The War in Ukraine Helps Advance the Great EU Neoliberal Project 

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Estonian Prime Minister Kaja Kallas has been one of the most outspoken Russia critics since the beginning of the war in Ukraine. Now there are increasing calls for her to resign after the news broke that a transport company partly owned by her husband has continued to do business with Russia.

According to Estonian World, the logistics company has earned only 1.5 million euros doing business with Russia since the beginning of the war. It’s a small amount in the big scheme of things, and it did not violate sanctions,  but it does represent a wider trend of European officials saber rattling about the evil of Russia and asking citizens to sacrifice their standard of living while those sacrifices are unequally applied.

Kallas, who was considered to be a potential future secretary general of NATO, has for the past year and a half told Estonians and the international media that “there must be no business with Russia.” That stance is now coming back to bite her as two recent opinion polls in Estonia showed  57 percent and 69 percent respectively of respondents thought Kallas should quit.

And while ordinary citizens must pay higher energy prices, watch their real wages fall, and see public money funneled into the Ukraine bottomless pit. In other words, working class Europeans are becoming poorer.

And yet Russia hawks like Institute of International Finance’s chief economist, Robin Brooks, bemoan the fact that EU nations still aren’t committed enough to the economic war:

That pretty well sums up the EU capitalist class, but let’s run with the example of Greece. Real wages dropped 1.2 percent there from Q1 2022 to Q1 2023. That’s actually one of the smaller declines in the EU, all of which are of course blamed on Russia for causing inflation by invading Ukraine.

Meanwhile, Greece’s dominant industry has been doing quite well. As the blame cannons periodically settle on a new target not doing enough to help isolate Russia, Athens has recently come into focus. According to Brooks, Greek ships now make up almost 50 percent of tanker capacity out of Russian ports, up from 33 percent before the war in Ukraine. And the Wall Street Journal reports that seven Greek companies have combined to ship 50 percent more Russian oil from Black and Baltic Sea ports than Russia’s state-owned Sovcomflot.

In June, the EU tried to crack down on the Russian oil trade with tougher sanctions, but the efforts were opposed by Greece, Malta and Cyprus in an effort to protect their shipping oligarchs who have been making a killing since the start of the war. The bloc was also reluctant to further disrupt energy markets.  Brussels ended up passing a watered down 11th package of sanctions, which was supposed to tighten loopholes and name and shame companies still transporting Russian oil. More details from Politico: 

Many of the vessels, which are typically owned by an opaque network of shell companies — many reportedly linked to Greece — are understood to turn off their navigation systems to hide the fact they have docked at Russian ports, or take on fuel from other tankers at sea to obscure its origins.

Measures proposed by the European Commission and agreed by member countries will prohibit vessels suspected of these shady practices from entering EU ports “irrespective of their flag of registration.” Tankers will also have to notify authorities if they are planning a ship-to-ship oil transfer “at least 48 hours in advance” within specific geographical areas.

It didn’t take long for Greek shipping companies to find a new loophole. Elisabeth Bra, a fellow at the American Enterprise Institute, describes Greece’s role in helping Russia evade sanctions as a Greek tragedy at Foreign Policy:

But now many Greek shipowners have decided that they can profit even more by selling the ships. Sales began soaring in February 2022, and there’s “demand for tankers, for older tankers across the world, particularly in jurisdictions unencumbered by sanctions against Russia,” the trade publication TradeWinds explained. In the 12 months since then, Greek owners have sold some 125 crude and vessel carriers to the tune of $4 billion. In June, Hellenic Shipping News reported that Greek companies had sold 97 tankers sold so far this year, 25 percent of the world total….

Despite the good news for the sellers, the generous buyers’ identities have mostly not been announced. The buyers now rushing to pay a premium for secondhand tankers are, in fact, decidedly mysterious. Companies based in the United Arab Emirates (UAE) have bought the most Greek tankers, followed by buyers in China, Turkey, and India. S&P Global Market Intelligence reports that 2022 saw the creation of an astounding 864 maritime companies with an association or link to Russia. My research assistant, Katherine Camberg, has traced more than two dozen formerly Greek-owned vessels to new owners often so obscure that they even lack a mailing address.

India, Turkey and China are all importing massive increases in Russian oil. And according to the Financial Times, the UAE’s Dubai is the “new Geneva” for the Russian oil trade. While some EU nations criticize Greece (and Malta and Cyprus) for helping to enable the transport of Russian oil, those same countries continue to buy  Russian fuel refined in other nations like India.

