Russia's attempt to incorporate Ukraine into a new Russian sphere of influence or into a new  poses clear and pressing challenges to the West in general, and the European Union (EU) in particular.

While one may hope that sanctions deter future aggression from Moscow, Vladimir Putin's self-appointed guardianship of Russian-speaking minorities outside his country's borders suggests otherwise; as do Russian troop  on the Ukrainian border; the  of the Crimean pattern in eastern Ukraine; public readiness drills of Russia's nuclear forces; and as evidenced by  that Ukraine gives autonomy to Russian-speaking areas and distance itself from the North Atlantic Treaty Organization (NATO).

Russia's stipulations are not only a rebuke of closer ties between Ukraine and the West that were torpedoed when ousted President Viktor Yanukovich chose to reject the EU association agreement. They also pose a direct challenge to the EU's general ambition to promote democracy, friendly ties, and mutually beneficial economic exchange between sovereign states in the region.

These conditions can easily be extended to other countries with significant Russian-speaking minorities, including most of Central Asia — whose countries are strategic producers of natural gas — as well as Moldova and the Baltic states. Former Putin aide  goes so far as to suggest the Russian president's main goal is to restore the greatness of the former Russian Empire, and exert control over these areas and Finland.

In this light, the only comprehensive approach to contain Russian expansion is by strengthening NATO and the EU, and their engagement with Ukraine. The four required points of action are a military shield, energy independence, benefits for Ukraine, and incentives for Russian-speaking citizens of EU states and association countries.

Military Shield

If the West is serious about containing Russian aggression, it must provide a military shield, not only to Ukraine but to the EU as a , and the Baltic states in particular, which will undoubtedly come under increased pressure and threat if the EU does not back off from its engagement with Kiev.

This means association with , which is the only organization that can and should organize military assistance for Ukraine. It has drones, equipment, expertise and the nuclear weapons that Ukraine gave up in exchange for its independence. Given the nature of the informal and undeclared war against Ukraine, it also requires training in counterinsurgency.

 in this regard is unhelpful. Ukraine is still understandably hesitant to join with such an aggressive neighbor and a skeptical Russian-speaking minority, but will have little choice if it wishes to be more than a Russian vassal state under the circumstances. For the moment,  joint maneuvers with American forces and NATO equipment are a start, as is NATO's to hold exercises in the Baltics. Forward should also be made.

The point of the shield is not to provoke war, but to prevent a further Russian incursion into Ukrainian territory through deterrence in a way that sanctions cannot. Deterrence threatens costs that deny the opponent the rewards of acting before he does so.

Although there is a good political logic in attempting to apply pressure through sanctions, they happen after territory has been seized. These are costs the Russian state has factored into its analysis and is prepared to bear and minimize in its own way.

Key figures within the Russian establishment have reduced their exposure to foreign investment and holdings in recent years under government instructions, a point the Russian government has underlined in response to limited Western sanctions.

More importantly, however, Russia has made progress on securing an  with China and India to buy natural gas, which is currently purchased by EU member states. Russia is also expanding its pipeline network to supply the southeastern EU. Doing so means the ultimate EU sanction of ending Russian gas imports — although significant, if it happens at all — is unlikely to avert further military intimidation or intervention.

However, Europe now needs to attain energy independence, or at least energy independence from Russia, to prevent effective Russian leverage. This means promoting energy conservation, sustainable energy, additional energy from alternative sources within the EU, and energy from nearby regions of Africa and Central Asia. According to one study by the think-tank, energy independence would require effort, but is feasible.

The EU will encounter resistance from member states that will incur the highest costs to end their dependence on Russian gas for energy, and by Russia, which will seek to shut down alternatives, as they have in Central Asia to date — but the investment must be seen as a strategic priority of the highest order. EU help for the most vulnerable member in finding alternatives and funding the switch is vital. Russia 34% of the EU's natural gas, and most of the gas in the EU's eastern member states, who are as vulnerable as Ukraine to Russia turning off the supply.

