Why Britain admitted spying on Russia

Britain will today admit in the first part of  the BBC documentary "Putin, Russia and the West" the allegations of British using a spying device hidden inside a fake rock. Years ago, when these allegations were initially made by Russia, then PM Tony Blair, tried to laugh off the incident, while the Foreign Office denied any improper conduct. At the time (2006), Mr. Blair said: ‘I’m afraid you’re going to get the old stock in trade of never commenting on security matters.  Except when we want to, obviously.’

Subsequent murder of former intelligence officer turned journalist Litvinenko led London and Moscow to expel each other's diplomats. Russia continues to refuse to extradite the accused murderer of Litvinenko, the former KGB bodyguard Andrei Lugovoy.

In 2006, when an FSB official initially told the Moscow TV program that one of the diplomats identified had been authorising payments to Russian non-governmental organisations (NGOs), including civil rights activists. The Kremlin then used the incident to justify a new law for cracking down on human rights and pro-democracy groups, which then president Vladimir Putin said were funded by Western secret services. The law seriously hampered NGOs that opposed Putin: it included clauses that gave the government power to shut them down and force greater monitoring of foreign funding. The new regulations followed pro-democracy revolutions in neighbouring Georgia and Ukraine, which Russia argued were orchestrated by the west via foreign-funded NGOs.

Putin is currently under pressure from democratic forces in Russia itself as a result of the faked elections in the fall of 2010. This 'spy stone' conveniently reinforces Russia's implication that the West is funding and directing the opposition. The result of the British admission is the delegitimization liberal forces opposing Putin. The benefit to Putin is obvious, but why are the British helping them and undermining the forces of democracy they recently fostered and sponsored?

In the BBC documentary Blair’s former chief of staff, Jonathan Powell says:‘The spy rock was embarrassing. They had us bang to rights. Clearly they had known about it for some time and had been saving it up for a political purpose.’Why are the British admitting this 'embarrassment?

"I would not be surprised if Putin and his team actually used it again to assert their old platitudes discrediting leading human rights activists," said Tanya Lokshina, of Human Rights Watch Russia. In addition to NGOs Putin is also beginning to lean on the free press again. In light of this, what explains the strange timing of the British mea culpa, which is so unfavorable for liberal forces in Russia?

The answer appears to be that financial interest have outweighed political considerations.

Britain is one of the largest foreign direct investors in Russian economy. British investments in Russia reached $40 billion dollars by the end of 2010.

In September of last year Russia and the UK have agreed to smooth over political differences in Russian-British relations. Prime Minister David Cameron visited Moscow officially for the first time.

“Russia is resource-rich and services-light, Britain is the opposite,” Cameron said in a speech at Moscow State University. “In fact, Britain is already one of the largest foreign direct investors in Russia. And Russian companies already account for about a quarter of all foreign initial public offerings on the London Stock Exchange.”

In October of last year foreign secretary William Hague met Russian leaders. The foreign office source said: "The Foreign Secretary is not go oing to say we give up on the Lugovoy case for the sake of business, that's not where we're at."

The Olympics this summer will offer another opportunity for rapprochement. There are some voices in UK calling for withholding the invitation, but they appear to be in the minority. The decision for political conciliation with Russia appears to have been made the the highest levels in the UK. It sacrifices their nascent relationship with liberal forces in Russia closer economic ties.

As a result, of UK throwing the liberal forces in Russia under the bus, it is likely to lose its influence on them just as these forces gather steam, and gives credence to the cynical opinion of of power holders that the Western talk about human rights, is not sincere, but merely a political ploy.

Economic weakening of UK: look who's talking

The French are more vocal in their expressing dislike of UK for snubbing the EU, than the Germans.

Yesterday the governor of the Bank of France, Christian Noyer, said: 
"Great Britain is in a very difficult economic situation, a deficit close to the level of Greece, debt equivalent to our own, much higher inflation prospects and growth forecasts well under the eurozone average. It’s an audacious choice the British government has made," referring to rejection of updated EU treaty.

French policymakers were angered last week when Standard and Poor’s, a ratings agency, threatened to downgrade eurozone nations — including France — if leaders did not act urgently to address the single currency crisis. In an interview with Le Télégramme, a French regional newspaper, Mr. Noyer said the downgrade did not appear “justified in regard to the economic fundamentals”.

“Otherwise, they should start by downgrading Britain which has more deficits, as much debt, more inflation, less growth than us and whose credit is collapsing,” he added.

I trust the three ratings agencies to judge the financial situation more than politicians interested in preserving appearances. And the ratings agencies are suggesting that it is France, and other continental nations that need to be reviewed. Today Fitch Ratings lowered France's outlook, and is reviewing ratings for Italy and Spain, citing failure of EU leadership to find a “comprehensive solution” to the debt crisis.

