Estonia in 2015: Energy, the Euro, and Elections

It is probably just a coincidence, but there is a strong correlation between being a member state of the Eurozone and being dependent on energy imports. The Eurozone imports upwards of two-thirds of the energy it consumes (compared to just 10-15 percent for the US and China, and 30-40 percent for Britain and India); only two of the Eurozone’s 19 members import less than 47 percent of the energy they use. These two Eurozone outliers are the Netherlands and Estonia, which import just 17 and 10 percent of their energy consumption, respectively.

zuPKcv5

Estonia is a greater exception still. Unlike in the Netherlands, where, as recently as August, net oil imports accounted for an estimated 4.3 percent of Dutch GDP, in Estonia oil imports only accounted for 2.3 percent of GDP, the lowest share in the Eurozone apart from Ireland or Austria. Estonia is also a transit state for Russian exports of oil and coal, owns large reserves of oil shale (not to be confused with shale oil) and biomass energy (see graph below), and had been expected, prior to the recent collapse in oil prices, to have the European Union’s fastest-rising diesel fuel production during the next few years. Estonia also has by far the most oil stored up of any European country, relative to the pace at which it consumes oil. In other words, Estonia is unlikely to benefit from cheap oil, or from lower energy prices in general, to the same extent as other Eurozone countries.

20150201063416Europe’s energy use mix, with emphasis on biomass sources, particularly wood:

ENER29_Fig_02.eps.75dpi

For the Eurozone as a whole, oil imports were equal to an estimated 2.8 percent of GDP, which is much higher than in the nations the Eurozone trades with the most (see graph below). Falling oil prices should cause the value of the Euro to rise against the currencies of most of its top trade partners, therefore; at least, assuming that a declining Eurozone economy did not cause the oil price drop in the first place. Indeed, the Euro has already risen in value relative to the currencies of Russia, Norway, Sweden, Poland, and the Czech Republic since the oil price plunge began (though admittedly, it has also fallen in value relative to the currencies of the US, Britain, Switzerland, Denmark, and China).

Top 10 Eurozone Trade Partners

(Eurozone stats are at the far right of the graph)

This does not necessarily bode well for Estonia, however, which, in spite of not benefiting much from cheaper energy, may nevertheless have to cope with the effects a strengthening Euro could have on its export competitiveness. Unfortunately for Estonia, its exports are equal to almost 90% of its GDP, and they go mainly to non-Eurozone economies like Russia and Scandinavia, which are hardly dependent on imports of oil, energy, or commodies in general (see  graph below).

Estonia's Export Partners

Indeed, this characteristic holds true not only for Estonia’s largest export partners in absolute terms, but also of the countries with which Estonia enjoys the largest trade surpluses (see first graph below). Even worse, the biggest European beneficiaries of cheap oil and energy are nearly all situated next to the Mediterranean, the part of Europe Estonia exports to the least (see second graph below).

Estonia Trade Surpluses:Deficits

European %22Regions%22 Energy Imports

So, was Estonia’s 2011 decision to join a currency union which contains only one of its four largest export partners, and within which it is has an intensely outlying energy-import dynamic, a financially sensible move? Or was it rather the case that Estonia adopted the Euro primarily in order to proclaim its Europeanness (and non-Russianness), and so might now have to face some of the adverse economic consequences of the decision, at least where its exports are concerned, given that oil prices have dropped by well over 50 percent since October?

In addition, what effects might falling oil prices have on Estonian politics? Estonian elections are approaching this March, and a large majority of Estonian energy production is located in the part of Estonia in which nearly 75 percent of the inhabitants are ethnic Russians (who also comprise an estimated 25 percent of the overall Estonian population). Russia remains Estonia’s largest trade partner, and Russia’s ruble has already declined by one-third in value against the Euro since October. The Estonians are also tied to the Finns, their second largest trade partner, with whom they speak an extremely similar language (which is also extremely dissimilar to all other languages in Europe) — and Finland too has a national election coming up, in April.

Meanwhile, Russia’s two major NATO geopolitical rivals, namely the US and Turkey, as well as Russia’s largest NATO economic competitor, Canada, which is also home to the West’s biggest Ukrainian diaspora, are having elections this year as well (the US primaries are not until 2016, but the election will effectively begin in mid-2015). These elections could certainly cause NATO relations with Russia to deteriorate, even beyond the low point they are already sitting at. Indeed, a relatively robust American economic recovery could force the US Republican Party to make foreign policy the central focus of their political campaign – and perhaps specifically, to obsess over the chummy “Reset” with Vladimir Putin that Hillary Clinton initiated during her tenure as Secretary of State  –  which could thrust the Baltics, the sole ex-Soviet republics that are now firmly a part of NATO and the West, into the global spotlight. It could be an interesting time ahead for tiny Estonia, to say the least.

The 10 Largest “Relative” Trade Networks

If you follow the financial news media, you will frequently hear of countries’ largest trade partners being either the United States, the European Union, or China. As a result, it can often seem like the US, EU, and China are at the centre of massive global networks of international trade. In a certain sense, of course, they are: the combined external merchandise trade of the US, EU, and China is equal to an estimated 11 trillion dollars a year. And yet, relative to the enormous size of their GDPs, the US, EU, and to a lesser degree China do not actually trade very much compared to most other countries.

North America and Europe are in fact relatively insular in their international commercial relations. The US and the EU, for instance, trade an amount of goods estimated at around 25 percent of their GDPs; by comparison, Germany trades an amount equal to an estimated 70 percent of its GDP, South Korea trades an amount equal to roughly 80 percent of its GDP, and the Netherlands trades an amount equal to roughly 150 percent of its GDP. Even China, which is generally viewed as a highly trade-dependent economy, trades an amount that is equal to only an estimated 45 percent of its GDP, which is lower than most of the countries in the world.

In other words, the economies of the US, EU, and China only seem so trade-oriented because their massive economic size makes them the largest trade partners of a large majority of the world’s countries.  This confusion stems from the fact that the media tends to view the size of international trade values in absolute terms only, rather than by looking at the size of those trade values relative to some other relevant factor, such as the size of the GDP’s of the countries involved in the trade. By looking only at absolute trade values, the huge economies of the US, EU, and China end up getting almost all of the public attention, even though their “relative” trade with most other countries actually tends to be relatively insignificant.

In this article, therefore, we have tried to quantify the international trade networks of the world’s major economies in relative terms; specifically, by dividing the absolute value of their trade by the size of their trade partners’ respective GDP sizes. We already did this with Ukraine and Canada in previous articles, and found some interesting results in both cases. In this article, we will try to make similar graphs for the trade networks of China, the United States, Germany, Japan, Britain, Brazil, Russia, India, Australia, and Turkey.

Before we begin, however, it is important to note that measuring trade values is not always a simple process. There are a number of reasons why the following graphs should be viewed with a grain of salt. For example, the data they were made with may be inaccurate in some cases (the absolute trade values in  data was taken from the MIT’s Observatory of Economic Complexity; the GDP data was taken from the World Bank). It also only includes trade in goods, ignoring trade in services, international investment flows, illegal smuggling, or tourism.

Arguably, the data can also be misleading in some instances, because it over-emphasizes trade hubs like Singapore, Hong Kong, Belgium, and the Netherlands (and, as a result, perhaps under-emphasizes the trade of countries that are closely commercially integrated with these trade hubs, such as Germany or China). It also treats Hong Kong as an independent economy rather than as part of China, which it probably should not do. Finally, since the Observatory of Economic Complexity only gives data for countries’ top 20 absolute trade partners, in most cases these graphs will still ignore some small countries. For example, the Bahamas probably has a huge relative trade relationship with the US, but it was still too small in absolute terms to be included.

