THE UNITED KINGDOM’S DANGEROUS DEPENDENCE ON RUSSIA MONEY

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By Jonathan Hopkin and Mark Blyth | Foreign Affairs

In March, a tongue-in-cheek online referendum in the eastern Ukrainian city of Donetsk proposed to resolve the standoff between Kiev and Moscow by joining the United Kingdom, given the Welsh roots of the city’s nineteenth-century founder, the industrialist John Hughes. The referendum, which took the name of the British national anthem, “God Save the Queen,” received a few thousand votes, as well as a good deal of exposure in the foreign media. A rather more plausible scenario, of course, is that this Russian-speaking city will drift into Moscow’s sphere of influence.

Although the Union Jack is unlikely to fly over Donetsk anytime soon, some observers worry about a Russian flag flying over London, at least metaphorically. Wealthy Russian expats seem to wield substantial political influence over the British government, particularly in its approach to the Ukraine crisis. The evidence: on March 3, a government briefing paper, which a minister carelessly brandished to a phalanx of photographers outside No. 10 Downing Street on his way to a meeting, revealed that Prime Minister David Cameron’s government would oppose any sanctions that closed off London’s financial center to Russian money. Russian billionaires currently own two of Britain’s leading newspapers, a couple of its top football clubs, and a large slice of prime London real estate.

In fact, the Ukraine crisis has crystallized a broader trend in British politics: the increasingly subordinate attitude of the government toward the capital’s super-rich, many of whom are not even British citizens. The City of London has long wielded disproportionate influence over Britain’s elected leaders, stemming from the capital’s historic status as the hub of the world’s financial and trading system. Even at the height of social democratic politics in the United Kingdom in the 1960s and 1970s, when the prime minister received trade unionists at No. 10 and the government owned major industries, the City retained decisive influence over British politics. The financial community was able to win favors from even Labour governments, such as the opening up of the Eurodollar markets in the 1960s, or the desperate attempts to shore up the status of the pound in world markets, which wrecked Labour’s reputation for economic competence in the 1970s. Since the 1980s, the City has only grown in importance and changed fundamentally, in a way that has significantly impacted British politics.

TRIUMPH OF THE CITY

The Big Bang of 1986, in which Prime Minister Margaret Thatcher’s government liberalized the London exchanges and removed barriers to entry for foreign financial institutions, cemented the financial sector as the main driver of the British economy and established London as the place to be for footloose international capital. Major international financial institutions flooded into the British market, wiping out many of the United Kingdom’s established merchant banks. The City, which had long enjoyed its own separate administrative status — its governing body, the Corporation of London, sits apart from the rest of London’s boroughs, with financial companies, rather than residents, constituting its electorate — only drifted further from the rest of the United Kingdom. Its internationalization, dominated by American, Japanese, and German banks, isolated it from the political drama — and humors — of British society.

As London became a magnet for international capital, it also became home to international capitalists and their families. Visa rules that facilitated entry for the super-wealthy, a light tax regime for non-domiciled residents (who claim a residency or income from abroad), low property taxes, prestigious schools, and proximity to the institutions investing their money have made London an attractive haven for billionaires. Several come from Russia, although the high profile of some Soviet-origin billionaires overstates the true Russian presence: the 2011 census recorded just 26,603 Russian speakers in London, compared with 70,602 Arabic speakers. But Russian capital is more significant. One estimate put Russian purchases of high-end real estate in London (properties worth more than a million pounds) at seven percent of the total, a sizeable amount that appears likely to grow, thanks to the instability in Ukraine. Many of these purchases are investments unconnected to residency, so scores of homes in London’s most exclusive neighborhoods sit empty but for patrolling security guards.

The reason British policymakers have been so relaxed about London’s status as a kind of offshore financial center is, in part, cyclical. The Conservative-Liberal Democrat coalition elected in 2010 reversed the stimulus measures that Gordon Brown’s Labour government had adopted after the credit crunch. They hoped to eliminate the United Kingdom’s budget deficit by the end of the legislature, in 2015. But amid a global recession and attempts to deleverage the domestic household sector, these policies predictably stopped recovery in its tracks, leading to three years of stagnation. So the Cameron government relaxed fiscal adjustment a little and encouraged growth in real estate prices by underwriting bank lending to highly leveraged buyers. This backdoor stimulus brought a wave of capital from international investors seeking a safe haven for their assets and helped improve the outlook for a government that had been trailing in the polls for the past three years.

FOREIGN FUNDING

But the money washing around London’s property hotspots is much more than a cyclical blip. In fact, it reveals deep structural trends with disturbing implications for the British economy and, in particular, British households. The credit crunch came at a time when debt levels in the United Kingdom were at historic highs. Although the government had a relatively low stock of debt, households and, especially, financial institutions were leveraged to the hilt. The impact of a collapsing banking system had a catastrophic effect on consumer confidence and, as a result, the economy contracted by 6.4 percent from mid-2008 to late 2009. But unlike neighboring Ireland, which was constrained by a conservative central bank and a common currency shared with hawkish Germany, the United Kingdom enjoyed a floating currency, which quickly devalued by more than 20 percent, and a Bank of England willing to print money to bail out the banking system. The government then ramped up this policy through quantitative easing to the tune of almost $630 billion, which has allowed the government to swap its debt for cash such that the overall level of debt remains much lower than that experienced by the UK’s austerity-charged European neighbors. Much more than austerity, these measures have allowed the British government to restrain the growth of debt to GDP since 2010.

They have also helped the government weather the crisis by allowing wages to quickly regain their competitiveness in international markets while easing the impact of falling household spending power. But as other debtor nations, such as Ireland, Greece, and Italy, have begun to recover thanks to increased exports, British exports have continued to decline. Indeed, although the British economy started growing again in 2013, the growth was accompanied by an immediate increase of the already chronic current account deficit, which averaged 5.5 percent in the second half of last year, the highest on record. In other words, after a brief period of deleveraging, the United Kingdom is once again relying on foreign lending to expand its economy. Someone, after all, is funding that trade imbalance.

