Sofia, November 28, 2016 | The Russian Economic Footprint in Central and Eastern Europe: Addressing Strategic Vulnerabilities in Hybrid Warfare
In the last decade, Russia has used a range of tools to amplify its economic footprint in Central and Eastern Europe and achieve its political goals. This is one of the key findings in the Kremlin Playbook: Understanding Russian Influence in Central and Eastern Europe study, prepared by the Center for the Study of Democracy (CSD) in partnership with the Center for Strategic and International Studies (CSIS), and presented at an international conference in Sofia, co-sponsored by the NATO Public Diplomacy Division.
Dr. Ognian Shentov, Chairman of CSD, emphasized in the opening remarks of the international conference, held on 28 November 2016, that the study estimates the Russian economic footprint in five countries including Serbia, Hungary, Latvia, Slovakia and Bulgaria and looks at its impact from different perspectives, most importantly through the analysis of governance deficits. Dr. Shentov added that Russia has systematically taken advantage of the governance vulnerabilities to increase their political leverage over governments in the region. Hence, countering the malign Russian influence depends on their ability to improve the functioning and independence of regulatory bodies, and to strengthen anti-corruption policy.
According to Ilian Vassilev, former Ambassador of Bulgaria to Russia, the malign Russian influence is no longer only a problem for Eastern Europe, but has also been rather visible in Western Europe because Russia has learnt how to play according to Western playbook and manipulate the weakness of democratic systems to its advantage. He also emphasized that Russian influence had been so debilitating because Russia had not only exported energy but also its model of governance based on privilege politics, rather than market rules.
The 2009 warning by CEE leaders to the Obama administration that Russia had “used overt and covert means to economic warfare, ranging from energy blockages and politically motivated investments to bribery and media manipulation in order to advance its interests and to challenge the transatlantic orientation of Central and Eastern Europe”, had rung hollow until the annexation of Crimea in 2014. The deep misunderstanding of Russia’s motives by Western leaders gave, according to Ruslan Stefanov, Director of the Economic Program at CSD, the greenlight to Russia to step up its efforts to undermine democratic liberal systems in CEE and to challenge international law. He noted that the Kremlin Playbook has tried to establish a link between the deterioration of governance standards and the expansion of the Russian economic footprint in the last 10 years.
Mr. Stefanov explained that the Russian economic footprint has been estimated to hover between 10% in Slovakia and Hungary and 25% in Bulgaria between 2005 and 2014. He also provided a brief overview of the main tools Russia has been using to amplify the effect of the large economic footprint on national policy-making since 2007/2008, including by exploiting governance deficits in state-owned enterprises (SOEs) to prevent policy consistency in key economic sectors such as energy, banking, telecommunications and large projects, which are becoming extremely difficult to stop. One example is the reduction of the gas price on Hungary’s long-term gas supply contract with Gazprom in exchange for the conclusion of the Paks-2 nuclear power plant deal. The cutting of prices assured that PM Orban would be reelected in 2014. Russia has also leveraged structural economic vulnerabilities and dependencies and has engaged old-time security services and financial networks through opaque ownership structures concealing economic and political activities.
Civil Society Organizations (CSOs) have to lead the way in investigating further the topic of Russian influence, as civil servants and government officials face much greater difficulties in addressing sensitive topics, according to Robert Pszczel, Director of the NATO Information Office in Moscow. He claimed that while attempting to exercise influence over another country is not unusual, the question is how a government does it and whether it is sticking to international rules.
Russia had shown on a number of occasions that it prefers not to abide by international rules, which is why NATO members have sought to actively address the Russian threat by stepping efforts to counter Russian aggression in Eastern Europe by bolstering its forces in Eastern-flank allies, and to develop tools for responding to the hybrid warfare waged by Russia in Europe. The latter, according to the Warsaw Summit, could be a trigger of Article 5. Mr. Pszczel stressed that NATO aims to preserve the dialogue with Russia and have Moscow as a partner that is integrated in the Western policy process.
Dr. Iryna Klymenko, Chief Economic Adviser and Senior Research Fellow at the Institute for Strategic Studies “New Ukraine”, addressed the problem of Russian influence in Ukraine as paramount to the deterioration of governance in the country. The current turmoil in the country is the product of a year-long neglect of security issues that allows for the striking of corrupt deals for personal benefit. Vested interests in the government of Ukraine have established a system for embezzlement of public resources, making the Ukrainian case an extreme example of the security–corruption nexus described in the Kremlin Playbook.
Dr. Klymenko added that defence and law enforcement institutions have been entirely used for the private benefit of the elite. She also underscored that Russia has taken advantage of the enormous social and economic challenges in Ukraine, as well as of the civil conflict in Donbass to attempt to break the stability of the internal political system. Nonetheless, Dr. Klymenko said that she is cautiously optimistic, as while the reforms in the country have not been happening at satisfactory pace, Ukraine has taken key steps towards Euro-Atlantic integration.