All that being said, I think these graphs might be interesting and instructive. So, here they are:

China – Exports: $2.1 trillion, Imports:$1.4 trillion

China's Absolute Export PartnersIn the graph above we see China’s “absolute” export patterns – in other words, the type of trade patterns we would normally hear about in the media. The US buys an estimated 19 percent of China’s exports, Hong Kong buys an estimated 11 percent of China’s exports, Japan buys 8 percent, and so on. In the graph below, however, we see China’s “relative” export patterns, which tell a very different story:

China's relative exportsAs you can see, in relative terms (i.e. relative to GDP size), Hong Kong buys way more of China’s exports than any other economy does. (And of course, as we said earlier, Hong Kong should actually probably be considered part of China). Singapore and Malaysia, both of which are partially Chinese-inhabited, are next after Hong Kong, followed by Thailand, Taiwan, and South Korea. The US, meanwhile, which had a strong lead in China’s “absolute trade” export patterns, scores very low in this relative trade graph.

China relative and absolute importsHere we see China’s import patterns, both relative and absolute.  The US, though it supplies China with an estimated 8 percent of its overall imports, scores at the very bottom of China’s relative imports list, far behind every other country apart from France. Hong Kong again scores number one in terms of relative trade, but its dominance on relative imports is not nearly as high as it was with exports (this is because most of China’s imports from Hong Kong’s are of services, rather than goods, and the data here does not include services). Taiwan, conversely, is much higher on this imports graph than on the exports graph above. Angola, which was not even on the exports list, scores extremely high in terms of relative imports, because of the oil it supplies China with. Other resource suppliers like Chile, Saudi Arabia, Iran, and Australia also have higher scores on this relative imports list.

USA – Exports: $1.3 trillion, Imports: $1.8 trillion

us relative and absolute exportsHere we see that Mexico is higher than Canada in relative terms, even though Canada is higher in absolute terms. We see that Hong Kong is very high in relative terms, more than 7 times higher than China is (though perhaps most of the US’s exports to Hong Kong are really going to China anyway), as is Singapore. Latin American countries like Chile and Colombia score high in relative terms, as do Belgium, the Netherlands (though both may be trade hubs for US exports to other European countries), and Switzerland. US allies South Korea and Taiwan also score high in relative terms. Major economies like Britain, Germany, France, Japan, China, India, and Italy all score very low in relative terms.

us relative and absolute importsFor US imports, Mexico actually scores almost twice as high as Canada in relative terms (and this does not even include massive narcotics imports from Mexico). Ireland and Vietnam both score very high (higher even than Canada), followed by Colombia, Thailand, South Korea, Taiwan, and China. China scores much higher here than it did in terms of US exports. Nigeria also scores highly, since it sells oil to the US. For the US’s absolute imports, four countries dominate: China, Mexico, Canada, and Japan.

Germany – Exports: 1.32 trillion, Imports: $1.09 trillion

Germany relative and absolute exportsIt is interesting to note that France, which buys more of Germany’s exports than any other country does in absolute terms, scores far lower in relative terms than most of the countries in Central and Eastern Europe. Given that most Eastern European countries are still developing, the fact that their relative imports from Germany are so high could be especially significant. Also notable is how tiny the relative exports of Germany to countries like China, the US, and Japan are. Germany is in general the most export-dependent of any economy we will look at in this article.

Germany relative and absolute importsIn terms of Germany’s relative imports, the Czech Republic and Hungary are again at the top of the list, this time joined by Slovakia. Britain scores lower on this list than it did in the exports list. Norway, which sells oil and gas to Germany, scores much higher. Russia, which also sells oil and gas to Germany, does not score higher, however (though it may be that much of this oil flows through the Netherlands, and is counted as a German import from the Netherlands instead of from Russia). The US scores extremely low.

Japan – Exports: $794 billion, Imports: $793 billion

japan relative and avsolute exportsjapan relative and absolute imports

Britain – Exports: $434 billion, Imports: $615 billion

Britain relative and absolute exportsbritain relative and absolute imports

India – exports: $275 billion, imports: $ 448 billion

india relative and absolute exportsIndia relative and absolute imports

Brazil – exports $247 billion, imports $223 billion

brazil relative and absolute exportsbrazil relative and absolute imports

Russia – exports $470 billion, imports $324 billion

russia relative and absolute exportsrussia relative and absolute imports

Apart from the countries we have looked at so far, France and Italy are the two largest economies in the world in terms of nominal GDP, according to the World Bank. However, since we have already looked at two European countries (namely, Germany and Britain), I made graphs for Australia and Turkey instead. Australia and Turkey are listed as the world’s 12th and 17th largest economies in terms of nominal GDP.

Australia – exports: $249 billion, imports: $240 billion

Australia relative and absolute exports Australia relative and absolute imports

Turkey – exports: $161 billion, imports: $205 billion

Turkey relative and absolute exports Turkey relative and absolute imports

Europe and Arabia: A Geopolitical Perspective

As different as the Quran is from the New Testament, or the Constitution of France is from the Constitution of Saudi Arabia (which is, in fact, the Quran), these differences are arguably less important than those which seperate the geography of Europe from the geography of the Arab world.

Europe is a region of islands, peninsulas, mountains, rivers, forests, and marshes: natural barriers that have historically hindered the development of a unified European identity. The Arab world, on the other hand, is in effect an enormous coastal desert, stretching for nearly 8000 km from the Atlantic to the Indian Ocean and yet, with the exception of some notable mountain ranges, containing few internal barriers of any sort. This comparatively open landscape of the Arab world has allowed it to achieve a level of linguistic, religious, and cultural unity that Europe has rarely if ever been able to match.

While the Desert and its coastal seas act as unifying force within the Arab world, the fact that significant supplies of freshwater can be found in just a few scattered areas within its gigantic territory (mostly in mountains, as in Morocco, Algeria, and Yemen, or in rivers, as in Egypt, Sudan, and Iraq) has meant that the pan-Arab identity it has fostered must compete with a wide assortment of intra-Arab identities, which in most cases have been far better than pan-Arabism at winning the allegiances of their inhabitants. In addition, the geographic division between the Middle East and North Africa has led to sharp ethno-linguistic and political divisions between Arab and Berber peoples within countries like Morocco and Algeria.

The desert geography has also tended to make the Arab world relatively poor, again in stark contrast to Europe, which has become rich as a result of the commercial navigability provided by its numerous slow-flowing rivers, long coastlines, and sheltered seas and fjords, as well as by its luck in possessing a temperate climate and natural resources like freshwater, farmland, timber, and coal.

These opposing geographies have underlain the great historical contest between the “civilizations” Europe and the Arab world have cultivated for themselves. The advantage was first with Europe, arguably, as Italy, led by Rome, was able to conquer the entire Mediterranean basin as well as Mesopotamia, defeating the Carthaginians (a powerful Semitic empire based out of what is now the Arab state of Tunisia, which had controlled much of North Africa and Spain and were ethnically linked to the Phoenicians in the Eastern Mediterranean) and other African and Middle Eastern groups in the process. Even following the decline of the Christian Roman Empire, most of the inhabitants of the Middle East and North Africa continued to be ruled by Rome’s successor, the Greek-led Byzantine Empire (which was also Christian), for several hundred years.

Eventually the tables turned, however, and around 600 CE the Arabian Peninsula united under Muhammad and then expanded its control outward during the rule of his immediate successors, quickly conquering Spain, most of France (for a very brief period), and a large part of Asia. In turn, the Arabs were invaded and occupied by Central Asian groups like the Mongols and Turks; however, in a sign of Arab influence, most of the conquering Turks ended up adopting the religion of the conquered Arabs, and long outlasted the Mongols.

