The Rapallo Syndrome in the 21st Century. ‘Hegemonic Stability’ by

Military Means

Paper for the World Public Forum, ‘Dialogue of Civilizations’, Rhodes, 9-11 October 2015.

Kees van der Pijl

Centre for Global Political Economy

University of Sussex UK

Summary

In this paper I argue that the current crisis in Ukraine (a well as, in hindsight, that in Yugoslavia in the

1990s), reveal that the English-speaking West no longer can rely on a competitive advantage in

production to meet the challenge of new ‘Rapallos’—a rapprochement along the lines of the 1922

treaty between Weimar Germany and Soviet Russia. Ever since, the Anglophone West has responded

to such events by re-connecting Western Europe to Anglo-America’s economic powerhouse. The

Dawes and Marshall Plans were cases in point. In the crisis of 1970s when the US uncoupled the

dollar from gold and the global political economy entered the phase of perennial instability that is

continuing today, Charles Kindleberger came up with the new version of the Rapallo response by

reserving the role of a ‘hegemon’ providing stability for the US. When the NATO treaty expired in

1999, it was renewed under an offensive military doctrine to allow, among others, the US to rush in

whenever Europe, meanwhile led by a reunified Germany, appeared to adopt a compromise attitude to

the East—except that the economic component has meanwhile receded behind the military one.

Introduction: From Rapallo to Hegemonic Stability

Today world politics is dominated by the relative decline of the English-speaking

West, and the United States in particular, to the status of an over-armed giant whose

survival depends on the continued financial control over globally dispersed

production and resources. This has worked to erode the liberalism of the West in the

process. What used to be a ‘Lockean heartland’ (after the key ideologue of

‘possessive individualism’) is today regressing to a pervasive authoritarianism, with

different accents but otherwise matching the authoritarianisms of the remaining

contender states, China, Russia, and Iran, which all combine their historically strong

states with an oligarchic, neoliberal capitalist economic model.

In the case of contemporary Russia, it inherited the contender posture of the Soviet

Union, although during the Yeltsin years a comprador tendency temporarily appeared

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to throw open the entire Soviet space to predatory incursions by Western capital. The

Soviet model was established by Stalin’s revolution from above in the late 1920s,

which gave the USSR its particular contender state/society complex. By this

transformation the Soviet state inserted itself into the historical sequence of prior

contender states, from France under the Cardinals and Napoleon, Wilhelmine and

Nazi Germany, Meiji Japan, and a host of lesser contenders. For all their political

differences, these formations shared a ‘totalitarian’, all-encompassing state that

centralises all social energy and initiative.

Well before the Stalin transition, in 1922, in the aftermath of the Great War and the

October Revolution, the Bolsheviks in power in Moscow and the government of the

defeated German Reich, recast as the Weimar Republic, concluded a treaty on the

margins of the Genoa reparations conference, in nearby Rapallo (both states were

excluded from that conference). Under the provisions of Rapallo, Germany was able

to compensate for the loss of European and overseas raw material bases by gaining

access to Russia’s oil, ores, and grain, whilst obtaining a market for its heavy

industries. Rapallo, which also contained secret clauses allowing the German army

and air force to conduct exercises on Soviet soil, appeared to Western statesmen as a

dangerous step towards constituting an unassailable geopolitical bloc, as outlined by

the British geographer, Halford Mackinder.

Mackinder’s famous assessment (1904) argued that states controlling the land

bridge at the heart of the Eurasian land mass, the ‘heartland’ and the ‘world island’,

respectively, would eventually rule the globe as well. Of course the author also noted,

in the very same paper, the formation ‘an outer ring of outer and insular bases for sea-

power and commerce’ surrounding the Eurasian heartland. Since his analysis

privileged geography over political economy, he did not infer that the growth of

capitalism in this ‘outer and insular ring’ would in effect turn the scales against

Eurasia, so that what I call the Lockean heartland comprising the majority of the

world’s financial and industrial assets, would rise to global pre-eminence—and not

the land mass facing it.

Yet the mere threat of a ‘Rapallo’-style unification of German ingenuity and

Russian raw material wealth prompted the states of the Lockean West to respond, in

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1924, by the Dawes Plan rehabilitating German finances and ushering in a flow of

foreign investment (both portfolio and direct) and in 1947, by the Marshall Plan that

laid the foundations for a Fordist mass production/consumption economy. In both

cases the economic assets the Anglophone West could bring into play were enormous.

