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Quote:You wanna be Uncle Sam's bitch? Pay the price!

Dear friends,

I just took a short break from my life in "meatspace" to comment upon the great news of the day: Russia is introducing a full 12 months embargo on the import of beef, pork, fruits and vegetables, poultry, fish, cheese, milk and dairy products from the European Union, the United States, Australia, Canada and the Kingdom of Norway. Russia is also introducing an airspace ban against European and US airlines that fly over our airspace to Eastern Asia, namely, the Asia-Pacific Region and is considering changing the so-called Russian airspace entry and exit points for European scheduled and charter flights. Furthermore, Russia is ready to revise the rules of using the trans-Siberian routes, and will also discontinue talks with the US air authorities on the use of the trans-Siberian routes. Finally, starting this winter, we may revoke the additional rights issued by the Russian air authorities beyond the previous agreements. This is such an interesting and major development that it requires a much more subtle analysis than just the crude calculation of how much this might cost the EU or US. I will attempt no such calculation, but instead I would point out the following elements:

First, this is a typically Russian response. There is a basic rule which every Russian kid learns in school, in street fights, in the military or elsewhere: never promise and never threaten - just act. Unlike western politicians who spent months threatening sanctions, the all the Russians did was to say, rather vaguely, that they reserve the right to reply. And then, BANG!, this wide and far-reaching embargo which, unlike the western sanctions, will have a major impact on the West, but even much more so on Russia (more about that in an instant). This "no words & only action" tactic is designed to maximize deterrence of hostile acts: since the Russians do not clearly spell out what they could do in retaliation, God only knows what they could do next! :-) On top of that, to maximize insecurity, the Russians only said that these were the measures agreed upon, but not when they would be introduced, partially or fully, and against whom. They also strongly implied that other measure were under consideration in the pipeline.

Second, the sanctions are wonderfully targeted. The Europeans have acted like spineless and brainless prostitutes in this entire business, they were opposed to sanctions from day 1, but they did not have the courage to tell that to Uncle Sam, so each time they ended up caving in. Russia's message to the EU is simple: you wanna be Uncle Sam's bitch? Pay the price! This embargo will especially hurt southern Europe (Spain, France, Italy, Greece) whose agricultural production will greatly suffer from it These countries also happen to be the weakest in the EU. By hitting them, Russia is maximizing the inevitable friction inside the EU over sanctions against Russia.

Third, not only will EU carriers suffer from much higher costs and flight times on the very important Europe to Asia route, but the Asian carriers will not, giving the latter a double competitive advantage. How is that for a way to reward one side while hurting the other? The EU got one Russian airline in trouble over its flights to Crimea (Dobrolet) and for that the entire EU airlines community could end being at a huge disadvantage vis-à-vis its Asian counterparts.

Fourth, Russia used these sanctions to do something vital for the Russian economy. Let me explain: after the collapse of the USSR the Russian agriculture was in disarray, and the Eltsin only made things worse. Russian farmers simply could not compete against advanced western agro-industrial concerns which benefited from huge economies of scale, from expensive and high-tech chemical and biological research, which had a full chain of production (often through large holdings), and a top quality marketing capability. The Russian agricultural sector badly, desperately, needed barriers and tariffs to be protected form the western capitalist giants and, instead, Russia voluntarily abided by the terms of the WTO and then eventually became member. Now Russia is using this total embargo to provide a crucially needed time for the Russian agriculture to invest and take up a much bigger share on the Russian market. Also, keep in mind that Russian products are GMO-free, and that they have much less preservatives, antibiotics, colors, taste enhancers, or pesticides. And since they are local, they don't need to be brought in by using the kind of refrigeration/preservation techniques which typically make products taste like cardboard. In other words, Russian agricultural products taste much better, but that is not enough to complete. This embargo now gives them a powerful boost to invest, develop and conquer market shares.

Fifth, there are 100 countries which did not vote with the US on Crimea. The Russians have already announced that these are the countries with which Russia will trade to get whatever products it cannot produce indigenously. A nice reward for standing up to Uncle Sam.

Sixth, small but sweet: did you notice that EU sanctions were introduced for 3 months only, "to be reviewed" later? By introducing a 12 months embargo Russia also sends a clear message: who do you think will benefit from this mess?