Investment in Ukrainian Reforms

What is left of Ukraine needs to see concrete benefits of with the EU, not just an association on paper. Investment in its own security and independence will have to be paid for, and increased economic activity from investment and trade are essential to help pay for that. This will only really happen if there is a realistic perspective for membership in the future. The EU's limited influence over Turkey is largely to blame on its reluctance to consider full membership for that country. The lessons of that interaction need to be applied in the Ukrainian case.

The benefits of EU membership at some point in the future are many, while not all of them are tangible. Like many countries outside the EU, one of the compelling reasons for citizens to support membership is the confirmation they belong to a in which democracy, freedom, and the rule of law are anchored so strongly that they cannot be rolled back.

Much of the anger that exploded in Maidan square and across Ukraine was directed against Russian bribes for Yanukovich and his associates in exchange for choosing an agreement with Russia rather than the EU — a deal that benefited ordinary Ukrainians little in comparison to the potential gains of membership, or even association with free trade, as the EU has with Turkey.

EU membership does not come for free, and it does not come easily. Candidate countries must their polities and economies to reduce corruption, increase efficiency and liberalize their economies, and demonstrate broad support for the extensive political and individual liberties that Europeans insist on from their members — which forms a considerable part of Europe's soft power as a role model in the region. This means making financial assistance for changes on the road to EU membership contingent on progress on reducing corruption, regardless of who heads the Ukrainian government.

Conditionality applies to accusations of corruption by the former prime minister, and now presidential hopeful, Yulia Timoschenko, and any other politician, at any level. Given its pervasive nature in Ukraine, it is essential the EU remains firm in its conditionality, as it has done with most other EU accession countries, but failed to do in , to its regret.

Much of this transformation benefits citizens. But economic change is often painful and can be facilitated with financial assistance, in addition to the economic gains that go with freer economic trade and investment, and the bonus that countries enjoy from global investors when they sign on with the EU.

Benefits and Rights for Russian-Speakers

The EU has a bad record on treating Russian-speaking residents where they form significant minorities. Estonia and Latvia in particular — in which Russian-speaking residents comprise 30% and 40% of the population respectively — still  to grant Russian-speaking residents citizenship on ethnic grounds, particularly , on the basis of having served for the Soviet Army, or  the use of Russian as an official language for schools, public service bodies and so on.

This has not only drawn  from the European Court of Human Rights and the Organization for Security and Cooperation in Europe, it also runs in the face of Europe's generally successful strategy after 1991 to promote EU membership for central and eastern European countries, and to tie it to the rights of ethnic minorities.

Allowing this problem in the Baltics to fester hurts Europe's soft power as an attractive and good actor in regional affairs that others support and want to join. It also makes it easy for Russians to believe Putin when he claims he is doing what he has to do to protect Russians outside Russia's borders. Resolving this problem will not only reduce the EU's vulnerabilities but, if successful, increase its internal cohesion by assuring the Russian-speaking parts of all the EU member states that membership — in the EU and in the West in general — works in their interest. Over the long-term, Russians in Russia will notice as well.

Hard and Soft Power in the Ukrainian Crisis

The European Union, for all of its unwillingness to acknowledge the fact, has been confronted with the reality that hard, military power, is an essential component of Europe's collective and individual national security. Deterrence is essential and will cost, even if NATO must pay attention to affordability.

Crimea has already been lost — a confrontation to reclaim it would revisit the high-stakes brinkmanship of the Cuban Missile Crisis and add the complication that many Crimeans appear to approve of the annexation — but a possible repetition of the Crimean scenario in  and southern Ukraine threatens that Crimea will not be the last annexation, if the EU and NATO do not take firm and immediate action. 

Should Russia move in as it has it will, if force is used against the protesters, there will be but a small stretch of land across Odessa and the south of Ukraine, providing a corridor to for Russia to complete its encirclement of the country. The US and NATO are rightly concerned.