Today, the ‘Rapallo syndrome’ has still not been overcome except that the response to

it, tying in Europe and especially Germany, with Anglo-America, no longer rests on

overwhelming economic might. Increasingly economic warfare backed up by the

military capabilities of the United States and NATO are replacing the weight of

economic assets in the attempt to undermine any perceived rapprochement of Europe

and Eurasia and reorient it to an Atlantic format. The attempt to conclude an Atlantic

free trade zone (TTIP) appears as a desperate move and has to be negotiated behind

closed doors because of its deleterious consequences for society at large (Bizzari and

Burton 2013).

The moment in which the priority of economic assets over sanctions and threats in

the Atlantic response to new ‘Rapallos’ was reversed, has been identified by Yanis

Varoufakis (2013) as the transition from the ‘Global Plan’ to the ‘Global Minotaur’,

the Cretan monster devouring human tribute from Athens. It came with the Nixon

administration’s decision to uncouple the dollar from gold in 1971 (sanctioned in

1973). Although not immediately apparent, henceforth the US would rely on the rest

of the world covering its deficits. At the very same juncture Charles Kindleberger

came up with a new theory to legitimise US primacy, the theory of hegemonic

stability. Formulated in 1973, it is based on the idea that a state enjoying

overwhelming power, a ‘hegemon’, must back up the operation of the world economy

and that the Depression of the 1930s happened because Britain could no longer

perform this role (Kindleberger 1973; Desai 2013). Whether this power is economic

or military, is optional; the point is that it is necessary, a benevolent force to bring

order to the world.

Shifting Grounds of Western Pre-eminence

The opposition between a liberal West and successive contender states seeking to hold

their own against it whilst catching up (in a sense, all non-liberal, non-Western

states), gave rise to a transnational directive class structure in which, in the Lockean

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setting, there is a differentiation between a hereditary ruling class and a managerial

governing class or (in the economy) cadre. In a contender formation, on the other

hand, the classes associated with capitalist economic practices, to the extent they exist

at all, are enclosed within or subordinate to a state class, that is, a ruling-cum-

governing class which owes its pre-eminence to its hold on to state power—

irrespective of its sociological profile or political orientation (Lefebvre 1977).

In the process of the shifting frontiers between the Lockean heartland and the

paramount contender(s), certain features of the state-led experience of prior

contenders may persist, e.g. French étatisme lingering on until very recently (because

the ascent of unified Germany after 1870 required France’s mobilisation on the side

of Britain) and so, pressure to liberalise had to be relaxed. The same holds for the

need to enlist Western Europe and Japan in the Cold War with the Soviet Union. This

likewise extended the licence for a state role in the economy. Russia itself, after a

harrowing process of dissolution and disempowerment of the Soviet state class, the

nomenklatura, recovered by restoring aspects of the contender experience after 2000

under a resurgent state class around Vladimir Putin. China, finally, has likewise

retained a state hold on the economy although the heartland/contender structure itself

can be argued to have meanwhile succumbed to the crisis of hegemonic stability and

renewed authoritarianism in the West (see my 2006: 297-407).

For most of the period in which the heartland/contender structure has operated,

national political integration along with modernisation forced on the contenders by

the pre-eminence of the liberal West had a distinct productive aspect. The overarching

geopolitical structure thus worked to mediate the spatial extension of the circuit(s) of

productive capital through combined development as theorised by Radhika Desai, that

is, via state-led development accelerating the pace of social change in order to meet

the challenge of the Atlantic first movers (Desai 2013: 3). Until the 1970s this

productive/industrial combined development had a stabilising aspect also because it

fostered class compromise with organised labour. In the expanding liberal heartland

this came about on the basis of sharing the spoils of empire (also to obtain consent for

neo-colonial wars and interventions—no compromises there); in contender

formations, class compromise was obtained by social protection from above.

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The spread of productive capacity through this historical heartland/contender

structure can be documented in various ways. Britain until the 1860s accounted for 40

to 45 percent of manufacturing output in the world (Senghaas 1982: 31). France made

some headway catching up with Britain in textiles in the 1830s (see my 2006: 23,

table 1.1), but the real challenge came from Germany, which inherited the position of

the main contender to the Anglophone West following the defeat of Napoleon III in

the Franco-Prussian war of 1870-71. As US heavy industrialisation took off in the

slipstream of a railway boom boosted by British money capital, the long-standing

bonds between the ruling classes of Britain, its settler colonies, and the United States

were intensified to meet the new challenge.

