Streetwise Professor

November 30, 2010

It’s Amazing: You Poke Gazprom, and Putin Screams

Filed under: Economics,Energy,Financial crisis,Politics,Russia — The Professor @ 9:37 pm

Vladimir Putin was in fine form  in a speech in Berlin the other day, shrieking hysterically about the savage Europeans and their thieving energy policies:

Russian Prime Minister Vladimir Putin on Friday lashed out at European Union laws aimed at liberalising the continent’s energy market, saying they hinder investment and amount to uncivilised “robbery”.

Putin, speaking to an investor forum before talks with German Chancellor Angela Merkel, said the EU should consult Russia when drafting such important legislation.

“Our companies, together with German partners, legally acquired distribution assets in Lithuania. Now they are being thrown out there with reference to the Third Energy Package. What is this? What is this robbery?” Putin said.

“We often hear from our partners both in Europe and North America: ‘If you want to be members of a global family of civilised nations, you should behave in a civilised way.’ What is this then? Have our colleagues forgotten the basic principles?”

Nothing like sticking Putin’s beloved Gazprom to make him squeal like a piggy.

No doubt Putin believes that mandated unbundling of distribution pursuant to EU legislation, duly passed, is analogous to the expropriation of Yukos or Sakhalin II. Check that.  He actually thinks the latter were righteous and just: if you really want to hear him lose it, just say “Khodorkovsky.”   It’s unbundling that’s the crime.

Unbundling is a widely employed method to enhance competition in network industries.  It can work well, or it can work badly at enhancing competition.  But maybe that’s exactly what has Putin steamed: he’s not too big on promoting competition in the energy sector.

Moreover, it is not undertaken to expropriate property from one party to line the pockets of the state, or some individuals or firms favored by the state.  Moreover, the EU directive is meant to be applied uniformly across all companies, not selectively against individual companies who have fallen into disfavor, or who have something somebody else wants. Note that a German company, E.ON Ruhrgas, is also affected by the unbundling in Lithuania that vexes Putin, so it is not a measure directed at Russia or a Russian company alone.

In brief, Putin’s idea of “civilized” and the Anglo-Euro-American idea of civilized when it comes to property and regulation are quite different. There is a failure to communicate, and the failure is largely cultural.

I especially liked Putin’s assertion that the EU should “consult” with Russia when drafting its legislation.  Uhm, somehow I’m thinking that that’s just another Russian one way street.  Putin would shriek even louder if the Euros were to demand a voice in shaping Russian law, such as it is.  (Indeed, he has–as has Medvedev–told other nations to butt out when they expressed criticism of Russian legislation or legislative proposals.) Indeed, few things get him more incensed than any action by foreigners that he perceives slights Russia, treats it as an inferior to be instructed, or threatens to put Russia “on its knees.”

Lord knows that Merkel has her hands full, with the accelerating implosion of the Eurozone.  But I wonder just how much of Putin she’s going to take: she’s taken quite a bit already.  I also know that German business pushes her to deal with Russia to advance its interests, but Merkel has to know that there is a huge imbalance of economic power between Germany and Russia–and it don’t favor Russia.  So I imagine there will come a day when she slaps Putin down.

If, that is, she’s still in power to do it.  The meltdown in Europe puts her between the importuning PIIGS (and now maybe Belgium too) demanding German money to save the Euro and the EU and a German public that resists bailing out its spendthrift neighbors.  She may well be turned to powder between these political grindstones, leaving some other German chancellor to put up with Putin’s tantrums.

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  1. Actually you’re dreaming again, I think.

    Germany is an export-orientated economy and its demographic structure precludes a shift to greater consumption. So if it wants to continue prospering it doesn’t have any choice but to bail out the PIIGS (which provide markets for its industries – and will cease doing so if the Euro goes) or forge closer economic relations with Russia and China.

    Comment by Sublime Oblivion — November 30, 2010 @ 10:37 pm

  2. Let Putin scream if he wants to. If he screams loud enough, the Europeans will put a stop to it, or at least delay/modify it. They know who needs who more.

    Comment by Andrew #2 — November 30, 2010 @ 10:52 pm

  3. What? Belgium too?!

    Comment by So? — December 1, 2010 @ 12:24 am

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