The US plans to spend nearly US$2 trillion to stimulate the US economy and has been critical of some EU countries for not planning similar big spending stimulus packages. Germany has been particularly reticent to splurge out.

Prime Minister Topolanek was reporting back to the European Parliament in Strasbourg on last week’s EU summit. He said EU leaders had been disturbed by calls from the US Treasury secretary Tim Geithner for EU stimulus spending similar to the US’s.

Topolanek said:

“The US Treasury secretary talks about permanent action and we, at our spring council, were quite alarmed at that.

“The US is repeating mistakes from the 1930s, such as wide-ranging stimulus’s, protectionist tendencies and appeals, the Buy American campaign, and so on.

“All these steps, their combination and their permanency, are the road to hell.

“We need to read the history books and the lessons of history and the biggest success of the (EU) is the refusal to go this way.

Wednesday’s outburst comes eight days before President Obama is due in Europe for the G20 summit of the world’s developed and emerging economies.

After the summit and a NATO meeting, Obama will fly to the Czech Republic for an EU-US summit, at which Prime Minister Topolanek will represent all 27 EU member states.

EU Commission President Jose Manuel Barroso told the EU parliament it was:

“Not helpful … to try to suggest that Americans and Europeans are coming with very different approaches to the crisis.

“On the contrary, what we are seeing is increased convergence.

US officials have so far declined to comment on Topolanek’s remarks.

Secretary Clinton can feel the visit a success. She started Friday with a town hall style question and answer with young Europeans at the European Parliament. This was streamed live across the EU on Europe by Satellite.

Many heard her tell the 1000 strong audience:

“Europe today is viewed by many as a miracle… The unity of this grand experiment is indeed impressive to those of us who have followed it from the other side of the Atlantic.

She stressed that Barack Obama wants to work with Europe, rather than unilaterally saying:

“I know that Europe and the US are united in a shared vision of the kind of future that we hope to realize… Europe is our essential partner in what we are going to do together.

The President of the European Parliament, Hans-Gert Poettering responded:

“What you said mostly could have been said by a European, and this shows that what unites us is much more than what divides us.

Secretary Clinton followed this up with a 90-minute meeting with Javier Solana, the EU’s top diplomat, the European Commissions External Relations Commissioner, Benita Ferrero-Waldner and Czech Foreign Minister Karel Schwarzenberg. The Czech Republic currently holds the EU’s rotating presidency.

They discussed relations with Russia, energy security, Iran, Afghanistan, the Middle East peace process, climate change, the situation in the Balkans and the financial crisis.

On all these issues the EU and the US appear to be converging. Commissioner Benita Ferrero-Waldner said the EU and the US were now, “going totally in the same direction.”

Convergence seems particularly strong on the need to address carbon emissions. After the meeting Secretary Clinton told a press conference:

“We are committed to a cap-and-trade system, but also to a number of other things. We are making major investments now in our stimulus package in alternative energy, in basic science research, in new forms of fuelling transportation, as well as upgrading our grid. The European Union is taking a similarly broad approach.

A poll in The Irish Times shows 51 percent would vote ‘Yes’ to the Lisbon treaty with modified terms. This is an eight point increase on a similar poll from November 08. Still, 33 percent say they would vote ‘No’, with 16 percent undecided.

In the same poll, a massive 80 percent of voters said they felt it was better to be part of the EU in the current economic crisis, 13 percent thought it was not with 7 percent undecided.

Ireland is the only EU country to allow its voters a say in the passing of the new treaty. It is constitutionally obliged to do so. Irish voters rejected the new treaty in June last year by a vote of 53.4 to 46.6 percent. Similar polls showed the ‘Yes’ camp winning, right up to the last poll before the actual vote.

The Irish government is reportedly considering moving the revote up to June to be taken alongside the European Parliamentary elections. However there is no consensus between political parties on when the poll should be held.

After last year’s ‘No’ vote, EU leaders agreed to address the, “concerns of the Irish people on the Treaty of Lisbon.” The Irish Times poll was based on this agreement which would allow Ireland to retain an EU commissioner and give legal guarantees on issues such as neutrality, taxation and abortion. Negotiations on these guarantees are still ongoing. No second poll can be held until they have been concluded.