While the Arabs then lost their beloved Spain after a more than 700 year long struggle with Christian forces to keep hold of it, the Muslim Ottoman Turks made up for the loss by conquering all of southeastern Europe as far as the Austrian capital of Vienna, which they besieged in 1529 and again in 1683. Muslims also continued to spread the faith into Southeast Asia: much of what is now Indonesia, which today has the world’s largest Muslim population by far, adopted Islam during the 1400’s or 1500’s, many centuries after the lifetime of Muhammad.

Of course, the Europeans ultimately regained the advantage over their Muslim neighbours. During the late 1400’s the Portuguese first sailed a route to India which avoided passing through Turkish or Arab-held territory, while, around the same period, the Spanish reached the Americas and the Russians surged into Muslim Turkic Central Asia, conquering territory they mostly continue to hold today. The greatest blow to Islam then fell in the 1700’s and 1800’s, as the Muslim Mughal Empire, which at its height had governed over almost a quarter of the world’s population, lost its hold on the Indian subcontinent to the British. The colonizing Europeans also took over Muslim populations in places like Africa and Southeast Asia.

During the 1800’s and early 1900’s, the Ottoman Turks forfeited southeastern Europe and the Arab world in a series of assaults aimed at them by European powers like the British, French, Russians, and Austrians. The Persian empire was heavily intruded upon by both the British and Russians. Finally, in the 1970s, the last super-sized Islamic state, Pakistan, was divided into two separate countries, Pakistan and Bangladesh, which do not even border one another anymore since India lies between them. Today Pakistan and Bangladesh are the world’s sixth and eighth most populous countries, respectively.

For many people, the battle between Europe and Arabia, or between the West and Islam, continues to this day. After losing its main source of wealth when Europe stole the control of trade with India and China away from it, most of the Middle East seemed likely to become somewhat irrelevant to global politics. Instead, it gained a new source of wealth in the modern era: oil. As recently as 2010, more than 15 percent of world oil production occurred in Saudi Arabia alone, while an additional 15 – 20 percent occurred in other Arab countries and 40-50 percent occurred in the Muslim world as a whole.

The Muslim world also accounts for close to a third of world natural gas production (led by Iran, Qatar, Saudi Arabia, and Algeria), and is estimated to possess over 60 percent of the world’s “conventional” proven reserves of natural gas (not including gas from shale) as well as over 50 percent of non-shale oil reserves and over 75 percent of oil reserves that are neither from shale nor from oil sands.

Today, partly as a result of the energy wealth it has gained during the past century, the Arab world has a population of approximately 380 million (in contrast to a century ago, when its population was significantly smaller than even any of the major European nation-states were at the time, without even counting the Europeans’ overseas empires) and a nominal gross domestic product of just under 3 trillion dollars. This means that, if the Arab world could somehow reunite politically, it would have the third largest population and fifth largest economy in the world. It would, in other words, become a Great Power again.

Needless to say, few of the Arab world’s neighbours want to see any serious pan-Arab union come into being. Arab unification was in fact very briefly attempted in modern times, in a formal sense, with the joining of Egypt and Syria to form the United Arab Republic, which lasted from 1958 to 1961. From a purely geopolitical perspective, the potential of such cooperation between Arab countries is especially worrying to regions like Europe because of the Arab world’s shared religious identity – and to a lesser extent, shared cultural traditions and linguistic affiliations – with other parts of the Middle East and Muslim world.  The “classical” version of the Arab language, which is understood by scholars (and other people too) in every country of the Islamic world because it is the language of the Quran, is one potentially important example of a unifying factor throughout the Middle East.

If combined with non-Arab Middle Eastern neighbours Turkey and Iran, the population of the Arab world would rise to more than 530 million and its GDP would rise to more than 4 trillion dollars. The states that comprise the Organization of Islamic Cooperation, meanwhile, have a combined population of approximately 1.6 billion and a GDP of approximately 7 trillion dollars — and they do not even include the estimated 180 million Muslims living in India, 25 million living in China, 16 million in Russia, or 20 million living in the European Union.

While in the West there is much talk of the Muslim world being stuck in an economic decline, Muslims actually continue to have a higher per capita income than Hindus do, or than Christians in Sub-Saharan Africa do. Many Muslim countries have a higher per capita income than China does, even today following decades of rapid Chinese economic growth. The past decade has in fact been a terrific one for most Muslim economies, with oil and gas prices rising sharply, the developing world as a whole growing solidly, and a number of countries with large Muslim populations, most notably Indonesia, Turkey, India, and Nigeria, growing very quickly.

Apart from economic growth, the Muslim world’s geopolitical trajectory has also been positive in the past generation, mainly as a result of the collapse of the Soviet Union having freed about 60 – 90 million Central Asian Muslims (the exact number depends on whether or not you count Soviet-occupied Afghanistan as part of Central Asia) from Russian rule, along with the gigantic, resource-rich region they inhabit.

Since then, some Muslims have been hoping or pushing for a further Islamic geopolitical revival, which many non-Muslim countries would obviously not be happy to see. Pan-Islamic sentiments have, to varying extents, found their way into local and regional disputes between Muslims and non-Muslims throughout the world, in places like Kashmir, western China, Palestine/Israel, various African countries, various Southeast Asian countries, the Caucuses (both within Russia and without), and the Balkans. Arguably, technologies like the Internet have been strengthening pan-Islamic identities as well.

The West has, of course, generally aimed to gain influence within the Arab world, in part to prevent it from ever becoming too closely united. Europe, Russia, and the US have historically been focused on gaining influence in Egypt, for example, as Egypt has by far the largest population of any Arab country, is more internally stable and united than any other large Arab country, and is strategically located, sitting directly in the centre of the Arab world and encompassing the Suez Canal.

The West has also focused on gaining influence in the Persian Gulf, in particular by allying itself closely with the tiny energy-rich Gulf monarchies (Kuwait, the UAE, Qatar, Oman, and Bahrain), as well as with  the royal family of Saudi Arabia and, not too far away, the Israelis, the Iraqi Kurds, and the royal family of Jordan. Given that the West is in some ways more powerful today than at any time in history (largely as a result of the rise of the US, which was completed with the fall of the Soviet Union), and that the Persian Gulf region is sharply divided between Arabs and Iranians, Sunnis and Shiites, and Iraqis and Saudis, gaining influence there has not been too difficult for the West to achieve.

And so, even leaving aside social values or issues explicitly tied to religious belief, many Arabs believe the West is acting unjustly or aggressively towards them. Most believe that the current political borders of the Middle East are “artificial”, imposed on them a century ago by ignorant or sinister British and French politicians. There is certainly truth to this, though, in defence of the British and French, many of the borders that were drawn actually did accurately reflect existing social and geographic divisions within the Arab world.

With a few possible exceptions, such as Kuwait and Lebanon (which arguably should not have been created as independent states), Israel and Palestine (which arguably should have been created as a single state, perhaps even including neighbouring Jordan as well), and Kurdistan (which arguably should be created out of parts of Turkey, Iran, Iraq, and Syria, though even this is more complicated than it is often portrayed), it is not clear that the borders in the Middle East could actually be all that improved upon. But of course, this is a topic worth debating in much greater detail.

It is also not only the West that has been responsible for messing with the “natural” borders of the Arab world. Iran and Turkey, for instance, both refuse to give up Arab-inhabited regions of the Fertile Crescent they possess; a more consistent geographic or cultural rendering of Middle Eastern borders should perhaps have included Turkey handing over its province of Hatay to Syria (as Syria still officially claims it should) and Iran handing over its province of Khuzestan to Iraq.