Far from rebalancing the British economy, as it had promised to do, the government has effectively rebuilt the pre-crash growth model with more borrowed money. Just like his predecessors, the current Chancellor of the Exchequer, George Osborne, has ended up presiding over growth driven by increased borrowing (a large chunk of which comes from Russia), a new foreign financed housing bubble, stagnant investment, and declining exports. There is no reason to suppose that the outcome will be different than it has been in the past: when the capital inflows stop, so does the British economy.

THE CAPITAL AND INEQUALITY

Successive attempts to escape this cycle of boom and bust, from Thatcher’s policy of controlling the money supply to tackle inflation to Brown and Blair’s monetary and fiscal rules, have all failed. Under all three, debt-fueled consumer spending and a government-subsidized real estate boom drove the economy forward. The foreign capital on which this this model relies has been attracted in part through institutional arbitrage: light regulation of financial products in the City, tax breaks for wealthy foreign residents, a legal system attractive to the asset-rich, and very low property taxes. Having sold London as a place where oligarchs can invest and spend their money without too many questions being asked, the British government is now too afraid to challenge these privileges for fear of any reversal of the flow of capital.

This highly unequal growth model, in which the share of the economy taken by the top one-hundredth of earners is second only to the United States, has serious political implications. In both domestic and foreign policy, the wealthy hold disproportionate sway, as government caution over financial sanctions on Russia demonstrates. And the government can’t sell this imbalance to voters forever, who are showing signs of having had enough of existing politicians and policies: electoral turnout has fallen by almost 20 percent since the 1980s, and more voters are turning toward populist parties, most notably the UK Independence Party, which has a strong chance of being the largest party in the forthcoming European Parliament elections. UKIP’s focus on immigration and the allegedly overbearing powers of the European Commission are a direct challenge to the policy of openness that has allowed the City of London to prosper and London to become a major world metropolis, although even UKIP leader Nigel Farage, a former banker, is wary of criticizing the City or challenging the fiscal privileges of the international wealthy.

UKIP’s support is strongest in rural and small towns, and growing in the post-industrial north. It has little appeal in the capital itself, but London and the surrounding region — the economic powerhouse of the United Kingdom — account for only around a fifth of the country’s population and even less of its parliamentary seats. For the majority of Britons, a recovery driven by real estate in the center of London is of little help. Worse, the reaction that this boom may provoke could kill any recovery in the rest of the country before it begins. Scotland is voting on the prospect of becoming an independent state in September, and the success of the Scottish National Party feeds on the British government’s lack of concern for life outside London. British political elites’ continued deference to the international super-rich, Russians included, could lead to more nationalist and populist backlashes. The British economic model is fragile, but so is the nation itself.

SCOTTISH INDEPENDENCE POLL: YES ON BRINK OF VICTORY

by TOM PETERKIN

ALEX Salmond is on the brink of securing a historic victory in the referendum, according to an exclusive poll suggesting Yes Scotland needs a swing of just over 2 per cent to win independence.

A landmark ICM survey for today’s Scotland on Sunday reveals a decline in the No vote from 46 per cent to 42 per cent over the past month. Over the same period, the Yes vote has remained steady at 39 per cent, resulting in a significant tightening of the gap between the two sides.

When the 19 per cent “don’t knows” are excluded from the equation, the No vote stands at 52 per cent, with 48 per cent in favour of Scotland going it alone. This is the highest level of Yes support to be recorded by an independently commissioned opinion poll.

Further analysis reveals that the 460,000 people who live in Scotland but were born in England could play a major role in the outcome of the referendum.

According to the survey, the 15 per cent of the 1,004 sample who were born in England are far more likely to vote No than their Scottish-born counterparts.

Only 28 per cent of English-born voters say they will vote Yes, compared with 58 per cent who say they will vote No.

This contrasts with Scots-born voters who, taken alone, are in favour of independence by 42 per cent to 40 per cent.

The small sample size means some caution is required. But yesterday Professor John Curtice, the Strathclyde University elections expert, acknowledged that the reluctance of English-born voters to embrace independence could prove crucial when votes are cast on 18 September.

“In a tight race, they could yet hold the key to the referendum,” Curtice said. “It is an indication that appealing to the non-Scots-born part of the population is rather more difficult for the Yes side to achieve.

“They are more likely to retain a sense of British identity and they are more likely to want to remain part of the UK. They are internal UK migrants.”

Looking at the responses to the independence question as a whole, Curtice said that today’s survey was the closest seen so far in the referendum campaign, which will heat up this week as both sides launch new poster campaigns in an attempt to win more people to their causes.

“This is another poll showing the No side is in a real battle if it wants to keep Scotland in the Union,” said Curtice. “When the ‘don’t knows’ are excluded, it is the highest Yes vote in a poll that has not been commissioned by a partisan organisation.”

The poll is the latest in a series of surveys that have made worrying reading for the Better Together campaign. This week, Labour will attempt to rejuvenate the No campaign by holding a meeting of its shadow cabinet in Glasgow on Friday.

In what promises to be a big week for Ed Miliband’s party, former prime minister Gordon Brown will speak from a Better Together platform for the first time on Tuesday when he will argue that an independent Scotland would struggle to cover escalating pension costs.

Until now, Brown has only spoken on constitutional matters under a Labour banner. His decision to join the cross-party Better Together will be seen as an attempt to bury his differences with Alistair Darling, the campaign leader.

Critics of Better Together’s strategy have suggested that Labour’s “big beasts”, such as shadow foreign secretary Douglas Alexander and shadow international development secretary Jim Murphy, should do more campaigning for the UK.