The SAA was frozen last year until Serbia demonstrated full co-operation with International Criminal Tribunal for the former Yugoslavia (ICTY) in The Hague.

On a visit to Brussels on Feb. 9, Serbian Deputy Prime Minister Ivica Dacic said that Serbia had three key goals in 2009:

• The unblocking of the SAA
• Gaining candidate status for EU membership
• The removal of the need for Serbs to hold visas when travelling in the EU

After a meeting with Dacic, Rehn reiterated Serbia’s accession to the EU was important for the, “stabilization and societal progression in the Western Balkans.”

However, when asked if Belgrade should apply for EU candidate status before the SAA is unblocked, Rehn said that he, “would not recommend that.”

Rehn will visit Belgrade on Feb 12. He said he hoped to, “see good news this year,” on the visa issue but was waiting for the assessment of Serge Brammertz, the chief prosecutor for the ICTY, before commenting further.

The EU’s foreign policy is usually very simple. This is because it only has one real policy tool. It can either grant or withhold membership. The EU has dangled the carrot of EU membership before the nations of the Western Balkans ever since the end of the Wars resulting from the break up of Yugoslavia. The EU’s stated aim both in the Balkans and other bordering regions is to export peace and prosperity, rather than risk importing crime and instability.

Does Serbia really have any realistic alternatives to joining the EU?

Serbia is probably the least enthusiastic of the countries of the Western Balkans for EU membership. Nationalism and a sense of victimhood still run strong in Serbia. Much of this fuels and is fuelled by extreme right-wing politics.

The countries surrounding Serbia, including its former enemies are all looking westwards and have achieved various digress of integration with European institutions. Serbia risks being left out.

Despite the strong nationalistic currents in Serbian society, its government is still pushing for EU membership. To do otherwise is to risk becoming an economic and political backwater.

The European Union Parliament may review its decision to grant funding to the anti-Lisbon Treaty party Libertas. The move comes after Estonian MP Igor Gräzin, sent an affidavit to the EU Parliament on Feb. 3 disavowing his support

In the email Gräzin says, “I have never signed any papers asking for a recognition of Libertas as a political party in the EU and all corresponding claims are utterly untrue.”

Libertas started as a campaign pressure group opposed to the Lisbon Treaty in the Irish referendum on the subject. Last year, founder Declan Ganley announced that it would transform itself into a pan-European political party to contest the EU Parliamentary elections.

In order to receive the 200,000 euro (US$250,000) funding Libertas must be able to show it has support of elected representatives in seven or more EU member states.

The email was sent to the Alliance of Liberals and Democrats for Europe’s (ALDE) deputy Andrew Duff. He believes the email from Gräzin to be genuine, “because people I know have spoken to him.” Mr Gräzin is presently unavailable for comment.

Of Libertas, Duff said, “Mr Ganley appears to have fallen at the first hurdle. Apparently his claim to have recruited enough supporters was untrue. What Europe really needs is a bit more Veritas and a lot less Libertas.”

Libertas claims that it has Gräzin’s signature is in its “possession” and that it intends to publish the entire list of signatories on its website late Feb. 4.

Libertas believes Gräzin has been “put under immense pressure by the liberal ALDE grouping within the European Parliament to renounce his support of Libertas.” It claims to be able to find, “many times the necessary signatures,” if required.

The European Commission (EC), the executive arm of the European Union (EU), predicts that unemployment within the EU will rise to 9.5 percent by 2010. For the eurozone, countries using the euro as a currency, it predicts unemployment will reach 10.25 percent by the same date.

EU already in recession
Two consecutive quarters showing a drop in gross domestic product (GDP) is the usual definition of recession. The Interim Forecast published on Jan-19 states that the EU economy is already in recession. It predicts the EU GDP will shrink 1.8 percent in 2009. Then recover somewhat to grow by 0.5 percent in 2010.