Yet most people who complain of Western-imposed artificiality among the borders of the Arab world are not concerned with either of these areas, even though both are significant to the politics of the region (especially Khuzestan). Indeed, while Arab bitterness toward Europe’s past imperialism remains wholly justifiable, complaints of imperialistic European map-drawing in the Arab world nevertheless tend to be somewhat exaggerated. If you want to see truly unfair and dangerously-drawn borders the Europeans were responsible for, you should not even begin to think of the Middle East, but look instead to regions like West Africa.

The Geopolitics of Ukraine

If you look at the population density map of Ukraine below, you can see that its inhabitants tend to live extremely close to the borders of the country. The largest city in western Ukraine, Lviv, is only 70 km from Poland. The central city of Kiev, which has twice the population of any other Ukrainian city, is just 85 km from Belarus. The largest city in eastern Ukraine, Kharkiv, is 60 km of Russia. And the largest city in the south, Odessa, is just 40 km from Moldova and directly borders the Black Sea.

Of the 18 largest cities in Ukraine, only three –  Dnieproprovosk, Krivvy Rihy,and Zaporihziya – are located more than 100 km from any of the country’s borders. This is pretty remarkable considering that Ukraine spans 1200 km from east to west and 800 km from north to south, encompassing a territory larger than that of any European country apart from France, Russia, or Turkey. It is indicative of the country’s deep internal divisions. Indeed, as has been pointed out often of late, the name Ukraine literally means borderland.

population_density

From a geographical perspective, Ukraine can be roughly divided into four regions: a plateau in the west, hills and valleys in the east, the Dnieper River Valley in the centre, and the Black Sea coastal plain in the south (see map below). Ukraine’s cultural, religious, and economic divisions generally reflect these geographical ones. In eastern and southern Ukraine, for instance, as many as 85% of people speak Russian, which is arguably around twice as much as in the centre of the country and 20 times as much as in some parts of the west of the country.

Roughly forty percent of Ukraine’s practising Christians are affiliated with the Kiev Patriarchy of Orthodox Christianity, while thirty percent (mostly in the east) are affiliated with the Moscow Patriarchy and fifteen percent (mostly in the west) with Catholicism. Southeastern Ukraine produces virtually all of the country’s coal, which is significant given that Ukraine is the 11th largest producer of coal in the world, and coal generates about a third of all energy used worldwide.

Ukraine_topo_en

Official_Russian_language_support_in_Ukraine

With such divisions, it is no surprise that the country has a difficult time achieving political stability. The departure of President Yanukovych this week marks the third time since 2004 that a President has failed to complete his or her term.

From a purely economic perspective, Ukraine is tied together by its dependence on Russia. Even though the eastern half of Ukraine is far more integrated with Russia than western half of Ukraine, the country as a whole receives 36% of its imports from Russia, compared to just 9% for its next largest import source, Germany. It sends 27% of its exports to Russia, compared to just 6% to its next largest export destination, Turkey. Ukraine conducts a further 4.5% of its trade with Belarus and 3% of its trade with Kazakhstan, both of which remain deeply integrated with Russia themselves. Ukraine also maintains important financial relations with Russia in a variety of other ways, for example through remittances from the large number of Ukrainians living in Russia and in Kazakhstan.

Of course, Ukraine and Russia also share a long history. Kiev is actually thought to have been the birthplace of the Russian nation, during the tenth century AD. Ukraine was then a part of the Russian empire for close to four centuries prior to the collapse of the Soviet Union only 23 years ago. Even today, the Russian and Ukrainian languages share partial mutual intelligibility to a much greater extent than Ukrainian does with other Slavic languages, like Polish or Bulgarian. Many or most Russians still consider Ukraine to be an integral part of their country’s sphere of influence, or even a part of Russia itself.

Russia Cares

Ukraine has the sixth largest population in Europe (not including Russia, Turkey, or Egypt), and the largest territory. Thus, if Ukraine were to be controlled by Russia, Russia would be much closer to being the Great Power that it used to be– something that is probably appealing to many Russians. However, even apart from Russian nostalgia and nationalism there are a number of important reasons for Russia to care deeply about Ukraine.

Ukraine is the world’s 11th largest producer of coal, 6th largest of iron ore, 5th largest of corn, 4th of barley, 5th of rye,  and 9th largest of both wheat and soybeans. It is also the 10th largest exporter of weapons. Russia, meanwhile, is the world’s 6th largest producer of coal, 5th largest of iron ore, 1st of both barley and rye, 4th  of wheat, 10th of soybeans, 11th of corn, and 2nd or 3rd of weapons. Thus, Russia and Ukraine are in many ways direct economic competitors of one another. Russia might therefore benefit from being able to exert influence over Ukraine, in the same way that a business would benefit from exerting influence over a major competitor of theirs. In addition, approximately 80 percent of Russian gas and oil exports to Europe are shipped via pipelines that traverse Ukraine, and the Russian economy remains extremely dependent upon these exports.

The Russians also view Ukraine as an essential component of their geopolitical security. Eastern Ukraine is located only 440 km from Kazakhstan, and Russia relies on this relatively narrow corridor between Ukraine and Khazakstan in order to access its entire southern region in between the Black and Caspian Seas – an area roughly the size of France, which is a critical part of the Russian economy because it is warmer than any other part of Russia, has a very long coastline, and is where the Volga-Don river network flows into the Black Sea. The Volga-Don river system is where nine of Russia`s sixteen largest cities are located, including Moscow, and the rivers are themselves used to transport a significant portion of Russian industrial and agricultural goods to domestic and international markets.

bigMap

Given recent events, the strategic location of the Crimean Peninsula should in particular be understood. As can be seen from the map above, Crimea has the potential to block the movement of Russian ships out of the Azov Sea, the part of the Black Sea that both the Volga-Don network and the Black Sea-Caspian Sea canal empty into.  Moreover, Russia’s Black Sea coastline to the south of Crimea is lined with mountains (see map below), potentially making it difficult for Russia to access any other part of the Black Sea if Crimea were to ever be held against it, as historically nations like the Turks, British, and  Germans have done.

Finally, possession of Crimea might allow Russia to to influence southern Ukrainian cities which have relatively large Russian populations, most notably the southwestern city of Odessa. Odessa is Ukraine’s fourth largest city, by far the largest port in Ukraine, and has a population that is perhaps one-fifth “ethnic Russian”. Odessa is also only 170 km from Crimea, and is just 40 km away from Transnistria, a Russian-supported and partially Russian-inhabited secessionist province of the Romanian-speaking country of Moldova.

black-sea-map

The Black Sea is very important to European countries. The region surrounding the sea, comprising Ukraine, Moldova, southern Russia, Turkey, Georgia, Romania, and Bulgaria, have a combined population of over 200 million, a population that includes much of the most cheaply employable labour in Europe. The Black sea basin stretches inland as far as Germany (see map above). The Black Sea also connects to the Mediterranean, and by extension to the Atlantic and Indian Oceans. Finally, for countries that do not want to rely too heavily on Russia or Iran, the Black Sea is the only economic route from Europe to the vast, resource-rich region of Central Asia (via Georgia, Azerbaijan, and the Caspian; see map below).

Ukraine has a width of 700-1300 km and borders both the Black Sea and the Carpathian Mountains. As a result, when Ukraine, Belarus, Moldova, and the Baltics are all a part of Russia’s sphere of influence, as to varying degrees they all are today, Russia’s effective land border within Europe becomes about 12 percent shorter than its official border, its non-mountainous land border within Europe becomes about 40 percent shorter and divides into two separate parts, and the limits of its influence reach more than twice as far to the west of Moscow as they otherwise would. If Russia believes that it needs this strategic depth, shorter land border, and mountainous buffer, it will see Ukraine as being indispensable to its national security.

