George Friedman gave a presentation in Budapest upon PAGEO’s invitation.
What did Europeans Give to Us?
Europe controlled the world for five hundred years. It was both an awful and wonderful period. Until the Europeans arrived, the Mongolians had not known Japanese, Japanese had not known the Aztecs and Aztecs had not known the English.
Europe created mankind with blood on their hands as mankind that knew themselves. Those people understood that there was only one mankind, irrespective how distorted or injured it was.
Europe not only created mankind and conquered the world, it also wanted to conquer nature. I keep remembering 1990 and a concert hall where we were enjoying Mozart’s music and while winter was in its element outside it was cosy and warm inside, and in the end we took a comfortable train journey to our home 20 miles away. We forgive a lot of the culture, of which Mozart is a part. Something was still true for Europe at that time: it was never able to beat itself. Although it conquered nature and the world, it was in constant civil war with itself. The global power of the Spaniards, the Dutch, the French and the Brits failed and for five hundred years mankind has been torn by civil wars. Nonetheless, nothing was as wonderful at that time as the European culture. If I look back to that period from the 21st century I feel envy. It was just 1914 when Norman Angell published a book under the title of The Great Illusion, for which the author was awarded the Nobel Peace Prize later. That English author categorically proved that war could not happen in Europe anymore. In his opinion, war would be ruled out by investments, trade and the interdependence stemming from the other correlations. He wrote this book in 1910 and of course he was mistaken because even though he was very smart, he did not understand that interdependence increased and not decreased the chance of a war. Madagascar was never in war with Brazil. They have no common problems, they do not have any contact or relations.
However, France and Germany had three wars, because they had interdependence between them. Both parties were afraid that the other would abuse, or try to break the fragile relationship by taking control. Interdependence is referred to as the end of conflicts, but by now we have learned that 1914 marked the beginning of the most harmful thirty-one-year period of mankind.
Approximately 500 million people died between 1914 and 1945 for political reasons. I don’t mean only World War I and World War II, but also include the Russian civil war, the Spanish civil war, the great Ukrainian famine and a lot of other events. This figure is shocking.
America Is an Empire, Why Is Europe Not One?
…the USA remained the only superpower… It did not know what to do with that power and did not even want it to a certain extent, but history does not really care about what people want. When World War II ended in 1945, Europe became an occupied territory.
One part was occupied by the Soviets, and the other was taken by the Americans. The Soviets governed differently to the Americans, but no one should have any illusion: decisions about Europe were not made in Rome, Berlin or Paris but in Washington and Moscow. The issue of war and peace, and the core dilemma of sovereignty were not decided in the European cities. They were decided upon by the Russians in Moscow and the Americans in Washington. Luckily Europe remained peaceful because the Cold War was a conflict that completely froze into ice. Nobody could take any steps and nobody could move.
In 1992 the Soviet Union collapsed, with two consequences. Firstly, the USA remained the only superpower. It stood out from the world as a great powerful empire. It did not know what to do with that power and did not even want it to a certain extent, but history does not really care about what people want. It is a fact that the US had that role. What is referred to as America’s century is not the twentieth century because America had only small power in its first half. In the second half it was engaged in a cold, yet bloody fight with the Soviets. Looking back we know that they won the battle, but I was there and often that victory did not give them pleasure.
Secondly, Europe regained its independence and created an alliance, the European Union. The Treaty of Maastricht became reality then, as a mature solution to prevent further conflicts. It was based on the assumption that economic integration will also entail political stability. That assumption contained logic and seemed to be true between 1992 and 2008. Then in 2008 the world changed in just seven weeks. On August 8, 2008 Russia attacked Georgia, or as the Russians look at it, Georgia attacked Russia. I do not know for sure. Russia attacked Georgia and announced its re-entry into history. The assumption which evolved at the end of the Cold War whereby Russia was no longer an aggressive actor in global politics, suddenly seemed false. Georgia’s occupation was not as much about Georgia, as about the Ukraine, where the orange revolution was taking place at that time. The Russians sent a message with it: America is not in a position to support Georgia, its ally. This is what the Americans’ guarantee was worth. We attacked America’s friend, and the Americans did nothing. All that happened at the beginning of August. It did not shock the world but it was a start of a great change. Something else happened at the same time: Lehman Brothers went bankrupt, which triggered the financial crisis. That turned out to be the greatest crisis in the history of the EU. The United States experienced three such crises since World War II: the crisis of municipality bonds, the crisis of the national debts of the Third World and the bankruptcy wave of the savings institutions. It was not an unknown experience to the Americans. However, the Europeans faced a financial crisis for the first time in their lives. First the banking crisis occurred because banks purchased derivative securities from America and they made them collapse. The Europeans always blame America for it, but it is still worth pointing out that after all, the Europeans bought the securities. But that is not what is important there.
