PARIS — Britain’s King Charles III urged France and the U.K. to revitalize ties Wednesday, as both countries seek to improve relations after several acrimonious years marked by Brexit negotiations.
On the first day of a three-day state visit to France, the king said it was “incumbent upon us all to reinvigorate our friendship to ensure it is fit for the challenge of this, the 21st century.” Speaking at a banquet dinner hosted by French President Emmanuel Macron at the Palace of Versailles, the king said he looked forward to a renewal of the Entente Cordiale between France and the U.K, an alliance which marks its 120th anniversary next year.
The British monarch did not mention Brexit directly but hinted at relations between the two countries that had not “always been entirely straightforward.”
The banquet dinner was held in the Hall of Mirrors at Versailles, a venue long associated in France with privilege, absolute monarchy and the French Revolution. The banquet gathered together stars, business leaders and politicians from both sides of the Channel, including rock star Mick Jagger, former football manager Arsène Wenger and the world’s second richest man, Bernard Arnault.
During his toast, Macron said France and the U.K. would meet the future challenges of the modern world together despite the tensions created by Brexit.
“Despite Brexit … I’m sure, your majesty, that we will continue to write part of the future of our continent together,” the French president said.
Deep in the Wyoming wilderness last month, Christine Lagarde, president of the European Central Bank, stood before a large audience of elite central bankers and casually predicted the collapse of the international financial order. Resplendent in red and black, she resembled a humanoid Lindor chocolate truffle — and though her warning was diluted by the usual impenetrable jargon, the subtext was sufficiently clear and dramatic.
“There are plausible scenarios where we could see a fundamental change in the nature of global economic interactions,” Lagarde announced drily to the crowd, which was gathered for the annual central banker confab in Jackson Hole, Wyoming. The assumptions that have long informed the technocratic management of the global order were breaking down. The world, she said, could soon enter a “new age” in which “past regularities may no longer be a good guide for how the economy works.”
“For policymakers with a stability mandate,” she added with understatement, “this poses a significant challenge.”
A “new age”? — and coming from a member of that most dreary and unimaginative of the global technocratic-priesthoods, the central bankers? The warning at Jackson Hole wasn’t even the first time Lagarde has fretted publicly about the fate of the international order of free markets, dollar dominance and globalization that she had a hand in creating. While others have raised the issue, Lagarde has been outspoken. Just in April, she was the first major Western central banker to raise explicit concerns about the fragility of the greenback, whose international dominance she said “should no longer be taken for granted.”
It was, all told, decidedly odd from the leader of the hallowed monetary authority, whose communications department rarely holds forth on anything more gripping than balance sheet policy and deposit rate adjustments. Coming from a woman whose long career in the upper echelons has been defined by a deference to the U.S.-led international order, it was apostasy, even. Most alarming was Lagarde’s seeming indifference to the power of her own words over the state of said international order. One official at the ECB was startled enough by the April comments that he asked the speechwriter what they meant, only to be reassured that they had been “misinterpreted” and were simply an affirmation of the institution’s narrow mandate for price stability.
But it’s hard not to wonder whether Lagarde, after a lifetime managing the global establishment from crisis to crisis, has identified a potential extinction event — and is making her pitch that, once more, it is she who ought to help the world avert it. “I agree she’s on to something,” said the retired fixed-income investor Jay Newman. “There will be big shifts in trade and investment.” Paul Podolsky, another longtime trader, speculated that Lagarde was preparing the ECB, in trademark French fashion, for a “possible situation in which the euro would have more leadership in the global system than it would normally have.”
Elsewhere, the prevailing sense is confusion, not least at Lagarde’s apparent disregard for the tradition of blandness in a business where every utterance is heavily scrutinized by obsessive, knee-jerk market forces. “What Lagarde said is not the natural thing for a central banker to say, in the sense that they typically don’t go for the tail-risk as a baseline,” panicked one analyst in nervous anonymity, referring to a kind of risk that is rare but deadly. “Maybe she doesn’t realize what an unusual communication it is for a central banker — or maybe she knows something we don’t.”
So what does Lagarde want? The problem is it’s tricky to get a grip on what, if anything, actually moves her. Few have been able to discern in her any strong feelings or guiding principles beyond some vague notion of “service” to the institutions she invariably ends up leading through dramatic, epoch-defining crises. A sphinx with a winning smile, she possesses a charm that can come off as both authentic and calculated. “She could be funny when she needed to be,” said one former colleague.
What does she do for fun? She rarely reads for pleasure. Nobody interviewed by POLITICO has ever seen her read a book, or anything that isn’t a policy briefing. She has scant time, understandably, for the pursuit of hobbies. She does enjoy making jam, in July, for her family, and she is prone to the odd round of golf with the central bankers. She used to swim regularly but now not as often, constrained as she is by an intense work schedule. In terms of world-view, those who know her deduce that if she believes in anything she’s a centrist, or vaguely center-right. But most stop short at “pragmatic.”
Unlike many of the technocrats she finds herself surrounded by, however, she is a charming chancer and a skilled communicator. She possesses an uncanny, Forrest-Gump-like predisposition for finding the driving beat of history — and if not exactly seizing it, surviving it.
From the outset, she enjoyed a near-vertical trajectory, rising from the depths of suburban Normandy to lead the major Chicago law firm Baker McKenzie, where she wooed colleagues and the international business elite alike. (“She is perhaps the nicest person I’ve ever had the pleasure of knowing,” said former Baker colleague Marc Levey.) At a time of peak globalization, the firm helped big upstart firms like Dell break into Europe, and by 2005 her growing prominence had landed her in an unelected role in French politics. As finance minister, she wrestled with the financial crisis, professed undying allegiance to Nicolas Sarkozy (“Use me for as long as it suits you,” she wrote the then French president) and was later convicted for “negligence” in a sordid affaire involving payments of public funds to a billionaire businessman — but escaped punishment when the judge took pity on her. (“She acted on orders,” a former political colleague told the Guardian newspaper. “She has done nothing wrong in her life.“)
With uncommon ease, Lagarde remained at the ever-changing forefront of establishment consensus, a quasi-ceremonial, Elizabeth II-like figure who was perceived as an effective steward but was nevertheless often constrained by circumstance from exercising any real power. Consider her time as managing director of the International Monetary Fund, the venerable, 77-year-old institution that lends out money, often on harsh terms, to indebted countries when nobody else will. She joined the IMF in 2011. It was a dark time — the height of the eurozone crisis. Greece was the unhappy protagonist, forced to near-fatally gut its public spending at the behest of its Franco-German creditors after a decade-long spending binge, the effects of which it masked by manipulating its official data.
As part of the French government, Lagarde, in line with the prevailing consensus, had resisted the IMF’s involvement. But when the fund’s chief, Dominique Strauss-Kahn, was arrested on sexual assault charges in New York, she leaped for the top job. She embarked on a glitzy world tour, schmoozed China and split the Latin American vote, handily beating her rival, the distinguished Mexican central banker Agustín Carstens. Given the trashed reputation of her predecessor — and in spite of previous assurances that the Europeans would cede control to the emerging economies who were now among their creditors — it was a sleek, if ultimately predictable, victory.
Once in office, however, she was rarely more than an elegant middle manager, readily admitting that she was not the one making the big decisions. Neither, she admitted, was she much of an economist — her own chief economist, Olivier Blanchard, likened her, with warmth, to a “first-year undergraduate.” “I’ll try to be a good conductor,” Lagarde said upon joining. “And, you know, without being too poetic about it, not all conductors know how to play the piano, the harp, the violin, or the cello.” She was principally an informed mediator who would sway but not dictate, there to build consensus among the nation-states represented on the IMF’s board — which in practice, according to some, meant winning acceptance for whatever decision the Europeans and U.S. had already made beforehand.
She played upstart nations against one another, offering big concessions to the most powerful new arrival, China, while sidelining others, according to Paulo Nogueira Batista, the Brazilian board member at the time. “The managing director and staff of the fund would approach us individually to explain what they were thinking, and explain their views, and they’d say, ’Look, we understand you’re not happy with the solution, but let me tell you, we already have the required majority,’” Batista recalled. “And then, if we were still resisting, we’d be in the minority.” She was also conspicuously close to the American board member, David Lipton. “Christine wouldn’t have been so good without David, and David needed her to be the face of the fund — with her charisma and her charm,” said Daniel Heller, who represented Switzerland on the board.
The result? Against the advice of the U.S., many emerging world members and the Fund’s own thinkers, including Blanchard, the Fund bowed to European pressure and signed up to a deal that left Greece lumbering under its debts for a further four years before it had another chance to renegotiate. Even when Lagarde herself came around to Blanchard’s view, pressure from a German-led bloc in Europe meant she could change little. Exactly nobody was surprised when, in 2015, the tensions caused by that bailout came to a heady boil, triggering the rise of a rebel left-wing government in Greece.
At the ensuing tense summits of the eurozone’s finance ministers, situated at a long table in a windowless, harshly lit room in Brussels, she was able to offer the occasional morsel of benign distraction. “She was great fun,” said Jeroen Dijsselbloem, then the Eurogroup’s head, recalling that at the “most impossible moments,” with the fate of Greece and the eurozone in the balance, “she’d reach into her bag and take out some M&M’s and say, ‘Let’s have some chocolates.’”
“Yes, Lagarde was personally warm,” granted Yanis Varoufakis, Greece’s finance minister at the time. But to him, that counted for little. “Because she was straitjacketed by the IMF, she was powerless,” he said. “And given that she was very keen not to jeopardize her position in the institutional pecking order, she was happy to go along with our crushing.”
With the U.S. exasperated and with the eurozone appearing to have overcome its existential crisis, the Fund withdrew from tense negotiations over a third bailout with the Greek government at the 11th hour, citing major disagreements between Athens and her creditors. Lagarde — her hands carefully washed of whatever would come next — emerged with her reputation intact.
So what to make of her recent turn as a minor visionary? Lagarde has always held forth on the big, worthy problems of the day across an eclectic range of media — appearing last year on Irish prime-time TV, for instance, to offer an armchair psychological diagnosis of Vladimir Putin, and discussing her sex life in Elle France magazine in 2019. But now, her words — as she learned the hard way — carry momentous weight.
Initially, with trademark tact, she claimed she didn’t even want the job at the ECB, though within months she was asked to run, and by November 2019 she got it, as a compromise candidate that saw the German Ursula von der Leyen take charge of the European Commission. “So Lagarde was brought in for, like, greening up the economy, and other stuff beyond monetary policy,” recalled Carsten Brzeski, the chief economist at ING Economics and a wry critic of Lagarde. “And then we had the pandemic.”
The novel coronavirus was more than a match for Lagarde’s vaunted communication skills (or, indeed, anyone else’s). But that didn’t mean she couldn’t do a whole lot of damage. Disaster came right at the pandemic’s outset, at a conference on March 12, 2020, when she was answering questions from the media about the early alarming spread of COVID-19 in northern Italy. Asked whether she would act to reduce the perilously high “spread” on the interest paid on Italian debt, Lagarde offered a now-infamous response that blew up the Italian economy — and much of her credibility with it.
The cataclysmic soundbite? “We are not here to close spreads.”
It may not sound like much, but in the arcane world of central banking, it was tantamount to uttering a hex. Years before, Mario Draghi, Lagarde’s predecessor, had famously “saved the eurozone” by announcing that the ECB would do “whatever it takes” to back billions of euros of at-risk sovereign debt. Central banking relies on a certain enigmatic mysticism, which Draghi, the reclusive, Jesuit-trained technocrat par excellence, had in spades. At the Italian’s mere beckoning, debt markets calmed. Draghi didn’t even need to deploy the figurative “bazooka” of actually flooding the eurozone with money. His words were enough.
Lagarde’s comment was “whatever it takes” in reverse — a bazooka turned faceward. “I saw the Draghi spirit leave the room,” recalled Brzeski hauntedly. “For years we were spoiled by his famous magic — the man could calm financial markets just by reading out the telephone book — and then Lagarde comes and ruins it in ten minutes. The Draghi magic was exorcized, and Lagarde was the exorcist.”
The bond markets exploded. Before joining the bank, Lagarde had been pitched as an arbiter whose main role would be to forge consensus among the central bank governors who make decisions at the ECB. But the “spreads” fiasco was a sharp reminder that she was uniquely accountable as the voice of euro monetary policy. And she blew it. Her authority collapsed. “In the past, we knew we needed to listen very carefully to Draghi,” said Brzeski. “Now markets know it’s normally not Lagarde who calls the shots.” Plus, she was enjoying herself too much, pontificating on climate change and social justice. “As a central banker you don’t improvise,” harrumphed Brzeski. “You are boring, you repeat the same messages over and over again.” Once, when a presser ended, recalled one analyst, reporters swamped the ECB’s head of market operations Isabel Schnabel — leaving Lagarde alone, taking notes.
Former colleagues wonder whether she misses the IMF, where she was able to be a rockstar financier, to propound without worrying about how her pronouncements landed. “I mean that job is incredible, it connects you with global power at the highest level,” said Heller, the Swiss board member. French media, as usual, speculated that her eye was really on the presidency, a rumor that has never entirely gone away.
“Maybe she looks down on central banking,” wondered Brzeski, sounding wounded. “Maybe she finds it boring.”
All that is to say that now, when Lagarde says something, it’s safe to assume she’s saying it with intent. “She had a very steep learning curve, but she also climbed the learning curve very quickly,” said Klaas Knot, the governor of the Dutch central bank. Even Brzeski observed that the past year’s harrowing experience of inflation has forced a certain weary seriousness onto Lagarde, and she recently snapped at a Reuters journalist who questioned her shifting views on monetary policy. She looks lifeless at the pulpit, bored and no longer having fun — a growing despair, Brzeski said, that has at least made her more credible with the markets.
Just as she has offered her thoughts on climate change and the war in Ukraine, it may be that Lagarde, with her recent comments, is looking for that next big crisis over which to assume ceremonial leadership. As well as policy tightening, her overworked publicity team prioritizes policy branding: snappy soundbites, alliterative triplets, cartoon-based policy explainers. “She sees the big picture,” said Latvian central bank Governor Mārtiņš Kazāks. “Just look at her CV.” “I think she’s jealous and still looking for her ‘whatever it takes’ moment,” said the ECB staffer cited above, somewhat less charitably.
It is also highly likely that she earnestly believes things are taking a turn for the worse, and is, in a way, mourning the collapse of the globalized system that she shaped and that in turn shaped her. And in grappling with a world off balance, it helps to have a lawyer deliver the bad news. Effective monetary policy requires the synthesis of planetary volumes of data, and, as her colleagues say, Lagarde has the training to inhale great galaxies of the stuff, spending much of her waking life wading through dense briefing material. “Read the footnotes in her speech,” the veteran market-watcher Podolsky urged. “All she is doing is, lawyerly-like, reading — or having her staff read — all the staff research coming from the ECB, OECD, and IMF, and pulling out the pieces that support her questioning.”
Like an owl before an earthquake, Lagarde seems alive, said Podolsky, to the prospect of “a more hostile world,” of war and deglobalization, of Chinese decline and inflation that never quite dies. It is a chaotic uncertainty that left the ECB’s own Governing Council divided and markets uneasy, ahead of an announcement Thursday on whether the bank will continue to raise interest rates or take a break, an acknowledgment that the economy — and the politically sensitive manufacturing sector in particular — has cooled. (The ECB and Lagarde, through the bank’s press office, declined to comment for this article.)
There’s another possibility, however. As Lagarde has learned, predictions from a major central banker carry the risk of being self-fulfilling. “If she was finance minister nobody would pay attention,” noted the analyst speaking on condition of anonymity. With inflation raging, as Lagarde herself noted in a recent speech, the public is ever more attuned to the bank’s operations and communications, which makes the economy, in turn, more sensitive to Lagarde’s touch. This, she added, provides “a valuable window of time to deliver our key messages.”