Europe_topography_map_en

And remember, Russia is an extremely suspicious country. It is a country that has been invaded many times, that had 20-30 million of its Soviet citizens killed during WW2 (compared to less than 2 million casualties for the United States, Britain, France, and Italy combined, and less than 11 million for Germany and Japan combined*), and that was traumatized during the 1990’s when its post-Soviet economy and political system was in a state of chaos and decline prior to the ascendency of Putin in 2000 and the rapid rise of natural resource prices that began in 2003. Russia is currently very worried about the possible military emergence of countries like China, Japan, Turkey, Iran, Pakistan, and India to its east and south, in addition to its usual concerns over the long-term intentions of European countries, militancy and separatism in its Caucuses Mountains territories like Chechnya and Dagestan, and instability in Afghanistan spilling over into parts of Central Asia.

*(WW2 casualty numbers vary pretty widely depending on which sources you look at, and, where the Soviet Union is concerned, it can also be difficult to determine what share of the casualties were “ethnic Russians”) 

Ukraine’s Future

There has been a lot of talk about the possibility of dividing Ukraine into two countries. While this is not totally inconceivable, it does beg a number of questions, such as whether the Russians are prepared to live with a Western Ukraine that is formally integrated into Europe, and whether Kiev and the other central Ukrainian cities would be drawn toward Eastern Ukraine or Western Ukraine.

Regardless of what happens to it in the immediate future, Ukraine continue to evolve over time as a result of economic developments at home and in the countries around it. From an economic standpoint, Ukraine not only has significant natural resource and agricultural potential, but also some of the most cheaply employable labour anywhere in the vicinity of Europe. Ukraine has a per capita income that is only 27% as high as Russia’s, 36% as high as Turkey’s, 49% as high as Romania’s, 56% as high as Bulgaria’s, and 57% as high as Belarus’s. The only nearby countries poorer than Ukraine are Morocco, Egypt, Syria, Palestine, Georgia, and Moldova, which together have a per capita income around 80% as high as Ukraine’s. With the exception of Egypt, Ukraine has a much larger population than any of these countries.

GDP per capita European Periphery

Finally, Ukraine enjoys easy access to the sea itself, not only because of its ports along the Black Sea, which unlike most of Russia’s do not freeze in the winter, but also because of its numerous navigable rivers. Three of Europe’s four longest rivers run through Ukraine. One of these rivers, the Dnieper, is also one of the two widest rivers in Europe, and deep, and as such allows large ships – up to 270 meters long by 18 meters wide, approximately – to travel all the way inland to Kiev and the border with Belarus. In the future, moreover, a canal linking the Dnieper to Belarus’ Bug river could become usable if Belarus gives the go-ahead for a relatively small amount of construction work on a new lock system. According to Wikipedia, this might allow ships of up to around 110 meters by 12 meters to go all the way from the Black Sea to the Baltic Sea and Atlantic Ocean.

For all of these reasons, Ukraine`s economic growth potential could be enormous. Ukraine’s economic progress has, however, typically been hampered by Russian domination. Russia generally lacks the navigable rivers, long coastlines that don’t freeze in the winter, and proximity to Europe that Ukraine possesses. Russia has historically also posed a military threat to Europe, which has often led Europe (and the United States) to shun Russia economically, hampering Russia’s development.  Russia’s absorption of Ukraine hurt Ukraine’s economic growth, therefore. Indeed, Russia’s per capita income is only so much higher than Ukraine’s today because of the incredible rise of oil and gas prices over the past decade, and because of Ukrainian political dysfunction.

During much of the twentieth century energy prices were not nearly so high, even adjusting for inflation.  Russia was very poor, therefore, and kept Ukraine poor with it in a number of ways, ranging from the infamous forced collectivization of Ukrainian farms under Stalin, to the fact that Ukraine’s railway network still cannot connect directly to Europe’s because railroads throughout the Soviet Union were constructed to use a different gauge than European ones used.  The question of Russia’s influence in Ukraine could therefore determine not only Ukraine’s political future, but also its economic future. This is obviously a big part of the reason that many Ukrainians would rather their country be closer to Europe than to Russia.

If we assume for a moment that natural resource prices will not continue to rise rapidly as they have in the past decade, and that future economic growth will depend instead upon other factors such as demographic trends, labour costs, and the accessibility of external trade and investment, then we can guess that Ukrainian neighbours like Turkey and Romania will  outgrow the Russian economy in the years ahead, while Germany and Western European countries will probably grow slower than Russia will.

How might such changes affect Ukraine? One way to get a very rough idea of this is to think about which countries trade the most with Ukraine as a percentage of their gdp. A country like Moldova, for example, may only account for only 1% of Ukraine’s trade today, but it also has one of the smallest economies in the world, so that relative to the size of its gdp it probably trades more with Ukraine than any other country does. As a result, if Moldova’s income were to become significantly larger than it is today, Ukraine’s economic relationships could be affected to a meaningful degree.

By contrast, Germany may be Ukraine’s fourth largest trade partner today, but it is also the world’s fourth largest economy, so as a share of its gdp its trade with Ukraine ranks fairly low – more than 50 times lower than Moldova, in fact. Further economic growth in Germany might not affect Ukraine as much as growth in a number of other countries would, in other words. The following is a chart of Ukraine’s biggest trade partners that shows approximately how much they trade with Ukraine as a share of their gdp (in comparative terms only: ignore the numbers on the left-hand side of the graph, they are incorrect in absolute terms):

uktr

If we take this line of thinking a step further and imagine that in future decades every country will have the same per capita income as one another (in other words, that developing countries will all catch up to developed countries over time), and that all will continue to trade with Ukraine the exact same amount relative to the size of their gdp as they do today, then we can make a rough prediction as to what Ukraine’s trade patterns will look like in the future. This is, of course, just a thought experiment, not to be taken very seriously. That being said, it may prove useful in giving us a tiny glimpse of what Ukraine’s future could look like.

uktr

(the graph above shows countries’ trade with Ukraine only in comparative terms, not absolute terms. For all countries, absolute trade values with Ukraine are arguably more likely to grow than to shrink over time). 

This scenario would see Russia, the West, and China lose much of their commerical grip on Ukraine to Belarus and Moldova. Russia, however, would remain a major trade partner of Ukraine in spite of this decrease, as, to a lesser extent, would the the easternmost countries of both the European Union and the Mediterranean.

This raises a number of questions. First, to what extent will Belarus remain under the influence of Russia in the future? Second, given that Moldova could conceivably become a province of its large European neighbour Romania because of Moldova’s tiny size and the fact that Romanian and Moldovan are the same language, what role will Romania seek to play with regard to Ukraine?

Finally, given that most of Ukraine’s trade with the Middle East and Asia will probably continue to pass through the Turkish Straits in order to reach the Mediterranean and Indian Ocean, and that southern Ukraine was controlled by the Turkish Ottoman Empire from the 1450’s until the 1780’s, and that there are still about a quarter of a million Turkic (related to Turkish) Muslim people living in the Crimean Peninsula, plus an estimated 50-75 million other Turkic Muslim peoples living in Russia or in areas within Russia’s political sphere of influence, what role will Turkey seek to play with regard to Ukraine?