Seventh, it is plain wrong to calculate that EU country X was exporting for Y million dollars to Russia and to then conclude that the Russian embargo will cost Y million dollars to EU country X. Why is it wrong? Because the non-sale of these product with create a surplus which will then adversely affect the demand or, if the production is decreased, this will affect production costs (economies of scale). Conversely, for a hypothetical non-EU country Z a contract with Russia might mean enough cash to invest, modernize and become more competitive, not only in Russia, but on the world market, including the EU.

Eighth, the Baltic countries have played a particularly nasty role in the entire Ukrainian business and now some of their most profitable industries (such as fisheries), which were 90% dependent on Russia, will have to shut down. These countries are already a mess, but now they will hurt even more. Again, the message to them is simple: you wanna be Uncle Sam's bitch? Pay the price!

Ninth, and this is really important, what is happening is a gradual decoupling of Russia from the western economies. The West severed some of the financial, military and aerospace ties, Russia severed the monetary, agricultural and industrial ones. Keep in mind that the US/EU market is a sinking one, affected by deep systemic problems and huge social issues. In a way, the perfect comparison is the Titanic whose orchestra continued to play music while the sink was sinking. Well, Russia is like a passenger who is told that the Titanic's authorities have decided to disembark him at the next port. Well, gee, too bad, right?

Last, but most definitely not least, this trade-war, combined with the West's hysterical russophobia, is doing for Putin a better PR campaign than anything the Kremlin could have dreamed of. All his PR people need to tell the Russian population is the truth: "we did everything right, we played it exactly by the book, we did everything we could to deescalate this crisis and all we asked for was to please not allow the genocide of our people in Novorussia - and what was the West's response to that? An insane hate campaign, sanctions against us and unconditional support for thegenocidal Nazis in Kiev". Furthermore, as somebody who carefully follows the Russian media, I can tell you that what is taking place today feels a lot like, paraphrasing Clausewitz, the "a continuation of WWII, but by other means", in other words a struggle to the end between two regimes, two civilizations, which cannot coexist on the same planet and who are locked in struggle to death. In these circumstances, expect the Russian people to support Putin even more.

In other words, in a typical Judo move, Putin has used the momentum of the the West's Russia-basing and Putin-bashing campaign to his advantage across the board: Russia will benefit from this economically and politically. Far from being threatened by some kind of "nationalistic Maidan" this winter, Putin's regime is being strengthened by his handling of the crisis (his ratings are higher than ever before).

Yes, of course, the USA have shown they they have a very wide array of capabilities to hurt Russia, especially through a court system (in the US and EU) which is as subservient to the US deep state as the courts in the DPRK are to their own "Dear Leader" in Pyongyang. And the total loss of the Ukrainian market (for both imports and exports) will also hurt Russia. Temporarily. But in the long wrong, this situation is immensely profitable for Russia.

In the meantime, the Maindan is burning again, Andriy Parubiy has resigned, a the Ukies are shelling hospital and churches in Novorussia. What else is knew?

As for Europe, it is shell-shocked and furious. Frankly, my own Schadenfreude knows no bounds this morning. Let these arrogant non-entities like Van Rompuy, Catherine Ashton, Angela Merkel or José Manuel Barroso deal with the shitstorm their stupidity and spinelessness have created.

In the USA, Jen Psaki seems to be under the impression that the Astrakhan region is on the Ukrainian border, while the Russian Defense Ministry plans to "open special accounts in social networks and video hosting resources so that the US State Department and the Pentagon will be able to receive unbiased information about Russian army’s actions".

Will all that be enough to suggest to the EU leaders that they have put their money on the wrong horse?

The Saker

PS: have to leave again. Will be back on Saturday afternoon.
Quote: Marcus said...
Being one of those "euoros" you speak off (a swede) I am horrified at this development. I hate it. I want no part of it. I wish my country would have no part in it.

BUT: we have no say. The peoples in Europe have no say on politics these days. Most big decisions are taken on the EU-level where unelected beaurocrats push the agenda. And in smaller matters back home we fight against mainstream parties elected not so much by the public but by the media.

Believe me: not even in a country like Sweden which has historically seen Russia as an arch foe is there any popuular support for confrontaton with Russia. Not amongst the people. And I'm a right-winger for christ sake. Not some leftist reminicing about the Bolsjeviks.

I hate communism but today root for Russia and I'm a swede living in Sweden - how strange is that? Never thought I'd live to see that happening.