Key messages! Monetary policy is already a weak form of mass mind control — could Lagarde be trying to verbalize into existence a new economic paradigm on which to hitch her professional fortunes? She has always been willing to say, well, whatever it takes, for her survival, even when doing so strains beyond her level of competence. A legacy as the ECB chief who oversaw the euro’s rise as a challenge to the domination of the dollar would be an elegant feather in her cap.
And if armageddon never arrives? She’ll be well placed to take credit for averting it. Lagarde — as with most central bankers — was humiliated by the sudden rise in inflation. As Brad Setser, a former staff economist at the U.S. Treasury, said, her recent comments reflect a desire to emphasize the risks as a form of damage control. “It comes from a need to be reserved,” he said.
Call it apocalyptic expectations management. If ECB policy fails to steer Europe safely through global economic fragmentation, Lagarde can quite comfortably say that, well, sorry, but she always warned it might. And then, as usual, she will emerge from the calamity blameless — sure, the opera house may be flaming rubble, the brass players at each other’s throats and the wind section reduced to cinders, but she’s just the “conductor” after all.
Lettering by Evangeline Gallagher for POLITICO.Source images by Hollie Adams/Bloomberg via Getty Images, Thomas Lohnes/Getty Images, Boris Roessler/Picture Alliance via Getty Images and pool photo by Sebastian Gollnow via Getty Images. Animation by Dato Parulava/POLITICO.
VIENNA — No one does victimhood quite like Austria.
Over the past century, the Central European country has presented itself to the outside world as an innocent bystander on an island of gemütlichkeit, doing what it can to get by in a treacherous global environment.
“Austria was always apolitical,” insists Herr Karl, the archetypal Austrian opportunist, brought to life in 1961 by Helmut Qualtinger, the country’s greatest satirist. “We were never political people.”
Recalling Austria’s collaboration with the Nazis, Herr Karl, a portly stockist who speaks in a working-class Viennese dialect, was full of self pity: “We scraped a bit of cash together — we had to make a living…How we struggled to survive!”
Russia’s war on Ukraine offers a bitter reminder that Austria remains a country of Herr Karls, playing all sides, professing devotion to Western ideals, even as they quietly look for ways to continue to profit from the country’s friendly relations with Moscow.
The most glaring example of this hypocrisy is Austria’s continued reliance on Russian natural gas, which accounts for about 55 percent of the country’s overall consumption. Though that’s down from 80 percent at the beginning of 2022, Austria, in contrast to most other EU countries, remains dependent on Russia.
Confront an Austrian government official with this fact and you’ll be met with a lengthy whinge over how the country, one of the world’s richest, is struggling to cope with the economic crosswinds triggered by the war. That will be followed by a litany of examples of how a host of other EU countries is guilty of much more egregious behavior vis a vis Moscow.
The unspoken, if inevitable, conclusion: the real victim here is Austria.
The myth of Austrian victimhood has long been a leitmotif of the country’s bilious tabloids, which serve readers regular helpings of all the ways in which the outside world, especially Brussels and Washington, undermines them.
Outside supervision
Earlier this month, the EU’s representative in Austria, Martin Selmayr, ended up in the sights of the tabloids — and the government — for uttering the inconvenient truth that the millions Vienna pays to Russia for gas every month amounted to “blood money.”
“He’s acting like a colonial army officer,” fumed Andreas Mölzer, a right-wing commentator for the Kronen Zeitung, Austria’s best-selling tabloid, noting with delight that both of Selmayr’s grandfathers were German generals in the war.
A few weeks before his “blood money” remarks, Selmayr told a Vienna newspaper that “the European army is NATO” | Patrick Seeger/EPA
“The Eurocrats have this attitude that they can just tell Austrians what to do,” Mölzer concluded.
Yet if Austria’s history since the collapse of the Habsburg empire in 1918 has shown anything, it’s that the country needs outside supervision. Left to their own devices, Austrians’ worst instincts take hold.
One needn’t look further than 1938 to understand the implications. But there’s no shortage of other examples: voters’ enthusiastic support for former United Nations Secretary-General Kurt Waldheim as president in 1986, despite credible evidence that he had lied about his wartime service as an intelligence officer for the Nazis; the state’s foot-dragging on paying reparations to slave laborers used by Austrian companies during the war; the resistance to return valuable artworks looted from Jews by the Nazis to their rightful owners.
Not that Austrians learn from their mistakes. To this day, Austrians rarely heed the better angels of their nature unless the outside world forces them to, either by shaming them into submission or brute force.
That said, the West is almost as much to blame for Austria’s moral shortcomings as the Austrians themselves.
The Magna Carta for Austria’s cult of victimhood can be found in the so-called Moscow Declarations of 1943, in which the allied powers declared the country “the first free country to fall a victim to Hitlerite aggression.” Though the text also stresses that Austria bears a responsibility — “which she cannot evade” — for collaborating with the Nazis, the Austrians latched onto the “victim” label after the war and didn’t look back.
In the decades that followed, the country relied on its stunning natural beauty and faded imperial charm to transform its international image into that of an alpine Shangri-La, a snow-globe filled with prancing Lipizzaners and jolly folk enjoying Wiener schnitzel and Sachertorte.
Convenient excuse
A key element of that gauzy fantasy was the country’s neutrality, imposed on it in 1955 by the Soviet Union as a condition for ending Austria’s postwar allied occupation. At the time, Austrians viewed neutrality as a necessary evil towards regaining full sovereignty.
During the course of the Cold War, however, neutrality took on an almost religious quality. In the popular imagination, it was neutrality, coupled with Austrians’ deft handling of Soviet leaders, that allowed the country to escape the fate of its Warsaw Pact neighbors (while also doing business with the Eastern Bloc).
Today, Austrian neutrality is little more than a convenient excuse to avoid responsibility.
Austria’s center-right-led government insists that on Ukraine it is only neutral in terms of military action, not on political principle. In other words, it won’t send weapons to Kyiv, but it does support the EU’s sanctions and allows arms shipments destined for Ukraine to pass through Austrian territory.
Andreas Babler took over as leader of the Social Democrats in June AND has a long history of opposing not just NATO, but Austrian participation in any EU defense initiatives | Helmut Fohringer/APA/AFP via Getty Images
In the Austrian population as a whole, decades of fetishizing neutrality has left many convinced that it’s their birthright not to take sides. Most are blissfully unaware of the EU’s mutual defense clause, under which member states agree to come to one another’s aid in the event of “armed aggression.”
That mentality explains why Austria’s political parties — with the notable exception of the liberal Neos — refuse to touch, or even debate, the country’s neutrality and its security implications.
In March, just as Ukrainian President Volodymyr Zelenskyy began an address via video to Austria’s parliament, Freedom Party MPs placed signs stamped with “Neutrality” and “Peace” on their desks before standing up in unison and leaving the chamber.
The far right wasn’t alone in its disapproval of Zelenskyy. More than half of the Social Democratic MPs also boycotted the event to avoid upsetting Russia.
Geographic good fortune
Andreas Babler, who took over as leader of the Social Democrats in June, has a long history of opposing not just NATO, but Austrian participation in any EU defense initiatives.
In 2020, he characterized the EU as “the most aggressive military alliance that has ever existed,” adding that it “was worse than NATO.”
It’s an extraordinary assertion given that NATO is the only thing that kept the Soviet Union from swallowing Austria during the Cold War. The defense alliance, which Austrian leaders briefly entertained joining in the 1990s, remains the linchpin of the country’s security for a simple reason: Austria’s only non-NATO neighbor is Switzerland.
Austria’s neutrality and geographic good fortune have led it to spend next to nothing on defense. Last year, for example, spending fell to just 0.8 percent of GDP from 0.9 percent, putting it near the bottom of the EU league table with the likes of Luxembourg, Ireland and Malta.
A few years ago, the country’s defense minister even proposed doing away with “national defense” altogether so that the army could concentrate on challenges such as natural disaster relief and combatting cyber threats. The idea was ultimately rejected, but that it was proposed at all — by the person who oversees the military no less — illustrates how seriously Austria takes its security needs.
Over the past year, the government has pledged to increase defense spending, yet those plans are still well below what the country would be obligated to pay were it in NATO.
Put simply, Austria is freeloading on its neighbors and the United States and will continue to do so until it’s pressured to change course.
Reality check
That’s why it needs more straight talk from people like Selmayr, not less.
A few weeks before his “blood money” remarks, the diplomat told a Vienna newspaper that “the European army is NATO,” noting that the accession of Sweden and Finland to the alliance would leave only Austria and a few small island states outside the tent.
Austria’s neutrality and geographic good fortune have led it to spend next to nothing on defense | Joe Klamar/AFP via Getty Images
The reality check dashed Austria’s hope that it could avoid paying its share for EU defense by waiting for Brussels to create its own force.
Even so, rhetoric alone is not going to convince Austria to shift course. Nearly 80 percent of Austrians support neutrality because it’s so comfortable. The EU and the U.S. need to make it uncomfortable.
At the moment, most Austrians only see the upsides to neutrality; yet that’s only because the West has refused to impose any costs on the country for freeriding. That needs to change.
Critics of a more aggressive approach towards Vienna argue that it will only harden the population’s resolve to sustain neutrality and bolster the far right. That may be true in the short term, but the history of foreign pressure on Austria, especially from Washington — be it the isolation it faced during the Waldheim affair or the push to compensate slave laborers from the war — shows that the interventions ultimately work.
If forced to choose between remaining in the Western fold or facing isolation, Austrians will always chose the former.
Though almost no Austrian security officials will say so publicly, few have any illusions about the necessity of a sea change. More than one-third acknowledge that the country’s neutrality is no longer credible, according to a study published this month by the Austrian Institute for European and Security Policy. A further third say the country’s participation in the EU’s common foreign and security policy has a “strong influence” on the credibility of its neutrality claim (presumably not in a good way).
And nearly 60 percent say the country needs to improve its interoperability with NATO in order to fight alongside its EU allies in the event of an armed conflict.
The problem is that no one is forcing them.
If Austria’s partners continue to avoid a confrontation, the country is likely to continue its slide towards Orbánism.
The Freedom Party, which wants to suspend EU aid for Ukraine and lift sanctions against Russia, leads the polls by a widening margin with just a year until the next national election. With neighboring Slovakia on a similar trajectory, Russian President Vladimir Putin may soon have a major foothold in the heart of the EU.
So far, the EU and Washington have been silent on the Freedom Party’s worrying rise, counting on Austrians to snap out of it.
Barring foreign pressure, they won’t. Why would they? With its populist prescriptions and beer hall rhetoric, the Freedom Party encourages Austrians to see themselves as what they most want to be: victims.
Or as Herr Karl famously put it: “Nothing that they accused us of was true.”
The European Commission is dropping a plan to reallocate multinationals’ profits among European Union countries in a new framework for taxing large corporates at EU level due Tuesday, according to draft proposals obtained by POLITICO.
Commission President Ursula von der Leyen last year pledged “a single set of tax rules for doing business in Europe.”
The EU executive originally wanted to go for “formulary apportionment,” or a formula splitting the total pre-tax profit earned by multinationals between the jurisdictions where it does business based on where value is created.
But that option received a lot of pushback from countries afraid of losing tax revenue. Countries with comparatively low corporate tax, like Ireland or Lithuania, would miss out on the tax bill of large companies that benefited from booking profits with them, instead having to file their tax returns where they make their sales, or where they keep most of their workforce or productive assets.
Instead, the EU executive will suggest that multinational companies with annual revenues of over €750 millionpool their tax bills, in what the Commission calls an aggregate tax base. Oil and gas, shipping and aviation groups are excluded from the proposal.
In practice, companies keep paying taxes to different countries based on national tax rates, but would do so under an EU framework on what is taxable.
For a seven-year transition phase, each company will be taxed according to its share of the aggregate tax base, calculated as their average taxable income over the past three years.
The Commission’s hope is to“pave the way for a permanent allocation method that could be based on formulary apportionment,” it wrote.
The goal is to allow multinationals to more easily claim cross-border compensation of losses, as well as give more certainty to businesses active across borders on their tax bills.
“We try to maximize benefits for businesses without rocking the boat for finance ministers,” said one EU official.
This approach was criticized by MEP Paul Tang, a Dutch socialist who’s the chair of the European Parliament’s subcommittee on taxation. “[EU Economy Commissioner] Paolo Gentiloni needs to maintain the ambition of the reform,” he said, adding “that is the formulary apportionment.”
All proposals in the field of taxation require unanimous backing of EU countries, and multiple attempts to adopt common tax rules were frustrated by vetoes.
Since then, however, all 27 EU countries signed up to a global tax deal including a minimum corporate tax rate of 15 percent and the partial reallocation of profits of the world’s richest companies across jurisdictions. That’s why the Commission thinks that it has a shot of reaching consensus this time around.
“Something has changed,” the EU official said.
But businesses criticized the Commission’s timing just as corporates brace for the global corporate tax rate which will start to apply from next year.
“We need to understand the compatibility of these proposed rules with the EU’s global tax commitments,” said Mariella Caruana, BusinessEurope’s tax policy lead.
“What is the rush to propose a new tax framework? It may end up in more complexities and it does not promise a more stable and attractive environment,” she added.
The proposal, known as BEFIT, is set to be unveiled on Tuesday together with new rules on “transfer pricing” whereby multinational companies book their profits and costs across countries to minimize their tax bill, also obtained by POLITICO, and proposals requiring EU countries to collect tax on behalf of each other so as to allow small businesses to only interact with their home administration in their own language.
NEW DELHI — With the clock likely ticking on his time in Downing Street, Rishi Sunak wants to secure a legacy on the world stage. The rise of Artificial Intelligence (AI) may be just what he needs.
The British prime minister faces a general election next year with his Conservative Party languishing 18 points behind the Labour opposition in the polls.
But though Sunak told reporters travelling with him to the G20 leaders’ summit in India this weekend he was “entirely confident” he can still win re-election, U.K. government insiders say the PM already has one eye on his possible post-Downing Street legacy.
Sunak takes pride in how he has helped repair the U.K.’s diplomatic standing after the rancour of Boris Johnson’s premiership and Liz Truss’ brief but disastrous stint in power. He sees the Windsor Framework — the agreement on post-Brexit trade checks in Ireland which markedly improved U.K. relations with the EU and the U.S. — as his signature achievement so far.
Now the bigger prize in Sunak’s sights is the opportunity to position the U.K. as the leading authority on the governance of AI.
“He sees it as one of his long-term legacy pieces,” one government adviser told POLITICO. “Shaping the world’s response to a paradigm-shifting technology would be a big deal — and it would be recognized as a big deal.” A second government official said Sunak “never misses a chance” to bring up AI.
There are several existing international forums for governments to discuss AI regulation, including a G7 process and the EU-U.S. Trade and Technology Council. Sunak’s challenge is to convince countries to take the U.K. seriously as a place to bring existing initiatives together and fold in unrepresented countries. And that will require some skillful diplomacy.
From G20 to AI summit
Sunak used conversations with other world leaders at the G20 to drum up interest in his landmark AI safety summit, which is taking place in the U.K. in November. The invitation list has yet to be made public, but is expected to include a range of countries including China.
The prime minister told POLITICO en route to New Delhi: “So far, the response we’ve had has been really positive, people are really keen to participate and they recognize that the U.K. can play a leadership role in AI.”
At a technology-focused session of the summit on Sunday the PM made comments on the need to develop AI responsibly. He praised India for “bringing AI to the top of the agenda at the G20” and said that there was “an opportunity for human progress that could surpass the industrial revolution in both speed and breadth.”