Of course, it would not be a surprise to anybody if Turkey, Romania, or Belarus never match Russia’s influence in Ukraine. Still, this thought experiment arguably helps to show that Russia’s influence in Ukraine might eventually be challenged, and that the challengers might not be the countries most people would expect, such as the United States or Germany. This is useful to keep in mind, as Ukraine’s size, location, natural resources, and internal divisions may continue to make it a conflict zone in Europe during the decades ahead.

Germany’s Trade Empire

The age of formal European empires may be over, but that does not mean that nations no longer possess meaningful spheres of influence. Germany in particular retains an impressive trading empire in the heart of the European continent. This “empire” exists in spite of the fact that Germany’s economy accounts for less than 20% of Europe’s overall economic output. To varying degrees, it encompasses Austria, Switzerland, Poland, Romania, the Czech Republic, Slovakia, Hungary, and Slovenia, forming a geographically contiguous region with a population of 185 million and an economic output of about $5.5 trillion.

France, the Netherlands, Belgium, and Denmark could be said to fall within this sphere as well, albeit to a lesser extent, adding to it another 100 million people with an economic output of $4 trillion. To put these numbers into context, the United States has a population of 315 million, and China has an economic output (at least officially) of $9 trillion.

germany

The statistics behind this trading sphere are rather impressive, considering that most of the countries within it only began trading seriously with Germany during the last two decades, following the end of the Cold War. The Central and Eastern European countries within the sphere rely on Germany for an average of 28 percent of their trade. These numbers may not be as high as, for instance, the 75-80 percent of Canadian and Mexican exports that go to the United States, but they are substantial nonetheless. By comparison, Germany accounts for only 12 percent of Britain’s trade.

Trade With GermanyNone of the countries within Germany’s trade sphere have any other economy they depend nearly so much on. Their second largest trade partners account for an average of just 9 percent of their overall trade. Most of the countries in Central and Eastern Europe also trade a considerable amount with one another, such that when you look at their trade with countries that are not a part of the German trading sphere, it generally accounts for only around 40 – 50 percent of their total. This is a lot of economic exposure for these countries to have to a single bloc of nations.

In France, Belgium, the Netherlands, and Denmark, the countries located in between Germany and the Atlantic Ocean, the numbers are somewhat less decisive. France sends 17 percent of its exports to Germany and receives 20 percent of its imports from Germany. Germany accounts for about 17 percent of the Netherlands’, Belgium’s, and Denmark’s trade, with the Netherlands particularly dependent on exporting to Germany and Denmark particularly dependent on importing from Germany. In addition, these countries trade a lot with one another, so that their exposure to Germany`s commercial sphere as a whole is  equal to roughly 35 – 45 percent of their trade.

Of course, not all states depend equally on trade for their economic activity (see graph below). Exports, for example, account for 75-95 percent of the GDPs of the Netherlands, Belgium, the Czech Republic, Hungary, Slovakia, and Slovenia,  but just 25-35 of the GDPs of France, Romania, and all of the major European economies outside of Germany’s trade sphere (namely Britain, Italy, Spain, Russia, and Turkey). This makes countries like the Czech Republic and Slovakia particularly dependent on trade with Germany, and countries like Romania and France much less so.

Exports as % of GDPUnlike any of the countries within its trade sphere, Germany is well-diversified in its import and export patterns. It not only spreads out its trade throughout its “empire”, but also engages significantly with many different countries outside of it, such as Italy, Britain, Spain, Russia, China, and the United States. Germany’s only real trade dependence – without getting into specific industries, such as natural gas production, where it receives over 65 percent of its imports from Russia – is receiving 14 percent of its imports from the Netherlands. However, this same trade accounts for 23 percent of the Netherlands’ exports, and the Netherlands is one of the most export-dependent countries in the world, so in general the Dutch cannot easily threaten to raise the prices of the products they sell to Germany.

Germany's trade partnersAlthough they need to be taken with a very large grain of salt, these trade statistics reveal a pattern that is much too large to ignore. One thing that stands out – glaringly, given the current political debates in Europe – is that this trading group barely corresponds with the European monetary zone. Poland, Switzerland, the Czech Republic, Hungary, Denmark, and Romania are all in Germany’s trade sphere, yet use their own national currencies instead of the Euro. On the other hand, a number of economies located outside of the trading sphere, such as Spain, Italy, Finland, Greece, Ireland, Portugal, and Estonia, do use the Euro as their currency.

Countries that use the Euro:

https://i1.wp.com/www.ey.com/Media/vwLUExtFile/ACTv2_Eurozone_2012/$FILE/all-country-map.jpg

(the graph above is a few years old: Latvia and Lithuania should now be highlighted too)

Trade with Germany:

germany

This disconnect is for the most part a legacy of the Cold War, as the precursors of the Eurozone were built at a time when Russia still dominated Eastern Europe. Now that Eastern Europe is sovereign and commercially integrated with Germany and Austria, however, the shape of the Eurozone seems to make little sense. It actually conforms more to the trade spheres of France, Italy, Spain, the Netherlands, and Belgium than it does to Germany’s.

France, for example, relies on Spain and Italy for more than twice the share of its trade that Germany does, and on Poland, Hungary, and the Czech Republic for three times less than Germany does. Even Britain, which still uses the pound, conducts almost 10% more of its share of trade with Eurozone countries than Germany does. (Britain trades a lot with Ireland, Belgium, the Netherlands, and France, each of which uses the Euro).

One of the results of this disconnect is that even though Germany has the largest trade surplus in the world apart from Saudi Arabia, it actually buys slightly more from the countries within its trade sphere than it sells back to them. This is partly because the Netherlands and Switzerland have incredibly large trade surpluses relative to the size of their gdp’s, but it is also because Germany’s largest trade surpluses tend to be with countries which, unlike Eastern Europe, have relatively high wages and/or strong currencies, such as the United States, Denmark, and Eurozone countries like Italy and Spain.

Another thing these statistics show is that while German influence is pronounced in all of the countries within its trade sphere, it is decisive in none of them. Apart from Austria, a German-speaking state, no country relies on Germany for more than 40 percent of their overall trade, and most less than 30 percent. In contrast, if all of these countries were to band together, Germany would be dependent on them for approximately 45 percent of its trade, and more than 20 percent of its trade even if you exclude France, the Netherlands, Belgium, and Denmark.

In other words, Germany is dependent upon these countries as a group, just not (with the possible exceptions of France and the Netherlands) on any of them individually. As such, for these states to exert any meaningful leverage over Germany, they would have to cooperate closely with one another. Within Eastern Europe, the only country that could potentially provide enough leadership to promote such cooperation is Poland.

Poland is by far the biggest of the Eastern European countries in the grouping of states that are heavily dependent on German trade.  Poland’s gdp, at around 515 billion a year, is not much smaller than the combined gdp’s of Romania, Hungary, the Czech Republic, Slovakia, and Slovenia. Its population of 39 million is similarly close to these countries’ combined population of 49 million. Poland also relies on exports in general for around half the share of its gdp that the Czech Republic, Hungary, and Slovakia do, making it much less dependent on Germany. And Poland is also slightly more diversified in its trading partners than the Czech Republic or Hungary are. For example, only 27% of Poland’s trade is with Germany and Austria, whereas Hungary and the Czech Republic conduct 30-35% of their trade with Germany and Austria.

It will, however, be difficult for Poland to exercise leadership in Eastern Europe, not only because of its trade dependence on Germany, but also because of its distraction with Russia to its east. Even though Poland’s economy grew an estimated 2.5 times faster than Germany’s and twice as fast as Russia’s last year, its gdp is still almost seven times smaller than Germany’s and four times smaller than Russia’s. Poland’s population is less than half the size of Germany’s and almost five times smaller than Russia’s. Russia is also Poland’s sixth largest export destination, and supplies Poland with natural gas.