By holding its shadow cabinet north of the Border, Labour is signalling that its big players are stepping up their fight for the Union.

All members of Labour’s top team will be out campaigning for a No vote from Inverness to the Borders.

The shadow Scottish secretary, Margaret Curran, said: “This week we will be saying loud and clear that the best prospects for a stronger Scotland lie with Scotland remaining part of the United Kingdom.”

Last night, Scotland on Sunday’s poll was welcomed by Yes Scotland’s chief executive, Blair Jenkins.

He said: ‘This is another very encouraging poll – the narrowest gap in the campaign so far and a swing of just two points is all that is needed to put Yes ahead, which we are confident of achieving.

“Our latest poster campaign shows that we are stepping up activity further in the months ahead to achieve a Yes vote on 18 September – and deliver a fairer, more prosperous country to benefit everyone who lives here.”

Jenkins added: “The extreme negativity of the No campaign is proving a major turn-off for voters, and month by month they are paying the price.”

Better Together’s campaign director, Blair MacDougall, said he was unsurprised that people born in England were in favour of retaining the Union.

“It’s no surprise that people born elsewhere in the UK now living in Scotland strongly support keeping the UK together.

“With such strong bonds of culture, history and family it’s clear that we are stronger and better together as part of the UK,” MacDougall said.

On the poll’s overall independence finding, MacDougall said: “This poll shows support for leaving the UK at the same level as last month and is just the latest poll to show a majority of Scots want to remain in the UK.

“Whilst it is welcome that there is a majority in favour of keeping the UK together, this poll is a reminder that there can be no complacency from those who believe that the brightest future for Scotland is to remain in the UK.”

He added: “With the launch of our advertising campaign tomorrow and a big grassroots campaign push, we will be fighting hard for every single vote between now and polling day. Everybody who wants to keep Scotland in the UK needs to play their part.”

John Curtice: Yes side has much to do in SNP’s NE heartland

ACCORDING to our latest poll, the Yes side could be close to taking the lead in the referendum race. But what does it have to do if the progress made so far is to be turned into victory in September? Our ICM poll provides four vital clues.

First, the Yes side actually needs to shore up its own vote. Only 10 per cent of No voters say they might change their mind about which way to vote, while no less than 18 per cent of Yes voters do so. That eight- point difference is bigger than in any of ICM’s previous polls this year.

The Yes side needs to recognise that unless voters are provided with the necessary reassurance, the ‘leap’ to independence could come to seem a step too far for some voters as polling day draws near.

Second, the Yes side has work to do in the nationalists’ own back yard. Although there has been much commentary about how it is scooping up Labour supporters (and no less than 24 per cent of those who voted Labour in 2011 say they intend to vote Yes), rather less is heard about the 14 per cent of 2011 SNP supporters who intend to vote No.

Of particular note is the relative weakness of the Yes side in the North-east, where SNP support is highest. Across all four polls ICM has conducted this year, Yes support in the region (after Don’t Knows are excluded) has averaged 41 per cent. Only in the Lothians is the equivalent figure lower (40 per cent).

In general, support for independence is higher among less well-off C2DE voters (53 per cent once Don’t Knows are excluded) than among more middle class ABCI (42 per cent). But the North-east contains a higher than average proportion of ABC1 voters.

It looks as though the Yes side needs to persuade middle class SNP supporters in the region to follow up their previous support for Alex Salmond with a Yes in the referendum.

Third, the Yes campaign needs to become more effective at translating scepticism about the prospects for more devolution into support for independence. As many as two-fifths of No supporters (38 per cent) want more devolution, but only two-fifths (41 per cent) think it will happen.

However, only 4 per cent of No supporters say they would vote Yes if by September they were convinced Holyrood would not get more powers. There is a much larger group, 16 per cent, who say they do not know what they would do. They are a group Yes needs to reach.

Finally, the Yes side needs to build on the progress it has made in persuading Scots of the economic case for independence. Back in September, 48 per cent of Scots thought independence would be bad for the economy, while only 31 per cent reckoned it would be good. That 17-point pessimism gap is now down to four points.

Nothing does more to persuade voters of the merits of voting Yes than the prospect of a more prosperous future. But at the moment there are still rather more pessimists than optimists.

BRITAIN’S UKIP LEADER WARNS OF ‘UNPLEASANT’ END TO EUROPEAN UNION

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RT

Neo-Nazism is on the rise in Europe and if nations do not opt-out of EU democratically, the entity has a violent end ahead of it, UKIP leader Nigel Farage said during a second public debate on the UK’s EU membership.

Farage specified that if EU members could not rein back control over their own countries diplomatically, then neo-Nazi groups, like the Golden Dawn party in Greece, would do it for them through violence.

“I want to see the EU brought to an end, but I want it to end democratically. If it does not end democratically I am afraid it will end unpleasantly,” Farage said during the debate with the leader of Liberal Democrats Nick Clegg.

According to the viewers, Nigel Farage won the television debate on Europe by 69 percent to 31 percent, a Guardian ICM poll showed.

During the debate Farage criticized big business, wealthy landowners and focused on growing violence in Europe, stating that his goal was to take care of the white working class.

“Already some countries are beginning to see the rise of, worryingly, political extremism. There is a neo-Nazi party in Greece that look certain to win seats in the European parliament …We see in Madrid, we see in Athens very large protests, tens of thousands of people, a lot of violence,” Farage said.

If you take away from people their ability through the ballot box to change their futures because they have given away control of everything to somebody else then I am afraid they tend to resort to unpleasant means and that’s my big worry,” he added.

Clegg responded with accusations that Farage is trying to turn back the clock back to the 19th century.

“I don’t believe in the dishonesty in saying to the British people that you can turn the clock back. What next? Are you going to say we should return to the gold standard or a pre-decimal currency, or maybe get [Victorian-era cricket player] WG Grace to open the batting for England again? This is the 21st century, it is not the 19th century,” Clegg stated.

