements) tells one more about Europe’s indebtedness to following United States dictates on how it should conduct its economies than it did about the realities of the situation.

The American opposition to the Russian proposal had nothing to do with United States concern for the European economies. They were opposed to any scheme that would benefit Russia and for the same reason that they oppose any peace deal between Ukraine and Russia. They are intent on damaging or actually destroying the Russian economy. Part of the American plan is regime change in Moscow. They have an irrational attitude toward President Putin, as was made abundantly clear during President Biden’s recent visit to Poland when he mounted an extraordinary personal attack upon the Russian president.

His minders in Washington tried to walk back Biden’s remarks as not meaning what was so clearly stated. It may well represent the ramblings of a man clearly no longer in full control of his faculties. But he is still the president of the United States and his words must be taken as clearly meant unless and until such times as his actions (or that of his staff) clearly indicate the contrary.

The proposal by Putin that henceforth payments for Russian energy should be made in roubles does not in fact violate existing contracts by the Russians to supply Europe with its energy needs. This did not stop Putin from issuing a warning to the Europeans. He said that “if such payments are not made, we will consider this to be the buyer’s failure to perform commitments with all ensuing implications.” By this, he was clearly implying that Europe abide by the new arrangements or gas will be cut off.

A more flexible scheme for payment of Russian gas is envisaged for countries in the so-called Global South. They will continue to be offered financial deals within their grasp. It is one way of saying “thank you” by the Russians for the overwhelming support they have received from the developing world. Russia currently enjoys at least the trust and support of the whole of the developing world, in South America, Asia and Africa. It is no wonder that Putin is not fazed by European threats and hostile actions, even if, as he correctly notes, they are obeying American dictates rather than acting as independent sovereign states. Part of the irony is that the United States continues to import Russian heavy oil because it suits them to do so.

The other consequence of the Russian move is to put the rouble in a new class, now being in effect a resource-based reserve currency. This is a new position for the rouble to be in and marks a major part of the newly emerging geopolitical structure that is transforming the world. The days of United States dollar hegemony are clearly numbered and there is absolutely nothing the Americans can do to counter it.

The Europeans, who have imposed stringent restrictions on the Russians, will eventually be forced to face the facts of economic reality. Germany, which relies on Russia for 50% of the gas required to run its industries, there’s not the only one to face reality. The leaders of German industry have already issued dire warnings about what is happening to Germany. They are a powerful group and the weak Social Democrat leader will be forced to listen to their warnings.

Germany is not the only one. The French president, Macron, who faces an election next month, has been making frantic telephone calls to Moscow to try and devise a face-saving scheme that will rescue his country from the dire position it now finds itself in. The Spanish and Italian governments, the remaining big two of the four largest European economies are similarly making placatory noises.

They and other members of the European Union are being forced to face an uncomfortable reality: the adherence to United States wishes to wage war against Russia is not a cost-free exercise. Making moves to remedy their increasingly impossible position runs up against American dictates. It will be interesting to see which proves ultimately to be the greater power: the desire for economic and political self-preservation or the deeply ingrained habits of subservience to American wishes.

James O’Neill, an Australian-based former Barrister at Law, exclusively for the online magazine “New Eastern Outlook”.


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