He told leaders that first and foremost, the development of AI had to be done safely to manage risks. “This requires international cooperation,” he said. “The U.K. will be hosting the first ever international AI Safety Summit in November to help drive this forward.”
Sunak added that the technology must also be developed securely “to protect the digital economy from malevolent actors and states” and fairly to “ensure inclusivity.”
“Getting this right is one of the greatest challenges and opportunities of our age,” Sunak said. “Let’s work together to make sure we all benefit.”
Lacking luster
But to make Sunak’s summit a success — and help secure his legacy — he will be reliant on the buy-in and active participation of fellow world leaders.
Despite Sunak congratulating his host Indian Prime Minister Narendra Modi on a successful summit, the G20 was noteworthy for the absence of powerful figures including China’s Xi Jinping and Russia’s Vladimir Putin.
Sunak will be hoping to avoid similar ‘no shows’ at his AI summit. He has already been dealt a blow with news last month that U.S. President Joe Biden will not be attending.
Key European leaders have also failed to confirm their attendance. In comments to POLITICO, one French official questioned the need for U.K. mediation, given alternative international avenues for discussing AI.
Sunak’s experience at the G20 also demonstrates the difficulties of choreographing the good optics and effective diplomacy required for a successful summit.
Predictions from U.K. government figures that Sunak would be mobbed by the adoring public did not materialize in a locked-down New Delhi where there were few people on the streets.
There were also hiccups in Sunak’s summit agenda. He had been due to meet Modi at his house on Friday but that was replaced with a 20-minute meeting on the margins of the summit on Saturday. On Friday night Modi hosted President Biden for dinner instead. The two leaders held talks for about an hour.
A planned business reception for Sunak on Friday at the British High Commission was also cancelled, because of transport issues. Sunak’s spokesperson said rescheduling was “part and parcel” of any summit.
Things did improve over the weekend for the British PM. Modi and Sunak were filmed bear-hugging each other when they met. According to the U.K. government’s readout, Modi “noted the warm reception” Sunak had had in India, and the pair had agreed to continue moving towards a free trade agreement “at pace.”
The Indian government said Modi has now formally invited Sunak for a bilateral visit, after POLITICO reported that U.K. officials were already drawing up plans for a possible return trip for Sunak later this year.
LONDON — A year is a long time in politics — but the reverberations of the surreal fall of 2022 are still being felt across the U.K.
Wednesday marks the first anniversary of Liz Truss’ ill-fated appointment as prime minister — a year on from that rainy day in September when she stood outside No. 10 Downing Street and vowed to “transform Britain” with free market shock therapy.
Truss’ £45 billion package of unfunded tax cuts — with the promise of more to come — instead sunk the pound, sent interest rates soaring, caused chaos on the bond markets and forced the Bank of England to prop up failing pension funds.
Humiliated, Truss had little choice but to junk her entire economic program and less than four weeks later she was gone — the U.K.’s shortest-ever serving prime minister, famously outlasted by a supermarket lettuce.
The legacy of the period still is fiercely debated among Britain’s left and right-wing commentariat. In Westminster, some Tory factions still push for Truss’ successor Rishi Sunak to embrace her brand of free market economics.
But the period sticks in the memory of most ordinary Brits as one of high farce and incompetence and significantly, it’s a view shared in boardrooms across London and beyond.
“It was such a short, sharp, weird time. It had such a febrile sense of impending doom,” said one partner at a Big Four accounting firm who was granted anonymity — like other figures quoted below — to speak candidly about Truss for this article.
The money men
Senior employees of major financial and professional services firms say Truss’ brief period in office still taints Britain’s reputation around the globe.
Annual Foreign Direct Investment (FDI) into the U.K., already down significantly since the 2016 Brexit referendum, fell further — behind France — last year, according to an EY survey.
Britain has also been the second-worst performing G7 economy post-COVID, despite an upgrade in GDP growth figures by the Office for National Statistics last week.
The U.K.’s stuttering economic growth since the pandemic always was going to put a dent into Britain’s prospects for international investment. Experts give a myriad of reasons for Britain’s decreasing international competitiveness.
But a director at one U.S. investment bank said: “The No. 1 issue I hear from clients is that the U.K. is still un-investable because of what happened last year in Westminster, particularly with what happened during Liz Truss’ time in office.”
Senior employees of major financial and professional services firms say Truss’ brief period in office still taints Britain’s reputation around the globe | Leon Neal/Getty Images
A managing director at another investment bank agreed. “This stuff matters for clients who are looking at the U.K., seeing three different prime ministers and four different chancellors in a matter of a few months, and saying ‘why on earth would we choose that place to build our new factory?’ The results of that will still be felt today.”
Such views are confirmed in a recent survey by transatlantic lobby group BritishAmericanBusiness and management consulting firm Bain and Co.
The survey found U.S. business confidence in Britain has sunk for the third straight year, with political instability cited as a key factor.
BritishAmericanBusiness’ chief trade and policy officer Emanuel Adam said: “The instability in No. 10 last autumn, coupled with ongoing concerns over Brexit, growth prospects and taxation have led to a drop of confidence in the U.K. for a third year in a row.
“The message from U.S. investors is clear. They are calling for a stable political environment and business friendly policies from the U.K. government.”
But if foreign direct investors have been put off, the pound’s stronger-than-expected performance since Truss left office suggests they may have compensated with other forms of inward flows.
The Big Four partner quoted at the top of the article says Truss’ disastrous premiership was one of several factors making the British economy less competitive on the world stage.
“Trussonomics plus Brexit plus political uncertainty plus a misplaced sense of British exceptionalism are all contributing to making Britain a less attractive place than we ought to be,” they said.
“I’m aware of real-life examples of decisions being made to invest elsewhere, because they couldn’t be confident about the stability of their return on investment.”
Gloom in Westminster
But even more than the U.K. economy, it is Truss’ Conservative Party which is haunted most by the specter of her brief tenure.
Polling from Ipsos shows the British public’s trust in the Conservatives to manage the economy fell off a cliff during Truss’ time as prime minister, and has never recovered.
With an election looming next year, their Labour opponents — now 18 points ahead in the polls — cannot believe their good fortune.
“The two most important things for an opposition are to be able to show people that they can be trusted to protect the economy, and trusted with the defence of the realm,” said one Labour shadow Cabinet minister. “Liz Truss did a lot of the heavy lifting in allowing us to get a hearing on the economy from the public.”
One moderate Tory MP, and Sunak supporter, said “the damage done by the 49 days of Truss could still be the thing that loses us the next general election.”
“At least part of the party’s problem at the moment is that although the economy is starting to improve, no one is going to give us the credit for that because of the seismic events of last year,” they said.
Julian Jessop, an independent economist who acted as an informal adviser to Truss during her leadership campaign, agreed that the public became infuriated once mortgage rates began to surge during last September’s financial meltdown, but said “it is a bit much” to continue to blame the Tories’ poor polling on the former PM.
“If that were the big problem, then confidence should have recovered,” he said. “We have a new prime minister in place.”
A different view
Indeed some economists — and Truss defenders — see the past 12 months in a very different light.
Even more than the U.K. economy, it is Truss’ Conservative Party which is haunted most by the specter of her brief tenure | Ian Forsyth/Getty Images
They point to bond yields which recently have hit similar levels to the worst moments of the Truss era, thanks to successive Bank of England rate rises.
Truss’ prediction that inflation would help the U.K. eat through some of its debt pile — used as justification for funding her tax cuts through borrowing — has also been borne out in reality. And tax receipts have come in higher than expected this year, thanks to larger than expected growth and inflationary pressures.
Truss’ former Chancellor Kwasi Kwarteng, speaking on a forthcoming episode of POLITICO’s Westminster Insider podcast, insisted that while he and Truss admittedly pushed it “too much, too far,” their overall policy direction was sound.
“I think there’s a big lesson in life,” he said. “It’s all very well thinking you’ve got the right answer, but you’ve also go to have a staged, methodical approach to getting to the answer.”
Russell Napier, author of The Solid Ground investment report, added the unexpectedly strong performance of sterling against the U.S. dollar and other major currencies this year indicates capital inflows into Britain must be stronger than expected.
“Is there something that’s unique and dangerous about the U.K.? No there isn’t,” Napier added. “Our bond yields are at a dangerously high level, but so is the bond yield of Sweden and France, and Canada and South Korea and Australia.
Some of Truss’ closest supporters on the Tory backbenches have now set up pressure groups to fight for the type of low-tax policies advocated in her time in office.
Truss, for her part, is writing a book which aides suggest will be “more manifesto than autobiography.” She is also giving a keynote speech on the economy this month — just five days after the anniversary of her ill-fated “mini-budget.”
But for many Tory MPs still feeling the political repercussions of her tenure and fearing a brutal defeat at next year’s election, a period of silence would be welcome.
“It could be worse,” notes one Tory MP, a minister under Sunak. “It could have been a lot worse if she’d stayed.”
KYIV — Ukrainian President Volodymyr Zelenskyy’s choice for the country’s new defense minister sends two clear signals to Ukraine’s allies and adversaries: Kyiv is serious about cleaning up corruption, and steadfast about regaining Crimea from Russian control.
Rustem Umerov, whom Zelenskyy has put forward to replace Defense Minister Oleksiy Reznikov, is a Crimean Tatar with deep business and political experience, including chairing Ukraine’s commission monitoring international financial and military aid to the country’s war effort. As head of the State Property Fund since last year, he has revitalized the country’s privatization efforts.
The defense ministry “needs new approaches,” Zelenskyy said in dismissing Reznikov, whose ministry has been plagued by corruption allegations. Reznikov himself hasn’t been implicated, but the controversy has tainted the ministry.
Umerov, 41, will become the first Muslim and Crimean Tatar to gain such a high post in the Ukrainian government. In addition to his financial acumen, Umerov’s appointment will mean a deeper integration of the Crimean Tatar community into decision-making in Kyiv. It also clearly indicates Ukraine’s adamant determination to take Crimea back.
The planned change is the highest-level shake-up in Zelenskyy’s administration since Russia launched its all-out invasion in February 2022. Zelenskyy called on the Ukrainian legislature to approve the decision as soon as possible.
“The ministry needs new approaches and other formats of interaction with both the military and society at large,” Zelenskyy said late Sunday. “Autumn is a time for strengthening,” he added.
Umerov, founder of investment company ASTEM and a Ukrainian MP, has been one of the most prominent advocates of Ukraine’s re-occupation of Crimea, illegally annexed by Russia in 2014. In addition to working as a head of the State Property Fund since 2022, he has been actively taking part in international negotiations, including with Russia.
“He is a strong manager with a strategic vision, who has well-established international connections in the U.S., the European Union, the Arab world, Turkey, and the countries of Central Asia,” said Refat Chubarov, chairman of the Mejlis, the political representative body of the Crimean Tatars in exile.
“Such a high appointment is a good signal for Crimean Tatars’ integration into Ukrainian government structures, and also a great responsibility for the native community,” Chubarov told POLITICO.
Umerov’s prospective appointment was praised by anti-corruption advocates, who have been critical of Reznikov for a string of army procurement corruption scandals at the defense ministry.
“I was pleasantly surprised by Rustem’s role in non-public advocacy of weapons for Ukraine. He often very quietly did the things that had failed in the Defense Ministry during the last year and a half,” Daria Kaleniuk, acting director of the Anti-Corruption Action Center, a Kyiv-based watchdog, said in a statement.
Kaleniuk also praised Umerov’s performance as the head of the State Property Fund. Kyiv raised record proceeds from selling small state assets in the first quarter of 2023 despite Moscow’s invasion, Umerov said in May. So far this year, “more than 2,000 entrepreneurs got the opportunity for business development,” Umerov said in a report in late August.
“We saw only positive results in one of the country’s once most corrupt sewers,” Kaleniuk added.
U.S. Republican Senator Ted Cruz called for details on the Federal Trade Commission’s (FTC) work with its European counterparts in a letter to FTC Chairwoman Lina Khan on Tuesday.
The conservative Texas lawmaker criticized Khan and other FTC staff for meeting with European Commission officials to discuss incoming EU rules designed to rein in Big Tech companies, which are largely U.S.-based.
“It is one thing for the EU to target U.S. businesses,” the letter said, but “it is altogether unthinkable that an agency of the U.S. government would actively help the EU” on its digital platform regulation.
The FTC’s “collusion with foreign governments not only undermines U.S. sovereignty and Congress’s constitutional lawmaking authority,” Cruz’s letter said, “but also damages the competitiveness of U.S. firms and could negatively affect the savings of millions of Americans who hold stock in those companies” through pension plans.
The letter comes just as tech giants like Meta, X (formerly Twitter) and TikTok are set to have to comply with the Commission’s Digital Services Act (DSA); they face steep fines if they don’t follow the DSA’s content-moderation rules, adopted in 2022.
The Commission also plans to label companies with core digital services — such as Apple’s App Store and Google Search — as “gatekeepers” under the Digital Market Act (DMA), which is designed to make it harder for them to abuse their market dominance. Seven companies — including the U.S.-headquartered Apple, Meta, Alphabet, Amazon and Microsoft — notified their own platform services to the Commission as potential gatekeepers in July.
The senator said that the DMA and DSA “objectively discriminate against U.S. companies” through mandatory compliance costs. In the letter, Cruz asks for detailed information on the number of FTC officials who have been “sent to Europe since June 2021,” as well as their titles and monthly expenses.
Cruz also asked for details on the Commission’s office in San Francisco, which opened last September, and the FTC officials who have met with their EU counterparts there.
On a visit to the EU’s California office in June, Internal Market Commissioner Thierry Breton rejected accusations that the bloc’s digital rulebooks target U.S.-based companies, calling the idea an “urban legend” and noting that non-U.S. companies must also comply with the rules.
It follows a similar letter from Republican U.S. Representative James Comer, who’s the chairman of the House Oversight Committee, asking that communications between the FTC and Commission on the DMA be turned over to Congress.
Glazed eyes. One syllable responses. The steady tinkle of beeps and buzzes coming out of a smartphone’s speakers.
It’s a familiar scene for parents around the world as they battle with their kids’ internet use. Just ask Věra Jourová: When her 10-year old grandson is in front of a screen “nothing around him exists any longer, not even the granny,” the transparency commissioner told a European Parliament event in June.
Countries are now taking the first steps to rein in excessive — and potentially harmful — use of big social media platforms like Facebook, Instagram, and TikTok.
China wants to limit screen time to 40 minutes for children aged under eight, while the U.S. state of Utah has imposed a digital curfew for minors and parental consent to use social media. France has targeted manufacturers, requiring them to install a parental control system that can be activated when their device is turned on.
The EU has its own sweeping plans. It’staking bold steps with its Digital Services Act (DSA) that, from the end of this month, will force the biggest online platforms — TikTok, Facebook, Youtube — to open up their systems to scrutiny by the European Commission and prove that they’re doing their best to make sure their products aren’t harming kids.
The penalty for non-compliance? A hefty fine of up to six percent of companies’ global annual revenue.
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The exact link between social media use and teen mental health is debated.
These digital giants make their money from catching your attention and holding on to it as long as possible, raking in advertisers’ dollars in the process. And they’re pros at it: endless scrolling combined with the periodic, but unpredictable, feedback from likes or notifications, dole out hits of stimulation that mimic the effect of slot machines on our brains’ wiring.
It’s a craving that’s hard enough for adults to manage (just ask a journalist). The worry is that for vulnerable young people, that pull comes with very real, and negative, consequences: anxiety, depression, body image issues, and poor concentration.
Large mental health surveys in the U.S. — where the data is most abundant — have found a noticeable increase over the last 15 years in adolescent unhappiness, a tendency that continued through the pandemic.
