Airbus has followed up its whopping U.S. deal of in-flight refueling tankers with a second, slightly smaller sale of similar aircraft to Britain. The British deal, confirmed by EADS chief Louis Gallois in an interview with a French newspaper, will be worth approximately $26 billion (£13 billion) over 27 years. The RAF will take 14 of the tankers from AirTanker, a European consortium led by EADS, the defense subsidiary of Airbus, using the airframe of the A330 civilian airliner. Their date for entering service is 2011. The contract reportedly will create 600 new jobs and safeguard another 3,000 in Britain, where the wings are built for the Airbus airframe.

The UK sale marks the second big defeat for a major military sale in less than a month for EADS’s chief rival in the United States, Boeing. The U.S. contract, initially worth $35 billion, is being formally challenged by Boeing, which is confident of being able to mobilize strong support in Congress to make the Air Force re-examine the decision to award the contract to a European consortium. If there is an all-out showdown with the Pentagon, Congress could refuse to fund the program, making the Air Force modernize its existing fleet of Boeing-made tankers.

Boeing has filed an official complaint about flaws in the procurement process that it lost last month, and “it is a list of specifics that look too serious to just be brushed aside,” according to John Pike, who heads GlobalSecurity.org, an on-line service of strategic analysis based in Washington..

The complaint must be reviewed by the Government Accounting Office (GAO), so, Pike said, “it is too soon for EADS to start counting any chickens” in this deal.

Related Post:

Pentagon Contract a “Massive Breakthrough” for European Companies, 6 March 2008

See Also:
KC-X Boeing Protest, GlobalSecurity.org

EADS wins £13bn RAF tanker deal, BBC News, 27 March 2008

EADS: Unveiling $26 Billion Deal With United Kingdom, Stratfor Strategic Forecasting, 27 March 2008

Airbus parent EADS wins British tanker refueling deal, International Herald Tribune, 27 March 2008

Air tanker deal set to be sealed, Financial Times, 27 March 2008

Canadian policymakers are confident that other allied nations will come up with reinforcements and greater operational mobility in Afghanistan, thus meeting the terms set by Canada for keeping its crucial combat role in embattled Kandahar province, the main front with Taliban insurgents.

Most of the additional forces – around 1,000 men – are expected to come from France, where President Nicolas Sarkozy has made it clear that he intends to follow through on his pledges to bring France closer to NATO. The French troops may be deployed in Kandahar or in eastern Afghanistan near the border with Pakistan, another key front. The arrival of French forces will enable the United States, if necessary, to redeploy American units there to fight directly alongside the Canadians in Kandahar.

Canada has also insisted on more operational mobility that would come from more helicopters and drones, and Washington is expected to provide some of what is needed in both categories.

“I am very comfortable that the conditions we stipulated are going to be met,” David Wright told European Affairs. A former Canadian ambassador to NATO, he is currently a professor at Victoria College, University of Toronto.  Ambassador Wright has written for European Affairs on Canada’s involvement in Afghanistan.

Details about exact numbers and timetables are expected to emerge at the NATO summit meeting in Bucharest next week.

“This outcome means that the alliance will have solved the immediate short-run challenge in Afghanistan, so now we need to turn to a longer-term discussion about exactly how we plan to enable the Afghans to move ahead in taking over their own security,” Wright said.

That debate is likely to start in earnest at the NATO summit meeting, which will also be attended by Afghan President Hamid Karzai and UN Secretary General Ban Ki-moon.

The Canadian parliament voted early this year to keep Canada’s current force of 2,500 troops in Afghanistan until 2011 – on condition that allied nations provided the reinforcements in manpower and mobility in the nation’s most dangerous regions.