The Collapse – the German and the Greek Version
While the USA tried to find a solution to the banking crisis, in Europe it turned into national bankruptcies because the European structure was fundamentally unreasonable. The world’s fourth largest economy pumps the heart of Europe, which currently exports 53% of the GDP. In other words, its economy is so large and effective that its own population can consume only half of it. It is forced to export the other half and, as we learned on China’s example in 2008, a great exporter is only as strong as its customers.
Germany was interested in a special structure of the EU because it needed a free trade zone where half of its production could be distributed. It required two things: a zone for free trade, which was provided by the EU, and a currency, the value of which could be defined on the basis of Germany’s anti-inflation and export maximising interests. Thirdly, the Brussels regulations created an extremely complicated system based on 26 different fiscal systems, which made the operation of enterprises extremely difficult. There was no Facebook, Microsoft or Apple that could have challenged Siemens.
It does not mean that there were no creative experts working for low wages on the peripheries of Europe; Hungarian programmers are famous for being cheap. The structural requirements of enterprises strongly limited the options. That led to a situation whereby the economic development of the peripheries was undermined by the things that were needed by Germany and the whole of Northern Europe. Thus, this region went into recession faster than Germany and soon a situation emerged where the fiscal revenues no longer financed the debts. The Germans now say that the Greeks borrowed too much money, to which the Greeks answer that Deutsche Bank persuaded us to take loans in 2009, 2010 and 2011, because they wanted to maintain demand in the peripheries. Each side has its own version about the events.
What happened in concrete terms was that the unemployment rate reached 25-28%. Not only in Greece but also elsewhere, e.g., in Spain and in the south of Italy. Looking at Southern Italy, the figures are the same as during the American crisis in the 1930s or in Germany in the 1920s. These are extremely high figures. They reflect the history of a social disaster. When you hear about public employees laid off in Southern Europe, the layoffs do not include everyday people. They include physicians, engineers and many other experts. If you are made redundant at the age of 45 but you are a well-qualified expert you can say, “well, it is quite bad but I have got some savings and better times will come”. This will give you not only hope but also expectations. The real crisis in the majority of Southern Europe and Northern Europe is that it has been going on for seven years and no solution has been provided yet. In the meantime, the Financial Times, which is my favourite paper, announced that the Spanish economy is growing dynamically, faster than the rest of Europe, by 1.5%, while unemployment is falling by 2 ‰.
The differences among the interests of the three Europes are obvious. Germany, Austria and the Czech Republic live in one reality. Southern Europe lives in a totally different reality. It is totally different to be a southern Italian to being a German in Frankfurt.
It does not mean of course that the Germans are evil, or the Italians are good. Very simply it is the reflection of a political phenomenon: the feasibility of the current structure of the European Union. And of course, there is the third area, our area, your area, where people live their lives turning to the East, looking forward to what can come next from behind the hills. On the other side, obviously the Germans have a lot more important things to do than being in war with the Russians.
The Southern Europeans are trying to find a solution but do not know where to look for it. Consequently, we have three different views of what Europe consists of.
The problem is treated differently in each country. I believe, and I also wrote about it, that the decision by Prime Minister Viktor Orbán in relation to the credit crisis is a good projection of what the creditors will force on Europe. Very simply, he said: “I am the Prime Minister of Hungary and not a Minister of the EU. Our citizens are unable to repay the mortgage loans at the exchange rate that the HUF reached. I do not want our citizens to lose their homes. Consequently, as a country, we have the following proposal: we repay a certain amount in HUF, or we do not repay anything. Think about it, call me in the morning and let me know what you think.” Orbán’s act was appreciated because it took place more or less simultaneously with the Cyprian disaster. Under Germany’s pressure, all bank accounts over EUR 100,000 were frozen in Cyprus. It is a rather large amount but it is painful to Russia if it is all Russian money and it is also painful to the Brits who keep all their savings there intending to use them in Cyprus to live out their years of retirement… On the one hand, we had the example of Cyprus, which caused a social disaster and, on the other hand, we had Orbán, who understood what many do not understand on the peripheries: if you owe billions of dollars you dictate. If you owe only a hundred dollars, others will dictate. The Greek Syriza Party also learned that lesson very well.