These increases cut across a number of measures: suicidal thoughts, depression, but also more mundanely, difficulties sleeping. This trend is most pronounced among teenage girls.
Smartphone use has exploded, with more people getting one at a younger age | Sean Gallup/Getty Images
At the same time smartphone use has exploded, with more people getting one at a younger age. Social media use, measured as the number of times a given platform is accessed per day, is also way up.
There are some big caveats. The trend is most visible in the Anglophone world, although it’s also observable elsewhere in Europe. And there’s a whole range of confounding factors. Waning stigma around mental health might mean that young people are more comfortable describing what they’re going through in surveys. Changing political and socio-economic factors, as well as worries about climate change, almost certainly play a role.
Researchers on all sides of the debate agree that technology factors into it, but also that it doesn’t fully explain the trend. They diverge on where to put the emphasis.
Luca Braghieri, an assistant professor of economics at Bocconi university in Italy, said he originally thought concerns over Facebook were overblown, but he’s changed his mind after starting to research the topic (and has since deleted his Facebook account).
Braghieri and his colleagues combed through U.S. college mental health surveys from 2004-2006, the period when Facebook was first rolled-out in U.S. colleges, and before it was available to the general public. He found that in colleges where Facebook was introduced, students’ mental health dipped in a way not seen in universities where it hadn’t yet launched.
Braghieri said the comparison with colleges where Facebook hadn’t yet arrived allowed the researchersto rule out unidentified other variables that might have been simultaneous.
Faced with mounting pressure in the last years, platforms like Instagram, YouTube and TikTok have introduced various tools to assuage concerns, including parental control | Staff/AFP via Getty Images
Elia Abi-Jaoude, a psychiatrist and academic at the University of Toronto, said he observed the effect first-hand when working at a child and adolescent psychiatric in-patient unit starting in 2015.
“I was basically on the front lines, witnessing the dramatic rise in struggles among adolescents,” said Abi-Jaoude, who has also published research on the topic. He noticed “all sorts of affective complaints, depression, anxiety — but for them to make it to the inpatient setting — we’re talking suicidality. And it was very striking to see.”
His biggest concern? Sleep deprivation — and the mood swings and worse school performance that accompany it. “I think a lot of our population is chronically sleep deprived,” said Abi-Jaoude, pointing the finger at smartphones and social media use.
The flipside
New technologies have gotten caught up in panics before. Looking back, they now seem quaint, even funny.
“In the 1940s, there were concerns about radio addiction and children. In the 1960s it was television addiction. Now we have phone addiction. So I think the question is: Is now different? And if so, how?” asks Amy Orben, from the U.K. Medical Research Council’s Cognition and Brain Sciences Unit at the University of Cambridge.
She doesn’t dismiss the possible harms of social media, but she argues for a nuanced approach. That means honing in on the specific people who are most vulnerable, and the specific platforms and features that might be most risky.
Another major ask: more data.
There’s a “real disconnect” between the general belief and the actual evidence that social media use is harmful, said Orben, who went on to praise the new EU’s rules. Among its various provisions, the new EU rules will allow researchers for the first time to get their hands on data usually buried deep inside company servers.
Orben said that while much attention has gone into the negative effects of digital media use at the expense of positive examples, research she conducted into adolescent well-being during pandemic lockdowns, for example, showed that teens with access to laptops were happier than those without.
But when it comes to risk of harm to kids, Europe has taken a precautionary approach.
“Not all kids will experience harm due to these risks from smartphones and social media use,” Patti Valkenburg, head of the Center for Research on Children, Adolescents and the Media at the University of Amsterdam, told a Commission event in June. “But for minors, we need to adopt the precautionary principle. The fact that harm can be caused should be enough to justify measures to prevent or mitigate potential risk.”
Parental controls
Faced with mounting pressure in the past years, platforms like Instagram, YouTube and TikTok have introduced various tools to assuage concerns, including parental control. Since 2021, YouTube and Instagram send teenagers using their platform reminders to take breaks. TikTok in March announced minors have to enter a passcode after an hour on the app to continue watching videos.
Very large online platforms will also be banned from tracking kids’ online activity to show them personalized advertisements | Lionel Bonaventure/AFP via Getty Images
But the social media companies will soon have to go further.
By the end of August, very large online platforms with over 45 million users in the European Union — including companies like Instagram, Snapchat, TikTok, Pinterest and YouTube — will have to comply with the longest list of rules.
They will have to hand in to the Digital Services Actwatchdog — the European Commission — their first yearly assessment of the major impact of their design, algorithms, advertising and terms of services on a range of societal issues such as the protection of minors and mental wellbeing. They will then have to propose and implement concrete measuresunder the scrutiny of an audit company, the Commission and vetted researchers.
Measures could include ensuring that algorithms don’t recommend videos about dieting to teenage girls or turning off autoplay by default so that minors don’t stay hooked watching content.
Platforms will also be banned from tracking kids’ online activity to show them personalized advertisements. Manipulative designs such as never-ending timelines to glue users to platforms have been connected to addictive behavior, and will be off limits for tech companies.
Brussels is also working with tech companies, industry associations and children’s groups on rules for how to design platforms in a way that protects minors. The Code of Conduct on Age Appropriate Design planned for 2024 would then provide an explicit list of measures that the European Commission wants to see large social media companies carry out to comply with the new law.
Yet, the EU’s new content law won’t be the magic wand parents might be looking for. The content rulebook doesn’t apply to popular entertainment like online games, messaging apps nor the digital devices themselves.
It remains unclear how the European Commission will potentially investigate and go after social media companiesif they consider that they have failed to limit their platforms’ negative consequences for mental well-being. External auditors and researchers could also face obstacles to wade through troves of data and lines of code to find smoking guns andchallenge tech companies’ claims.
How much companies are willing to run up against their business model in the service of their users’ mental health is also an open question, said John Albert, a policy expert at the tech-focused advocacy group AlgorithmWatch. Tech giants have made a serious effort at fighting the most egregious abuses, like cyber-bullying, or eating disorders, Albert said. And the level of transparency made possible by the new rules was unprecedented.
“But when it comes to much broader questions about mental health and how these algorithmic recommender systems interact with users and affect them over time… I don’t know what we should expect them to change,” he explained. The back-and-forth vetting process is likely going to be drawn out as the Commission comes to grips with the complex platforms.
“In the short term, at least, I would expect some kind of business as usual.”
Russia has fined Google 3 million rubles — around €30,000 — for not deleting what it says is fake news about the war in Ukraine.
A Moscow court found Google guilty on Thursday for failing to remove from YouTube what it considers “prohibited information” — allegedly detailing how to enter certain protected facilities — and “false information” about the “special military operation in Ukraine,” despite having been ordered to do so by Russian authorities, according to Russian state-run news agency TASS.
Since its full-scale invasion of Ukraine, Russia has ramped up its efforts to control online content that does not agree with its narrative. On Tuesday, social media site Reddit was fined for the first time for not removing “false content.” Earlier this month, a Russian court fined Apple and Wikipedia for similar reasons. Wikimedia Foundation, which owns Wikipedia, has been fined numerous times, but has refused to comply with any of the demands to take down information, according to a spokesperson.
Google is also not new to these rulings. Last year, it was slapped with a hefty penalty of 21.1 billion rubles — over €360 million at the time — for once again failing to remove allegedly false content on the war in Ukraine.
Like many other Western technology companies, Google scaled down its activities in Russia, in part due to Western sanctions and Russian countermeasures, and in part due to pressure from the Ukrainian government to throw up a “digital blockade” to stop Russia from accessing services. Google’s local subsidiary in Russia filed for bankruptcy in 2022 because Moscow’s measures against the U.S. company made it impossible to do business there, according to the firm.
KYIV — Ukraine’s long-range Beaver drones seem to be making successful kamikaze strikes in the heart of Moscow, but Serhiy Prytula is coy about how much he knows.
“We are not sure whether we are involved in this,” he says with a charming but inscrutable smile, when asked about these mysterious new weapons.
Prytula rose to fame — just like President Volodymyr Zelenskyy — as an actor, TV star and comedian, but is now best known for his contribution to the war, running a foundation that acquires components, helps support domestic arms production and supplies front-line forces. Tracking down parts for drones has proved to be one of his fortes.
Whether or not Prytula played any role in finding parts for the Beaver, it has now joined the ranks of other homegrown creations such as the Shark, Leleka and Valkyrie.
From the outside, his foundation looks like any other nondescript five-story apartment block in the quiet side streets of Kyiv. Inside, it is a chaotic human hive of volunteers, preparing packages and dispatching deliveries to soldiers on the front. On August 9, the team packed 75 drones for military units. That’s barely a drop in the ocean, given the needs of Ukraine’s forces across a 1,000-kilometer front, but every extra eye in the sky can help save dozens of lives.
The crowd of young, energetic volunteers at Prytula’s headquarters epitomizes an important dimension of the war: Ukrainians are increasingly taking matters into their own hands when it comes to weapons supply. With the defense ministry and the traditional state arms sector widely criticized for inefficiency and tarnished by corruption scandals over past years, the country is now witnessing an explosion of private enterprise to deliver kit to the front lines and to ramp up domestic production in the most hazardous of conditions. With arms-makers being prime targets for Russian cruise missiles, factories are spreading their manufacturing over numerous secret locations.
This sense that Ukrainians need to take the initiative at home both by scouring the global arms bazaar for hi-tech gizmos and by making more of their own heavy armor and shells is only amplified by the looming threat of a return to the White House by Donald Trump, who argues that America should not be “sending very much” to Ukraine and that Kyiv should sue for peace with the invader. Other Republican candidates have only heightened Ukrainians’ fears that the next U.S. president could sell out their young democracy to the Kremlin.
In addition to the aerial drones, there have been other homegrown success stories — Ukrainian-made armored vehicles are on the front lines beside U.S. Bradleys and locally made maritime drones have hit Russian ships in the Black Sea.
Not that anyone reckons going it alone is an option. Ukraine cannot even begin to match the vast military expenditure of Russia — Kyiv is expected to spend €24 billion on defense over 2023, while Russia is probably splurging well over €80 billion — so foreign assistance will always prove vital to keeping Ukraine in the fight.
But that’s no reason to sit idly by. Almost an entire country has mobilized for national defense, and there are many ways in which entrepreneurial private suppliers are now proving nimbler than state behemoths and bureaucrats in getting soldiers what they need.
When it came to the key question — on every Ukrainian’s mind — of continued Western support, Prytula stressed the efforts that Ukrainians were making to defend themselves made it less likely that outside aid would diminish. “I am convinced that they will keep supplying us with weapons because the world sees the war efforts of Ukrainian society.”
Beaver blitz
The back story of the Beaver is a closely guarded secret.
Last year, Ukrainian blogger and volunteer Ihor Lachenkov announced he was aiming to collect 20 million hryvnia (about €500,000) to produce and buy five Beaver drones for military intelligence, and later posted pictures of himself hugging one. Since then drones that looked like Beavers have hammered Russian oil depots and other military targets deep inside Russian territory and even hit Moscow’s business district. Officially, Ukraine is saying nothing about where this kit is coming from, and men such as Lachenkov and Prytula provide a useful smokescreen.
The country is now witnessing an explosion of private enterprise to deliver kit to the front lines | Sergey Supinsky/AFP via Getty Images
Prytula in late July also showed off grinning pictures of himself walking past three Beaver drones on a landing strip, quipping ironically: “We have no idea what can fly to Moscow.”
Since the full-scale invasion in February 2022, Prytula’s foundation has raised $135 million, which has been used to buy more than 7,000 drones, 1,200 vehicles, over 17,000 communication devices and much more.
When asked about his role in getting the Beaver drones, Prytula diplomatically said a volunteer’s job is to buy what the military needs and hand it over. “But it is not always necessary to talk about it. We honestly always say that we have nothing to do with it. When we see oil bases are exploding somewhere in Russia, or that there are some attacks on military facilities, we are glad that our army has learned to take out the enemy outside the country,” Prytula said.
Indeed, Prytula’s volunteers play a key middleman role in acquiring components more quickly than the state bureaucracy can.
China is a key part of the puzzle as the Ukrainian defense ministry cannot buy Chinese-made civilian drones directly. Shenzhen-based drone maker DJI no longer openly sells to Russia or to Ukraine, so the key trick is to acquire their wares quickly from third countries, or pick up parts and components internationally that can be assembled by Ukrainian technicians. There is a boom in small Ukrainian arms producers, with more than 100 companies active in the field.
“For the Russians, it was always easier to get [the Chinese products] in the never-ending race. So, when I hear Ukrainians managed to snatch up 10,000 components for … drones from Russians, I am happy,” Prytula said, sitting in his office, beside a giant wooden map of Ukraine.
This sense that Ukrainians need to take the initiative at home is only amplified by the looming threat of a return to the White House by Donald Trump, who argues that America should not be “sending very much” to Ukraine and that Kyiv should sue for peace with the invader | Brandon Bell/Getty Images
“The defense ministry also can’t buy [drones] that are not in serial production yet. But we can, and the producers can reinvest the money to increase the number, if soldiers’ feedback from the front was good,” Prytula continued. “So, by donating money people are not only helping the army, but also stimulating domestic military production.”
The game-changing role of drone producers has also made them a target. Over the weekend, Russia attacked a theater in the center of Chernihiv, a city north of Kyiv, where drone producers and volunteers had organized a closed meeting with the help of the local military administration. Most of them managed to escape to shelter but people walking around the theater on the central square did not, with seven killed and 129 injured.
Bringing it all back home
While almost everyone now wants to get involved in the defense business, that wasn’t always the case. Just as Russia was building up its military from 1991 to 2014, Ukraine neglected its own arms factories. In the wild years following the collapse of the Soviet Union, illegal networks smuggled out arms. While the country remained a heavyweight military producer, it focused on export earnings rather than tailoring weapons for Ukraine’s own forsaken troops.
“No one predicted any military conflicts either with Russia or other countries,” Maksym Polyvianyi, acting director of the National Association of Ukrainian Defense Industries, told POLITICO. “In a way, Russia’s 2014 invasion boosted our defense industry. Dozens of defense companies appeared and started the modernization of Ukrainian armory and the army.”
Still, the old scourge of corruption held the country back, even after Russia seized Crimea in 2014. Under the presidency of Petro Poroshenko, the state arms industry was rocked by scandals in which money was siphoned off, even as the country faced open conflict against Russia in the east.
Russia’s full-scale invasion in 2022 forced another change, however, accelerating diversification from the state industrial complex. “As of 2022, Ukrainian armed forces buy up to 70 percent of defense products from private military companies,” Polyvianyi said.
Under the presidency of Petro Poroshenko, the state arms industry was rocked by scandals in which money was siphoned off, even as the country faced open conflict against Russia in the east | Chris McGrath/Getty Images
With the start of the full-scale invasion, Ukraine’s defense producers became primary targets for Russian missiles. Many were bombed. But others managed to relocate to western Ukraine and spread out production.
“You have to be creative to survive nowadays. Two months after the start of the invasion, we resumed our work,” Vladislav Belbas, director general of Ukrainian Armor, told POLITICO. Since 2018, Ukrainian Armor produced the Varta and Novator armored vehicles, as well as 60mm, 82mm, and 120 mm-caliber mortars for the army. “We recently restarted production even though we’ve lost an important components contractor. It is now located on the territory controlled by Russia.”
Secrecy is also crucial. “We do everything to protect our staff, hide information about our production whereabouts. We move and test equipment at night, when it is more difficult to track us. We try not to concentrate equipment in one place,” Belbas said.
Oleksandr Kamyshin, Ukraine’s strategic industries minister, stressed output was rising dramatically but that it was inconceivable to match Russia without major foreign support. “In seven months of 2023, we made 10 times more artillery and mortar ammo than in the entire 2022. But we are still very far from what we need,” he told POLITICO. “Today we have a war of such a scale that the entire capacity of the free world is not enough to support our consumption. We definitely cannot do this without help.”
