Is Poland next?

A deformed perception of reality

President Putin’s troops are making slow progress in Ukraine but the lack of speed in no way detracts from what military minds see as a foregone conclusion: the physical destruction of a European nation.

In 2017, with a headline-dominating North Korea looking like the biggest threat to global stability, Ben Hodges, then Commanding General of US troops in Europe, told Karina’s Column: “Of course Russia, and its behaviour over the last three years [with invasions of Crimea and Ukraine] is the only nation that really possesses the ability, the capability, to destroy a European country or the United States with their nuclear weapons.”

“So in terms of an existential threat, that’s Russia,” he said, quickly adding a reassuring sentence: “Now it’s not likely, but that’s a part of it.”

Ukrainian bravery cannot stop, only delay, a war criminal with a superior arsenal and armed forces. Negotiations, unless Putin has changed his form, are but a cover for regrouping and keeping his opponents off balance.

We can only speculate at what the ultimate aim of the former KGB spy might be, but a devastated nation, living in fear of the Russian bear next door, is likely to be a satisfactory outcome. There is no need for an occupation, which would drain funds from state coffers. NATO becomes a de jure impossibility for Ukraine – as opposed to a de facto one, which had long been the case. The EU will not, and cannot take on, a country reduced to rubble with a desperate need for a Marshall Plan equivalent.

One of the outcomes of the war is that Russia, despite acquiring pariah status, has slotted back into the top echelon of nations. No more is China the only story.

As the West desperately tries to understand Putin’s motivations and where these will lead, one man who dealt with him as first a President and supporter, to then discover an implacable enemy, says the leaders in the West have never understood and will never understand that Putin has the “mentality of an exponent of organised crime,” Mafia boss rather than statesman.

Mikhail Khodorkovsky, the former owner of petrol company Yukos, worked in parallel with the Russian President until his forays into political opposition landed him in jail for a decade.

In a recent interview with Italian newspaper Corriere, the London-based exile dismissed Putin apologists’ theory that his fear of Ukraine joining NATO led to the invasion.

“He hates NATO but does not fear it. Rather, he is now taken with a messianic mission. He is possessed, and you can see that in his having placed a [17.5m high] statue of Vladimir the Great [Prince of Novgorod, Grand Prince of Kiev, and ruler of Kievan Rus' from 980 to 1015] in front of the Kremlin.”

Khodorkovsky has no doubt the aggression against Ukraine is the fruit of a “deformed” perception of reality. After over two decades in power, the Russian President is surrounded by advisers who through fear dare not tell him the truth.

Putin has already threatened the use of nuclear weapons against the West, turned Belarus into a vassal state, and sent troops to Kazakhstan to quell anti-government unrest in January – it is unclear whether they have all returned home. The Russian Ministry of Defence says they have. At the very least, President Kassym-Jomart Tokayev is entirely in his debt.

The West, anxious about a Third World War, has been very clear that unless a NATO nation is attacked, they will not fight. Only two weeks ago, Russia bombed a military facility in Ukraine close enough to Poland for those on the border to see the flashes.

What would NATO do if Putin bombed some of the exported arms from NATO countries building up on the Polish side of the border? That is one of the few ways into Ukraine and into the hands of its army. Would the West prevaricate, arguing that the attack was about the weapons, not the country? That would be a mistake.

Khodorkovsky is not alone in believing that the West’s military inaction is encouraging Putin. He envisages a scenario where the Russian President will conquer Ukraine - guerrilla warfare will continue - and as the Russian economy worsens, he will launch a war against Poland, a similar distraction to the wars he launched in 2008 and 2014, but more in line with his Vladimir the Great-like ambitions.

At least one Polish mother has already contacted her London-based sister for assistance in extracting her conscription-aged son from the country as quickly as possible.

Putin’s heart-breaking and unprovoked war on Ukraine has had the welcome effect of uniting the West – Sweden is likely to announce it will join NATO by the spring. But the effects on his own country - turning Russians into pariahs, devastating the domestic economy on the back of sanctions and a brain drain, eliminating the last vestiges of a free society – sets the scene for more wars.

Meanwhile, the prognosis for the West’s economy, already suffering from inflationary forces, is dire. Wheat prices at record highs are bound to stay there. There will be no new planting in Ukraine. Oil prices are 70% higher than twelve months ago. with Western leaders like Boris Johnson going cap in hand to unseemly leaders of oil producing states to beg for increased production or deals. Saudi Arabia’s Prince Mohammed bin Salman reportedly refuses to take President Joe Biden’s calls, with the latter having been critical of MBS’s human rights record. Autocracies have been strengthened by Russia’s actions.