The last part is the part that amuses a cynic like me the most. The agreement reached by 26 European nations (EU minus UK) is all about promises to maintain fiscal discipline, which is nothing but wishful thinking that ignores that underlying problems that lead to the deficits in the first place. The truth about EU as a suicide pact is revealed by the shady behavior of it's leaders. You may think, despite my statement of the emptiness of new EU agreement, that it there is merit in the fact that 26 nations reached agreement. Actually, three of them are uncommitted, and only promised to try to ratify the new treaty. Here's the real kicker, and why statement about lack of 'comprehensive solution' is mild: there is no agreement, there's only an agreement to agree. The 'new EU' rules are still being put together, and should be worked out by ... March. After that, all EU member states will bring the new rules up for a ratification in national assemblies.

This is just great. These EU bureaucrats think they after they surpassed the legal boundaries of past agreements, by directly bailing out Greece among others, they can come up with new and and more extensive regulations on the fly. The real absurdity is that these 'means justify ends' are destroying the last vestiges of faith in all EU agreements by over-reaching their mandate and trampling on national sovereignty. What is to stop EU from changing rules again in another couple years, while financially stronger 'core' nations dictate to the weaker ones?

Agreements at the heart of EU necessarily are win-lose for different member states. That is why the union is unstable economically, and political disharmony is likely to get significantly worse during the breakup of EU with layers of rules, debts and obligations. This entanglement of money through an unnavigable web or rules makes the slicing up of sub-prime home loans that precipitated the mortgage crisis in the US look like an orderly and well-thought out process.

British benefit from selfishness

The British are beginning to break with EU. The benefits of their leaving what is increasingly becoming a suicide pact should not be long in coming. Europe's financial future looks bleak. There British are explicitly modeling themselves after the independent Swiss, rather than partaking in the common problems of EU.
A suicide pact is like Jamestown at the end its road; you drink the poisoned cool-aid willingly, or you're helped to overcome the weakness. Attempts to leave the club at such a time are resented.

Predictably, many European commentators took out their frustration on David Cameroon, after he vetoed changes to EU regulations last week. As I mentioned in an earlier post, the British were seeking unique protections for the financial activities in London, and can be legitimately criticized for that, however, that's not the main issue take up by critics like the German magazine 'Der Spiegel' sugguests that Cameroon's decision would backfire at home and abroad.

Indeed, EU is moving to sideline and even to punish UK for its independence, and in UK there is strong polarization between Euro-philes and Euro-spectics/Euro-phobes. However, a poll taken in UK after the veto shows conservatives have benefited from standing up to EU, despite taking their stance over selfish financial reasons.

The prediction for domestic unpopularity resulting from Cameroon's distancing UK from EU appears to have been wishful thinking on the continent. What about the reality in EU? EU ratified a new union, based on stronger set of rules by 26 nations; everyone besides the UK.

Below: Mercozy (Angela Merkel + Nicolas Sarkozy) were all smiles about their tighter union last week.

'Der Spiegel' hurried to proclaim the formation of a 2-speed Europe, implying no doubt that the new, stronger union would move at a faster speed, and outdistance UK. The rest of the article seems to belie this hope; it admits political costs of the fracture, as well as the fact that additional regulations don't help the immediate problem - dramatic escalation of borrowing costs in the EU. There have already been wealth transfers to Ireland, Portugal and Greece that were never imagined by the Germans and the French when they ratified EU treaties. That's the point - the rules needed to be amended, on the fly. The initial rules, in fact, the union itself, were not very well thought out. Who has the confidence that European leaders came up with a sound resolution under this time pressure, one that will not backfire?

According to the reasoning that I've been laying out on this blog, the European Union is deeply, fundamentally flawed, and should be abandoned. The loss of face for the bureaucrats is one of the reasons preventing that from consideration until all other options are explored, including running the risk of a messy joint bankruptcy.


Leadership of a cult that has lost a member, directs full fury on the traitor, but also tightens the bonds that bind its remaining members. It both ways the response of EU to individualistic, selfish concerns of UK mirrors the attitude found in Jamestown, after several members escaped.

Not only is new regulation not dealing with the immediate underlying financial crisis, it seeks to resolve imbalances in trade between members of EU through the most unlikely method of expecting the Italians and Greeks to produce like the Germans, they present the newly-forged chains that bind the collective more tightly together as evidence of its impending success.

The markets appear to know better, than the delusional EU leaders, and the euro has plunged again today to multi-month lows.