However, military efforts and Ukrainian incentives will be for nothing if the EU does not do more to live up to its promise: to ensure freedom, rights and good governance for all, regardless of what government is in power or which country one lives in. The main benefit is and always has been anchoring European states in a culture of democratic peace that allows them to flourish. For a brief moment, that peace could survive in the absence of significant threat. Those days are now over.

Europe is once again in a geopolitical confrontation with an arms race in which the two sides treat each other as hostiles. That repeats the most salient features of the last Cold War. The ideological component of those days is absent. Communism on the Russian side has been replaced by nationalism, irredentism and  today.

And although some may see this as an issue between Russia and the Ukraine, it is not — it was triggered through a long series of EU and NATO efforts to incorporate former Soviet satellites into their organizations. Putin's policy is to stop those efforts in Ukraine and make up for the mistakes of the past.

The next Cold War is here. There is no going back.

The views expressed in this article are the author's own and do not necessarily reflect 51勛圖’s editorial policy.

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For such a small country, Greece has created a lot of trouble for Europe. The process of trying to prevent the country from defaulting on its debt has cost not only enormous sums of money, but has thrown the whole existence of the EU into question. These claims, while overly dramatic, have an element of truth to them.

Regardless of what happens, the EU as it we know it today will not survive the next year. The pressures to change are too strong. It will transform into one of three different entities. The first is a hard currency Europe. The second is a soft currency Europe. The third is that the euro zone will survive, but with a smaller number of participating countries clustered around Germany. This too will change the way Europe sees itself, governs itself, and deals with the outside world.

Three Possible Paths

The first of these paths, charted by Germany, France, and their close allies in Europe, is already in the making, and if successful will ensure that creditor countries get what they want. This is an economic constitution for Europe that prevents EU member states from borrowing too much for too long, and puts them under direct political administration from Brussels if they do not succeed on their own. This economic constitution would not be a political constitution, however. It would be a one-sided affair in which national sovereignty and democracy would only be extinguished or constrained for those countries running afoul of the rules. Creditor countries would have nothing to fear.

The second of these paths, preferred by the US Government, George Soros, and some key European policy entrepreneurs, has been developed in principle but has not been adopted by European institutions as their first-choice policy. It involves the issuing of euro zone bonds as leveraged finance to use in shoring up the finances of countries and banks that are proving short of capital. If successful, it will ensure that financial institutions, most of them in the core creditor countries, get what they want, which is a maximum return on their current investment in Greek debt. It would also ensure that debtor countries get the fiscal room they need to spread out repayments over a longer period, and that ordinary citizens have better economic and job prospects through quantitative easing. As many have noted, this second path requires a political agreement in order to work—over who will be responsible for repaying the bonds—that is absent.

The third of these paths, currently preferred by none of the EU's member state governments but an increasing number of citizens, became a much more viable option when the possibility was raised of a Greek referendum on the euro zone rescue package.  It involves leaving the euro voluntarily or being driven out for refusing to comply with the demands made by the creditor countries. The choice is between a package of tax increases and budget cuts which forces the debtor country to pay its way out of the current crisis, or a drop in the value of the national currency once it is re-introduced, which imposes the cost of adjustment on investors. If this were to happen and the precedent were set, Portugal would very likely follow Greece.

Note that none of these options incorporate either a political union or fiscal transfers between the member states. Neither of these appears to be a realistic option, despite the fact that they both are necessary to make a currency union run properly during a crisis. We can see that neither option is viable due to the unwillingness of creditor governments to speak about fiscal transfers, and the failure of the Constitutional Treaty in 2004. That Treaty was rejected by voters in several countries because it adopted the symbolism of a political union. For reasons outlined below, this is not about to change. Why are these the only options, and what are the consequences of each path?

Choosing Between the Paths

One way of viewing Europe's failure to consider a political union that supports the monetary union is the member state governments’ attachment to sovereignty. Despite the achievements of the EU, it is still built on the principle that the member states remain ultimately sovereign. The treaties are riddled with escape clauses, EU legislation is constructed to preserve member state autonomy at the implementation stage so that it builds on national laws, and the Heads of Government in the European Council still dominate key decision making. As we have seen in the Cannes Summit, patterns typical of international politics outside the EU repeat themselves within it—by the dominance of power (shared by France and Germany) over procedure.