The EU’s economic powerhouse, Germany is likely to see GDP fall by 2.3 percent this year, France will see a 1.8 percent contraction, Italy and Spain 2 percent. Ireland will be worst hit with a likely 5 percent fall in GDP.

The report predicts 2009 will bring a severe contraction for the Baltic sates. Lithuania will see a 4.0 percent drop in GDP, Estonia 4.7 and 6.9 for Latvia. There have already been riots in Latvia, Lithuania and Bulgaria over perceived government mismanagement. Further economic contraction will likely to lead to more unrest.

Action over breaking of Maastricht rules a possibility
All members of the eurozone are obliged by the Maastricht Treaty to keep public borrowing to below 3.0 percent of GDP. Countries breaking Stability and Growth Pact might well face punitive actions from the EC.

The EC’s report predicts average EU deficit to reach 4.4 percent in 2009, and 4.0 percent for the eurozone. Seven eurozone countries France, Italy, Spain, Portugal, Greece, Ireland and Slovenia will be above Maastricht ceiling. Ireland’s public borrowing is likely to be 11.0 percent of GDP.

Another five EU states outside the eurozone will also exceed the Maastricht ceiling. The UK will see an 8.8 percent deficit. This does not include the latest round of UK bank bailouts.

Euro area inflation under control, deflation not a problem
Economic and Monetary Affairs Commissioner, Joaquin Almunia, told a Brussels press conference on Jan-19, that eurozone inflation would likely be negative in the by mid 2009, but would be positive again in the second half of that year. “We do not consider this as a deflation scenario,” he said.

The UK’s deflationary fears
There is a markedly different outlook in the UK. This week fear of deflation has led the Bank of England (BoE) to set up a mechanism to allow for “quantitative easing”.

Quantitative easing is where a central bank effectively prints money in order to counter deflation. This is a high-risk and last-resort strategy. It is known as “credit easing” in the USA.

Announcing the set up Mervyn King, governor of the BoE, said the world had plunged into, “an unprecedented and synchronized downturn in business and consumer confidence,” and the UK was now in the grip of, “a pronounced contraction in spending and output.” But he said that the BoE had no plans as yet to implement quantitative easing.

The EC’s report may already be out of date. Figures release in the on Jan-22 showed The UK is now in recession. UK GDP shrank 1.5 percent in the last quarter of 2008 after a 0.6 percent drop in the previous quarter.

These figures are worse than most analysts had predicted.

In Brussels on Jan-20 to meet EU lawmakers and officials, AP reports Safari as saying, “We are ready to contribute, we are ready for a dialogue.”

Safari was promoting Iran as both a transit country and a possible supplier of gas to the EU. Iran has the world’s second largest gas reserves. These are currently undeveloped and are likely to remain so as long as Iran faces sanctions imposed in response to its enrichment of nuclear material.

The move comes shortly after the recently settled gas dispute between Russia and the Ukraine left parts of the EU without gas in the middle of winter for over two weeks. This has pushed energy security high up the agenda of many EU leaders and officials.

One way to reduce EU reliance on Russian gas is the construction of the proposed Nabucco pipeline. This would run from the Caspian Basin to the EU. But it makes little economic sense unless Iranian gas flows into it.

Meanwhile, Frence’s Le Monde reported Jan-19 that France and the UK have been attempting to get EU embargos on Iran expanded to include all equipment and technology that could be useful to the oil industry.

Le Monde said:

Having failed in their attempt for now due to the lack of a European consensus, French and British officials seem to be focusing on another objective – banning the activities of Iran’s Saderat and Mellat banks from the EU’s territory.

The EU would appear to be caught between a rock and a hard place.

Gas is again flowing from Russia to the EU via the Ukraine. On Jan-20, EU monitors reported that gas was flowing normally from Russia, that pressure building up in the system and gas flowing to Slovakia. It will take up to 36 hours for normal supply to be resumed.