“There are huge difficulties in the eurozone, but the idea that it is somehow a good thing … for it to fall apart, to perhaps even predict, as Nigel Farage has just done, that it will do so with violence on the streets across Europe and at the same time to side with [Russian President] Vladimir Putin on some of the biggest issues, rather than our own country and the European democracy we work together with, I just think it’s a huge difference of priorities.”

Other things discussed during the debate included immigration policies, trade and international issues such as Ukraine.

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EUROPE DEBATE: NICK CLEGG OPENING STATEMENT

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FARAGE VS CLEGG: ROW OVER RUSSIA’S ROLE IN CRIMEA

LESLIE GELB JOINS BRITS IN CALLING FOR OBAMA TO MILITARILY ESCALATE THE CONFLICT WITH RUSSIA

The headline pretty much says it all: “Obama Must Show He’ll Use Military Means to Deter Russia in Ukraine.” So writes top American Establishment figure Leslie Gelb–the former president of the New York Council on Foreign Relations, a veteran news columnist, and a former official in both the State and Defense Departments–in a March 30 column in the Daily Beast.

UKRAINE CRISIS: BRITISH FORCES TO JOIN NATO WARGAMES

British forces will take part in Nato exercises in the Baltics in order to ‘reassure’ allies in face of Russian aggression

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Ukraine crisis: British forces to join Nato wargames

RAF Typhoon jets have already been committed to an air policing mission over the Baltic states, led by Poland Photo: Cpl Babs Robinson

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By Matthew Holehouse, and Damien McElroy | telegraph.co.uk

British troops will take part in wargames in the Baltics in order to reassure Ukraine in the face of a potential Russian invasion, the Defence Secretary said today.

Philip Hammond said Britain would stand by its Nato allies as he warned Russia may attempt to seize more territory.

He said claims from senior generals that defence cuts had left the Armed Forces “hollowed out” are “nonsense”, and insisted withdrawing armoured regiments from Germany to bases in Britain would make them more effective.

Lord Dannatt, the former head of the Armed Forces, last week suggested 3,000 troops should remain in Germany in order to send a “military statement” to the Kremlin.

The Ministry of Defence has not yet announced which units, and in what numbers, would take part in the exercises.

RAF Typhoon jets have already been committed to an air policing mission over the Baltic states, led by Poland.

“Everybody is concerned, we’re concerned that there might be a further incursion in the territory of a sovereign nation. But I think whether there is or there isn’t, we all ought to be concerned about the use of this very crude and blunt instrument to try to influence other nations and their behaviour,” Mr Hammond said.

“We are looking at opportunities to increase our participation in planned Nato exercises as another way of reassuring our Nato allies. Nobody should be in any doubt of our resolve to live up to our commitments under the Nato Treaty.”

General Sir Richard Shirreff, the outgoing Nato deputy supreme commander, became the latest senior commander to express fears about defence cuts.

Britain’s armed forces have been “cut to the bone” under the Coalition and plans to substitute regular soldiers for reservists is “one hell of a risk”, he said.

The Royal Navy is no longer able to take part in maritime operations, he told the Sunday Times. “A hollowed-out navy means you can’t project power. I’ve heard this said in the Ministry of Defence: ‘The yardstick by which we measure ourselves is our ability to punch above our weight.’ You can’t do that now. By that yardstick, therefore, we are failing.”

Mr Hammond responded: “Much of what I’m hearing is nonsense; we still have the fourth largest defence budget in the world, I was in the Pentagon just this week past, I heard my US counterpart talk about Britain as a credible, capable and reliable ally and that’s what we intend to remain.” He said the Royal Navy takes part in counter-piracy work, the Philippines hurricane relief and is helping to hunt for the missing Malaysia Airlines flight.

US Secretary of State John Kerry will meet his Russian counterpart Sergei Lavrov on Sunday for suddenly arranged talks in Paris as diplomatic efforts to resolve Cold War-style tensions over Ukraine’s crisis gained momentum.

The diplomatic push comes amid alarm over Russia’s military buildup on Ukraine’s borders, fanning fears it plans to seize more territory following its lightning annexation of Crimea.

In a first effort to temper the worst East-West impasse in decades, Russian leader Vladimir Putin phoned US President Barack Obama on Friday to discuss either sides’ proposals in what has become a tug-of-war over Ukraine’s future.

Lavrov later sought to ease diplomatic tensions by vowing his country had no intention of sending in what Kiev estimates are 100,000 troops gathered on Ukraine’s borders.

“We have absolutely no intention and no interests in crossing the Ukrainian border,” he told Russian state television. “We (Russia and the West) are getting closer in our positions.”

At the same time his deputy Sergei Ryabkov pointed out there was still “no single plan”, but that both sides felt there was enough on the table to merit further discussion and Kerry changed course on a flight back from Riyadh to meet with Lavrov in the French capital.

Moscow’s efforts to keep the ex-Soviet state in its orbit prompted months of bloody street protests in Ukraine by citizens demanding a European future, resulting in the overthrow of Kremlin ally president Viktor Yanukovych in February.

While the tear gas and street battles in Kiev have given way to diplomatic wrangling, the fight for the presidency is in full swing ahead of snap polls organised for May 25, expected to seal the country’s pro-West course.

The current frontrunner is billionaire chocolate baron Petro Poroshenko, boosted by the support of boxing champion-turned-politician Vitali Klitschko who bowed out of the race to boost the tycoon’s chances.

“We have to nominate a single candidate representing the democratic forces,” Klitschko told a congress of his UDAR (Punch) party on Saturday.

“This has to be a candidate who enjoys the strongest public support. Today, this candidate in my opinion is Petro Poroshenko.”