German steel production in 1880 reached a level of 23.6 percent of the combined

steel output of the heartland states (US and UK, with France included), 38.2 percent

in 1900, and 36 percent in 1910, before collapsing back to 10 percent in 1925, after

the defeat in World War I. By that time the threat of socialist revolution had been

contained, albeit that after the crisis of the 1930s the humiliating Versailles Treaty led

to a political crisis in which Hitler was entrusted with power by a frightened ruling

class. Productive capital in its industrial centres by then had reconstituted itself

following the Dawes Plan. Bolstered by portfolio investment from the United States

and the World War I neutral economies (Netherlands, Sweden, Switzerland), German

steel production reached 51.8 percent of the combined heartland’s in 1938 (I leave

aside the massive shift from the UK to the US in the same period, see my 2006: 26,

table 1.2). In addition direct foreign investment in the automobile and electrical

equipment industries (Ford, GM-Opel, GE-AEG…) reinforced these sectors relative

to economic interests associated with a rapprochement with the USSR—which briefly

enjoyed a resurgence during the Hitler-Stalin Pact.

The point is that antagonisms in the international sphere are contravened by a

growing interconnectedness in a productive grid. This explains why there were

‘appeasers’ to Nazism in the United States and Britain (the Dulles brothers, the

Cliveden set, etc.) not just on political, fear-of-the-workers grounds but also because

of cartel membership of industries across the divide, investment links etc. Free-

floating finance, ‘money-dealing capital’ was even curtailed in the 1930s to prevent it

from upsetting long-term investment, which also requires money capital but with a

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different mission, that is, to sustain the capitalist system. Hence in all developed

capitalist countries, nowhere more clearly than in the United States through the Glass-

Steagall Act of 1933, risk-avoiding, long-term money capital held by commercial

banks was separated from speculative, risk-taking money-dealing capital, which was

repressed to allow the post-war Atlantic mass production economy to flourish.

Yet speculative money-dealing capital was never truly extinct even during the

Fordist-Keynesian epoch of financial repression. As Gary Burn shows, it hibernated,

notably once City of London merchant bankers in the 1950s began accepting dollars

circulating outside the jurisdiction of the US monetary authorities—the Euro-dollar

and Euro-capital markets (reference of course to ‘Europe’, not today’s ‘euro’). After

the oil price hike in response to the inflation following the Nixon shocks of 1971,

petrodollars began to be recycled through these City markets and greatly expanded

their size. Between 1960 and 1983, total net Euro-deposits in the City grew 1,000 fold

to $1 trillion (Burn 2006: 17; Bassosi 2012). In the circumstances these dollar pools

were tapped into by both Western governments and modernizing state classes the

world over. Seeing a chance to profit from favourable lending conditions (with gold-

referenced prudence gone, dollar inflation soared to around more than 10 per cent a

year, Parboni 1981: 89), state-socialist countries sought to upgrade their industrial

economies, whilst an assertive Third World coalition aimed to finance their

independent industrialisation plans by tapping into this source.

Hence in the 1970s a process of catch-up industrialisation/industrial modernisation

was occurring again in a series of contender states, both the Soviet bloc and the

coalition of Third World states clamouring for a New International Economic Order.

But this time it was not accompanied by a broadening of the global productive

economy generally but instead coincided with the evacuation by capital from the

existing zones of class compromise, a process lubricated by money capital being set

free from New Deal-type constraints. Capital was abandoning what now was revealed

as a temporary social contract with labour, in response to workers’ militancy,

declining profits, and US imperialism struggling to stop the advance of socialism

(Southeast Asia, Portuguese Africa—in spite of murderous reversals in Indonesia and

Latin America). No longer therefore the West’s pre-eminence was based on

production in its own sphere, but on rapidly widening circuits of money capital, both

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‘systemic’, long-term investment money and, in its slipstream, speculative money-

dealing capital rearing its head again. It was at this point that Kindleberger developed

his thesis concerning the US role as the ‘hegemon’.

Hegemonic Stability amidst Turbulence

The crisis as we experience it today, dates not from 2008 but from the late 1960s.

What was new of ‘2008’ was merely that the remedies, each intended, as Wolfgang

Streeck has argued, to ‘buy time’ (inflation, state indebtedness, private indebtedness)

had all been exhausted and the entire edifice came down crashing (Streeck 2013; the

‘Global Minotaur’ collapsed too, as we see below). Kindleberger was not too

concerned about the need to balance the US budget or maintain foreign trade and

payments in equilibrium. Instead he claimed that as long as the rest of the world

recognises the necessity of US leadership, foreign creditors would continue to cover

any deficits, knowing that they were in fact investing in the provision of certain public

goods serving the system as a whole (Kindleberger 1973; Desai 2013: 71-2 113-6 &

passim; on the debate with Triffin and monetary orthodoxy, see Bassosi 2006: 34, 37,

40).