The erosion of social cohesion and livelihood crises were two of the top five 10-year risks in the 2022 World Economic Forum Global Risk report. The effects of the invasion can but exacerbate these. Governments will need to tread carefully, and apply support, as a toxic cost of living increase feeds into society.

What might happen if Putin does take the war into Poland? We don’t know. But we do know what a previous invasion of Poland I 1939 led to.

UK General Election 2019

Safeguarding the country

This edition of Karina’s Column is based on an interview with James Arbuthnot, a long-standing Conservative politician who now sits in the House of Lords. It is not representative of the views of Robinson Hambro Ltd.

With the UK’s momentous General Election a day away, yet another respected career politician is joining the chorus lead by former Prime Ministers Sir John Major and Tony Blair in calling for moderates to vote across parties, be it the Liberal Democrats in some cases, or a “sensible Conservative or a sensible Labour person.”

James Arbuthnot, a Conservative peer whose career encompassed the role of Chief Whip, Minister for Defence Procurement and a decade as Chairman of the influential Defence Select Committee, has a one-word answer when asked if he is still a member of the Party: “No.”

“I cancelled my subscription when Boris Johnson became leader, for two reasons,” he adds. “First, because I didn’t believe the policies the Conservative Party was following over Brexit. And the second because I didn’t have faith or belief or respect for Boris Johnson.”

Martin Wolf, Chief Economics Commentator of The Financial Times, argues that a hung Parliament would be the best result of the December 12th election, as it would make the major parties realise the damage arising out of their extreme positions and force them to rediscover their moderate souls.

“It definitely resonates with me,” says Lord Arbuthnot. “The country is being sold a type of Brexit that it was promised it would not have. We were told that we would get millions of extra money a week to spend on things. We weren’t told that it was going to cost us billions, the billions that it is now going to cost us in terms of lost growth, lost productivity and lost friendships with our closest allies.”

“I’m appalled at the notion that we ought to be doing things alone rather than with our closest friends,” he adds, speaking at a breakfast hosted by the Worshipful Company of International Bankers, a livery company in the City of London. 

A number of moderate members of Parliament from both major parties are not standing in this election. On the Conservative side it includes former Home Secretary Amber Rudd and veteran MP Sir Nicholas Soames. “A Conservative Party that has no room for [former Minister of State for Digital and the Creative Industries] Margot James, [Tory grandee] Ken Clark, [former Chancellor] Philip Hammond doesn’t strike me as the Conservative Party that I joined and worked for, for all of my life,” says Lord Arbuthnot, who calls the Labour Party “unacceptably Marxist, if there is an acceptable Marxism.” 

The father of four, married to Emma Arbuthnot, the Chief Magistrate for the UK and Wales, calls for curbs to the laddish culture that has become prevalent in Parliament, which he points out is awful for most men too.

“I must say I’m so thankful to be in the relative sanctuary of the House of Lords. My old people’s home. I bring the average age down, by the way,” he says with a twinkle in his eye.

Since stepping down as a politician, Lord Arbuthnot has taken on Non-Executive and consultancy roles that leverage his knowledge of the defence industry. At one point he was a Director of SC Strategy, whose directors include Sir John Scarlett, former head of MI6. He is currently Chairman of the Advisory Board of Thales UK, the defence and technology company and Chairman of Electricity Resilience Ltd.

He concurs with national security advisers like Lord Evans of Weardale, a former MI5 director general, that a parliamentary report into alleged Russian interference in the UK democratic process should be released to the public before the General Election. The government insists that it will take much longer to redact confidential information in the report.

“It’s a worry to me that the Intelligence and Security Committee (ISC) has produced a report about Russian potential interference in the referendum results and in the 2017 election. It was seen by the security services in March of this year, cleared by them, probably with some redactions and it’s been with the Prime Minister for some time. He appears to show no interest in publishing it before the election,” notes Lord Arbuthnot. “I think that it is relevant to the voters. I think they might like to see what Russia has been doing.”

In the summer of 1996, the IRA planned to blow up enough of the UK electricity grid to leave London and the South East in darkness for months. Their plot was foiled. However, since then our dependence on electricity has grown exponentially.

“I believe that if the Chinese or the Russians wanted to switch off our electricity grid, they have enough capability in place to be able to do it within the next 20 minutes, if they wanted to,” says Lord Arbuthnot. “But they don’t want to because if they did that, they would collapse the world economy and along with it, they would collapse their own economy. What I think they do want to do is make it impossible for that to be an existential threat against their country.”