Ministry malaise
The defense ministry — the main supplier of weapons, food, uniforms and other necessities — is struggling to shake off a reputation for graft and inefficiency.
In a high-profile profiteering scandal earlier this year, it transpired the ministry had paid absurdly inflated prices for soldiers’ rations to a contractor. The ministry denies violations, but keeps hiding behind military secrecy.
Oleksandr Kamyshin, Ukraine’s strategic industries minister, stressed output was rising dramatically but that it was inconceivable to match Russia without major foreign support | Sergei Supinsky/AFP via Getty Images
Other more recent scandals and procurement hiccups have focused on the ministry’s failure to secure delivery of everything it paid for. In private, Ukrainian officials admit the defense ministry is not up to scratch in supplying the army, and some Ukrainian lawmakers openly criticize the minister, Oleksii Reznikov, over his record on procurement.
The Ukrainian government has found alternative ways to cover some of the needs of the Ukrainian army, with the digital transformation ministry engaging in drone supplies, using state donations platform UNITED 24, and liberalizing customs and production rules for drones in Ukraine.
“President Zelenskyy took domestic defense production under personal control,” Kamyshin said.
Prytula, the founder of the foundation, said it was hard to judge the defense ministry during war. “They are quite successful when it comes to accumulating help in the international arena, but have some troubles at home. I think the defense ministry is doing what it can in terms of its responsibility. But with such a war it is never enough,” he said.
But Polyvianyi noted that’s where volunteers were coming into their own as parallel supply lines, filling the gaps left by the ministry. “The task of the state today is to provide heavy equipment. Without help, the state cannot provide all the needs of each army unit. Charitable foundations work in close connection with the ministry of defense and other structures.”
That’s a partnership in which Prytula is one of the most important players. But he is among the first to admit that all of Ukraine’s Herculean efforts at home will amount to nothing without the support of the international coalition.
“So it is hard to imagine we can win if we’re left on our own. As in the war of two formerly Soviet armies, the one with more people and weapons will win. Only better technology can help change the situation,” Prytula said. “It will be very difficult for us to fight alone with such a huge monster. But the civilized world has two options: to help us restore our 1991 borders, or to throw away all claims of shared values and just watch us bleed.”
France has a dream: to make a name for itself in the surging global artificial intelligence industry.
France also has a problem: It’s right in the heart of the EU, currently known more for regulating AI than for encouraging it.
To carve out a spot in that tricky landscape, French leaders are now hoping to foster one particular segment of the industry, called open-source AI.
“Open-source” computer code — publicly posted to be used and repurposed by anyone — straddles the line between the public interest and a private-sector product. Sometimes developed by universities, sometimes by companies, open-source AI systems are now playing a growing role in the industry. For example, Meta’s powerful LLaMA2, an AI model released in July, is open-source.
In June, French President Emmanuel Macron announced new funding for an open “digital commons” for French-made generative AI projects, a €40 million investment intended to attract significantly more capital from private investors. “On croit dans l’open-source,” Macron stressed in his speech at VivaTech, France’s top tech conference: “We believe in open-source.”
A matter of national pride
There’s a bit of pride involved as well: Officials see it as a way to take on the overwhelming power ofU.S.-based firms in theAI industry.
“We don’t want to live in a world with two or three or four monopolies and to have to negotiate the rights to innovate. So open-source can be a very important answer,” said Henri Verdier, the French ambassador for digital affairs and the country’s top tech diplomat.
France’s open-source focus comes as part of a hard push toward developing a domestic, francophone AI industry. At the same event, Macron said France would invest €500 million in creating AI “champions” — market and research leaders in the emerging technology.
One of its existing champions is an open-source AI firm. In June, Paris-based startup Mistral.ai — whose Frenchfounders hail from U.S. tech giants including Meta and Alphabet’s Deepmind — raised a whopping €105 million in funding by promising to create an open-source competitor to OpenAI’s ChatGPT. The firm’s backers include Cedric O, the former digital minister for Macron’s government.
Alexandre Zapolsky, a co-founder of French tech firm Linagora who, ahead of Macron’s set-piece announcement, had co-written a newspaper column calling on France to foster its open-source AI ecosystem, sawMacron’s speech as a major signal to investors, as well as his own administration.
“Our president endorsed open-source AI — and became a promoter of it — while speaking in front of over 2,000 of France’s top technology entrepreneurs and investors,” Zapolsky said. “And his message has been heard by all the layers of the French government.”
Following the speech, Zapolsky’s co-founder Michel-Marie Maudet launched OpenLLM France, a collective of developers and researchers collaborating via messaging platform Discord to build open-source Al.
France has some academic strengths to build on. It has also been pitching itself as the best place in Europe to train power-intensive advanced AI models because its nuclear power plants offer cheap and abundant electricity. Irene Solaiman, policy director for leading open-source AI provider Hugging Face, said that France was “exceptional in the EU in having labs that develop high-quality language models.”
Some of the top minds in this field are already French nationals — including Meta’s Chief AI scientist, Yann LeCun — but that doesn’t mean it will be easy to attract talent in an extremely competitive industry. “The U.S. has a lot going for it. Like, it has really stellar academic institutions that work on a lot of the research that’s relevant to the field. It has a lot of cloud [computing] providers,” Solaiman said.
A Continent-wide opportunity
In embracing open-source, France is hoping to take advantage of an EU loophole that might offer a friendly regulatory lane for open-source systems. The bloc is currently finalizing its Artificial Intelligence Act, which would ban some AI uses and create obligations for those deemed risky.
The European Parliament, in its version of the AI Act, exempted open-source AI systems from following the strict compliance rules imposed by the law. Kai Zenner, chief policy assistant to Axel Voss, an influential German member of the European Parliament, says that EU governments support this approach, which suggests “chances are quite high” it will make it to the final version of the law. (The AI Act’s final text, expected to pass in late 2023, is currently being negotiated by representatives of European governments and the European Parliament.)
Europe’s Parliament sees open-source as an AI opportunity not just for France, but for the whole Continent.“We completely agree with the French assumption: We see open-source AI as a big chance,” Zenner said. “If Europe really wants to catch up with the United States and China in AI, then without drawing on models or data sets from the open-source community, we would never have a chance.”
Industry skepticism
Industry leaders, though, aren’t so sure the EU law will give them enough running room. The proposedexemption does not apply when open-source AI is used for commercial purposes, which would likely discourage investors and startups in the space. Members of the open-source AI ecosystem — including Github and Hugging Face — have asked European policymakers for more clarity on what constitutes commercial activity when it comes to making open-source AI components available to the public.
They also worry thatso-called foundation models — the big software engines powering generative AI tools such as ChatGPT — would separately have to abide by a set of obligations under the EU law whether they’re open-source or not. This worries tech giants as much as it does open-source startups.
“The latest amendments from the European Parliament — they seem to impose potentially some pretty complex and potentially somewhat unworkable conditions on open-sourcing large language models altogether,” said Nick Clegg, Meta’s president of global affairs.
For France and other European Union economies, it feels like a big piece of the future is at stake. Despite being home to world-class universities and talent, European leaders have spent decades watching their countries fail to capitalize on various waves of tech innovation, with the riches going to giants in the U.S. and China. The EU, meanwhile, has established itself more as a technology rulemaker than as a creator and exporter. Policymakers now are determined not to let the same thing happen with AI.
Cedric O,the former French digital minister turned Mistral.ai’s shareholder and adviser, says that Europe has one other advantage when it comes to developing open-source AI. Unlike the U.S., it lacks powerful corporate actors lobbying against the open-source model on security grounds.
“Europe has the ability to be part of the AI race,” O said. “I would say that — regardless of the fact that its AI is open-source or not — Europe has to do whatever it can to be part of the game.”
The United States on Tuesday sharply limited Hungary’s participation in its visa waiver program over security concerns regarding new passports issued between 2011 and 2020.
Under the American Visa Waiver Program, citizens of participating countries can travel to the U.S. for tourism or business for up to 90 days without a visa, and simply need a so-called Electronic System for Travel Authorization (ESTA).
But starting Tuesday, ESTA validity for Hungarian passport holders will be reduced from two years to one, and an ESTA will only be valid for a single use.
The unprecedented move, in response to security concerns, affects Hungary as the only one of 40 countries participating in the U.S. program.
After coming to power in 2010, Hungarian Prime Minister Viktor Orbán’s government implemented a major policy change that granted citizenship to ethnic Hungarians abroad — including in Romania, Slovakia and Ukraine. Domestic critics say Orbán’s controversial move was designed to boost his electoral prospects.
David Pressman, the U.S. ambassador in Budapest, told POLITICO in an interview ahead of the announcement, “There are hundreds of thousands of passports that have been issued by the government of Hungary as part of the simplified naturalization program without stringent identity verification mechanisms in place.”
The U.S. government has been engaging the Hungarian government on this “security vulnerability” for many years and across multiple administrations, Pressman said. But “the government of Hungary has opted not to close” it.
Responding to the American decision, Hungary’s interior ministry said the country “will not disclose the data of Hungarians beyond the border with dual citizenship because that would risk their security” and accused the White House of “taking revenge on Hungarians with the new visa waiver limit.”
“This is a really unfortunate day,” Pressman said. “This is not the outcome the United States sought or is seeking.”
Washington’s move comes at a time when Hungary’s relationship with Western partners is at a low point.
Budapest’s NATO allies are deeply frustrated that Hungary’s parliament has yet to ratify Sweden’s bid to join the alliance.
There are also ongoing concerns about senior Hungarian officials promoting Kremlin-style narratives at home, as well as over efforts to water down European sanctions targeting Moscow. Earlier this year, the U.S. imposed sanctions on a Hungary-based bank linked to Russia.
Many Western countries have spoken out about deteriorating democratic standards in Hungary, as well as policies and rhetoric they say undermine the rights of LGBTQ+ people there.
Pressman underscored how American experts had previously identified ways the security concerns could be addressed.
The U.S. in 2017 made Hungary’s status in the visa waiver program provisional, while security concerns were also behind a decision to render Hungarians born outside the country ineligible starting in 2020.
Now, however, all Hungarian passport holders will be affected.
“This is about a choice,” the ambassador said. “The Hungarian government thus far has chosen not to address that security concern, which has led the United States to respond.”
This article has been updated with a response from the Hungarian interior ministry.
The pictures posted on the Chinese company’s website show a tall, Caucasian man with a crew cut and flattened nose inspecting body armor at its factory.
“This spring, one of our customers came to our company to confirm the style and quantity of bulletproof vests, and carefully tested the quality of our vests,” Shanghai H Win, a manufacturer of military-grade protective gear, proudly reported on its website in March. The customer “immediately directly confirmed the order quantity of bulletproof vests and subsequent purchase intention.”
The identity of the smiling customer isn’t clear, but there’s a fair chance he was Russian: According to customs records obtained by POLITICO, Russian buyers have declared orders for hundreds of thousands of bulletproof vests and helmets made by Shanghai H Win — the items listed in the documents match those in the company’s online catalog.
Evidence of this kind shows that China, despite Beijing’s calls for peace, is pushing right up to a red line in delivering enough nonlethal, but militarily useful, equipment to Russia to have a material impact on President Vladimir Putin’s 17-month-old war on Ukraine. The protective gear would be sufficient to equip many of the men mobilized by Russia since the invasion. Then there are drones that can be used to direct artillery fire or drop grenades, and thermal optical sights to target the enemy at night.
These shipments point to a China-sized loophole in the West’s attempts to hobble Putin’s war machine. The sale of so-called dual-use technology that can have both civilian and military uses leaves just enough deniability for Western authorities looking for reasons not to confront a huge economic power like Beijing.
The wartime strength of China’s exports of dual-use products to Russia is confirmed by customs data. And, while Ukraine is a customer of China too, its imports of most of the equipment covered in this story have fallen sharply, the figures show.
Russia has imported more than $100 million-worth of drones from China so far this year — 30 times more than Ukraine. And Chinese exports of ceramics, a component used in body armor, increased by 69 percent to Russia to more than $225 million, while dropping by 61 percent to Ukraine to a mere $5 million, Chinese and Ukrainian customs data show.
“What is very clear is that China, for all its claims that it is a neutral actor, is in fact supporting Russia’s positions in this war,” said Helena Legarda, a lead analyst specializing in Chinese defense and foreign policy at the Mercator Institute for China Studies, a Berlin think tank.
Were China to cross the red line and sell weapons or military equipment to Russia, Legarda said she would expect the EU to enforce secondary sanctions targeting enablers of Putin’s war of aggression.
But, she added, equipment like body armor, thermal imaging, and even commercial drones that can be used in offensive frontline operations are unlikely to trigger a response.
“Then there’s this situation that we’re in at the moment — all these dual-use components or equipment and how you handle those,” Legarda explained. “I would not expect the EU to be able to agree to sanctions on that.”
Disappearing customer
Shanghai H Win, like other Chinese companies producing dual-use equipment, has enjoyed a surge in business since Russia’s full-scale invasion of Ukraine.
According to customs records obtained by POLITICO, Russia has ordered hundreds of thousands of bulletproof vests and helmets made by Shanghai H Win | Genya Savilov/AFP via Getty Images
“Because of the war, a lot of trading companies are looking for us and ask: ‘Are you making this kind of vest?’ We received a lot of inquiries,” a sales representative told POLITICO over the phone.
At first, the representative said Shanghai H Win wasn’t allowed to export directly to Russia unless the Chinese military issues a certificate and it can provide documentary proof of its final customer.
Yet when asked who the man in the pictures was, and where he was from, the representative denied that he was even a customer — even though the website said so.
“He is our customer’s customer. We cannot ask him directly, ‘Where are you from?’ But I guess maybe he is from Europe — maybe Ukraine, maybe Poland, even maybe from Russia. I’m not sure.”
Shortly after the call, Shanghai H Win took down the post featuring the mystery shopper from its website.
Who are the buyers?
So, who exactly are those customers? Evidence of deals — importers, suppliers, and product descriptions — can be found in a registry of declarations of conformity by anyone with access to the Russian internet who is familiar with international customs classifications.
In an earlier story, POLITICO searched these filings and found evidence that sniper bullets made in the United States were reaching Russia, where they were freely available on the black market.
The declarations enable the final buyer to certify that the products are genuine and, in effect, make it possible to import goods without the express consent of the maker. If goods are traded through an intermediary, the maker may not even be aware that its goods are going to Russia. The registry is, however, searchable so it’s still easy to find the ultimate buyers of the Chinese kit.
One is Silva, a company headquartered in the remote Eastern Siberian region of Buryatia. It filed declarations in January of this year detailing orders for 100,000 bulletproof vests and 100,000 helmets. The manufacturer? Shanghai H Win.
Such importers often bear the hallmarks of “one-day” firms, as shell companies are known in Russia, set up by actors who want to conceal their dealings. They tend to be new, listed at obscure residential addresses, and have few staff or assets. Their financial statements often don’t report the levels of turnover that the filings would imply.
According to public records, Silva was registered only last September. It reported zero revenues for 2022. A Google Street View search of its address in Ulan-Ude, the capital of Buryatia, takes visitors to a dilapidated apartment block.
POLITICO tried to contact Silva but the phone number given on its filings rang off the hook and a message sent to its email address bounced.
The sale of so-called dual-use technology that can have both civilian and military uses leaves enough deniability for Western authorities looking for reasons not to confront China | STR/AFP via Getty Images
Another Russian company called Rika declared a smaller shipment of body armor from Shanghai H Win in March. Before that, in January, Rika declared a consignment of helmets from a company called Deekon Shanghai, which shares an address with Shanghai H Win. The two companies are affiliated, another Shanghai H Win representative said.