07 August, 2014 15:51
Quote:Nora said...
NATO has just suspended cooperation with Russia.


Gee, ya think maybe those food embargos might hurt? (What *will* Latvia do with all those fish??? Etc.) But the Food Wars actually go both ways since Ukraine's production this year cannot not be severely curtailed, while if you take a look at this pretty picture,


you'll see that we've got a "bit" of a problem also: lots of vegetables used to be grown in California, and Kansas, the Southwest and Pacific Northwest are pretty much bone-dry also, long-term.

[b]So I said this months ago, folks, but let me say it again: unless you plan on eating lots of Latvian fish, Irish cheese and the like, if you've got any storage (canning, freezing, drying) capabilities at all, get crackin', bc we're looking not just at sky-high prices, but actual food shortages this winter. And depending where you live, you could still plant and harvest a lot of veggies. (If anyone wants any more info, I'll be happy to share it.)[/b]

07 August, 2014 15:52
Quote: Anonymous said...
From Spain: I've been following the Ukie madness with horror since day one. Europe was certainly a scam for me before Ukraine exploded. A bad joke made for banksters and eurocraps. I never suspected it's much worse than that: a prostitute of the US War Party gladly destroying itself to please her overlord. I hate all our rotten ruling class... I've disagreed many times with Putin's soft approach to Europe. Today I say we're having just a first pay of what we deserve for nurturing a nazi nest in the heart of Europe

07 August, 2014 16:41

Italy Falls Back Into Recession, Raising Concern for Eurozone Economy


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Shop windows in Rome advertise sales. The latest economic news dashed hopes that Italy was emerging from a decade of stagnation. Credit Filippo Monteforte/Agence France-Presse — Getty Images

FRANKFURT — The Italian economy shrank in the second quarter, according to an official estimate on Wednesday, taking economists by surprise and provoking concern that violence in Ukraine and tension with Russia could be pushing the broader eurozone back into recession.

Italy’s gross domestic product contracted 0.2 percent from April through June, compared with the first quarter of 2014, Istat, the Italian statistics office, said in a preliminary estimate. It was the second quarterly decline in a row for Italy, meeting the most common definition of a recession. In the first quarter, output shrank 0.1 percent compared with the previous quarter.

The decline dashed hopes that Italy, the third-largest eurozone economy after Germany and France, was finally emerging from a decade of stagnation.

And it may be one of the first concrete signs of how tension with Russia is hurting the European economy, analysts said. Along with a report of a sharp decline in German factory orders, the data raised new questions about the health of the 18-country eurozone as a whole. Only three of the 18 members of the eurozone — Cyprus, Finland and Greece — had reported two quarters in a row of negative output at the end of March. But the number of countries in recession is bound to increase during the coming week as more of them report second-quarter growth.

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Dwindling retail orders helped push the Italian economy down in the second quarter. Credit Gianni Cipriano for The New York Times

The economic data and news that Russia was massing troops and military equipment on the Ukrainian border caused stock prices to fall across Europe on Wednesday. Italy’s main stock index fell more than 2 percent and the euro also slipped to a nine-month low against the dollar, down to $1.334.

Analysts surmised that the strained relations with Russia as well as turmoil in the Middle East had undercut demand for Italian exports, in particular fashion and other luxury goods.

“Russia is important for Italian exports, as is the Middle East,” said Martin Lueck, an economist at UBS in Frankfurt. “There must have been an impact.”

Mr. Lueck noted that the economic data published on Wednesday covered a period before the downing of a Malaysia Airlines passenger jet over eastern Ukraine, which has drastically escalated tensions. “I definitely expect that things will get worse,” he said.

In an example of how the Ukraine turmoil could further impinge on the European economy, President Vladimir Putin of Russia on Wednesday ordered limits on agricultural imports from countries imposing sanctions on Russia — a measure aimed at the European Union and the United States.

The move threatens a fast-growing market for European farmers. The European Union exported agricultural goods worth 11.8 billion euros, or $15.8 billion, to Russia last year, and sales have been rising at a rate of almost 15 percent a year.

The eurozone has been growing since last year, but that growth has been spotty and vulnerable to a shock, like the kind caused by the fighting in Ukraine as well as by sanctions imposed by the United States and the European Union on Russia.

The currency area has still not returned to the same levels of employment and economic output it had before the financial crisis began in 2008. Some economists argue that the region is already well into a so-called lost decade.