The Diversity of Europe has been Forgotten
However, the return of nationalism is an even more important European phenomenon. It is more important not in the sense of extreme right parties or radical left-wing parties but in the following sense: when the President of France Hollande talks to the Chancellor of Germany, then it is not a talk between two European leaders; the President of France talks to the Chancellor Germany, representing the interests of his own country. Unless he does so, he will lose the next elections. The European leaders who described themselves as members of the group of ministers working for the stabilisation of Europe together with leaders of other countries keep losing their positions. A lot of bad things can be said about the recently emerging radical parties but I would simply say the following: Europe does not function. Some argue that it could be made to function.
My answer is: let’s do it. Seven years have gone by, it is time to solve the problem. Of course the problem is not that they did not think about it, or that there is no think-tank in Brussels which could prepare a study. The real problem is the extreme recognition that Germany and Greece are different. The problem is that in the enthusiasm and excitement that accompanied the establishment of the European Union, the common currency and the standards, the diversity of Europe was forgotten. Greece’s position simply does not allow for maintaining the EUR exchange rate. A state like Germany is unable to maintain a currency that is priced in Greece. It would be unreasonable to assume that all Member States should use a common currency with a fixed exchange rate, while the tax rates are extremely different and are controlled by the national governments.
Hundred Year-old Tactics – What does Putin Want to Achieve?
While Europe was weakening, it was inevitable that Russia would return as an active participant. What happened in Kiev is a long story. Did the Americans fund the demonstrators? Absolutely. They did it very openly.
Putin’s accusation, according to which America organised the protests, is true inasmuch as the Americans were involved. But America cannot trigger a revolution. They provided money only. The revolution required the real despair in the Ukraine. It is shocking for me that in this region everybody believes that Russians are four-and-a-half metres tall. In the meantime, if we look at the Ukraine, the Russians made a mistake with it all. Of course they had a very clear motive. That line symbolises the basis of the European peninsula. To the West, there is the peninsula, which is surrounded by water on both sides. To the East, there is Russia. The Baltic States are already members of NATO; St. Petersburg, which used to be 1,100 miles away from NATO, is only a hundred miles away. Belarus … What can I say.
The Ukraine: that is where the Russians destroyed the Wehrmacht. That is where they fully destroyed them. This is the buffer that guarantees their safety. They would not give it up just as America cannot return Texas to Mexico either. It will not happen. But they cannot re-conquer it either. The performance of Russian intelligence in Kiev was pathetic. They were unable to project the uprising and they were unable to handle it either, they wanted to prepare a file for everybody – they lost or they were inexperienced, who knows. They tried with an uprising in the East, which did not occur and then they sent troops (we also sent troops, everybody sent troops), and in the end the Russian were forced to stop. It is important to bear in mind because if somebody in the region says KGB or FSB, people think of a legendary effective mechanism. This mechanism was not as effective there as elsewhere. Looking at the events from the angle of America, a one-hundred-year-old strategy has been applied since 1914. The United States intervenes in Europe whenever a state intends to grasp power.
This has happened in Germany, as well as in Russia. During World War I, we sent an army of one million to France after the collapse of the czar. In World War II, we occupied Europe in 1944 in the last moment (everything else was preliminary) and took part in the destruction of Germany.
During the Cold War we learned that joining later is worse than joining sooner. So, in the Cold War we confronted them again. It was the same war though: The relationship with Russia and Germany. Against and again. The Cold War was about the relationship of the two states.
Whether the Russians were successful or failed in the Ukraine does not matter. The United States responded. They had moderate responses; not in the form of an unexpected air attack or anything similar because they are saved for places where nothing can be done like in Iraq. Instead the USA decided to place equipment in Poland, Romania and in the Baltic states for preventive purposes.
Dream and Reality on the Peripheries of Europe
Józef Piłsudski, the founder of modern Poland came up with the idea of Intermarium: an alliance from the Baltic Sea to the Black Sea. It never happened between the wars, but now it will happen. The alliance of Poland, Romania and the USA is true and deep. I do not believe that there will be war. I do not know whether the Russians will return to the Ukraine.
What I do know though is that a line will be drawn now. The second line in the buffer zone of the peripheries. The question is what Hungary will do.