The case of Greek shipping oligarchs is illustrative of the wider theme across the EU. Workers have been hammered by the fallout of the Brussels-backed proxy war.  Meanwhile, whether it’s Kallas in Estonia, Belgium diamond traders, or Greek shipping oligarchs, the wealthy and well-connected find ways around the sanctions and profit off the conflict.

Belgium has recently done an about face on the idea of  a Russia diamond ban – no doubt because Antwerp, which controls about 84 percent of the  world diamond trade, has found a way to benefit.

Belgian officials are now proposing physical controls on diamonds and traceability using blockchain technology  that will document a diamond’s source and every step of its “journey.”  With such a system in place, Belgium will sign off on EU support for a ban. These blockchain certification technologies coincidentally have been developed in Belgium and would help ensure Antwerp maintain its dominance in the diamond trade rather than new center(s) popping up elsewhere.

The  G7 currently buys 70 percent of the world’s diamonds, and Russia is the largest supplier of rough diamonds, so a G7 ban would upend the market. A tracking system would also decimate the Indian diamond industry. According to the Financial Times, removing Russian diamonds from circulation would risk hundreds of thousands of jobs in India, which relies on Russia for 60 percent of the gems it processes.

Or how about in Poland, where Warsaw went to bat earlier this year  in an effort to get the EU to enact an outright ban on cheaper synthetic rubbers from Russia in order to benefit the Polish company Synthos, which is owned by Poland’s richest individual, Michał Sołowow. In the end, Brussels only introduced a rubber quota of 560,000 tons until a transition period runs out at the end of June 2024.

While the movers and shakers prove yet again that war is a racket, the European working class is bearing the brunt of the costs.

Over the past year, real hourly wages decreased in 22 EU countries, including -1.8 percent in France, -3.3 percent in Germany, and -7.3 percent in Italy. The official line is that it’s Russia’s fault for causing higher energy prices. And while energy costs have certainly risen, companies are passing on more than those costs to consumers. From the New York Times:

Profit margins at public companies in the eurozone — measured by net income as a percentage of revenue — averaged 8.5 percent in the year through March, according to Refinitiv, a step down from a recent peak of 8.7 percent in mid-February. Before the pandemic, at the end of 2019, the average margin was 7.2 percent.

The  crisis is being used to impoverish and discipline workers across the bloc, as well as slash social spending. Brooks holds Germany out as an example of Europe’s “core” that has successfully reduced its connections with Russia.

Germany is also becoming poorer with real wages falling at record speed last year. Berlin has been pushing employers to pay a one-off “inflation bonus” to their employees, which will be exempted from income tax and social contributions for a sum of up to €3,000. That of course does nothing for the long term decline in living standards German workers are entering. Berlin’s new draft budget increases military spending while slashing social spending. From WSWS:

The current draft budget already contains the deepest cuts in post-war history. The health budget alone is slashed by 33.7 percent from €24.48 billion to €16.22 billion, after it had already been cut by almost 40 billion euros the year before. There will also be far less money for education and numerous social benefits. For example, expenditure on the maternity convalescence centre and family holiday homes is reduced by 93 percent each, for youth education and youth meeting places by 77 percent, for free youth welfare by 19 percent, for student aid by 24 percent and for housing benefits by 16 percent.

And this is only the beginning. A campaign for even greater savings is already underway in the political establishment and the media. A column in Der Spiegel entitled “The rollback of the welfare state has begun” praises the German government for having “drastically curtailed” the original wishes of the Federal Minister for Family Affairs Lisa Paus “for new billions for children in need.”

European Central Bank policymakers have known EU companies have used the food and energy inflation caused by the  economic war as an excuse to increase their profits, making consumers foot the bill, yet they continue to hike interest rates with the stated goal of keeping wages down. As Reuters reported back in March:

Data articulated in more than two dozen slides presented to the 26 policymakers showed that company profit margins have been increasing rather than shrinking, as might be expected when input costs rise so sharply, the sources told Reuters.

An ECB spokesperson declined to comment for this story.

“It’s clear that profit expansion has played a larger role in the European inflation story in the last six months or so,” said Paul Donovan, chief economist at UBS Global Wealth Management. “The ECB has failed to justify what it’s doing in the context of a more profit-focused inflation story.”