A woman who answered the phone at Rika said: “We buy in Russia, not in China.” The company didn’t reply to a follow-up email from POLITICO.
The denial is hardly plausible: In addition to the protective gear, a search of declarations by Rika threw up hits for deals for thermal optical equipment from China. That was corroborated by customs data accessed by POLITICO, which revealed more than 220 shipments, worth $11 million, for thermal optics and protective equipment since the outbreak of the war. Rika advertises Chinese-made night sights right at the top of its website.
Another Russian company called Legittelekom, whose homepage reveals it to be a Moscow freight forwarding company, also appears as a buyer of 100,000 items of headgear and 100,000 suits of outerwear from Deekon Shanghai, according to filings dated last November 24.
A man who answered a call to Legittelekom declined to comment on POLITICO’s findings and would not say whether the company supplied the Russian military.
“This is a commercial activity and we do not disclose our commercial activities,” the man said in response to both questions.
Bigger deal
Then there’s Pozitron, a company based in Rostov-on-Don, the southern city briefly captured by warlord Yevgeny Prigozhin’s Wagner mercenaries in their failed uprising last month. It imported more than $60 million-worth of “airsoft helmets,” “miscellaneous ceramics,” and other items from Chinese firm Beijing KRNatural in November and December 2022, according to customs data shared by ImportGenius.
These flows check out with Pozitron’s own declarations of conformity between late October and December 2022, for a total of 100,000 helmets. The declarations also reveal that Pozitron acquired a range of drones from Chinese multinational SZ DJI Technology Co., Ltd last December.
Although the quantity is unclear, the models specified include ones known to have been used in the Ukrainian theater of war, like DJI’s Mavic 2 Enterprise Advanced quadcopter or the Mini 2 lightweight drone.
At first sight, the product descriptions in the declarations and customs records appear harmless enough — the “airsoft helmets,” for example, are said to be for use in paintball games and “not for military use, not for dual use.”
Sanctions and defense experts say, however, that it’s common practice to mislabel dual-use goods as being for civilian purposes when they’re in fact destined for the battlefield.
At any rate, Pozitron, which was only founded in March 2021, is having a very good war: Its revenues exploded from 31 million rubles — around $400,000 — in 2021 to 20 billion rubles — almost $300 million — in 2022, according to its financial statement.
Reached by email, Pozitron’s general director, Andrey Vitkovsky, said that his company has “never imported drones and similar products” from the People’s Republic of China.
“The main activity of Pozitron LLC is the purchase and sale of consumer goods, sporting goods, and fabrics, both produced in the Russian Federation and imported from China,” Vitkovsky added, saying that his company’s activities were “exclusively peaceful in nature, in compliance with all rules and restrictions.”
The denial is typical — Russian companies have good reason to fear Western sanctions if they are implicated in trade that supports the Kremlin’s war effort. After POLITICO reported in March that a company called Tekhkrim was importing Chinese assault weapons, and declaring them as “hunting rifles,” the firm was sanctioned by the United States.
Pozitron is on the West’s radar, said one sanctions expert, who was granted anonymity as they are not authorized to speak publicly.
As for Beijing KRNatural, POLITICO was able to trace a company with a similar name at the address given in the Pozitron filings. The company, Beijing Natural Hanhua International Trade Co., Ltd, is listed as a “small and micro enterprise.” It was founded in April 2022, a few months before the Pozitron deals. Nobody answered when POLITICO called.
Heavenly mechanics
In contrast to the bulk consignments of protective gear that appear intended to equip a large fighting force, the orders for drones found by POLITICO are more dispersed among different buyers — both companies and individuals.
In addition to Pozitron, buyers of drones from DJI and its subsidiaries include firms called Gigantshina and Vozdukh — neither of which responded to emailed requests for comment. Another is Nebesnaya Mekhanika (“Heavenly Mechanics”), which before the war was the Chinese company’s official distributor in Russia.
A DJI spokesperson said that the company and its subsidiaries had voluntarily stopped all shipments to, and operations in, Russia and Ukraine on April 26, 2022 — two months after the war broke out.
“We stand alone as the only drone company to clearly denounce and actively discourage use of products in combat,” the spokesperson said in comments emailed to POLITICO.
DJI said it had also broken off its relationship with Nebesnaya Mekhanika, although the Russian company filed further declarations for shipments of the Chinese company’s drones last September 15 and on March 27 of this year.
The spokesperson said that DJI was not in any way involved in the drafting of the declarations of conformity found by POLITICO: “These documents would have been filled out by Russian parties, and they do not indicate in any shape or form who ex- or imported the products that are being declared conform.”
“We have seen media reports and other documents that appear to show how our products are being transported to Russia and Ukraine from other countries where they can be bought off-the-shelf,” the spokesperson added. “However, it is not in our power to influence how our products are being used once they leave our control.”
Still, a search of ImportGenius shows that a Chinese company called Iflight has continued to ship DJI drones to Nebesnaya Mechnika via Hong Kong, care of a local company called Lotos. The most recent consignment was delivered last October 10. In an apparent anomaly, Russia is stated as the country of origin for the shipments.
Nebesnaya Mekhanika, which still advertises DJI drones on its website, did not respond to a request for comment.
Political will
The trafficking of low-tech body armor to high-tech drones and thermal optics highlights a vulnerability in the Western sanctions regime. The ambiguity surrounding the dual-use status of this equipment, coupled with the fact that a significant portion of it is manufactured in China, seems, at least for now, to have placed the possibility of the West taking meaningful action beyond reach.
Then there is the flow of technology through China that may include components made in the West that could be of direct military use.
Russia is fully aware of the China loophole and is using it to buy Western technology to fight its war against Ukraine, according to a recent analysis by the KSE Institute, a think tank affiliated to the Kyiv School of Economics. More than 60 percent of imported critical components in Russian weapons found on the battlefield came from U.S. companies, the researchers found.
It’s an issue that U.S. Secretary of State Antony Blinken brought up on a visit to Beijing last month — the first by Washington’s top diplomat in five years. He told reporters that China had given assurances that “it is not and will not provide lethal assistance to Russia for use in Ukraine.” Blinken, however, expressed “ongoing concerns” that Chinese firms may be providing technology that Russia can use to advance its aggression in Ukraine. “And we have asked the Chinese government to be very vigilant about that.”
U.S. Secretary of State Antony Blinken told reporters that China had given assurances that “it is not and will not provide lethal assistance to Russia for use in Ukraine” during a visit to Beijing last month | Pool photo by Leah Millis/AFP via Getty Images
France is also concerned that China is delivering dual-use equipment to Russia. “There are indications that they are doing things we would prefer them not to do,” Emmanuel Bonne, President Emmanuel Macron’s top diplomatic adviser, told the recent Aspen Security Forum. Pressed on whether China was supplying weapons, Bonne said: “Well, kind of military equipment … as far as we know they are not delivering massively military capacities to Russia but (we need there to be) no delivery.”
Yet there’s little the West can do to twist Beijing’s arm into halting flows of dual-use products into Russia. Only the United States would have the real power to impose an outright ban on dollar-denominated transactions — as Washington did when it sanctioned Iran over its secret nuclear program.
The EU, however, lacks such a strong sanctions weapon because the euro is far less ubiquitous on global markets. It’s also been hesitant to act. In its latest package of Russia sanctions last month, the EU compiled a list of seven Chinese companies that shouldn’t be allowed to trade with the bloc. But, after lobbying by Beijing, Brussels dropped four companies from the blacklist.
Elina Ribakova, one of the authors of the KSE Institute report, said indirect shipments via China pose challenges in terms of both the scope and enforcement of Western sanctions. Secondary sanctions may not be sufficient, she said. She called for manufacturers to be forced to take responsibility for where their products end up — just as banks were required by regulators to step up customer oversight and anti-money laundering operations in the wake of the 2008 financial crisis.
“What we can do differently is to create the same infrastructure for the corporates,” explained Ribakova, who is director of the international program at the Kyiv School of Economics. “We have to threaten them with serious fines.”
Maxim Mironov, a sanctions expert and assistant professor of finance at the IE Business School in Madrid, reckons that the West, despite expanding sanctions to punish Putin’s helpers, lacks the political conviction to enforce them against Beijing.
“Do politicians have enough will to put sanctions on China? Basically, the answer is no,” said Mironov.
“China signals: You can try, but I don’t care what you are trying to do,” Mironov added. “And the European Union is like: If you don’t like it, we are not going to do it. And if the Chinese see that, they are just going to continue doing what they think is in their best interest.”
The European Commission, the U.S. National Security Council and the Chinese Mission to the EU did not respond to requests for comment.
Stuart Lau contributed reporting.
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Sarah Anne Aarup, Sergey Panov and Douglas Busvine
It’s not every day that a pair of sunglasses causes your downfall. But that’s what happened to Bjørnar Moxnes, a Norwegian left-wing party leader who was caught on camera stealing a pair of luxury sunglasses from Oslo airport.
“A lot of people have asked me how I could do something so stupid. I’ve asked myself that many times in recent weeks. I don’t have an adequate explanation,” Moxnes wrote on Facebook.
In honor of Moxnes’ fall from grace, POLITICO brings you some of the most embarrassing resignations in European politics (and there were a lot to choose from). From sex scandals to misused government funds to petty theft, here are 11 of the most shameful examples with a facepalm ranking from 1 (yikes, that’s embarrassing) to 5 (dear lord, what have you done?).
Tractor Porn
Facepalm rating:
UK Conservative MP Neil Parish resigned after being caught watching porn in the House of Commons chamber in 2022. Parish claimed it was a “moment of madness” and said he chanced upon the offending adult content accidentally while Googling tractors, only to later admit that he did then look at actual porn (it’s unclear if the porn involved tractors).
Parish admitted in an interview that his wife always found him “oversexed.” He added that she would tell him “I’ll get the scissors to you if you don’t behave yourself. Snippety, snip” if he got “a little too amorous.” A classic case of TMI.
Cuban cigars and a private jet
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When Haiti was hit by an earthquake in 2010, French Development Minister Alain Joyandet was ready to help. To get to an international aid conference held in Martinique, Joyandet hired a private jet worth a cool €116,500 — not a great look. He resigned after the scandal hit the headlines.
Joyandet was not the only minister found to have wasted taxpayer money under former French President Nicolas Sarkozy. Junior minister Christan Blanc came under fire for buying €12,000 worth of Cuban cigars using public cash. Alas, Blanc couldn’t remember who had smoked them all. “I smoke two a day … that’s the maximum,” he said. Who consumed the remaining thousands of euros worth of cigars? he was asked. “I don’t know.”
Tax hypocrisy
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Former French Budget Minister Jérôme Cahuzac used to be a strong advocate against overseas tax havens. You’ll never guess what he was later found guilty of. It was tax fraud! Of course it was. Cahuzac’s illegal fiscal activities were first made public in a 2012 investigation by news site Mediapart, which reported he had failed to declare money kept in a Swiss bank account for close to 20 years. Oops! The Panama Papers confirmed that Cahuzac also owned a company in the Seychelles. He was sentenced to two years in prison for money laundering and tax fraud.
There was some good news that came out of this case, the creation of an ethics body, the Haute Autorité de la Transparence pour la Vie Publique.
The City of Light — and graphic sex messages
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The 2020 race to be mayor of Paris was riddled with internal feuds and party rivalry. And then Benjamin Griveaux — the La République En Marche candidate and one of Emmanuel Macron’s biggest supporters — made everyone forget all about it as he was hit with allegations that he sent graphic videos to an unidentified woman. Screenshots of sexually explicit messages attributed to Griveaux — married with three children — went viral, prompting the candidate to step down. “I don’t want to expose myself and my family anymore when any sort of attack is allowed, it goes too far,” Griveaux said in a statement, perhaps ill-advisedly using the word “expose.” The sexually explicit content was published on a blog registered by Russian artist and activist Piotr Pavlenski. In an added twist, one of those who spread the graphic videos widely on social media was MP Joachim Son-Forget, who in 2021 had his Twitter account suspended for impersonating Donald Trump!
From a fake Russian with love
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Austrian Deputy Chancellor Heinz-Christian Strache thought he was going on a nice vacation in Ibiza, where he met a woman claiming to be a wealthy Russian citizen who said she wanted to invest in Austria. The woman offered to buy a 50 percent stake in Austria’s Kronen-Zeitung newspaper and switch its news line to push the agenda of Strache’s far-right Freedom Party. In turn, Strache said he could award her public contracts. Alas for Strache, she was not a wealthy Russian at all. He later tried to justify his actions by saying it was “a drunken night” and he was in whatever “intimate vacation mood” is!
The ensuing scandal — dubbed “Ibiza-gate” — brought down Sebastian Kurz’s government. To be fair to Strache, let those of us who haven’t tried to trade public contracts for party donations from a woman we believed to be the wealthy niece of a Russian oligarch cast the first stone.
25 naked men and a whole lot of drugs
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Hungarian MEP József Szájer had one of the wildest exits from office in recent memory. A senior member of the Fidesz party, known for its conservative views and its anti-LGBTQ stance, Szájer was caught attending a lockdown-busting party in Brussels in 2020. Police found 25 naked men at the gathering, according to Belgian media reports, and a passerby reported seeing a man fleeing along the gutter, leading the police to apprehend Szájer and find narcotics in his backpack, prosecutors said. Viktor Orbán called the deed “unacceptable and indefensible” and Szájer quit the party and his post in Brussels. For some reason, there is not a statue of Szájer in Brussels.
Skin in the game
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Five years before Moxnes and the Hugo Boss sunglasses, regional head of Madrid Cristina Cifuentes made headlines when old footage circulated showing her allegedly stealing anti-aging cream. The incident was an “involuntary error,” said Cifuentes, who was released after paying for the €40 cream. But as the shoplifting scandal broke on the tail of a news site accusing her of lying about her graduate degree, Cifuentes stepped down from her role.
Grabbing a bite to eat
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In yet another shoplifting scandal, a Slovenian MP lost his job after stealing a sandwich from a shop in Ljubljana. Darij Krajcic reportedly told his colleagues he became annoyed when supermarket employees ignored him and decided to conduct what he called a “social experiment” to test the shop’s security. While the theft went unnoticed, pressure from colleagues led to his resignation — and to him paying back the cost of the sandwich.
EU mass exodus
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Of all the embarrassing resignations on this list, this is the one with the most people involved. In 1999, the entire European Commission led by Jacques Santer resigned after a scathing committee report found it guilty of “corruption, misuse of power and fraud.” The 140-page report by independent experts looked at charges of widespread fraud, nepotism, and corruption in the Commission. One of the commissioners at the center of the storm, former French Prime Minister Edith Cresson, was heavily criticized for hiring friends and relatives, including her local dentist, to well-paid positions. The dentist, René Berthelot, did not get his teeth into the adviser role he was given, and produced only a 24-page document during his 18-month stint working for the EU.
Got any snus?
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John Dalli, the EU commissioner for health, resigned in 2012 after an anti-fraud inquiry linked him to an attempt to influence tobacco legislation. A Dalli aide called Silvio Zammit was accused of trying to obtain a whopping €60 million from a tobacco company called Swedish Match to reverse an EU ban on snus, a type of smokeless tobacco that can make the user look like they are gargling bin juice. Dalli claimed he was dismissed by the Commission chief at the time, José Manuel Barroso, and took him to court. In 2019, the EU’s General Court rejected Dalli’s claim for compensation for damages he claims he suffered as a result of losing his job.