Paul Volcker had been charged with preparing the 1971 dollar shock, and again

applied a shock named after himself when as head of the Federal Reserve he slammed

the brakes on dollar expansion in 1979, the Volcker Shock. This ended rampant

inflation and threw the world into the debt crisis. Briefly before his Fed appointment

Volcker highlighted that hegemonic stability was not about stability at all, but about

Western and more particularly, US interests. In a talk at Warwick University he

dismissed the idea that the market is ‘an impartial arbiter’ because ‘retaining freedom

of action for national policy’ comes first, for the US especially. He added that ‘a

controlled disintegration of the world economy’ should be the target in the 1980s

(cited in Varoufakis 2013: 100). ‘Hegemonic stability’ in other words was a feature of

a neoliberal turn charged with in-stability and conflict. It entailed Naomi Klein’s

‘Shock Doctrine’ (Klein 2007), tested out in Latin America before it was applied to

the heartland itself under Thatcher and Reagan; and a new Cold War, which in

combination with the credit squeeze was intended to knock the foundations from

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under the Soviet bloc and Yugoslavia as well as the industrialisation plans of the

Third World state classes.

With the decline of production in the West itself, the centre of gravity of domestic

class compromise shifted to asset-owning middle classes. They paradoxically had

been the net beneficiaries of the post-war class compromise with organised labour

(which only profited from stable, inflation-proof wages and from the expansion o the

public sphere; Piketty 2014: 260, 347; Bengtsson and Ryner 2014). The appreciation

of middle class assets (especially home ownership) gave this class a stake in the

ascendancy of money capital required for the relocation of production away from

capital-labour compromise (Duménil and Lévy 2004: 30). However, the lifting of the

restrictions on finance (culminating in the 1999 repeal of Glass-Steagall) and the

attendant liberalisation of exchanges and expansion of stock markets also fuelled the

securities business and brokerage, which come under the heading of money-dealing

capital. The rise in rentier incomes, of which the ‘big acceleration …began around

1979 or 1980’ (Epstein and Power 2002), soon assumed the format of a veritable

‘revenge of the rentier’ (Morris 1982), the class of ‘functionless investors’ that

Keynes had recommended to eliminate but whose fortunes had been hedged in the

City.

Hegemonic stability in this highly fluid context relied on what in effect was a class

war against organized labour and Left intellectuals, economic warfare against

remaining contenders, and actual Contra wars against progressive regimes and

movements, in Central America, Portuguese Africa and elsewhere. The deepening of

capitalist market discipline was kept in motion by unceasing ‘reform’. Structural

instability and a marked tendency towards the concentration of income and wealth at

the top are now in full view thanks to the work of Thomas Piketty (2014). He too

emphasises the global dispersion of production away from the Lockean heartland:

From 1900 to 1980, 70-80 percent of the global production of goods and services

was concentrated in Europe and America, which incontestably dominated the rest

of the world. By 2010, the European-American share had declined to roughly 50

percent, or approximately the same level as in 1860. In all probability, it will

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continue to fall and may go as low as 20-30 percent at some point in the twenty-

first century (Piketty 2014: 59).

What remains, but precariously so, are the financial proceeds from dispersed

production through the centralisation of global profits in the West (Panitch and Gindin

2012; Starrs 2014). Yet this control may capsize at short notice. Indeed the collapse of

state socialism has brought to the surface a contradiction that until 1991 remained

relatively invisible, viz., the fact that the relocation of production away from the

original Atlantic heartland has implanted parts of the circuit of productive capital

including its resource bases in states enjoying formal sovereignty. In order to sustain

global capitalism, these states must therefore subordinate their formal sovereignty to

that of capital. Or in the words of Philip Bobbitt, ‘all the leading members of the

society of market-states may come to accept… that capital markets have to become

less regulated in order to attract capital investment… access to all markets has to be

assured’ (Bobbitt 2002: 667).

Hence, to cite Claude Serfati, ‘the defence of “globalisation” against those who

would threaten it should … be placed, along with military threats properly speaking,

at the top of the security agenda’ (Serfati 2001: 12). In combination with the decline

of productive capacity in the West itself, this further works to shift the emphasis in

providing ‘hegemonic stability’ to the coercive end of the spectrum. Let me list three

aspects to the current form of exercising hegemonic stability.

First, the aspect of the loss of diplomatic conservatism—the replacement of

restraint and courtesy by shrill public diplomacy, insults, etc. I see this as a

consequence of the populism replacing domestic class compromise. ‘Growing

disparities in wealth have reawakened class tensions; and political pragmatism

has been losing ground to ideological extremism’ (Kupchan and Trubowitz

2007: 9). The liberation of finance across the board from 1930s constraints

also undermines the class compromises with domestic middle classes, so we

now move to a compromise that is primarily achieved horizontally, within ‘a

network of transnational financial elites, who often elect politicians and run

governments from behind the scenes’ (Hossein-Zadeh 2014).