Related Posts:
France Will Add Combat Troops in Afghanistan to Bolster NATO Mission, 29 February 2008
Faraway Afghanistan Brings Home Up-Close NATO Tensions, 29 February 2008
In Afghanistan, NATO Caveats Can Be Made to Work Better, 8 February 2008

Incoming Russian President Dmitry Medvedev had some strong words for Western leaders in an interview with the Financial Times today. Amid President Bush’s recent statements in support of expanding the NATO alliance to include Georgia and reports that Ukraine is also taking steps towards NATO membership, Medvedev said that Russia is “not happy” about the prospect of eastward NATO expansion.

From today’s FT:

His comments, in an interview with the Financial Times, will step up pressure on the alliance not to allow the two states to join Nato’s “membership action plan” at a summit in Bucharest next week. Vladimir Putin, outgoing Russian president, is due to attend part of the summit. …

“We are not happy about the situation around Georgia and Ukraine. We consider that it is extremely troublesome for the existing structure of European security,” Mr Medvedev said during a two-hour interview, his first since winning Russia’s presidential election on March 2.

“No state can be pleased about having representatives of a military bloc to which it does not belong coming close to its borders.”

Mr Medvedev also suggested joining the military alliance was against most Ukrainians’ wishes, as opinion polls have shown.

“This is … even more difficult to explain when the vast majority of citizens of … Ukraine, are categorically against joining Nato, while the government … follows a different policy,” he said.

Medvedev’s comments come in the wake of statements by Georgian officials that they fear Russia is planning to annex the Georgian separatist region of Abkhazia. NATO member states will meet next week in Bucharest for their annual summit, where they will discuss possible membership for the former Soviet territories. Medvedev officially takes over as president on May 7.

Medvedev’s video interview with the FT is available on their website. A full transcript is also available.

Related Posts:
Can Europe Stay Out of the Geopolitical Face-Off Between the US and Russia?, 21 March 2008
European Officials Fear Russian Meddling in Georgian Separatist Region of Abkhazia, 11 March 2008

See Also:
Medvedev warns against expanding Nato east, Financial Times, 25 March 2008
Bush backs closer NATO ties with Georgia, Reuters, 19 March 2008
Ukraine says Bush to visit before NATO summit, Reuters, 13 March 2008

Yesterday’s announcement that the U.S. has reached an agreement with Abu Dhabi and Singapore on a set of principles for investment by sovereign wealth funds (SWFs) is being hailed as an important first by Treasury officials in Washington. In the wake of highly-publicized concerns about the transparency of such funds earlier this year, officials hope that this agreement will put those concerns to rest and encourage wealthy foreign governments to keep investing. There is also a hope that yesterday’s agreement will serve as a blueprint for similar arrangements with other funds and for similar voluntary arrangements set out by the IMF and OECD.

From today’s Financial Times:

“It’s the first time to my knowledge that there’s been a set of principles on this type of issue that include both sovereign wealth funds and a recipient country,” Clay Lowery, US Treasury Assistant Secretary for International Affairs, told the Financial Times.

“In terms of transparency and disclosure what you saw today was two funds that are basically willing to step up and say: ‘We believe there should be greater information and disclosure,’” he said. He emphasised the two countries’ commitments in areas such as institutional arrangements and decision-making structures and financial information, notably asset allocation and benchmarks.

In the midst of financial difficulties at home and a possible recession, the Bush administration recognizes the crucial importance of continued foreign investment, much of which comes from SWFs. Abu Dhabi and Singapore have the world’s largest two funds, each worth hundreds of billions of dollars.

There has been a growing concern among U.S. politicians and analysts that foreign governments with large SWFs could wield the power of their investments in the U.S. in ways that could prove harmful to American national interest. Yesterday’s agreement seeks to address those concerns, stipulating that SWFs should make investments “solely on commercial grounds, rather than to advance directly or indirectly the geopolitical goals of the controlling government.”

The Bush administration pushed ahead this week in its face-off with Russia over independence for Kosovo - and Russia pushed back in the Caucasus.