The Hungarians very prudently made an assumption that the Russians were close, there was chaos in Europe and the Americans would not come anyway. I also would have thought the same, if I were the Prime Minister. However, the Russians are not close, the Americans are coming and the chaos still continues in Europe. The European economic chaos is turning into a NATO chaos. A military association consists of armies. A number of NATO member states do not have an actual army but like attending cocktail parties in Brussels. A very pleasant pastime.
However, with its bilateral agreements, the USA does what it has always been doing in Europe: it takes up a defensive position. In the meantime, the Russians seem to make all sorts of threats and promises while being ruined by the fluctuation of oil prices.
This region will always remain a border region. An area to be acquired first from both sides. And I am talking about the return of nationalism to Europe. The Spaniards follow Spanish interests, and even the Scots intend to follow their own interests. The Catalans are doing the same. Not only countries, but also regions within countries wish to do the same. This is the Europe we are experiencing now. When I talk to Europeans, they always say that they would like to go back to the ordinary life. The period between 1992 and 2008 was abnormal. It was a wonderful and extraordinary period, but it was not normal for Europe. Europeans believe that they can extend it infinitely but are unable to do so. There is a great mess in the two large European institutions, the EU and NATO. The Russians are weak. Let us not forget though: a weak Russia could be the worst Russia.
The first step of national security is to protect themselves. Hungary is a small country, and it must be part of an alliance. That alliance is now developing, and I have strong hopes that you will join it.
Questions Asked During the Presentation:
What is the difference between EU and US trade?
In terms of products USA exports make up 9% of the GDP. 40% of it is sold to NAFTA partners, Mexico and Canada. So exports make up approximately 5% of the GDP. Losing even half of it would be very unpleasant. However, it would not change American interests. In Europe, however, external and internal exports are extremely high because of Germany. This is one of the strengths of the USA contrary to China, which was heavily hit when its customers weakened in 2008, or contrary to Germany, which had to transform the EU in order to maintain demand, although growth was zero percent. America was able to gain strength because of its significant internal market of 450 million customers (Mexico, Canada, US). We do not depend on international trade. That is why we could witness the Congress voting against Obama’s idea about a free trade agreement with Asia. A lot of people believe in America that a free trade zone would be favourable for countries living from exports, such as South Korea, Japan and China, but we are not an export country. A huge debate evolved around it.
How strong is China?
A lot of countries are considered regional superpowers. China, for example, is always considered a regional superpower, although geographically it has very few options. To the south from China there are the Himalayas, the jungle and the hills; to the north there is Siberia and to the west there are thousands of miles of steppes. It would be extremely difficult to push an army across them. Their first aircraft carrier will soon set to sail, but they have been saying that for five years, while the United States has thirteen aircraft carrier military units. I am more afraid of the Chinese admirals than of the Chinese aircraft carriers. They do not have any military navy past or experience to train commanders. In time, China will grow into a major military power, but it will take time.
What is America incapable of?
It is a true statement for the major parts of the world that even the local big powers would be in a difficult situation if the US intended to intervene. At this point I wish to distinguish between our capabilities of destroying armies and occupying countries. America has been very good at destroying armies. If you have an army that you no longer need, let us know, and we shall be happy to destroy it. However, we have not been good at occupying countries. This was true in Vietnam as well, where we triggered a counterrevolution. We could learn a lot from the Brits who never occupied India but manipulated the situation.
I wish to stress that the United States is the youngest big power. We never expected that to happen, the collapse of the Soviet Union shocked us. We did not expect it to happen so soon, therefore the B52 strategic bombers continued to fly for another two years as we were not absolutely certain that that was the end of the Russians. Not even a generation has passed since then. We can compare the USA to a fifteen-year-old teenager. If you had a teenager in your home, you know what I am talking about. In the morning they say: “You do not have to take me, I’ll drive, I can drive,” in the afternoon they come home depressed that their best friend would not talk to them and they talk about suicide. These are the United States. They fall from one extreme to the other as a maniac in depression. The power that we have is totally unusual for us, and it would like to pass it on to someone else but cannot find anybody. At least another generation must grow up before America can conduct a stable distance and exemplary foreign policy. Until that happens you have to deal with us. If the Russians start something, not a calm and quiet British Empire will be there, but America. I like being an American because I can live in a world where I do not have to exchange places with others. The United States is an unpredictable, complex and often dangerous power. But the world that we live in exists between the two contradictions of the fragmented Europe and the immature America.