During the first quarter, economies in seven of the 18 eurozone countries shrank while France had zero growth. The eurozone as a whole grew only 0.2 percent from the previous quarter, according to Eurostat, the European Union statistics agency.

Separately, the German Federal Statistical Office reported on Wednesday that new industrial orders in Germany fell 3.2 percent in June compared with May. Analysts had expected orders to increase. Germany has the largest economy in Europe and is a crucial market for other eurozone countries, so any slowdown there is ominous for the rest of the Continent.

The discouraging economic figures are also putting pressure on the European Central Bank, which is to hold its monthly news conference on Thursday in Frankfurt. However, the central bank, which cut its benchmark interest rate to a low of 0.15 percent in June, is not expected to take further action this month.

The new data from Italy and Germany were causing some economists on Wednesday to question previous forecasts for eurozone G.D.P. in the second quarter. The European Union statistics agency is scheduled to publish an estimate of quarterly growth on Aug. 14.

“The economy in the eurozone as a whole probably also expanded only moderately in Q2,” Marco Wagner, an economist at Commerzbank, wrote in a note to investors.

For Italy, the deteriorating economy puts greater pressure on Prime Minister Matteo Renzi, who less than a week ago promised not to impose any more government budget cuts and to invest in improving the country’s roads and other infrastructure. Such promises will be difficult to keep if slower growth, which usually translates into higher unemployment and lower corporate profits, limits tax receipts.

A slower economy also endangers Italy’s ability to comply with eurozone rules on budget deficits. Italy’s 2.1 trillion euro government debt equals 136 percent of its annual gross domestic product, the second-highest debt ratio in the eurozone, after Greece.

If G.D.P. shrinks, the ratio of debt to G.D.P. automatically rises. Italy would either have to breach spending limits — risking harsh criticism from its eurozone allies — or reduce government spending at a time when Italians are already complaining about cuts in services.

Pier Carlo Padoan, the Italian economy minister, said Wednesday that the country would not violate European Union rules limiting annual budget deficits to 3 percent of gross domestic product. But, he told the financial daily Il Sole 24 Ore: “The country needs to reform itself alone, and is doing so. We have to do it even faster.”

Italy’s slipping back into recession undermines optimism that some of the most troubled countries in the eurozone were on the cusp of revival. On Tuesday, UniCredit, the Italian bank, reported a steep increase in demand for credit in Italy, which was seen as a sign that businesses and individuals were becoming more optimistic about their economic prospects.

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In another hopeful sign, the Bank of Spain estimated last month that Spain had emerged from recession and that its economy probably grew 0.5 percent in the second quarter.

But much of the eurozone remains in the doldrums. And Mr. Wagner and some other economists were wary of blaming Russia for the most recent figures. They said Italy’s problems stemmed more from its failure make changes needed to improve the performance of its economy.

Mr. Renzi, who took over as prime minister in February, was seen as having the charisma and drive to finally shake Italy out of its torpor. But it will be more difficult to overcome formidable political resistance to change with the country in a recession.

“The slow pace of structural reforms is worrisome,” said Paolo Manasse, a professor of macroeconomics at Bologna University. He said there was no sign of progress on necessary steps like selling off state-owned assets or overhauling the labor market or public pension system.

“There is widespread disappointment,” Mr. Manasse said, “among those who gave credit to Renzi and his large political support after the European elections.”

Jack Ewing reported from Frankfurt and Gaia Pianigiani from Rome.
It will be interesting to watch how Putin's response to the US/EU sanctions is described by the MSM and the corporate owned Politicians.

LOL @ nations like Latvia agreeing to sanctions against Russia when they need Russia's business in order to survive.
Countries like Latvia and POland are probably being strong armed into supporting the sanctions.
Quote:Sixth, small but sweet: did you notice that EU sanctions were introduced for 3 months only, "to be reviewed" later? By introducing a 12 months embargo Russia also sends a clear message: who do you think will benefit from this mess?

I was not aware of the 3 month time frame set down by the EU, what a joke. It's as if they thought that after 3 months, Russia would be grovelling and grateful for the end of the sanctions. Looks like they were wrong.
great analysis by the blogger.

it's not just a simple amount of subtracting the net amount lost.. there are multiplier effects.

Also it is true that Russians act more in an asian way.. they only act, they don't really talk.

If russia had 300 million people, they would not even had to engage in these sanctions.. they can afford to sanction Russia because it's market is small, only 120 million people.
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