Another way of viewing this reluctance to take Europe to the next level is the different societal attitudes towards what proper public policy should be, coupled with assessments that are made or labels that are slapped on other countries. What does it mean to be a state in the EU? Does it mean responsible finance or fiscal stimulus in the interest of public welfare? Does it encompass a sense of mutual responsibility and common identity that makes compromise more likely and common EU political institutions more possible, or does it divide national societies into “us/them” camps in which EU institutions, if developed at all, will focus on conflict and domination of those that are on the losing side?

We can see in the euro zone crisis that the latter has been the dominant pattern. It was there at the start of monetary union in the 1990s, but was repressed soon after the initial list of participating countries was chosen. Those sentiments and recriminations never went away, but waited for their day of reckoning, which is now.

A third way of viewing Europe's situation combines these two factors into economic nationalism and a new kind of conflicted politics within the EU. The political scene is highly polarized between creditor and debtor states, favoring a hard versus a weak currency, with strong versus weak controls on fiscal policy (budget deficits), and on macroeconomic policy (inflation and interest rates) more generally. We can see this in the polarized nature of the demands being made on Portugal and Greece, but also on the creditor countries through the threat of holding a Greek referendum. The latter is due to take place no sooner than a month away, and after the EU must decide to release further funds to Greece or demand that Greece leave the euro zone. And indeed, France and Germany put that ultimatum to Greece on November 2^nd. The EU has become ungovernable in important ways as the member states play hardball over the future of the Union.

This fight over the future of Europe has volcanic energy behind it. There is rage so strong that it is willing to smash highly-prized principles of democracy, international relations, and what the EU has been all about until this point. Germany, the Netherlands, and Finland in particular have lost patience with countries that they depict as “deficit sinners,” to the point where they push for the economic and political stewardship of Greece and countries that are similar to it. The Troika—the threesome of the EU, the European Central Bank, and the IMF that must approve all economic policies in Greece if the country is to receive its lifeline of financial support—has political control over not only budget policy, but a whole host of employment, wage, public ownership, and tax policies. Greece and others would be identified and treated as failed states whose sovereignty will be terminated for their own good and the greater European good.

That is the reason their plans might be called an economic constitution. If it is established, it will be one-sided and it will lead to a hard currency euro zone, but at the cost of economic growth and of democracy in those euro zone member states that cannot live with the membership rules. This constraint on democracy is particularly problematic since the euro itself is so one-sided. The ECB is obligated to pursue price stability only, not to balance it against growth, as is the case in the United States. If this cannot be accomplished, then the second-best choice would be the smaller euro zone.

Greece, Portugal, and perhaps Italy want to avoid economic and social policy change that the new economic constitution implies. In Greece, the public may very well reject it. Voters want the euro, but not the costs and not the political colonization of the EU and IMF that the Troika embodies. Although a weak currency euro zone would suit them best, it is now clear that Greek voters might be willing to leave at a point in the future if further compromises are not made. Again, a smaller euro zone becomes the second-best choice.

This tremendous energy of colliding demands and rage at the other side is what is driving the current process. It also takes place in an environment where financial markets make it impossible to ignore any longer, and where the prospect of default on Greece's debt (and that of other countries) makes action a matter of survival. Either Greece is made to pay its creditors in part, or the creditor countries must focus on channelling their limited funds into salvaging their own banking sectors.

This is why the EU is at the point of no return, and why the EU as we know it will not survive the next year.

Which Path is Most Likely?

The dissent in how to proceed from the current point would usually create three possible options in a crisis. The sparks released by the current crisis have created a fourth one as well. Those options are collusion, coexistence, collision and colonization.