The ECB raised rates yet again on Thursday with the 25-basis-point increase pushing the rate to 4.0 percent, the highest level since the euro currency was launched in 1999.

The higher rates are helping to kill the bloc’s economy with the EU just lowering its forecast for economic growth this year and next.  Inflation is biting while higher interest rates are restricting credit. The 20 countries that use the euro currency are now expected to grow just 0.8 percent this year instead of the previously forecasted 1.1 percent. Europe’s largest economy, Germany, is expected to see its economy shrink 0.4 percent this year.

With the lowered growth expectations, austerity is returning to the EU after a brief break during the  early stages of the Covid19 pandemic. The EU Commission is pushing legislative proposals for reform of EU fiscal rules that would bring even more austerity. The EC is doing so despite its own polling of EU citizens showing that nearly 80 percent favor stronger social policies and more social spending. At the same time, military spending is soaring. From the Stockholm International Peace Research Institute: 

Military expenditure by states in Central and Western Europe totalled $345 billion in 2022. In real terms, spending by these states for the first time surpassed that in 1989, as the cold war was ending, and was 30 per cent higher than in 2013. Several states significantly increased their military spending following Russia’s invasion of Ukraine in February 2022, while others announced plans to raise spending levels over periods of up to a decade…

Some of the sharpest increases were seen in Finland (+36 per cent), Lithuania (+27 per cent), Sweden (+12 per cent) and Poland (+11 per cent).

The stagnating growth along with calls for social spending cuts and increased military spending comes on the  heels of a decade-plus of austerity after 2009. As the New Economic Foundation details:

The research finds that austerity policies in the EU, brought in following the 2008 financial crisis, have led to a permanent scarring of incomes, and cuts to spending on infrastructure and vital public services. Low levels of gross domestic product (GDP) growth led to a fall in tax intakes for governments, increasing government debt. Major European governments that were prevented from vital public spending as a result of these EU rules experienced lower levels of growth over the last decade, the research finds. The report finds that countries like Greece and Italy that pursued greater austerity and cuts to public spending ended up with higher government debt levels.

Brussels’ neoliberal austerity policies also continue to increase the gap between rich and poor. Earlier this year,  Kristalina Georgieva, the head of the International Monetary Fund, declared that, “The peace dividend is gone.” She was referring to the post-Cold War money that was freed up in Europe to spend on social and cultural programs. “Defense expenditures have to go up.” The New York Times posed the following question  at that time:

The urgent need to combat a brutal and unpredictable Russia has forced European leaders to make excruciating budgetary decisions that will enormously affect peoples’ everyday lives. Do they spend more on howitzers or hospitals, tanks or teachers, rockets or roadways?

If the answer wasn’t clear then, it sure is now.

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    1. Yves Smith

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  1. furnace

    As always with neoliberalism, profits are privatized and costs are socialized. The transformation of the EU into a US protectorate continues apace. Maybe with enough “worker discipline” Europeans might be convinced to return to the “good ol’ days” of Blake’s Satanic Mills. Will we see a resurgence in proper left-politics in the continent? I can only hope so.

    1. cosmiccretin

      “Will we see a resurgence in proper left-politics in the continent?”

      Seen any flying pigs lately?

      Thought not.

      You could try putting your question to socialdemocrat Otto Scholtz…

  2. Chester

    It is bleakly amusing to me that one of the most common retorts to one stating that western societies have to reduce their consumption in order to effect a just climate transition is that “people will not accept a lowering of their living standards”. It was bizarre in the face of austerity politics being promoted everywhere, a prime example of lowered living standards, and with the support for the war in Ukraine, well…

    Anything to hide class interests, I suppose.

    1. Jeremy Grimm

      Your observation is astute. I will remember your observation in the future as a counter to arguments that “people will not accept a lowering of their living standards” related to adaptations for mitigating Climate Chaos.

      I believe past history shows people will not only accept but will deliberately adopt hardships to benefit the Common Good … when it is clear they will benefit the Common Good. It is also remarkable how much privation people will tolerate when pressed upon them by government, Media, and coercion. If I were part of the Elite I would greatly fear that the boiler vessel holding the public might be nearing rupture.

    2. jsn

      I’m pretty sure that “will not accept a lower standard of living” trope was capitalists recognizing “people’s” expenditures were their income, can’t go reducing those living standards.