Poroshenko was the only Ukrainian oligarch to openly back the protests against Yanukovych, and will likely face a feisty campaign from former premier Yulia Tymoshenko, a highly controversial doyenne of Ukraine’s political theatre.

With his government experience from time spent in several cabinet portfolios and links to business, many see Poroshenko as a capable pair of hands to stem an economy in free fall and unite a country fractured between Moscow and Kiev.

Lavrov said Russia wants a federal solution for Ukraine which implies greater autonomy for Russian speakers in the east and south, and for Kiev to commit to not joining the NATO military alliance.

Moscow’s annexation of the Black Sea peninsula of Crimea sparked fears it would target other heavily Russian-speaking areas in eastern Ukraine and the Moscow-backed separatist territory of Transdniestr in Moldova.

Putin told Obama the problems surrounding the breakaway Moldovan region should be solved not by force but by talks in the “5+2″ format of Moldova, Transdniestr, the OSCE, Russia and Ukraine, with the EU and US as observers.

Meanwhile as the rest of Europe moved their clocks one hour forward for summer on Sunday, Crimeans jumped two hours forward into the timezone of their new masters in Moscow.

The peninsula voted overwhelmingly to join Russia earlier this month, after the downfall of Yanukovych’s pro-Moscow government in Kiev. However the referendum and Russia’s rapid absorption of the region is seen as illegal by much of the international community.

The referendum was also largely boycotted by the ethnic Tatar minority who voted Saturday to push for self-rule in their historic homeland.

However representatives of the Muslim community of about 300,000 people were torn on how to engage with the new authorities and go about securing this autonomy.

Russia’s annexation prompted the United States and European Union to slap Moscow with sanctions, piling on economic pressure.

Moody’s put Russia’s credit rating on review for a possible downgrade on Friday, saying the current crisis “could significantly dampen investor sentiment for several years to come”.

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BRITAIN SEEKS TO MAKE UP LOST GROUND WITH UNITED STATES OVER UKRAINE

By Julie Hyland

Lord Dannatt, the former chief of the UK’s general staff between 2006 and 2008, has called for an increase in the number of Britain’s Armed Forces. The retired Army officer, writing in the Daily Telegraph, said the change was necessary in response to events in Ukraine.

A 2010 review of military forces undertaken by the Conservative-Liberal Democrat coalition had taken place in the “midst of an economic crisis”, he wrote, so as to “prioritise equipment over manpower.” Nonetheless, doubts remained as to “whether a regular Army of just 82,000 is sufficient for our needs…”

“[S]trategic shocks happen,” he continued, citing Ukraine and what he described as the “Russian takeover of Crimea.” Faced with a “resurgent Russia, this is a poor moment for the US-led West to be weak in resolve and muscle.”

Dannatt’s article turns reality on its head. It was the US and the European Union that orchestrated the putsch in Kiev, installing a gang of fascists and oligarchs as part of their encirclement of Russia.

This was spelled out by President Barack Obama on his tour of Europe Tuesday, when he set out what his foreign policy adviser described as a “strategic pivot” towards confrontation with Russia. At the centre of this is an aggressive policy of expansion on the part of NATO.

This strategy was underscored by Dannatt’s comments, particularly his suggestion that Britain should maintain an additional brigade of 3,000 troops in Germany.

It is not clear whether Dannatt has asked Germany’s opinion on such a scenario. British troops have been stationed in Germany since the end of the Second World War as an integral part of the Cold War buildup against Moscow. Numbers have been steadily reduced since German reunification and the dissolution of the Soviet Union and were due to be withdrawn completely by 2019.

Dannatt was proposing a reversal in this policy, as part of a new military buildup against Moscow. And while Prime Minister David Cameron said such a move was “unnecessary”, he made clear that Britain intends to play a lead role in bolstering NATO’s provocative moves against Russia, centering on the Baltic states of Latvia, Lithuania and Estonia.

Europe Minister David Lidington was touring Latvia and Lithuania earlier this week, as part of what Cameron described as the UK’s “very clear message to our NATO partners and allies that we believe in NATO and we believe in their security.”

The Guardian described his comment as a reaffirmation of the “collective defence” principle of NATO, under Article 5 of which, “all NATO members agree that an armed attack against one member is an attack against all.”

Given that Russia has made no moves whatsoever against the Baltic states, the actions of Britain and other Western powers are a clear provocation.

NATO currently patrols the air space of the Baltic states from the Siauliai Air Base in Lithuania. The US took charge of the air policing operation at the start of this year, running four F-15C Eagles. These are to be joined by six F-15s from RAF Lakenheath, England along with a Typhoon Eurofighter combat aircraft.

Earlier this month the Czech Republic, Hungary, Poland, and Slovakia signed a military pact creating a unified combat unit, called the Visegrad 4, which will operate under the auspices of NATO and EU. The US had sent 12 warplanes and 300 personnel to Poland following the Crimea referendum on joining Russia. Last week, NATO announced E-3 AWACs surveillance aircraft would begin patrolling Poland and Romania from bases in England and Germany.

The UK has confirmed that an undisclosed number of British forces are to join the Rapid Trident 2014 exercise in Lviv, Ukraine near the Polish border in July. The exercise, planned for some time, consists of 1,300 mainly US troops, along with units from Armenia, Azerbaijan, Bulgaria, Canada, Georgia, Germany, Moldova, Poland, Romania and Ukraine.

The UK’s aggressive military response contrasts with its seemingly more cautious, although supportive, response to the Western-orchestrated coup. So much so that many commentators complained that London had been sidelined, with events and responses largely coordinated between Washington, Berlin, Paris and Warsaw.

More damaging still was the leaking of a secret prime ministerial briefing document, stating that the “UK should not support, for now, trade sanctions . . . or close London’s financial centre to Russians.”

Coming at the time when Washington was pressing the EU for harsher sanctions against Moscow, the briefing highlighted the degree to which Britain’s ruling elite appeared hugely reliant on Russian oligarchs who have crowded into the capital.