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Hence the concern with ‘access to all markets’ and ‘the defence of

globalisation’ (which includes the Rapallo syndrome in relation to European-

Eurasian rapprochement) today is a shared concern of both the directive

classes in the English-speaking West and the oligarchic cliques enriching

themselves financially by preying on globally dispersed productive and

resource economies—and importantly, accepting hegemonic stability from the

West led by the United States. One sign of this is buying US assets, public and

private. For the United States provides ‘public goods’ to the globalising

oligarchies (first of all its own) by putting its debt up for purchase. That

means, as Tim Di Muzio has argued (2007), it sells off its power to tax

through public bonds as well as its power to make war.

Therefore, even if hegemonic stability today relies more than ever on coercive

means, the US-led war machine does not stand for a random capability for

violence. It is geared, as Di Muzio highlights, to the task of forcibly opening

up other states for commodification and exploitation, ‘introduce and intensify

what Marx called “the silent compulsion of the market” across political

jurisdictions sheltered from the complete instantiation of market imperatives’

(Di Muzio 2007: 519, cf. 531-2)—brief, enforce neoliberal global/good

governance and back up the application of the Shock Doctrine. This has led to

a specific form of economic warfare and application of military force, a ‘new

art of military intervention premised on the temporary occupation and

technocratic reconstruction-reconstitution of illiberal societies’ (Di Muzio

2007: 517-8).

The United States, then, from this perspective has become the life insurance of the

world’s propertied classes (including the sovereign wealth funds of states potentially

ranged against it, such as China), a ‘super hedge fund’ that uses its military might

under the auspices of a ‘War on Terror’ to enforce liberal global governance on the

world’s states. However, this mission is being compromised by rivalries carried over

from the heartland/contender structure that characterised the global political economy

for so long. This legacy leaves a chain of weak spots in the global governance regime,

potentially upsetting it as states retain the options inherent in formal sovereignty.

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Here the nature of the current crisis, dating from 2008, comes back to haunt the

architects and operators of hegemonic stability. As noted, the Global Minotaur, the

mechanism of funding hegemonic stability, has run into trouble too. Of the four ways

in which according to Varoufakis, post-1971 US deficits had been absorbing foreign

surpluses, after 2008 only the sale of US government bonds remains—the US market

for foreign exports, foreign direct investment into the US, and credit to US

companies, have all been knocked from under it, and the Minotaur in his view

remains fatally wounded (Varoufakis 2013: 226-9, Figs. 9.2, 9.3, 9.5). Indeed as

Streeck has argued, what we are facing today is the final reckoning of the crisis of the

later 1960s, early 1970s after all mechanisms for ‘buying time’ (the title of the

English translation of his 2013) have been exhausted—inflation, state indebtedness,

and private indebtedness. What awaits us now, according to his pessimistic analysis,

is an attempt to abolish meaningful democracy altogether and replace it with

entertainment (including elections as sports matches) and other forms of distraction.

These increasingly include populist mobilisation for military adventures against

demonised enemies—‘Putin’ being the latest one to be targeted for daily media abuse

in the West and presented as a threat. Yet the West retains military superiority (the

picture below, from the Bank of America atlas gives defence budgets in billions of

dollars, most recent figures).

Financing the US war machine, the key element in the contemporary hegemonic

stability, happens to be the one leg of the Minotaur still functioning. Investment in

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‘the power to tax and the power to make war’ if we follow Di Muzio, comes mainly

from US domestic investors—three-quarters of the around $16 trillion Treasury debt

is held there. The rest is held by the Chinese state class, the one state which has a

military even remotely matching the US and NATO’s (according to the latest figures,

Chinese state and sovereign wealth funds hold 1.2 trillion dollars in US Treasury

paper, slightly more than Japan’s 1.1 trillion), OPEC countries (mainly the Gulf Arab

monarchies) 262 billion, Brazil, 251, Caribbean tax havens, 250, and so on further

down. This motley coalition thus assists in the financing of hegemonic stability , in

some cases, as in China’s, directed against itself.

The Rapallo Syndrome in Yugoslavia and Ukraine

After 1991, the collapse of the Soviet Union and its bloc led to a general weakening

of the post-World War II inter-state grid in the region, with many states succumbing

to their internal and trans-border foreign relations. Along with speculative raids on

illiberal formations in Asia and elsewhere, the foreign policy of the United States has

increasingly become geared to regime change, ideally through ‘colour revolutions’ as

in Serbia, Albania, Georgia and Ukraine, and Kyrgyzstan.