As has often been the case in the past, therefore, the question of Poland’s relationship vis-à-vis the Germans and Russians is of critical importance to the political trajectory of Europe as a whole. How much will Poland’s economy grow in the years ahead? How much leadership will it be able to provide in Eastern Europe? How much support will Poland receive from countries that may want to turn it into a regional counterweight to Germany and Russia – countries, for example, like the United States, Britain, France, or even Sweden? Among other things, the answers to these questions could help determine whether or not Germany can keep hold of its relatively newfound commercial empire.

Bulgaria’s Uncertain Future

Most North Americans know nothing about the country of Bulgaria, except maybe that it was the birthplace of Quidditch superstar Victor Krum.

This is not surprising. After all, there are a lot of countries in the world, and Bulgaria is a relatively insignificant one. It has a population of only seven and a half million, and an economy that is smaller than all but five of America’s fifty states. Americans tend to learn about other countries only when newsworthy events take place in them, and Bulgaria has not generated many of these in recent history. Lying quietly behind the Iron Curtain between 1945 and 1989, then spectating as its Balkan neighbours descended into violence during the 1990s, Bulgaria has largely managed to avoid any wars or ethnic unrest since the Second World War. In that conflict, however, Bulgaria played an active role, taking part in both a Nazi-led occupation of Greece and Yugoslavia in 1941 and an Allied invasion of Hungary and Austria in 1945.

Bulgaria’s current level of anonymity may disappear in the not-too-distant future. In fact, it can be expected that in the approaching decades Bulgaria will attract a level of attention from the rest of the world that it has not experienced in many decades. This notoriety will not come about as a result of Bulgaria`s own accomplishments (sorry Bulgaria). Rather, it will emerge as the product of Bulgaria`s relationship with its increasingly powerful Turkish neighbours.

The land border between Bulgaria and Turkey currently serves as the southeastern frontier of the European Union, and it also Turkey’s most vulnerable one. Whereas Turkey’s eastern borders are separated from the majority of the Turkish population by over a thousand kilometers of hills and mountains, the distance between Istanbul and the Turkish-Bulgarian border is less than 200 kilometers, and the terrain is flat the whole way. Not incidentally, it was from the area that is today Bulgaria that the Romans conquered Byzantium (today’s Istanbul) in 173 BC, and that European forces conquered Constantinople (also today’s Istanbul) during the Fourth Crusade in 1204 AD. In fact, the Turks themselves conquered Constantinople from this direction, in 1453 AD, though in their case they approached the city from both east and west rather than from the west alone.

http://upload.wikimedia.org/wikipedia/commons/f/fd/Topographic_Map_of_Bulgaria_English.png

If Turkey were to dominate even just the southern half of Bulgaria, as its Ottoman predecessors did for nearly five hundred years between 1396 and 1885, the distance between its western border and Istanbul would effectively double. Even more important, Turkey would then be able to anchor itself on the Balkan Mountains instead of on the relatively flat lowlands which today comprise much of the border between the two countries. This would give Turkey a defensible buffer in the north, while also allowing it to outflank any theoretical threat that might emerge on its border with Greece, its long-time rival, which is also located near to Istanbul and the rest of the Turkish heartland. Obviously, the Turks would find such a state of affairs to be quite beneficial, all other things being held equal.

This is important, because there is not much reason to think that Turkey could not dominate Bulgaria if it wanted to. Turkey is a much wealthier and stronger country than Bulgaria is. Its gross domestic product is 20 times larger than Bulgaria`s, and its population is more than 10 times larger than Bulgaria`s. Turkey devotes an amount equal to 2.3% of its GDP to military spending, compared to only 1.5% for Bulgaria and 1.7% for the European Union as a whole. There is also a large Turkish diaspora living within Bulgaria, accounting for more than 10 percent of the country’s total population and more than half of the population within two of its 28 provinces.

A few decades from now, Bulgaria will probably become even weaker relative to Turkey than it is today. Turkey’s economy is expected to perform well, since the country is populous, relatively underdeveloped, and strategically located as a land bridge between Europe and Asia, a naval bridge between the Mediterranean and Black Seas, and a cultural bridge between the West and Islam. Indeed, Turkey was the second fastest growing large economy in the world between 2008 and 2012, trailing only China. Turkish birth rates are at a healthy 2.1, compared to Bulgaria’s 1.5, which is among the lowest in the world. Finally, Bulgaria is highly dependent upon exports for its economic growth, while Turkey is not. As a result, any economic slowdown among Bulgaria’s trade partners in Europe and other areas of the global economy would hurt the Bulgarians far more than the Turks.

Bulgaria is also economically dependent on Turkey. The value of Bulgaria`s exports to Turkey are currently equal to about 10 percent of all Bulgarian exports, making Turkey the country’s third largest export destination, slightly ahead of Romania and slightly behind Germany and Italy. However, Italy and Germany have economies that are 2.5 and 4.3 times larger than Turkey`s. As Turkey`s economy grows, therefore, its appetite for Bulgarian exports seems likely to grow faster than Italy`s or Germany`s would if they were to experience the same level of growth — and they are not expected to grow nearly as fast as Turkey is. As a result, it is quite conceivable that Turkey will become Bulgaria’s leading export destination in the near future, possibly by a large margin. In fact, an amount of Bulgarian trade accounting for approximately 20-25 percent of Bulgaria’s gross domestic product already passes through the Turkish-controlled Bosporus and Dardanelles Straits every year on its way to and from other markets around the world.

For all of these reasons, Turkey`s only real barrier to dominating Bulgaria is that, as a member of both the European Union and NATO, Bulgaria has been guaranteed to be economically, militarily, and politically shielded from external threats by Western Europe and the United States, both of which are much more powerful than Turkey. Russia is another country interested in Bulgaria; both Russia and Bulgaria are Slavic, Orthodox Christian countries, and the Russians sell a lot of energy to Bulgaria in order to make Bulgaria’s next-door neighbours, the Romanians (who are Latin rather than Slavic), feel uneasy, so that the Romanians will not become too pushy within their own next-door neighbour, Ukraine. Indeed, the fact that Bulgaria is not being controlled by Turkey as we speak is probably more a testament to the strength of the United States, Western Europe, and Russia than it is to Turkish timidity or Turkish indifference towards Bulgaria.

Ultimately, however, it is easy to imagine that in the future Bulgaria will become the site of a geopolitical tug-of-war that will involve Turkey, various European countries, and the United States. It is also not so difficult to imagine that the Turks will win this tug-of-war, given that they care much more about Bulgaria than the US or any European powers do, and given that Turkish economic prospects look promising. In that case, the level of independence that Bulgaria has enjoyed for the past 23 years could come to an unexpected, perhaps even violent, end. The only silver lining for Bulgaria is that it might benefit economically from Turkish growth.

Top 10 Myths about the Global Economy

The 2000’s was a decade of rapid economic change. The Chinese economy grew enormously, and to a lesser extent so did the economies of Russia, Turkey, Saudi Arabia, Brazil, South Korea, India, and others. Mobile phones, smartphones, and the Internet changed the way billions of people live their lives and conduct business. Near the end of the decade there was a major shock to the global economy, dropping growth from about 4% between 2005 and 2007 to 1% between 2007 and 2009. The slowdown thrust millions of people into unemployment.

One of the byproducts of such speedy transformations has been confusion regarding the present configuration of the global economy. According to a 2011 Gallup poll, more than half of Americans believe that the world’s largest economy is China, whereas only thirty percent believe, rightly, that it is the United States. While some of the blame for ignorance of this kind should presumably go to the American education system and media, its root cause is probably just that the world has been changing so fast that people have not had the time to catch up to what is really going on.