Since warning that recognition of Kosovars’ demands could trigger similar separatist ambitions in Abkhasia and elsewhere in Georgia, Moscow has announced plans to move more Russian “peacekeepers” into the breakaway province of Georgia - a step that alarmed Georgian leaders as a possible step toward full recognition threatening to partially dismember Georgia.

President Mikhail Saakashvili of the Republic of Georgia was on an official visit to Washington, where he obtained President George W. Bush’s backing for NATO, at its forthcoming summit, to offer to open a negotiating process that could ultimately bring Georgia into the Western alliance. Bush also announced that he was approving Kosovo as a candidate to receive U.S. military assistance.

This escalation between Washington and Moscow marks the outbreak of a new Cold War, according to Stratfor, an on-line geopolitical think-tank. Of course, the United States outweighs Russia and it is geographically remote from the theater of conflict. That leaves the Europeans in the front line. For the moment, they are trying to keep out of the way, but they will end up having to play major roles as independent actors in this new Cold War, Stratfor’s analyst said.

The current diplomatic inertness in the European Union can be seen in the three main governments: Germany, France and the United Kingdom are not interested in confronting Russia.

“Berlin made this very clear when it expressed a lack of interest in NATO expansion, the independence of Kosovo and the Ukraine gas issue. This is not surprising, given that the Germans are dependent upon Moscow for energy. Beyond energy, Germany’s wider economic relationship with and its proximity to Russia inform its lack of appetite for confrontation with the Kremlin,” Stratfor said.

France has its international ambitions targeted elsewhere, mainly in re-asserting its stature in Europe and emerging as a more credible player in the Middle East. “It wants no part of this new West-versus-Russia competition,” Stratfor says. Britain is preoccupied domestically.

But this will change, Stratfor predicts. Germany is re-emerging on its own again as an international power player; Britain ultimately cannot detach itself from any major U.S. geopolitical commitment; and France will ultimately find it untenable to ignore this clash. “Europe’s geography - and the fact that, unlike during the original Cold War, there isn’t an iron curtain in place - will force the Europeans to jump in or at least choose sides.”

Related Article: “The Start of Cold War II?” Stratfor’s Political Diary, 21 March 2008

The presumptive Republican Presidential candidate, Senator John McCain, has started telling Europeans that his White House will want effective teamwork with its European allies - a marked change from the way in which the Bush administration often seems to brush them off.

In his concept, the key word of a stronger transatlantic partnership is “together” - with a new emphasis on U.S. readiness to be “willing to be persuaded by” European allies in order to get united action by democracies in Europe and the rest of the world.

A key U.S.-European cleavage - over Iraq - is unlikely to be healed by a McCain presidency. He has consistently supported the war in Iraq and argued for deeper, longer American involvement, not less. Even now in calling for more powerful U.S.-EU cooperation, McCain may dismay some Europeans with his emphasis on hard military power over the soft power options that many allies feel were scandalously neglected by the current Republican incumbent in the White House. (more…)

As we noted here last week, the surprise selection of an EADS-Northrop Grumman joint bid for a $35 billion Defense contract last week has been the source of much consternation on Capitol Hill. Some lawmakers, outraged that the European conglomerate which owns Airbus was picked over U.S. aerospace giant Boeing, seem determined to keep the deal from going forward. Officials from the U.S. Air Force and Northrop Grumman scrambled to defend the contract this week amid allegations in Congress of “a European economic stimulus plan” and threats to withhold funding for the project.

From yesterday’s Politico:

Other critics argue that hiring the European-based EADS to provide military equipment raises national security questions.

Northrop Grumman, though, dismissed the national security concerns as a red herring, stressing the fact that the Los Angeles-based company is the prime contractor on the program.

“What we are doing is exactly what Boeing would do,” said Northrop Grumman spokesman Randy Belote. “There are no issues relative to any U.S. secrets, any transfer of technology out of the United States to Europe. It just doesn’t happen under our process.”

See the full story at Politico.com.