The NATO intervention in the Yugoslav break-up in the 1990s marks the moment

in which the alliance was transformed into an out-of-area military mechanism through

which the US can impose its strategic interests on the EU, and for which the Soviet

collapse offered the opportunity. Besides serving as a catalyst for expanding the

alliance eastwards, in overt breach of solemn reassurances by Secretary of State Baker

to Gorbachev in 1990-91, the intervention in Yugoslavia was a response to an initial

German foray to which the United States responded and thus gained the upper hand in

ordering the European periphery after the demise of state socialism.

After reunified Germany, with Austria and the Vatican also active, right in 1991

decided to support the aspiration of pro-‘European’ elites in Slovenia and Croatia to

secede, the United States responded by encouraging Bosnian Muslim statehood, and

later by siding with the Albanians in Kosovo. By establishing bridgeheads among

Islamic communities in Yugoslavia (also from a perspective of a Central Asian design

to gain access to energy resources left unprotected after the dissolution of the USSR

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in 1991) it appeared, as Susan Woodward writes, that ‘the United States had chosen to

divide spheres of influence north and south in eastern Europe with Germany’

(Woodward 1995: 159-60).

For the continental EU countries, the stakes in Yugoslavia were primarily

economic; for Britain and the United States, global resource politics and military

forward positioning was predominant. This activated the Rapallo syndrome and it was

in the NATO confrontation with Serbia (which retained key characteristics of a

contender state, see my 2006: 270), that ‘the defence of globalisation’ and hegemonic

stability were finally asserted. Thus a joint operation served to restore the primacy of

the Atlantic bond—not least by compelling France to reintegrate into NATO’s

military organisation. Historically the instrument ‘to keep the Russians out, the

Americans in, and the Germans down’ (in the famous phrase of its second Secretary-

General, Lord Ismay), NATO proved the instrument of choice through which the US

‘hegemon’ prevailed over any particular interests on the part of the Europeans. As a

Wall Street investment banker, Richard Holbrooke, entrusted with the Yugoslavia

portfolio in the State Department, was fully literate on the implications of any

divergence from the neoliberal line, just as he was able to see the value of NATO in

keeping the EU from compromising. In his 1995 article in Foreign Affairs, ‘America,

a European Power’, Holbrooke argued that ‘the West must expand to central Europe

as fast as possible in fact as well as in spirit, and the United States is ready to lead the

way’ (Holbrooke 1995: 42).

Thus the ‘hegemon’, acting for a broader ruling class interest, strikes twice: once to

overcome European hesitations by forcing the allies into the actual confrontation;

secondly, in the attack on the illiberal state/society complex itself. Today this

confrontation has moved up a notch into a confrontation with Russia over Ukraine. In

the crisis over Ukraine that erupted in 2013-‘14, German-led ‘Old Europe’ was more

amenable to compromise, but the US and Britain responded in the spirit of the

Rapallo syndrome. The current Russian ruling class, although also on the path of

neoliberal reform, yet is unwilling to submit to the dictates of Western-style

hegemonic stability. It is replicating the role of Serbia in this respect, i.e. at the

receiving end of a policy in which ‘Old Europe’ too is being disciplined.

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Already at the time of the Kosovo crisis the former Soviet republics of Georgia,

Ukraine, Azerbaijan, and Moldova welcomed Uzbekistan into GUAM constituted the

year before under the auspices of the United States, Britain and Turkey (Uzbekistan

added a second U to the acronym but would soon leave again). Ukraine and

Azerbaijan certainly demonstrated that they took their commitments seriously by

obstructing Russian deliveries to Serbia during the NATO air war. The opening of the

oil pipeline from Baku to Supsa in Georgia in the same year, 1999, highlighted the

geo-economic significance of GUUAM, as for the first time, an energy highway

connected former Soviet republics with the West without Russia exerting its

influence. Among the post-Soviet Caucasus states only Armenia remained allied to

Russia. This of course was also the year in which, with Vladimir Putin taking power

on the basis of a compromise with those oligarchs willing to forego a political role,

Russia was beginning its long climb back from near-disintegration itself (Radvanyi

and Rekacewicz 2000).

At the start of the Bush Jr. presidency, the ‘defence of globalization’ was focused on

securing oil reserves in the Middle East and on executing the War on Terror for which

the blueprint had been laid down in conferences already during the Reagan era (see

my 2014: 208-11). This conforms to the shifts in emphasis between Republican and

Democratic administrations documented by De Graaff and Van Apeldoorn (2011;

they stress the continuities at the same time—notably in finance) The blueprint for an

intervention in Ukraine was part of the project devised by Stanford International

Relations scholar Stephen D. Krasner after he had been brought to the State

Department as policy planning director under Condoleezza Rice in 2005. Krasner had

long argued against allowing non-Western states to mobilise their sovereignty against

the liberal economic order (cf. Krasner 1985) and in his new capacity Krasner drew

up a list of countries liable to ‘collapse in conflict’. His collaborator in this project

was the former US ambassador to Ukraine, Carlos Pascual, who was appointed as

Coordinator for Reconstruction and Stabilization.