Gazprom, the Russian state owned monopoly, opened up the valves at 10:24 Moscow time (07:24 GMT). This followed the signing of a 10-year contract in Moscow by Vladimir Putin, the Russian prime minister, and Yulia Tymoshenko, his Ukrainian counterpart. The Ukraine will pay the market rate for gas from 2010. There will be a 20 percent discount for the rest of 2009 if the Ukraine continues to charge low transit fees for gas transhipped to the EU.

Intermediaries that both sides had accused of siphoning off millions of dollars of revenue have been frozen out of the deal.

European Commission President, Jose Manuel Barroso, said in Brussels on Jan-20 that, “This very peculiar episode is over. Let’s hope it’s over.”

The EU left in the cold
Gazprom suspended deliveries to the Ukraine on Jan-1 in a dispute ostensibly over non-payment and prices. All gas to the Ukraine was suspended on Jan-7 when Russia accused the Ukraine of siphoning off gas destined for the EU for its own use.

For 13 days EU leaders attempted to broker a compromise deal, whilst some parts of the EU, notably Bulgaria and Slovakia froze with no gas deliveries.

Commenting on EU energy security Barroso said:

It was utterly unacceptable that European gas consumers were held hostage to this dispute between Russia and Ukraine.

This painful episode is a sharp reminder that the EU needs to take energy security seriously.

Gas coming from Russia is not secure. Gas coming through Ukraine is not secure. This is an objective fact.

However, Vladimir Chizhov, The Russian ambassador to the EU disagrees,” The EU has no reason to distrust Russia,” he said.

The new Nabucco pipeline
This new pipeline is proposed to run from the Caspian Basin to the EU through Turkey. Some see it as a way reduce reliance on Russian gas. The plan took a double hit this week.

On a visit to Brussels on Jan-19, the Turkish prime minister, Recep Tayyip Erdogan, said Turkey may reconsider its position on Nabucco if negotiations for Turkey’s accession to the EU continued to be delayed.

Turkey began candidate

talks in 2005. It is unlikely that they will be completed before 2014. Turkey has become increasingly frustrated at the pace of progress.

On the same day experts told the European Parliament they doubted whether there would be enough gas to fill the pipeline. Iran, starved of investment and currently under sanctions, is a net imported of gas. Turkmenistan would prefer to sell to Russia or China.

Hungary will host a, ‘Nabucco summit’ in Budapest on Jan-27.

Energy security now an EU priority
Barroso wants to make energy security a priority at the March meeting of EU state leaders. He said:

Now we have to be serious about diversifying and investing in Europe’s energy security future.

Energy security begins at home. Energy efficiency, renewables, all means of cutting back on carbon emissions, will become even more important in the future.

Image: www.tymoshenko.com.ua

Despite the signing of an agreement on Jan. 12, gas is still not flowing from Russia to the EU via the Ukraine. The Ukrainians claims that for technical reasons it cannot pass the amount of gas Russia wishes to send via the route stipulated. Gazprom, the Russian state owned gas export monopoly, disputes this.

On Jan. 14, the President of the European Commission Jose Manuel Barroso told the European Parliament, that if the agreement sponsored by the European Union is not honoured, it means that “Russia and Ukraine can no longer be regarded as reliable.”

More Diplomacy
The Prime Ministers of three of the hardest hit countries, Slovak Robert Fico, Bulgarian Sergei Stanishev and Moldovan Zinaida Greceanii travelled to Russia and the Ukraine to meet with their counterparts on Jan 14.

In the Ukrainian capital Kiev, Fico told Ukrainian Prime Ministers Yulia Tymoshenko, “We are not interested in your bilateral relations with Russia; we are interested in the transit of Russian gas through your territory.” Slovakia only has 11 days of reserves left. Fico added, “We ask you to start bilateral talks between the Russian and Ukrainian prime ministers.”

In Moscow Russian Prime Ministers Vladimir Putin told his visitors, “In my view, European officials could do more to put pressure on the transit country to ensure European interests.”

After returning from a Moscow Fico told a news conference, “The course of the talks allows us to state that we cannot expect early resumption of gas supplies to Slovakia.”

Russia has called for a gas users’ summit in Moscow on Jan 17 inviting the EU, customer and transit states. The Ukraine agrees to the summit but opposes the venue.