      As more and more “profits” have in recent years have come from money printing and the death harvest the Government subsidizes the Medical Industrial Complex for, a reinterpretation of the famous Melon quote, “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people”, leaving out everything after the first period seems to be the ethos: socially murder society on an industrial scale while expropriating all the remaining property.

      Everything after the first period in that quote represented, to Melon, the idea of a healthier society and economy, however wrong he may have been in is ideological methodology for getting there. Our current administrative state, I hesitate to call it “government” because it can’t appear to govern anything, settling for ever more extreme propagandistic messaging whatever the governance issue, seem content to let the population bleed profitably out.

  3. polar donkey

    Like the Ferengi Laws of Acquisition said on Star Trek, even in the worst of times, someones making a profit.

    1. digi_owl

      No need to be Ferengi to see that. Just look at the concept of short selling.

      If i were to try that with someone’s car there would be hell, but on the stock exchange it is fine for me to borrow someone’s shares, sell them, wait for the value to tank, buy them back, and return them to the actual owner while pocketing the profits.

  4. The Rev Kev

    Maybe all oil and gas from Russia should be totally blocked in going to the EU – all of it. And that includes all that Russian oil that goes to India where it is refined and sent to the EU as Indian oil. If that happened the EU would run down in only days and industry would come to a grinding halt. That Robin Brooks may bemoan the fact that EU nations still aren’t committed enough to the economic war but did he consider the consequences if they did? That is an odd thing about this war. That guy has a solid background in finance and economics and yet he refuses to see what is in from to of his face and what would happen if the EU ramped up sanctions to the max.

  5. Fernando

    You have to be a cosmopolitan upper middle class (or an eurocrat) living in some european capital to not see the damage that the EU and the Euro have caused to european societies!
    More damage will be done until the EU collapses…

    1. Feral Finster

      The Eurocrats are full aware of the costs of subservience to the United States.

      Since they do not pay those costs, they do not care.

    2. Ignacio

      Not necessarily. There are lots of middle class workers, not eurocrats that have it easier to move and work in other EU countries in jobs like consultancies etc. To be sure, language is still a barrier anyway for most countries. I don’t know how it works in close-to-border regions but it should be easier to offer services at both sides of the border. Then, there are “special tasks”. For instance i have seen a Polish worker who came to Segovia during the sheep “peeling” season. A big and strong guy that was able to lift the sheep as if it was a rabbit and peel each one in question of less than a minute, 1, 2,…20,…200 sheeps. I guess in some jobs, some countries might have shortages of trained workers.

      1. Ignacio

        Fishermen and ships that fish in certain waters (let’s say Gran Sol zone South to Ireland West to France and North to Spain can unload their products in French, Irish or Spanish harbours.

  6. Camelotkidd

    As Clara Mattei argues in “Capital Order”–the true value of austerity is its insulation of entrenched privilege and its elimination of all alternatives to capitalism.
    The subtitle of this excellent book is “How Economists Invented Austerity and Paved the Way to Fascism”

  7. Weil

    This seems more than simple austerity. It reeks of an attempt to create and organize international fascism.

    Dumbing down, deadening and otherwise starving people of information, technology and education has taken some time in the US since the New Deal.

    Thatcher began the process in England.

    Alas, the public commons is now ‘theirs’ and this means that they make the rules and raise the fascist flag.

    As for the cosmopolitans and eurocrats, they simply climb over the bodies.

    The rancid material conditions have now been normalized.

    The interest rate will rise again as the donor class must be able to run on lowering inflation.

    They understand that bond/soick and creditors are their donors, the working class, unorganized and debased and deracinated is simply the ‘mark’ that must be fooled into thinking they are ‘free’.

  8. Susan the other

    I guess there is a logic to this. Militarism is directly connected to both oil and finance. Which is a good thing if you are the one waging war. – and you control both oil and finance. But it is a disaster if you have no secure supply of oil and your financial modus operandi has just been rejected by the BRICS and the Saudis, etc. So what’s a former neoliberal imperialist to do? Circle the wagons. And go an emergency friendship diplomacy blitz – except, unfortunately you have already lost your credibility and you come across as the same old greedy weasel. The only thing the West has that is readily available to sacrifice in order to pay for a coming decade of war is the lifestyle of the golden billion. From riches to rags. all in a frantic attempt to preserve a privileged system that cannot survive in a multi polar world and so will ultimately fail. What category of Tragedy is this?

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