Today’s Politico has an extensive report on the Northrop/EADS team’s lobbying strategy as it fights Boeing’s formal protest of the award, filed Tuesday with the GAO.

Related Posts:
Pentagon Contract a “Massive Breakthrough” for European Companies, 6 March 2008

See Also:
Air Force slammed in Congress for Boeing contract, Politico, 12 March 2008
Defence contract was won fair and square, Op-ed, Sen. Richard Shelby (R-Ala.), Financial Times, 10 March 2008
Northrop rallies lobbying troops to save contract, Politico, 12 March 2008

European foreign ministries feel “preoccupation and anxiety” over the possibility that Russia is preparing to extend official recognition to Abkhazia, the breakaway province of Georgia, the European Commission’s top official for external relations, Benita Ferrero-Waldner said this week. Her comment was published Monday by the EU Observer, an on-line news service, as EU foreign ministers gathered for a meeting in Slovenia, which currently holds the EU’s rotating presidency.

Her sense of alarm echoed calls by Sweden and Poland for the EU to take a stronger stance in support of Georgia in the wake of Moscow’s action last Thursday in opening free trade with the territory. Commissioner Ferrero-Waldner stressed European support for Georgia and cited spreading alarm in Europe that “Russia may be paving the way for recognition of Abkhazia.” This territory on the Black Sea has set up its own government and is protected by Russian peacekeepers, but it has not been recognized by anyone.

Moscow, in improving ties with Abkhazia, seems to be intent on fulfilling its own dire warning that Western-backed independence for Kosovo last month could create a precedent for further “Balkanizing” splits in the Caucasus. Moscow has not cited Kosovo in its statements about Abkhazia, but Slovenia’s foreign minister, Dimitrij Rupel, who chaired the EU meeting, was quoted saying that “Russia and [the rest of] the Confederation of Independent States have decided to draw certain parallels with Kosovo.”

Officials in Georgia lashed out at Russia’s attitude. The speaker of the country’s parliament, Nino Burjanadze, called Russia’s recent actions “really bad news” for Georgia. He predicted that the Russians’ abandoning the international embargo on direct trade with Abkhazia “means that they are going, step by step, in the direction of the annexation of this territory.”

Related Posts:
Kosovo’s Independence Boosts Copycat Separatists in Georgia, 7 March 2008
Kosovo: A Real Geopolitical Precedent, 14 February 2008

See Also:
EU foreign ministers concerned Russia to recognize Abkhazia (EU Observer, 11 March 2008)

Let there be no doubt that we are not just in recession but in a systemic crisis. Many analysts still suggest that the economy can wriggle through the credit crunch without a recession, but the credit crunch is biting so strongly for the very good reason that financial institutions, notably banks, know just how many of their “assets” are declining in value or already worthless.

Martin Feldstein, who heads the National Bureau of Economic Research and is not a “liberal” in the American spectrum, in talking to an audience at the National Association for Business Economics meeting in Washington in early. He asked: Why is there some improvement in U.S. net exports? It is due to improvement in the savings-investment equilibrium being imposed by the housing correction. National saving will have to increase much more markedly to make a difference in the underlying position of the U.S. economy.

(more…)

Separatist ambitions in the Caucasus region have received their first tangible boost from the example of Kosovo’s independence. The breakaway Abkhazia region in Georgia appealed to international bodies for recognition of its independence in messages sent March 7, the day after Russia announced that it was lifting its trade restrictions on the territory.

The move came two days after a similar move by South Ossetia, another region of Georgia that is in revolt against the central government in Tbilisi. In their appeal, the political leaders of South Ossetia, also heavily pro-Russian, said that “the Kosovo precedent presents a convincing argument” for recognition of the province’s independent because – as with Kosovo in Serbia – “co-existence” had become demonstrably impossible with Georgia. The friction between Georgia and Russia is aggravated, too, by the former’s efforts to join the NATO alliance.

(more…)