The second panel, chaired by Traicho Traikov, Minister of Economy, Energy and Tourism (2009 – 2012), focused on a comparative country-by-country overview of different dimensions of Russian influence. Dr. Martin Jirusek, Lecturer in Energy Security Studies at Masaryk University, presented the key findings of his recent book examining the linkages between Gazprom’s business decisions and Russian politics. He concluded that Gazprom’s behaviour has been generally based on commercial grounds as the company aims to preserve its market share and maintain dominant positions in regional markets. Dr. Jirusek pointed out that while the Czech Republic and other countries in Central and Eastern Europe liberalized their oil and gas markets in the 1990s and now they operate according to market principles, other countries have not been so successful.
Munir Podumljak, Executive Director of the NGO Partnership for Social Development in Croatia, stressed on the fact that we currently do not have enough information either about the instruments Russia had been using, or about Kremlin’s ultimate objective. He added that Russia is quick to recognize a country’s weakness and exploit it for its own advantage. In the case of Croatia, this is the persistent capture of the whole society, which includes control by a few well-connected individuals over the media, the business sector and all aspects of society. Hence, if Russia achieves to capture the political elite in the country, it would be able to capture the whole society. One way to dominate the local political narrative, according to Mr. Podumljak, is to use social media for strategic targeting of the population with hundreds of fake media reports.
For historical and cultural reasons, a large part of the Montenegrin population feels strong attachment to Russia, explained Dragan Koprivica, Executive Director of the Center for Democratic Transition in Podgorica. Russian companies have taken over a significant share of the economy, while Russian tourists make up the largest group of visitors to the country. He added that even the largest company in Montenegro, the aluminum plant KAP, used to be in Russian ownership. Until around 2014-2015, Russia had not tried to interfere in domestic politics including by stopping the independence referendum in 2006.
However, Mr. Koprivica noted that Montenegro’s application to NATO changed Russia’s stance, and it began to actively support the opposition party, the Democratic Front, which organized protests against the government of PM Djukanovic and later against Montenegro’s joining of NATO. Mr. Koprivica said that the culmination of the Russian attempt to influence the foreign policy course of the country was the attempted coup in October, which has been allegedly organized by Russian security officers in collaboration with Serbian nationalists.
Misha Popovikj, Researcher at the Institute for Democracy ‘Societas Civilis’, discussed Russian influence in Macedonia. He said that Russia has little commercial interest in Macedonia apart from a few investments in the energy sector. However, he underscored that we should not underestimate the Russian broader objectives in the Western Balkans. Russia is filling the gap that was left by the EU, as Macedonia has drifted away from its objective of improving governance and regulatory standards. Mr. Popovikj mentioned that the Austrian and Russian governments have supported an extremely corrupt government preventing any major social change along the path of technocratic transformation. For the latter to materialize, civil society would need to become more engaged in the EU integration process, while public trust in institutions and media freedom would be crucial pre-requisites for the creation of a good government.
Jesús Pérez Triana, a free-lance Security and Defense Analyst working for the Letras Libres Review in Madrid, described the Russian influence in Spain as weak due to the fact that economic links remain negligible. However, Russia has been able to penetrate the Spanish and Latin American media space by flooding it with media outlets that successfully spreads Russian propaganda.
On the opposite side of Europe, Ukraine has been the country most vulnerable to Russian influence, according to Oksana Nezhyvenko from the Department of Finance of the National University of Kyiv-Mohyla Academy. The annexation of Crimea and the war in Eastern Ukraine have been the most visible aspects of the Russian crude involvement in the domestic affairs of the country. Russia, as in the case studies from the Kremlin Playbook, has systematically used governance deficits and corruption to take over key industries and increase pressure over the central government via the Ukrainian energy dependence. Since the Maidan revolution, the new government has done a lot to drive through institutional change.
Ukraine has stopped importing natural gas and has joined an EU-Ukraine free trade area since the beginning of 2016. On the governance front, the Ukrainian parliament passed a comprehensive anti-corruption package of laws, which have aimed to improve accountability and prevent massive embezzlement of public resources. According to Ms. Nezhyvenko, some challenges remain, including a very complicated tax system prompting administrative corruption; the delay of the visa liberalization with the EU; the corrupt media sphere; the implementation of assets declaration investigations, etc.
Traicho Traikov concluded the discussion by saying that albeit difficult and not in fashion today, policy decisions based on values should be encouraged. This would be the most long-lasting way to eradicate governance deficits and strengthen the rule of law.