In a joint piece in Foreign Affairs Krasner and Pascual made the case for preventive

intervention in weak states (‘weakness’ including ethnic or religious divisions) and

then apply a stabilization and reconstruction rulebook to establish the required

‘market democracy’ (Krasner and Pascual 2005: 156-7). Indeed there would be no

point waiting for a conflict to erupt before rebuilding a state, Pascual explained in a

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talk. ‘To create democratic and market-oriented’ states could also proceed on the

basis of ‘pre-completed contracts … [with] countries that are not yet broken’ and

where an active ‘tearing apart the old’ might be necessary first (cited in Easterly

2006: 238, emphasis added). Krasner referred to such pre-completed contracts as

‘voluntary agreement[s] between recognized national political authorities and an

external actor such as another state or a regional or international organization’

(Krasner 2005: 70, emphasis added).

Initially the Bush Jr. administration was not keen on GU(U)AM as it sought Russian

support to invade Afghanistan, but this soon changed again after Russia sided with

the continental European opposition to the invasion of Iraq in 2003 (Cheterian 2004)

In late 2003 a Western-supported take-over brought US-educated Mikhail Sakaashvili

to power in a key GUAM state, Georgia. In 2004, a rock music coup in Ukraine, the

Orange Revolution, in response to electoral fraud by the Party of Regions of Viktor

Yanukovych, a protégé of former president L. Kuchma, conveyed that GUAM now

was being turned into a high road of colour revolutions which previously had

occurred in Belgrade and Tirana and from which Minsk or Moscow would not be

exempt either. These colour revolutions tend to follow a common trajectory in which

authentic protest is hijacked by an increasingly sophisticated democracy promotion

machinery headquartered in the US and operating through the revamped NATO

underground (see my 2014: 214-19 and Genté and Rouy 2005). By 2008, with the

eyes of the world focused on the opening ceremony of the Beijing Olympics,

Sakaashvili felt sufficiently bolstered by NATO and Israeli arms and promises to

attack the breakaway province of South Ossetia, only to be beaten back by the

Russian 58th army rushing in from the north (Mardirossian 2008).

After the crisis of 2008 attention in the West temporarily switched to saving the

banks and drawing up the bill that was to be presented to society in the form of

austerity policies after 2010. The Democrats’ old hand in foreign policy, Zbigniew

Brzezinski, had previously spelled out his own ideas on cutting up Russia in an update

of the old Mackinder argument (Brzezinski 1997) and Ukrainian oligarchs began

‘investing’ in US patronage right from the new president’s taking office. According to

the Wall Street Journal the Kiev-based pipeline king, Viktor Pinchuk, Kuchma’s son-

in-law, in 2009 pledged a ‘five-year, $29 million commitment to the Clinton Global

15

Initiative, … to train future Ukrainian leaders “to modernize Ukraine”.’ With Hilary

Clinton as Obama’s Secretary of State, the fact that the Ukrainian contribution

(mostly Pinchuk’s) topped the list of foreign donors of the family foundation (before

Britain, Saudi Arabia, Germany, and so on), reveals something about the push and

pull directing the Obama foreign policy (just as its revelation today may be part of

Republican opposition to Hilary’s presidential bid). The quest for Western patronage

on the part of Pinchuk aimed at making sure that, as his own foundation put it,

Ukraine become ‘a successful, free, modern country based on European values’

(Russia Today 2015).

This aspiration was reciprocated by a series of offers by the EU to the GUAM

countries (minus Uzbekistan) as well as to Belarus and Armenia, to enter into

association agreements with Europe. In 2010 the Russians responded to the EU plans

with a customs union (mutual free trade, a common external tariff) with Belarus and

Kazakhstan. When Yanukovych, elected again on a federalist programme, accepted

the EU offer for a far-reaching free trade agreement between Ukraine and the EU in

2011, he simultaneously proposed a 3+1 formula that would give Ukraine, and

indirectly, the EU, free access to Moscow’s customs union (the Russian market was

then roughly 30 percent of Ukraine’s foreign trade). This would expose Russia to the

EU’s competitive advantage whilst jeopardising the survival of Ukraine’s own

Donbass industrial belt, so Moscow imposed trade restrictions on its neighbour. Since

the EU offered nothing whilst Russia promised covering Kiev’s deficit and unpaid gas

bills, this in mid-2013 swayed the Ukrainian president from proceeding with EU

association.