London is home, for example, to Alisher Usmanov, Russia’s richest man, worth an estimated $18.6 billion, and Mikhail Fridman, Russia’s second-richest worth $17.6 billion. In addition, 113 Russian companies are now quoted on the London Stock Exchange.

Not all the oligarchs are sympathetic to Russian President Vladimir Putin, and British support for some, like Boris Berezovsky, had upset relations between Moscow and London. So too had the 2006 assassination of former Russian security agent, Aleksandr Litvinenko, in London with polonium. When the UK moved to charge another former agent, Andrei Lugovoi, who had dined with Litvinenko before he was taken ill, Russia refused extradition, sparking a diplomatic row.

One result was that British capital lost out in the Russian market in comparison with its German and French competitors. The UK has just 600 companies doing business in Russia, compared to more than 7,000 German. France has concluded major arms deals.

Cameron had worked to rebuild relations. Following talks with Putin in 2012, it was agreed to launch “strategic dialogue” between British and Russian foreign and defence ministries. The two countries embarked on a series of deals, including on military cooperation. Britain’s Military of Defence confirmed to the Telegraph in January, “Work is ongoing on a Military Technical Cooperation Agreement (MTCA) between the UK Ministry of Defence and Russian Federal Service for Military Technical Cooperation, which will provide a framework for Russian and UK defense companies to cooperate at an unclassified level.”

It was due to be signed in the spring.

At the same time, the government backed off on any further action over the Litvinenko killing, refusing a coroner’s ruling that a public inquiry should be held.

The disclosure that London was dragging its feet over Washington’s intended economic sanctions was gravely damaging. Writing in the New York Times, Ben Judah complained that England’s “old imperial elite has become crude and mercenary.”

“Any moralizing remnant of the British Empire is gone”, he wrote; “it has turned back to the pirate England of Sir Walter Raleigh.”

Accusing Britain of damaging Washington’s intended united front over sanctions, he railed, “It boils down to this: Britain is ready to betray the United States to protect the City of London’s hold on dirty Russian money. And forget about Ukraine.”

Judah’s complaints were echoed by the British media and sections of the ruling elite, alarmed at any further diminution of the supposed “special relationship” between the two countries—especially in the wake of last August’s parliamentary vote against joining a war against Syria.

Writing in the Independent, Steve Richards complained that while President Barack Obama was posing with Francoise Hollande at the White House, and Germany’s Angela Merkel was making all the EU’s running on Ukraine, Britain no longer “has a foreign policy.”

Cameron has very quickly reverted to type. Having apparently been reassured that financial sanctions will not damage the City of London, he is echoing Washington’s demands for greater European trade and military sanctions against Russia—measures that will, however, impact on Berlin and Paris.

Former defence minister Gerald Howarth has boasted, “Only 1.6 percent of our exports go to Russia, and only 1.7 percent of our imports come from Russia, and we are dependent on Russian energy for only 1 percent of our natural gas requirement,” while senior Tory right-winger Charles Walker asserted, “Russia is not the power that it once was. It is riddled with corruption, and with a population of only 143 million, it has a failing demographic.”

TORY MP CALLS TO BOOST NUCLEAR PROGRAMME TO FACE ‘RUSSIAN THREAT’

In light of the Ukrainian crisis, some voices in the UK say the country now needs to keep its nuclear Trident system to counter the Russian threat. Conservative MP Julian Lewis said Britain will need it for when, quote ‘Putin threatens one of the Baltic states, which are members of NATO’. Political commentator John Wight believes this rhetoric is way outdated.

CAMBRIDGESHIRE POLICE TRIED TO TURN POLITICAL ACTIVISTS INTO INFORMERS

Force defends use of covert tactics against campaigners

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Police and anti-fascist protesters clash in Cambridge

Police and anti-fascist protesters clash in Cambridge before a speech at the university by the French far-right leader Marine Le Pen in 2013. Photograph: Oli Scarff/Getty

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By Rob Evans and Matthew Taylor | The Guardian

A young anti-racism protester abandoned her campaigning work because she felt intimidated by a covert police officer who tried to persuade her to spy on her political colleagues, she has said.

The 23-year-old said the officer, working for a secretive police unit, threatened to prosecute her if she told anyone about the attempt to enlist her as an informer.

The woman, who is a single mother, said the threat had left her feeling “vulnerable and intimidated”, worried that a prosecution would jeopardise her young son, her university place and her chances of working in the future. “If I was charged, I could lose everything,” she said.

The Guardian in November published a secretly recorded video revealing how police had tried to recruit an environmental protester, also in his twenties, to spy on politically active Cambridge students.

Now, three more campaigners have come forward. They have described how police from the covert unit tried to convince them to become informants, and to spy on political groups, such as environmentalists and anti-fascists, in return for cash.

The allegations come two weeks after Theresa May, the home secretary, ordered a public inquiry into the undercover infiltration of political groups after revelations that the police had spied on the family of Stephen Lawrence.

Another of the campaigners said an officer had appeared to follow him and his young daughter to a supermarket where, he said, the officer thrust an envelope containing cash into his hand to induce him to secretly pass on information about environmentalists in Cambridge.

He said he had angrily rejected the envelope, warning that he would get a legal order to stop the police pursuing him, as the officer had previously made two unannounced visits to his home to try to turn him into an informant.

A third campaigner said a police officer had also offered him cash for details about the political activities of leftwing students in Cambridge. He said the same police officer was recorded in the secret video published in November.

All four attempts were made since late 2010 by Cambridgeshire police officers. The force, which accepts that it tried to recruit the four, refused to name or give any details about the unit, but denied its officers would carry out some of the behaviour alleged by the activists.

A spokesperson said : “Officers use covert tactics to gather intelligence, in accordance with the law, to assist in the prevention and detection of criminal activity.”