The first three options are compatible with the continued sovereignty of the EU member states. Collusion occurs when all member states reach an agreement about the future course of policy. We can set this aside for obvious reasons. Coexistence incorporates a compromise of two views that are difficult to combine, which is what existed in the EU leading up to the crisis. Many of the elements of the economic constitution that the creditor states now want imposed existed before, but were compromised by loopholes allowing for political flexibility, which in turn were made even bigger in 2005. That coexistence of visions is how Europe got into this position in the first place. Part of the anger of creditor states is at this negotiated coexistence of hard institutions and political finesse. That is to end if they get their way.

That leaves us with two further options: collision and colonization. It is here that the choices of the member states and of the voters who support and punish them will be decisive, and where the primal instincts of what is most important will come forth. Given that the policy preferences are known to be opposed, the defining issue is whether Greece and countries like it will separate from the euro zone or whether they will submit to the demands that will be imposed on them if they stay.

The first of these choices at the least recognizes that democracy and the euro are incompatible for some countries, and selects the path of freedom. The result will be a smaller euro zone, not the death of it. Once the euro zone countries are over the shock of Greece defaulting on its debt, they will look back on this episode with a sigh of relief that the conflict was terminated before it could do even greater damage. It could still be much worse.

The second of these choices selects responsibility over freedom, and places faith that the pain will reap rewards, and that not only the Greek finances will be transformed, but the hearts and minds of Greek voters as well. However, precisely because creditor states have little faith in them doing this voluntarily, they will be forced to be colonized.

The choice that European leaders and voters face is therefore between these two paths. The path of responsibility will lead to a hard currency euro, one that dampens economic and job growth in the euro zone for at least a decade and probably more as shock therapy ensues to turn public finances around. It will do this at the cost of colonising the EU's weaker member states. The EU's growth will primarily take place in the EU's new member states in Central and Eastern Europe, for as long as these countries can resist the pressure from Brussels to join the euro at the first opportunity.

The path of freedom and democracy, which looked more likely in the context of a possible Greek referendum before that option was retracted on November 4^th, would be more painful and costly for all involved in the short term, but beneficial later. It will result in three currency areas within Europe: the hard currencies, mostly within the euro zone and characterized by (mostly) slow growth, the ex-euro zone countries and the Balkans, characterized by slow growth and weak currencies, and the strong-growth countries of Central and Eastern Europe, who possess higher rates of inflation, interest rates and economic growth.

What are the implications?

If the path of freedom and democracy is taken, it will have two key advantages once the crisis is over. It will allow for the greatest degree of economic growth and development across the single market, with rising employment. A smaller euro zone would also make it easier for the remaining member states to launch euro bonds more successfully to help themselves and their banks. Without countries like Greece draining a euro bond fund, it would be clearer to the remaining members and possible investors like China, India, Brazil, and the US that investing in the euro zone worthwhile. In short, this path is ultimately also the path of greater welfare.

The choices will affect not only European economic prospects, but global ones as well. The path that Europe takes will decide whether the on-going economic difficulties of the current economic depression resemble the patterns of the 1930s or the 1870s.  The depression that started in the 1870s went on for nearly 30 years, interspersed with hopeful bubbles that ended up exploding. The extremely tight money supply and rigidity of exchange rates, policies taken under a “path of responsibility,” only prolonged the depression. If the creditor countries succeed in getting their way today, deflationary economic policies will dominate for some time, with welfare costs both in Europe and abroad.

The depression of the 1930s was the first to be ended through massive government borrowing and spending, precisely because democracy placed new demands on public policy. While it looks unlikely that a large euro bond project will get off the ground, a smaller euro zone allows individual countries that leave it to do more in this direction.  

Choosing the path in which Greece and the euro zone go their separate ways will also bury the illusion that all EU member states can and should join the euro, regardless of their domestic economies and polities. It is that illusion that was most irresponsible in the past. The death of that illusion will not be the end of Europe. It will be the rebirth of realism in EU politics. The euro zone will enlarge again when circumstances permit, but only with an eye on the facts.

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