The PM, the spy services, his wife and his lover
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In 2013, Czech Prime Minister Petr Necas resigned after his chief of staff, Jana Nagyova, was charged with corruption and abuse of power. Among the crimes, Nagyova was accused of bribing former MPs, but what made headlines was her illegal use of the secret service. It turns out that Nagyova, who was having an affair with Necas at the time, allegedly used military intelligence to spy on the prime minister’s wife. Needless to say, this particular resignation was followed by a divorce. But it wasn’t long before Necas and Nagyova had a happy ending, getting married soon after.
Lionel Barber is former editor of the Financial Times (2005-20) and Brussels bureau chief (1992-98)
Nobody does “No” better than the French. Charles De Gaulle said “Non” twice to Britain’s bid to join the European Economic Community; Jacques Chirac said “Non” to the Iraq war; and Emmanuel Macron this week gave a thumbs down to Fiona Scott Morton, the American Yale academic selected for the post of top economist at the EU’s powerful competition directorate in Brussels.
L’affaire Scott Morton may seem trivial in comparison to the (still unresolved) debate over Britain’s place in Europe or armed conflict in the Middle East, but the French veto of the first foreigner to take up the post says an awful lot about the European Union’s current paranoia about America’s influence and power.
As Macron has pushed a vision of Europe that stands up to the U.S., resisting pressure to become “America’s followers,” as he put it in April, such thinking has strengthened in Brussels.
The Scott Morton fiasco brings back memories of a lunch in Brussels exactly 30 years ago when some officials suspected the U.S. was engaged in an Anglo-Saxon plot to sabotage their plans for economic and monetary union. “Remember James Jesus Angleton,” said a stone-faced Belgian bureaucrat, invoking the name of the legendary, obsessive CIA counterintelligence officer at the height of the Cold War.
Professor Scott Morton was selected as the best candidate in open competition. She enjoyed the backing of Margrethe Vestager, the Danish EU competition commissioner often described as the most powerful antitrust regulator in the world. She also had support from Ursula von der Leyen, German president of the European Commission, whose leadership during the Ukraine war and the COVID pandemic has won widespread praise on both sides of the Atlantic.
All this counted for naught. Despite her distinguished academic pedigree, Scott Morton, a former Obama administration antitrust official, worked for Apple, Amazon and Microsoft in competition cases in the U.S. The notion her background somehow disqualified her for the job shows George W. Bush was wrong when he complained the French had no word for “entrepreneur.” Today’s problem is that Paris has no understanding of the term “poacher turned gamekeeper.”
As Carl Bildt, former Swedish prime minister, tweeted: “Regrettable that narrow-minded opposition in some EU countries has led to this. She was reportedly the most competent candidate, and a knowledge of the U.S. and its antitrust policies should certainly not have been a disadvantage.”
Now, President Macron’s opposition to the appointment has attracted a good deal of support in the Commission, in the European Parliament and among European trade unions. Cristiano Sebastiani, head of Renouveau & Démocratie, a trade union representing EU employees, said senior EU officials should “be invested, believe and contribute towards the European project. The very logic of our statute is that an EU official can never go back to being an ordinary citizen.”
France’s veto of Professor Scott Morton is de facto a veto of Vestager, who was almost untouchable during her first term as competition commissioner between 2014-19. She won kudos for investigating, fining and bringing lawsuits against major multinationals including Google, Apple, Amazon, Facebook, Qualcomm, and Gazprom. More controversially, at least in Paris and Berlin, she vetoed the planned merger between Alstom and Siemens, two industrial giants intent on creating a European champion.
Vestager’s second term has been a different story. She has suffered reverses in the courts which overturned punitive fines against Apple and Qualcomm. Then, although she ranks as a vice-president of the Commission, Vestager found herself challenged by a nominal underling in the shape of Thierry Breton, a former top French industrialist put in charge of the EU’s internal market.
Both have battled over the policing of the EU’s Digital Markets Act and over policy on artificial intelligence, a proxy fight for influence overall in Brussels.
Vestager and Breton have battled over the policing of the EU’s Digital Markets Act and over policy on artificial intelligence | Olivier Hoslet/EPA/AFP via Getty Images
Breton favors the so-called AI Pact, an effort to bring forward parts of the EU’s draft Artificial Intelligence Act. This would ban some AI cases, curb “high-risk” applications, and impose checks on how Google, Microsoft and others develop the emerging technology.
By contrast, Vestager favors a voluntary code of conduct focused on generative AI such as ChatGPT. This could be developed at a global level, in partnership with the U.S., rather than waiting for the two years it will take to secure legislative passage of Breton’s AI Pact.
So what’s the solution? If Europe is to have any chance of prevailing, so the argument goes, member states must take a far harder-nosed attitude to competition policy. This leads in turn to the creation of national or pan-European champions at the expense of crackdowns on subsidies and other anti-competitive behavior. In short, the very liberal policies designed to protect the single market’s level playing field and embodied by the fighting Viking.
For those who occasionally wonder how power has shifted inside the EU since Brexit took the U.K. out of the equation, it is proof indeed that “liberal Europe” is on a losing streak.
The change might come as soon as Monday. In a follow-up tweet, Musk said: “If a good enough X logo is posted tonight, we’ll make [it] go live worldwide tomorrow.”
“It should have been done a long time ago,” Musk said in a Twitter Spaces audio chat, according to a Reuters report.
The X probably refers to Twitter’s business name X Corp. Musk also posted a tweet of a flickering X.
The rebrand is the latest change to Twitter by Musk since he acquired the company in October 2022 for $44 billion. Since taking over, Musk has made big changes to how Twitter works and has laid off large parts of the company’s staff.
In early July, Musk imposed stricter limits on the number of tweets Twitter users can view in a day. Under the new restrictions, verified accounts are limited to reading 6,000 posts per day, unverified accounts to 600 posts per day and new unverified accounts to 300 posts per day.
A new Twitter CEO, Linda Yaccarino, took over the role from Musk last month. Upon her appointment, Musk said Yaccarino would “focus primarily on business operations,” while he would stay focused on “product design and technology.”
The ghosts of colonial history returned to haunt European and Latin American leaders at their summit in Brussels.
For the guests, four hundred years of European colonial rule, economic exploitation and slavery was front of mind. For the hosts, it was Russia’s war on Ukraine in the here and now.
The divergence in views was so profound that the two sides struggled to align their thinking at their first summit in eight years — especially to find words to condemn Russia’s war of aggression in their closing communiqué.
That made the two-day gathering frustrating for all concerned — but especially for leaders of the EU’s newest member states from Eastern Europe, which have their own bitter memories of Soviet imperial rule and Russian aggression.
“It is actually a war of colonization,” Latvian Prime Minister Krišjānis Kariņš said of the 16-month-old Ukraine conflict.
“There is a former colonizer, Russia, and a former colony, Ukraine. And the former overlord is trying to take back their one-time possession. I think that many countries around the world can relate to that.”
Despite the pre-summit rhetoric highlighting the two continents’ shared values, EU leaders struggled to persuade the Community of Latin American and Caribbean States (CELAC) — which includes traditional allies of Moscow such as Nicaragua, Cuba and Venezuela — to clearly condemn Russia’s war.
Ukrainian President Volodymyr Zelenskyy — a regular guest in Brussels — wasn’t invited this time. Wrangling over the wording in their joint declaration delayed the end of the meeting by hours as leaders sought to bridge the gaps. In the end, only Nicaragua dissented.
“No one intends to lecture anyone,” said European Council President Charles Michel, seeking to placate his guests. “This is not how it works, we have a lot of respect for those countries, for the traditions, for the culture, and the idea is always to engage in a spirit of mutual respect.”
Four hundred years
Spain, which holds the rotating presidency of the Council of the EU, has its eyes on Latin America and likes to emphasize the close cultural and linguistic ties between the two.
But those links hark back to Spain — and Europe’s — colonial past. The Spanish kingdom colonized much of Latin America starting in 1493 and, over the next 400 years, acquired vast wealth by exploiting its lands and people. The European slave trade also forcibly transported millions of Africans into slavery in Latin America and the Caribbean.
While European leaders hoped to ease geopolitical tensions, their Latin American counterparts came to the table with a clear message: Defining relations today means addressing and rectifying past injustices — especially as the EU looks once again to the resource-rich region, this time to power its green transition.
Saint Vincent and the Grenadines’ Prime Minister Ralph Gonsalves | Jean-Christophe Verhaegen/AFP via Getty Images
The prime minister of Saint Vincent and the Grenadines — a small island state that heads up the 33-nation group — called for talks on economic reparations for colonization and enslavement.
“Resources from the slave trade and from slavery helped to fuel the industrial revolution that has laid the basis for a lot of the wealth within Western Europe,” Ralph Gonsalves told a small group of reporters on Tuesday.
This was part of his argument for a plan to “to repair the historical legacies of underdevelopment resulting from native genocide and the enslavement of African bodies,” as he said on Monday ahead of the summit.
Trade tensions
Trade talks between the EU and Mercosur — which groups four of Latin America’s big economies — also reflected the broader tensions over what it really means for Europe to start afresh in a relationship of equals.
Beyond a cursory mention of a Mercosur deal in the final statement, talks with Brazil, Argentina, Uruguay and Paraguay were kept on the sidelinesdespite previous hopes that the summit could inject new energy into negotiations on wrapping up a trade deal.
European Commission President Ursula von der Leyen did, however, say after the summit that “our ambition is to … conclude [at] the latest by the end of this year.”
Industry and civil society have fundamentally different interpretations around how much — or how little — the deal would help put the countries on equal footing with their European partners.
For businesses, the deal needs to happen to ensure the region remains on the EU’s political and economic map.
“For us, the [trade] agreements are important. We need stability and don’t want to be at the mercy of political changes,” said Luisa Santos of the industry lobby group BusinessEurope.
But NGOs don’t see it that way. “Any proposal that leaves the region as a mere provider of natural resources for the benefit of the one percent in the region, big corporations and rich countries is business as usual,” said Hernán Saenz from the NGO Oxfam.
Resource craze
Sealing the Mercosur deal has gained importance for the EU, which is banking on the resource-rich region to power the wind turbines and electric vehicles it needs to meet its climate targets.
Brazil is the largest exporter of strategic raw materials to the EU by volume, while the “lithium triangle” spanning Chile, Argentina and Bolivia hosts about half of the world’s lithium reserves. As part of the summit, Brussels and Chile signed a new memorandum of understanding on raw materials.
Brazilian President Luiz Inácio Lula da Silva (left) and European Commission President Ursula von der Leyen (right) in Brussels | Dati Bendo/EC
But the EU’s new appetite for those metals and minerals evoques those dark memories of Spanish conquistadors who set out to dominate large parts of South America — in the name of god, glory and, not least, gold, fueling an economic boom back home while stripping Latin America of its riches.
While von der Leyen on Monday announced Brussels will pump over €45 billion into the region through its Global Gateway program — for infrastructure projects that, at least in part, will also benefit the EU’s private sector — Europe is coming late to the party in a region where China has already expanded its influence.
And raw materials partnerships today, the region’s countries emphasized, cannot be based on a model where resource-rich countries mine the valuable resources — often under poor environmental and working conditions — only for them to be shipped abroad for processing and manufacturing, making them reliant on imports for finished products.
“This was the first time that we had the opportunity to discuss in such clear terms a mechanism that would take us away from extractivism in Latin America,” Argentina’s President Alberto Fernández said after the summit.
“It took five centuries, but we managed it — I’m saying that half in jest, but we have at last succeeded.”
Camille Gijs and Barbara Moens contributed reporting.
LONDON — Hundreds of thousands of Britons are facing mortgage misery over the next 12 months. Rishi Sunak is about to feel their wrath.
The U.K. prime minister has been snookered by Britain’s stubbornly high inflation rate, which at 8.7 percent remains the highest in Western Europe. The Bank of England is pushing interest rates ever-higher as a result, creating a crisis for U.K. homeowners not seen for a generation.
Around 800,000 households will need to remortgage their properties next year, the Resolution Foundation think tank calculates, and rising interest rates mean they will pay a staggering £2,900 a year more on average from 2024. With a general election looming next year, the timing for Sunak could hardly be worse.
This is a “huge problem” for voters, Andrea Leadsom, a Conservative member of the Commons Treasury committee and former U.K. business secretary, told POLITICO.
“It’s clear we’re going to lose the next election,” another former Cabinet minister sighed. “These are the voters we need. We can’t intervene or it will get worse, and the Bank of England were too slow to act to head it off. The goose is cooked — but it was cooked long ago.”
Yet both ex-ministers agreed with Sunak and his chancellor, Jeremy Hunt, that the U.K. government should not directly intervene to support those struggling to pay — despite an awareness they may be battered at the ballot box as a result.
Hunt told MPs this week that mortgage relief schemes would only “make inflation worse, not better.”
“Beating inflation has to be the priority,” Sunak will say in a speech on Thursday afternoon, shortly after the Bank announced rates were rising yet again, to 5 percent — a 15-year high. “If we don’t get a grip on inflation now, the damage will be worse and longer lasting.”
The one thing we didn’t want to happen
The impact of higher interest rates is particularly severe in Britain because of the large proportion of mortgages — 80 percent of existing deals and 90 percent of new ones — propped up by short-term fixed rates.
Britain’s mortgage woes have been further exacerbated by government support packages brought in over recent years to support the housing market, such as ex-Chancellor George Osborne’s Help-to-Buy scheme and Sunak’s own COVID-era stamp duty holiday, which critics say lured people into buying property with an illusion of affordability.
It’s hard to imagine any kind of hit to the nation’s personal finances presenting more of a nightmare for Sunak’s Conservative Party, given a mortgage crisis clobbers those he most needs to win over in 2024.
Younger voters — who have overwhelmingly supported Labour in recent elections — tend to be concentrated in cities in rented accommodation, while the majority of older voters who own their homes outright without mortgages are already locked-down Conservative voters.
Around 800,000 households will need to remortgage their properties next year, the Resolution Foundation think tank calculates | Daniel Leal/AFP via Getty Images
“Then you’ve got this group in the middle, who have borne the brunt of food price rises, fuel price rises, and now interest rates as well,” says Paula Surridge, professor of political sociology at Bristol University. “They’re the group that both sides ought to be targeting. That’s definitely going to be a problem for the Conservatives.”
Adam Hawksbee, deputy director of center-right think tank Onward, characterizes this group as those who “bought their home on cheap finance, live in towns or satellite cities, and have been used to a good quality of life with a car and summer holidays — they will be most affected.”
While the heaviest burden is expected to fall in London and the south east, according to the Institute for Fiscal Studies, Surridge notes that mortgage rates are a problem not confined to wealthier voters but spread around the country.
A Conservative MP representing a relatively deprived constituency said: “There are poorer people in the seat who will be struggling — but there are more support schemes for them, and their overall expenses might be lower. But this mortgage stuff is going to hit the squeezed middle hard. It’s them I’m most worried about.”
A chancellor in No. 10
The crisis will be keenly felt by Sunak, who launched and eventually won his bid to lead the country with a pitch to steady the economy.
His promise to halve inflation by the end of the year now looks a tall order. But party observers — and Downing Street allies — say his only hope is to stick to the path he set out.
“I feel a deep moral responsibility to make sure the money you earn holds its value,” Sunak will say on Thursday. “That’s why our number one priority is to halve inflation this year … I’m completely confident that if we hold our nerve, we can do so.”
“There’s no one I’d rather have in No. 10 right now, because he’s so economically dry,” says Onward’s Hawksbee. “The government needs to hold the line and resist pressure to step in.”
Indeed, many Conservatives believe the U.K. has become overly reliant on the kind of big state interventions that became commonplace during the pandemic.
The irony is that it was Sunak himself — a politician who revels in his fiscally-conservative credentials — who drew up the multibillion-pound COVID assistance programs while serving as chancellor during the pandemic.
His famous March 2020 pledge — echoing European Central Bank President Mario Draghi — to do “whatever it takes” to shield U.K. households feels a long time ago.