They added: “In the application of these tactics we wouldn’t engage in behaviour which has been described by the individuals.”

The Cambridge MP, Julian Huppert, said he was “alarmed” by the allegations, and demanded an explanation from the Cambridgeshire chief constable, Simon Parr, of “what has happened here, particularly if people are feeling threatened by the police”.

He added: “The police clearly have a role to keep us safe and to try and understand what is happening. But the sort of methods that are described here seem to me to be simply inappropriate. I do not believe that the sort of steps that are being taken here are proportionate to the actual risks there are.”

The allegations may shed light on how far police may be prepared to go in their efforts to recruit informers, said to number in the hundreds across the country, from inside what activists say are legitimate protest campaigns.

None of the four activists was willing to be named, as they said they feared repercussions from the police.

The single mother has described how her first political action was to join the Cambridge branch of Unite Against Fascism (UAF) in late 2012. She attended two meetings held to mount a counter-demonstration to a march that was being organised by the far-right English Defence League.

She volunteered to help the group’s Facebook page and other social media. Soon after, an officer rang her on her mobile to ask her to come to a local police station as he wanted her opinion on antisocial behaviour in her neighbourhood.

But it was a ruse, she said: at station the officer instead asked her if she would become an informant and tell “everything” she knew about UAF in return for expenses, including trawling Facebook for information about the group.

The officer, whose name is not being disclosed by the Guardian and has been given the pseudonym Peter Smith, saidhe worked for a covert unit whose activities were not known to the rest of the station.

She said that twice during the meeting Smith had warned her that she could be prosecuted if she told anyone, including her mother, about the attempt to recruit her. “He said, if you tell anybody about it at all, we can charge you for getting in our way or compromising our investigation,” she added.

“I felt at the time a bit of blind panic. It took me off my guard. It knocked me for six. You kind of feel like your back is against the wall, and you did not even know that you were going to be there, or why.”

She went home worried “about what I had got myself into here. I felt completely exposed. The problem was that I could not tell anybody”.

She had felt it would be “immoral” not to tell the UAF; but if she did, that could compromise other people in the group.

She said she had also been worried that police would find out if she told anyone, as she suspected that someone at the group’s meetings had passed on her contact details to the police in the first place.

Faced with the quandary, and unable to “look the group in the eye”, she withdrew from UAF. She had felt “pressured” into another meeting with Smith, but after further phone calls from him she had rejected his offer.

She and two others are speaking out after the publication of the secret video, which was recorded by the young protester using a concealed camera. It appeared to show Smith asking the protester to spy on Cambridge students, Unite Against Fascism, UK Uncut and environmentalists.

One of the campaigners who has now come forward said he, too, had been lured to a police station under a pretext by Smith in late 2012.

The campaigner, a student at Cambridge University, had called the police to report two suspicious men on his street who looked as if they were looking for houses to burgle.

A few days later, he said, he had received a call from Smith inviting him to the station to discuss the suspicious men in more detail.

But when he went to the meeting, Smith showed little interest in burglary, and instead asked if he would become an informant, supplying him with information about protests being organised by leftwing students in Cambridge.

Smith allegedly said the campaigner would be paid for his work, but he refused, and heard nothing more.

In the other case, the environmental and social justice campaigner said a police officer had twice come to his house without an appointment and suggested that one of the campaigns he wanted information about was an environmental group, Cambridge Action Network.

He said that even though he had rejected the attempt after a third encounter, the police officer had seemed to follow him and his young daughter a month later to a supermarket, and had pushed an envelope of cash notes into his hand one afternoon in 2011.

“It seemed very random that he should cross our paths there and then, at that moment,” the campaigner said. “Just as we were getting on our bikes, he kind of swooped around the corner on his bicycle and tried to push the money into my hand.”

SCOTTISH INDEPENDENCE VOTE THREATENS TO DERAIL 2015 GENERAL ELECTION

Fears grow in Cabinet of a “constitutional crisis” which would put the election in doubt, as legal expert warns that Scottish independence could bring down the next government

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David Cameron gives his speech to the Scottish Conservative party conference

David Cameron gives his speech to the Scottish Conservative party conference  Photo: GETTY IMAGES

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By Tim Ross, Political Correspondent | telegraph.co.uk

The 2015 general election will be thrown into turmoil if Scotland votes for independence in September’s referendum, according to government legal advice.

An election is scheduled to be held on May 7 next year but by then Scotland could already be preparing to separate from the rest of the United Kingdom.

The leading lawyer who wrote the Westminster government’s legal advice on Scottish independence is now warning that a “Yes” vote in the referendum would have major ramifications for the election, and could destabilise the next British government.

Cabinet ministers fear that if Alex Salmond’s independence campaign succeeds, the general election would be in grave doubt, plunging Britain into an unprecedented “constitutional crisis”.

In a memorandum for the House of Lords, Professor Alan Boyle, a specialist in international law at Edinburgh University, outlined two options for the election if Scotland chooses independence on September 18.

Emergency laws could be passed months before the election to ban the 59 Scottish constituencies from taking part and hold polls only in England, Wales and Northern Ireland next May, he said.

Alternatively, the election could proceed as planned across the UK but all Scottish MPs would then be ejected from the Commons on the day that Scotland becomes an independent country, which could come as soon as March 2016, only 10 months after the election.

A decision to exclude Scotland from the 2015 election would force the political parties to tear up their battle plans, re-write their manifesto proposals and reshuffle their ministerial teams mid-way through the campaign.

The impact would be particularly severe on Labour, which has significantly more MPs from Scotland than the other parties – including the Shadow Foreign Secretary and election coordinator, Douglas Alexander.

But if the election goes ahead and the MPs for Scottish seats then leave the Commons in 2016, it could decisively shift the balance of power, and bring down the new government less than a year after it has been elected, Prof Boyle said.