The Maidan protest occupation that followed would eventually evolve into a full-

fledged, Western-supported coup d’état bringing an unelected, anti-Russian

government to power in Kiev. On the one hand, this was achieved via bitter and

continuing struggles between the different clans of oligarchs who had divided the

spoils of Soviet Ukraine among themselves (Yurchenko 2012). On the other, it

instigated a fresh round of rival strategies on the part of the large continental EU

states (‘Old Europe’ to use former defence secretary Rumsfeld’s expression), which

had specific economic aims given its much higher level of trade and investment in

Ukraine and Russia (roughly ten times the US level). The US and Britain and their

16

allies in the former Warsaw Pact states and the ex-Soviet Baltic republics on the other

hand are motivated by military-strategic or just anti-Russian considerations.

Once again the Rapallo syndrome played out here. As the Maidan demonstrations

took on ever more violent forms with incendiary bombs and use of firearms, the US

was temporarily sidelined following the exposure of Assistant Secretary of State (and

neocon holdover) Victoria Nuland’s low opinion of EU concerns. A foreign minister-

level EU agreement with Yanukovych was agreed on the 17th that covered an amnesty

for demonstrators, new elections and constitutional changes. However, according to a

detailed report in the New York Times (Higgins and Kramer 2015), on the 20th a

meeting of NATO diplomats (including the US ambassador) took place in the German

embassy in Kiev. Here Andriy Parubiy, founder of the neo-fascist Svoboda party and

in charge of the armed wing of the Maidan revolt (and suspected of a bloodbath

among police and demonstrators immediately following the agreement with

Yanukovych), threatened more serious violence if the president was not removed,

citing a looted armoury in the hands of his supporters in Lviv. The 21st the police

melted away for fear of being targeted and Yanukovych fled Kiev, leaving power in

the hands of the caretaker of Yuliya Timoshenko’s party, A. Yatsenyuk, the

Americans’ favourite; whilst Timoshenko’s security chief during the Orange

Revolution, then head of intelligence, became president. The former boxer, V.

Klitschko, Chancellor Merkel’s choice, on the other hand was sidelined (Sakwa 2015:

83-93).

There is no point detailing further instances of the US and NATO overriding EU

proposals. In each case, violence interrupted what appeared to be EU-brokered

compromise, beginning with the Kiev army’s attack on the Donbass rebels (an assault

sanctioned by a visit of CIA director John Brennan the day before); a deadly assault

by neo-fascist ‘volunteers’ at Slavyansk derailing the Geneva agreement (a mirror

image of the EU agreement with Yanukovych, this time amnesty etc. for the Donbass

occupiers); and finally, the shooting down of Malaysian Airlines flight MH17.

Although here no definitive verdict has been reached at the time of this writing, the

disaster happened just when secret talks on a comprehensive agreement were going on

between President Putin and Chancellor Merkel, which were promptly suspended

(Pagano 2014).

17

Russia is not Serbia, and Moscow is obviously still well beyond the reach of US-

designed regime change (under the impact of Western-imposed sanctions, it is

actually restoring the dual roles of a state class—with ministers taking their seats on

company boards of Gazprom, Rosneft, etc.—Russia Today 2014). However, the

retooling of a rump-Ukrainian state, albeit practically bankrupt and unable to control

its territory, has certainly put an end to hegemonic stability in Europe. The rump-

country controlled from Kiev has signed on to a radical neoliberal programme, as

testified by the appointment of several non-Ukrainian (American, Lithuanian and

Georgian) figures from the world of private finance and market-driven health care to

the key posts. Western sanctions against Russia were imposed over the Crimea

secession and also immediately followed the downing of MH17. The Minsk

agreement of September 2014 was brokered by Chancellor Merkel (with François

Hollande as an extra to avoid media comparisons to the 1939 Pact) at a juncture

where the Ukrainian army threatened to be annihilated. Also the EU economies were

beginning to feel the pain of Moscow’s countermeasures and the sanctions themselves

(as in the case of the French-built warships built for Russia but not delivered under

pressure from NATO).

All signs are that the Rapallo syndrome continues to block the resumption of

normal relations between the German-led EU and Russia. So far the much more

competent diplomacy of the Russian foreign ministry continues to outsmart the

contradictory policies coming from the West, both in Ukraine and in the Middle East.

But the continuing tension carries grave risks, not just arising from the confrontation

itself but also from the socially destructive effects of the continuing commitment of

the Russian state class (and its Chinese and Iranian counterparts) to neoliberal

capitalism, a system caught in a world-historic crisis from which no way out can be

imagined other than one drastically rolling back the market discipline of capital.

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