“We can’t bail everyone out every time,” an ex-Treasury minister said. “And in this case, it’d just make things worse.”
Jeremy Hunt told MPs this week that mortgage relief schemes would only “make inflation worse, not better” | Leon Neal/Getty Images
So what can be done?
Sunak and Hunt’s only real action so far has been to summon the biggest mortgage lenders for a meeting this Friday, where they will be “reminded” of their obligations to borrowers.
Further direct action by the banks in the form of forbearance — agreeing to pause or reduce mortgage payments — seems unlikely, as it would merely offset the Bank of England’s efforts to rein in inflation.
The opposition Labour Party published its own five-point plan Wednesday night, urging new requirements on lenders to show leniency for those struggling to pay. But UK Finance, the body that represents British mortgage lenders, argues banks are already working with customers to find alternative solutions.
Mortgage lenders are keen to stress too that more radical measures, such as imposing mortgage holidays, would only kick the can down the road.
“They’re an option that still exists, but the interest does keep accruing so you end up paying back more than you would have done — a lot of people do not realize this,” said an industry communications person who was not authorized to speak publicly.
“The best plan would be to ignore the squealing and point to the decline in inflation everywhere apart from Britain, meaning rate rises here will end shortly anyway even with recent disappointments on inflation prints,” Meyrick Chapman, principal at Hedge Analytics told POLITICO.
This was echoed by Societe Generale’s uber-bear global strategist Albert Edwards, who said: “most economists would say it’s absolutely ridiculous to ameliorate the impact of rising interests on mortgage holders, as that would mean interest rates have to go even higher.”
Yet the scale of the crisis is such that pressure is now building on the government from inside the Conservative Party.
One former minister who worked directly with Sunak said: “Calls [for action] are growing. It’s not a full-on mass campaign or rebellion, but there are growing numbers of MPs who are concerned. I would have expected him to be much more front-footed, given the previous track record during COVID when he was very decisive.”
Former minister Jake Berry this week went public with a call for interest rate tax relief, as a way to defuse the “ticking time bomb.” Housing Secretary Michael Gove urged the banking sector to consider introducing 25-year fixed rate deals, putting the U.K. more in line with the long-term fixes offered to customers in the U.S. and Canada.
But Treasury Minister Andrew Griffith swiftly ruled out the first idea as unaffordable, while saying the second would only be achievable as a long-term project.
Structural factors are very different in the U.S., where long-term mortgages are in part made possible by the de facto underwriting of mortgages by quasi-governmental agencies which guarantee third-party loans. For the U.K. to normalize long-term mortgages, similar entities would likely have to be established — with possible consequences for Britain’s credit profile, and so the pound.
A government official familiar with Treasury thinking summed up: “No-one is advancing a serious, short-term, alternative set of interventions that are meaningfully different. It comes down to who people think is competent and will restrain spending.”
The worry for Sunak is that, post-Liz Truss, and with yet another crisis looming, the fabled Tory reputation for economic competence may now be shot.
As Surridge puts it: “People in the past have perhaps been able to say ‘we know the Conservatives are the nasty party, but they look after the economy.’ Without that, what’s left as a reason for people to choose the Conservatives?”
This story has been updated to incorporate Thursday’s rise in interest rates. Emilio Casalicchio, Geoffrey Smith, Joe Bambridge and AnnabelleDickson all contributed reporting.
As gear reviews go, it was a glowing one: In a 60-second video clip posted on Telegram, a masked sniper sporting the death’s-head insignia of the Wagner mercenary army sings the praises of the Russian-made Orsis T-5000 rifle.
“The equipment comes very well recommended,” the soldier, pictured in the charred interior of a building, tells a war reporter from the Zvezda TV channel run by the Russian Ministry of Defense.
Pulling out the clip of the weapon at his side, he continues: “It uses Western .338 caliber ammunition. It works very well. It can penetrate light cover if the enemy is behind it. And, in the open, it can strike the enemy at a range of up to 1,500 meters.”
Filings obtained by POLITICO indicate that Promtekhnologiya and another Russian firm called Tetis have acquired hundreds of thousands of rounds made by Hornady, a U.S. company that trademarks its wares as “Accurate. Deadly. Dependable.” Hornady, founded in 1949, sums up its philosophy with the phrase: “Ten bullets through one hole.”
The findings add to a growing body of evidence that supplies of lethal and nonlethal military equipment are still reaching Russia despite the West’s imposition of unprecedented sanctions in response to President Vladimir Putin’s invasion of Ukraine last year. The exigencies of war have exposed Russia’s lack of capacity to manufacture high-end sniper rounds, say defense experts, and that is fueling a flourishing black market for Western ammunition.
Information on the procurement of such gear is hiding in plain sight: Details of deals — importers, suppliers and product descriptions — can be found online by anyone with access to the Russian internet and a grasp of international customs classification codes.
Anything but bulletproof
In a “declaration of conformity” filed with a Russian government registry and dated August 12, 2022, Promtekhnologiya stated that it planned to sourcea batch of 102,200 Hornady lead bullets for the assembly of “hunting cartridges” used in “civilian weapons with a rifled barrel.” The specifications — .338 Lapua Magnum bullets weighing 285 grains — match those of a product in the Hornady catalog.
A second declaration bearing the same date is for a batch of “uncapped cartridge cases for assembling civilian firearms cartridges” made by Hornady with the same .338 Lapua Magnum specification.
The description is misleading: The .338 Lapua Magnum isn’t a “hunting cartridge;” it’s a high-powered, long-range projectile that was developed by Western militaries in the 1980s and used by their snipers in Iraq and Afghanistan.
Reached by POLITICO, Steve Hornady, CEO of the family company based in Grand Island, Nebraska, denied selling ammunition to Russia in wartime.
“The instant Russia invaded Ukraine, we were done,” Hornady said in a brief telephone call.
Hornady declined at first to elaborate and, when asked to review the evidence, requested that it be sent by fax or courier as he did not use email. He eventually responded after POLITICO sent written requests for comment with supporting documentation by courier.
“We categorically are NOT exporting anything to Russia and have not had an export permit for Russia since 2014,” he replied. “We do not support any sale of our product to any Russian son-of-a-bitch and if we can find out how they acquire, if in fact they do, we will take all steps available to stop it.”
Hornady added that he had contacted the U.S. authorities following POLITICO’s inquiry. He pointed out that current U.S. law required that customers must obtain permission from the Department of Commerce to re-export articles made in the United States. “To the best of our knowledge, none of our customers violate that law,” he said.
Wagner chief Yevgeny Prigozhin, asked which ammunition his troops used, told POLITICO they had “a huge amount of NATO-issue ammunition left over from the Ukrainian army.” In a sarcastic voice message sent to a POLITICO journalist, the Russian warlord also asked for help procuring F-35 combat jets and U.S.-made sniper rifles, machine guns and grenade launchers.
Promtekhnologiya denied filing any customs declarations to import ammunition; said it had no relationship with Hornady; and that it had the capacity to manufacture its own ammunition. The company also said in emailed comments to POLITICO that the Orsis rifle and the ammunition the company makes are intended for “hunting and sporting” purposes and are freely available on the civilian market.
Both Promtekhnologiya and Alexander Zinovyev, listed as the company’s general director in the filings, have been sanctioned by Ukraine, which cites evidence that its Orsis rifles “have been used in Russian military operations in Eastern Ukraine.”
Promtekhnologiya is also in Washington’s sights: “We take any allegation of sanctions violation or evasion seriously and are committed to ensuring that sanctions are fully enforced,” a spokesperson for the National Security Council said in response to a request for comment from POLITICO.
“We have taken steps to hold Russia accountable for its war in Ukraine and have imposed an unprecedented sanctions regime to disrupt Russia’s ability to access funds and weapons that fuel Putin’s war machine. That includes sanctioning companies like Promtekhnologiya.”
Criminal, or wilful, violations of U.S. sanctions can trigger penalties of up to $1 million per violation, as well as up to 20 years’ imprisonment for individuals. Civil penalties can run to the higher of either twice the value of the underlying transaction or around $350,000 per violation.
Describing military-grade ammunition as for hunting or sporting use, as the filings do, amounts to a thinly veiled ruse to evade targeted “smart” sanctions aimed at starving the Russian military of the means to fight the war, said defense analyst Maria Shagina.
“Strictly speaking, smart sanctions are not supposed to target anything civilian to avoid humanitarian collateral damage,” said Shagina, a research fellow at the U.K.-based International Institute for Strategic Studies. “But the targets in authoritarian countries will really exploit this.”
Steve Hornady, CEO of the family company based in Grand Island, Nebraska, denied selling ammunition to Russia in wartime | Leon Neal/Getty Images
Russia reloaded
Another Russian buyer of Hornady ammunition is a company called Tetis, which has disclosed two shipments since Russia’s full-scale invasionof Ukraine beganon February 24, 2022. The most recent was in April for more than 300,000 “units” comprising a wide range of products that checked out with the Hornady catalog.
The main owners of Tetis, Alexander Levandovsky and Sergey Senchenko — who each own stakes of 41.1 percent — have links to the Russian military.
Both were previously listed as shareholders in another company called Kampo, which according to company filings holds licenses to make weapons and military equipment and has done business with the Ministry of Defense and the Special Flight Detachment that operates Putin’s presidential plane.
Although Tetis doesn’t offer Hornady ammo on its website, it does advertise itself as an international distributor for RCBS, a U.S. maker of reloading equipment. This is used to assemble cases, primer, propellants and projectiles into cartridges that can then be fired — as seen in this video posted by a Russian gun enthusiast.
A database check revealed that the most recent declaration of conformity filed by Tetis for RCBS, for electronic weighing scales, predated Russia’s full-scale invasion on February 24 of last year by just over a month.
Russia’s trade bureaucracy allows local firms to vouch for the goods they are importing by filing declarations of conformity, such as those that mention the Hornady products. This means that the supplier listed on the form may not be aware of specific shipments that could have been handled by an intermediary.
Tetis did not respond to an emailed request for comment.
Matt Rice, a spokesman for RCBS owner Vista Outdoor, said Tetis was no longer an international distributor for RCBS. “Following Russia’s invasion of Ukraine, our business made the decision to end all sales of goods with the country,” Rice said in an email, adding that RCBS would remove the listing for Tetis from its website.
Doing the rounds
Hornady ammunition or its components are freely available in Russia, along with other high-end foreign military gear.
Take the “Sniper Shop” on Telegram, an encrypted messaging app that is popular in Russia: It features a current offer for a full range of Hornady products, with the seller inviting buyers to visit a showroom in Sokolniki, a Moscow district, and offering delivery throughout Russia by courier or post. Contacted by POLITICO, the poster confirmed the Hornady ammo was in stock but declined to comment further on how it was sourced.
Then there is “Anton,” who advertises products from Hornady and RCBS on his profile. He also touts gear from Nightforce, maker of thermal optical sights; Lapua, which helped design the eponymous .338 ammo; MDT, a maker of chassis systems, magazines and accessories for rifles; and precision gunsmith AREA 419. All are American with the exception of Lapua, which is based in Finland and owned by a Norwegian company called Nammo.
Western high-end foreign military gear seems to be freely available in Russia | Leon Neal/Getty Images
“Anton” posted an offer for Hornady cartridges last October 24. Contacted via Telegram to ask whether he was still stocking Hornady, he replied: “We don’t do ammunition.”
POLITICO has, in the course of its research, also found declarations from several other Russian companies for ammunition made in Germany, Finland and Turkey.
The thriving black market reflects a structural deficit in Russia’s war economy. Its military-industrial complex can produce good small arms, like the Orsis rifle, but lacks the capacity to churn out the amount of ammunition needed by an army fighting a war across a front stretching hundreds of miles.
“Despite the quality of the rifles produced, a successful hit directly depends on the components used in the cartridges, and they, unfortunately, are imported,” a correspondent lamented in a post on a Russian military news site a few months into the war. Gunpowder produced in Russia lacks stability, the correspondent added, saying this is “unacceptable in the framework of high-precision shooting.”
The continuing access to specialized rifle cartridges made in the West, such as the .338 Lapua Magnum, by a sanctioned Russian small arms manufacturer like Orsis maker Promtekhnologiya is “egregious,” said Gary Somerville, a research fellow at the Royal United Services Institute (RUSI), a British defense think tank.
“At present, there is only one manufacturer of this cartridge in Russia,” he added. “Preventing the shipment of these types of ammunition from Western countries to Russia is an easy win for those seeking to constrain Russia’s ability to wage war in Ukraine.”
Balkan route
It’s not just ammunition from the U.S. that is reaching the battlefront around Bakhmut in eastern Ukraine, recently captured by Prigozhin’s mercenaries after a bloody, months-long battle.
There also appear to be cartridges from the European Union, which has imposed no fewer than 10 rounds of sanctions against Russia in a so-far inconclusive attempt to starve Putin’s war machine of the means to fight on.
Promtekhnologiya has filed four declarations since October covering shipments of 460,000 units described as “Orsis hunting cartridges” — most are of the .338 Lapua Magnum type. These identify a Slovenian company called Valerian as the supplier.
The first of the filings, dated October 13, 2022, includes an air waybill number whose first three digits — 262 — indicate that the shipper was Ural Airlines, a Russian carrier. It was not immediately possible to trace the route of the flight, however.
Valerian was founded on the eve of Russia’s invasion of Ukraine with paid-in capital of €7,500 by Gašper Heybal, who previously worked for U.S. military outfitter Voodoo Tactical. On its home page, Valerian says: “Our goal is to equip you for your mission, whatever it might be, and wherever you are going.”
In online posts over the past decade — including on a Facebook Group called EU Guns with a declared mission of “easier transfer of weapons between European gun owners” — Heybal has done little to dispel the impression that he is an active small arms dealer.
Bakhmut was recently captured by Prigozhin’s mercenaries, the Wagner mercenary group| Olga Maltseva/AFP via Getty Images
The telephone number Heybal shared publicly in those posts is the same as the one for Valerian, which is registered at an address in a village around 40 minutes’ drive southeast of the Slovenian capital Ljubljana.
Reached at that number, Heybal denied that Valerian had shipped ammunition to Russia: “We don’t sell any … firearms or ammunition, and also there is an embargo on Russia,” said Heybal.
In a follow-up email on the declarations of conformity, Heybal said: “Firstly, we must stress that we do not know, nor do we understand how the name of our company, Valerian d.o.o., appears on the document.”
“Secondly, Valerian is not listed there as a supplier but as the producer, and this is not possible, as we do not produce ammunition. That being said, it still makes absolutely no sense to us as to how our name could appear on it. We are glad you brought this to our attention so we can figure out what is going on.”
A Slovenian diplomat said that, while Valerian had never applied for authorization to export weapons or ammunition to Russia, it had shipped “individual parts” to Kyrgyzstan.
The Central Asian state is one of the countries that the EU has in mind as it discusses an 11th round of measures targeting third countries that are suspected of helping Russia evade sanctions.
“The competent services in the Republic of Slovenia have already initiated the appropriate procedures to investigate the facts concerning the company,” the diplomat told POLITICO, adding that they would verify the possible diversion of goods to the Russian Federation. “Slovenia is firmly committed to supporting Ukraine, we have been supportive of all sanctions packages and especially this anti-circumvention one.”
An official at the European Commission deflected a request for comment, saying the bloc’s member countries were responsible for implementing sanctions. “As this seems like a very specific case, these allegations need to be investigated further by the competent authorities,” the official said.
Sergey Panov reported from Spain, Sarah Anne Aarup from Brussels and Douglas Busvine from Berlin. Additional reporting by Steven Overly in Washington.
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Sergey Panov, Sarah Anne Aarup and Douglas Busvine