Return to Nuclear Power
Bulgaria and Slovakia have been hardest hit of the EU countries due to lack of connecting pipelines with neighbouring EU states.

Both have stated that they are likely to re-open mothballed Soviet-era nuclear power stations to make up for lost gas. Both were closed as part of the countries accession to the EU.

Although the Bulgarian 2006 accession treaty allows it to restart the power plant, “under exceptional circumstances, a similar clause in the Slovakian 2004 accession treaty has lapsed.

Possible Responses
The long term response by the EU will be to find more reliable supplies of energy. In the short term there is not much it can do. Mediation only works if both sides are interested in finding a solution. That is clearly not the case in the present dispute.

One possible solution put forward is for the EU to pay the Ukraine’s gas bill. Something that the EU is not keen on, not least of all because the murky deals that surrounds the trading of gas between Russia and the Ukraine.

Barroso favours legal action. He told the European Parliament the dispute was, “most unacceptable and incredible”. Saying he would advise EU energy companies to sue Gazprom and Naftogaz unless they restore supplies, “as a matter of urgency.”

Russian gas will resume flowing to the EU via the Ukraine at 0700 GMT on Tuesday Jan-13. It will take up to three days more before the gas reaches some parts of the EU.

Alexander Medvedev, the deputy chief executive of Russia’s state owned gas export monopoly Gazprom, told a Brussels news conference that supplies will be restarted, “if there are no obstacles.” The EU currently imports 25 percent of its gas from Russia, 80 percent of this flows through the Ukraine.

The Dispute
Russia and the Ukraine have been locked in a dispute over gas payments for several years. The Ukraine currently pays Russia about half the market rate for its gas, Russia thinks it should pay more. The Ukraine counters that the amount it charges Russia to tranship gas to the EU is half that charge by other countries.

There is also a political aspect to the dispute. Ukraine’s Orange Revolution four years ago brought a pro-Western government to power. Relations between the two have been strained ever since.

Russia accused the Ukraine of supplying arms to Georgia during last years Georgian-Russian war. “A more serious crime than arms deliveries in a conflict zone cannot be imagined,” Russian Prime Minister Vladimir Putin told Ukrainian Prime Minister Yulia Tymoshenko in October.

On Jan-1, when the two countries could not agree on gas prices for 2009, Russia suspended gas flow for the Ukraine. It still pumped enough gas into the pipeline to fulfil its contractual commitments to the EU.

Then Russia accused the Ukraine of siphoning off gas destined for the EU. This the Ukraine denied, claiming only to be using “technical” gas to run the pipeline system. Russia ceased pumping any gas into the system on Jan-7.

Countries which rely heavily on Russian gas, Hungary, Slovakia, Bulgaria and Romania, were badly hit. But countries further afield, Germany, France and Italy were also affected. With temperatures dropping to -15 C (5 F) in Eastern Europe, the EU intervened.

Last Minute Hitch
In a deal mediated by the EU President, Czech Prime Minister Mirek Topolanek, EU and Russian observers have been sent to pumping stations in the Ukraine. It is a straight forward job to verify that gas is not being siphoned off, but trust has completely broken down between Russia and the Ukraine, hence the need for EU observers.

Gas was due to start flowing again on Monday, but at the last minute the deal was cancelled by Russia because the Ukrainians had added new conditions to the document they had signed, making it different to the one signed by Russia. Russian President Dmitry Medvedev called the new conditions, “blatantly provocative and destructive.”

The Ukraine has now re-signed the document without the new conditions. EU Energy Commissioner Andris Piebalgs called the deal, “a complete solution on the issue.” However it does not address the commercial dispute between the Ukraine and Russia.

EU Energy Security
The reputations of both Russia and the Ukraine as reliable partners have been damaged. But the lessons for the EU are the same as they were previously, up to now ignored. The EU needs to:

• Diversify energy supplies.
• Reduce energy consumption through energy conservation measures.
• Diversify gas flow routes from Russia.
• Connect separate national energy grid forming a single EU wide energy market.

Image: Naftogaz