In a written submission to the House of Lords on the implications of independence, Prof Boyle said Scottish MPs would be legally entitled to remain in Westminster after the 2015 general election “until the date of independence”.

The only way to avoid this would be to transfer powers over Scottish affairs from London to the Scottish Parliament “in whole or in part” after the referendum has been held but before Scotland becomes independent, he said.

“If those powers were transferred in advance of independence it might then be reasonable to exclude Scottish constituencies from participation in the UK general election in 2015,” Prof Boyle said.

“As regards the parliamentary impact in 2015-20, this is probably not a question for a lawyer to answer, but at the very least there is an obvious risk of a near permanent Conservative majority in the House of Commons once Scottish MPs leave.

“If Scottish MPs remained in place until 2016 or later there is a risk that removing them would deprive a Labour government elected in 2015 of its majority.”

Prof Boyle’s analysis, submitted to peers this month, comes as ministers privately question whether the general election could go ahead if Scotland votes for independence.

One Cabinet minister said: “Britain would be plunged into a constitutional crisis. You couldn’t possibly hold a General Election in 2015 which elects Scottish MPs for five years when they won’t even be the same country.”

However, another Cabinet source said the election should continue in Scotland even if the referendum results in a vote for independence, as Westminster would still have power over the lives of Scottish residents until the country leaves the UK.

Prof Boyle said Scottish MPs still sitting in Westminster after 2015 should be required to “absent themselves” from any Commons votes on the negotiations between Scotland and London over the terms of separation.

“They could surely not sit in judgment on whether the terms of any agreement are acceptable to the UK, a state from whose parliament they would thereafter be excluded,” he said.

“At best Scottish MPs might try to persuade Parliament to grant terms more favourable to Scotland than those negotiated on their behalf by the Scottish government.

“At worst they might be accused of undermining a deal negotiated by that government. Certainly it would be strange for the government of the United Kingdom to be held accountable to MPs from a soon-to-be-independent Scotland.”

The warnings come as the campaign for the future of Scotland intensifies ahead of September’s referendum on independence.

On Friday, David Cameron promised “more power” to Scotland to raise its own taxes if it votes “no” to independence and spoke of the “monumental battle” to keep the UK together.

All three main Westminster parties have warned Scotland that it would not be able to keep the pound if it votes to separate.

GEORGE SOROS WARNS BRITISH EUROPEAN UNION EXIT WOULD TRIGGER FOREIGN COMPANY EXODUS

Billionaire speculator cautions over job losses but says Europe could still be pulled apart by deflation and slow growth

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George Soros

George Soros warned that Europe could be pulled apart by decades of slow growth and deflation. Photograph: Anadolu Agency/Getty Images

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By Larry Elliott, economics editor | The Guardian

Billionaire speculator George Soros on Wednesday waded into the political row about Britain’s membership of the EU with a warning that a decision to quit would lead to an exodus of foreign-owned companies.

Soros said the argument for Britain remaining part of the EU could be summed up in one word – jobs – as he outlined his concerns that Europe could be pulled apart by decades of slow growth and Japanese-style deflation.

The man who helped to force the pound out of the exchange rate mechanism on Black Wednesday in 1992 stressed that Britain had the best of all worlds by being part of the EU but not the euro.

Asked about the potential consequences of Britain’s withdrawal from the EU, Soros said: “I will leave it to the British business community, particularly the multinationals that set up factories here as an entry point into the common market, to explain to the public what they stand to lose. But in one word – jobs.”

Soros, in London to publicise a new book – The Tragedy of the European Union – made his remarks after the Labour leader, Ed Miliband, won plaudits from business groups for playing down the chances of an in-out referendum should the opposition win next year’s general election.

But despite his insistence that Britain would be damaged by leaving the EU, he expressed concerns that Europe might not survive a long period of stagnation. Blaming Germany for the EU’s predicament, Soros said it was possible for a country such as Japan to cope with prolonged periods of stagnation, but not for an incomplete association of nations.

Soros said he had abandoned his idea that the euro should split into two – a stronger, northern euro led by Germany, and a weaker, southern euro led by France. Germany, he said, had ensured the future of the euro, but without solving any of the underlying problems.

“Germany did the minimum to ensure that [the euro's survival]. Unfortunately it was only the minimum.

“Germany has fulfilled my worst expectations. It has already transformed the EU from what it was meant to be – a voluntary association of equal and sovereign states that sacrificed part of their sovereignty the common good – into something radically different: a creditor-debtor relationship where the debtors have trouble meeting their obligations. That has created a two-tier Europe with two classes of members.

“The financial and economic policies Germany is advocating and imposing on Europe are the wrong policies. It is a counter-productive policy – austerity in a time of deflation.”

He predicted dire consequences should any of the single currency’s 18 members decide to leave the euro in favour of a go-it-alone strategy.

“If the euro disintegrated in a disorderly manner it would not have solved the problem, it would have created an even bigger problem – a real meltdown,” Soros said. “The problems of the euro don’t have a national solution. Leaving the euro is a disaster. It would mean defaulting on a country’s debts. That would have very severe consequences for financial stability. It might be beyond the powers of the authorities to control.”

He added: “The euro is a fragile union. Any country leaving the euro would create very serious problems, both for the country leaving and for the euro itself.

Soros described the crisis in Ukraine as a “wake-up call” to Europe – and called on the union to concentrate on doing what was best for the EU as a whole, rather than focusing on the needs of individual member states.

He said: “Ukrainians have effectively proven they are willing to sacrifice their lives to be closer to a Europe that is at the same time in the process of disintegration.

“Europe now faces this issue. Are they going to respond to the invasion of Crimea based on their narrow national interests, or are they going to act on a united basis representing the interests of the whole European Union?

“It is a challenge and I hope that Europe will respond to it and actually rediscover its original mission.”

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