He suppresses a smile while declining to respond to a question about whether we have the capability to close down the Russian, Chinese or Iranian grids: “I couldn’t possibly comment.”

As this interview is published, a Conservative majority is looking most likely. However we are living in unprecedented times, not only in the moderates deserting the two major parties, but in a new, hate-filled political tribalism. What is unquestionable is that the exodus of moderate politicians is already causing great harm to the British political system. May the winner move to heal the wounds of society and the body politic.

Lord Arbuthnot was interviewed as part of the Worshipful Company of International Bankers Talk & Toast power couple series sponsored by Streets Consulting.

The lightweight vs the heavyweight

A few simple truths on world trade

Getting to be a heavyweight boxing champion takes many years of training, a top coach and clear rules of engagement. Talent may well be the least of it.

The UK is sadly bereft of all of these as it bravely makes its way in a world where the boxing ring is riven with cracks and the ropes are frayed and broken. Trade giants of the likes of Peter Sutherland and Pascal Lamy built the global trade structure brick by brick, compromise by comprise, backed most notably and most crucially by the US.

But President Donald Trump’s disdain for traditional allies and alliances extends to the World Trade Organisation and its carefully wrought rules, which are in any case due for modernisation in a services and digital centred world. The application of unilateral tariffs on China, leading to an exchange of tit-for-tat, is not the worst of it. Rather, it is taking the fight outside the ring, as Mr Trump did by pressuring Canada to arrest the CFO of Huawei, the Chinese telecoms giant, or blackmailing Mexico with a progressive 5% tariff on exports if it did not do more to curb illegal immigrants from Central America.

Prime Minister Boris Johnson last week held out the exciting prospect of a trade deal with the US in 2020. Here are five home truths on global trade which he might wish to share with the nation.

• Number 1. Protectionism extends across both American political parties. It has been a recurrent theme in US politics since the founding of the country . The only time it has been superseded in the last few decades is when the sitting President was given Fast Track Authority by Congress, unshackling him from Congressional approval. Trump doesn’t hold it now, nor will he even if he wins a second term. Additionally, Democratic House of Representatives leader Nancy Pelosi has made it very clear that a bipartisan group in Congress will block any US/UK trade pact if Brexit imperils peace in Northern Ireland due to the removal of the Irish border backstop.

• Number 2. Countries closest to you are those you are most likely to trade with. Thus the UK’s largest trading partner is the EU – it may be growing slowly, compared to markets like China, but it is affluent, with trade and commercial trust well established. It also shares a world view which underpins domestic legislation in all EU countries on the environment, food safety and digital privacy. The US has what both the UK and the EU would call lower standards on these issues. Tales of US chlorinated chicken making its way into British supermarkets are not far off the mark.

• Number 3. The UK’s exports to China are not going to take off like a rocket when and if the UK leaves the EU. Former Prime Minister Theresa May may have spoken of “ambitious future trade arrangements” with China last year. From within the EU, Germany’s exports to China have been far superior to the UK’s at $110 billion compared to $22 billion. The simple truth is that they produce goods and services which the Chinese want more. Nor will the depreciation of sterling help. Despite a 29% fall in the pound’s value since 2000, the UK’s export market share of world trade has fallen, according to a recent Schroders report.

• Number 4. The EU signed a trade deal with South America’s Mercosur trade block earlier this year. It took two decades of on and off talks. This is not unusual for trade deals. And it may not see the light of day as approval is needed by the Parliaments of countries involved. President Trump’s tweet suggesting a trade deal between the US and the UK within a year was ludicrous.

• Number 5. Earlier this week Mr Johnson said he wanted trade liberalisation between the UK and the US in products including pillows, cauliflowers, wallpaper and railway carriages – odd that he failed to mention services, 80% of the economy versus 18% for manufacturing. He complained about “some kind of bureaucratic obstacle” stopping the sale of British-made shower trays and “some sort of food and drug administration restriction” stopping the sale of Melton Mowbray pies. These are exactly what trade negotiations are about. Regulatory agencies, like the Food & Drug Administration (FDA), are among the most powerful players at the table.

When it comes to the services sector, it is worth noting what happened at a friendlier time a few years ago when the EU and the US were negotiating a trade deal. The US Treasury adamantly rejected any market opening to the UK’s stellar financial and professional services sector. That won’t change in the more hostile and nationalistic “America First” that now prevails.

In a world of heavyweights, the UK (population 60 million) is a lightweight. As part of the EU (population 450 million), it is a heavyweight that could take on other heavyweights, like the US (population 327 million) and China (population 1.4 billion). On its own, I fear it will be KO’d.