With that in mind, in this article we have tried to compile the ten most widely held myths about the global economy. They are as follows:

1.      China Owns All Of America’s Debt

Contrary to popular belief, China only owns about 8 percent of American government debt and 2.7 percent of total American debt. This is not so unique: Japan, for example, owns 6 percent of American government debt, and England owns 2.5 percent of American government debt. China also does not receive as much leverage over the United States from these debt holdings as is commonly thought, because its economy is considerably more dependent on trade with the United States than the American economy is dependent on trade with China. China’s exports to the United States are equal in value to around 6% of China’s gdp, whereas American imports from China are equal in value to only around 1.8% of American gdp. Chinese leverage over the United States is also compromised by the fact that the United States military dominates the Indian and Pacific Oceans that China requires access to for nearly all of the imports and exports it depends on.

2.      China Will Soon Overtake the United States

For China’s economy to equal America’s even ten years from now it would have to grow at an average of 9 percent in real terms, assuming the economy of the United States would only continue at the relatively unimpressive rate of 2.5 percent per year it is currently growing at, and that exchange rates remain at their present rate. This would be a remarkable feat; in its entire mod­ern history China has only twice averaged an annual growth rate of more than 9 percent over the course of a decade, and no country in modern history has grown at an average of more than 10 percent over a period of five and a half decades, which China would accomplish if it  were to grow at such a pace over the next ten years. To say that China will definitely achieve such growth, therefore – when it is facing a huge number of challenges, including high commodity prices worldwide and slow growth among the Japanese and European consumers of its exports – is a bit of a reach. And of course it is also possible that the American economy will grow faster than it is expected to in the years ahead.

3.      America Doesn’t Make Anything Anymore

It has become popular to argue that the United States is becoming economically or even morally bankrupt because it no longer produces tangible goods, but instead focuses on service-sector industries like fast food and finance. The fact is, however, that America does produce tangible things: it still boasts the world’s first or second largest industrial sector (depending on which data you accept), even as the share of its GDP that the sector accounts for has shrunk significantly over the course of the past generation. America arguably manufactures more than China does, and it certainly manufactures far more than Japan and Germany do. In fact, because energy prices in the United States have recently become much cheaper than in Europe or Japan, the US may now also be able to grow its high-end manufacturing base faster than those of other large developed economies.

4.      2008 Was the Worst Recession Since The Great Depression

Okay, this myth may technically be true, perhaps. Still, by everyone constantly repeating it, the idea that 2008 was unprecedentedly similar to the Great Depression has been widely and wrongly perpetuated. The fact is that for most large economies – with the possible exceptions of Spain and Italy, and perhaps a few others – the 2008 crisis and the ongoing European crisis it spawned are actually more similar to the string of recessions that have occurred since the Great Depression than they are to the Depression itself.

Indeed, there might even be a case to be made that 2008 was the least painful of the major American economic crises to occur since the Great Depression, for instance because today’s unemployed have access to technologies that did not exist in previous recessions. Certainly the recessions of the 1970s and early 80s are too often overlooked in this discussion, perhaps due to nostalgia. In any case, it is still too early to tell. The Great Depression in the US saw little economic or employment growth for an entire decade, so at the very least we will not find out how apt the comparison is for  several more years.

 5.      Greece Matters

Greece`s economic problems have been discussed so often in the news that many people have gotten the idea that the country is a significant contributor of Europe’s overall economic crisis. It is not. Though extremely troubled, Greece is actually too small to affect Europe in any meaningful way beyond serving as a harbinger of or catalyst to its real problems – which include, for example, fifty percent youth unemployment in Spain, the world’s twelfth largest economy. The entire Greek economy is actually only about the size of that of Maryland; it is smaller than 16 other European economies. In other words, believing that Greece is the cause of Europe’s problems is sort of like believing that poor sales of snacks is why Blockbuster went bankrupt.

6.      India Is a Major Economic Power

Despite having a population of 1.3 billion people, India has a nominal economic output that is only about as large as those of Canada, Spain, or Mexico. Though India is undoubtedly a regional economic power, boasting an economy larger than those of Pakistan, Bangladesh, Saudi Arabia, Iran, Sri Lanka, and Myanmar combined, it is not yet a global power, and does not belong in the same breath with China as it is so often put.

One reason for this confusion is that economic size is often adjusted for purchasing power parity rather than looked at nominally, which puts India as the third largest economy in the world. While ppp-adjusted gdp is by no means irrelevant, it ignores the fact that India is one of the world’s most import-dependent economies: it is, for example, the largest or second largest importer of coal, oil, and weapons, and imports equal about 30% of its gdp, quite a bit higher than China and much higher than the US or Japan.  As a result, India’s exchange rates – i.e. its nominal gdp – cannot be ignored. Of course, India may still become a major economic power very soon. It might even wind up the world’s biggest economy at some point. But don’t be fooled: today India is a just an impoverished, second-tier economic power, with comparatively little say in world affairs beyond its own region.

7.      It’s Over For Japan

A rapidly aging population, two decades of economic stagnation, a highly publicized nuclear meltdown, and the spotlight-stealing dynamism of its Chinese and South Korean next-door neighbors has flipped perceptions of Japan from that of the rising power of the world in the early 1990’s to a fallen one today. Behind Japan’s low-growth exterior is an economy that is still the world`s third largest by far, however, bigger than those of Germany and England combined. In fact, if instead of using gross domestic product as a measuring stick you use the United Nations’ Inclusive Wealth Index – which attempts to measure not only growth itself but also the medium-term socio-political and financial sustainability of such growth – Japan’s economy ranks second, with a rating greater than those of China and Germany combined. So don’t count Japan out just yet.

8.      The World Is Flat

Globalization is real, but it is not yet as real as many people think. Here are a couple of statistics that should prove this: only an estimated 35 percent of people in the world have even the most basic access to the internet; North America relies on extra-continental trade that is equal in value to only around 7% of its economic output; Europe relies on extra-continental trade that is equal in value to only around 12% percent of its economic output. Among large economic regions only Northeast Asia is significantly globalized in its trading patterns, buying huge quantities of natural resources from the Persian Gulf, Southeast Asia, and the rest of the world,  and selling huge quantities of manufactured goods to North America, Europe, and the rest of the world.

But even Northeast Asia is far from being truly globalized. China, for instance, trades roughly 75 percent as much with Japan and 60 percent as much with South Korea as it does with the United States, even though the United States’ economy is more than three times larger than that of Japan and more than thirteen times larger than that of South Korea.For now, therefore, the world is not flat: local, regional, national, and continental links still remain economically more important than global ones.

9.      China Has A Massive Surplus

Politicians around the world often complain that China floods their markets with unnaturally cheap goods but is not willing or able to buy anything back in return. The fact is, however, that China’s economic surplus is not as large as it is generally portrayed, but only seems so because statistics falsely tend to treat Hong Kong and Macau – former British and Portuguese protectorates, now semi-autonomous administrative districts – as if they are still not part of China, though they both speak Cantonese and were officially integrated into the country’s political system in the late 1990s. Paul Krugman wrote an essay on this topic back in 1997, when China was acquiring formal control of Hong Kong back from the British.

Being metropolises, Hong Kong and Macau both import much more merchandise than they export; they can afford to do so because of sales of services – like tourism and finance – and through money that their wealthy residents earn on property or businesses that they own in other parts of China and throughout the world. Thus, when Hong Kong and Macau are counted, China’s trade surplus shrinks by about 15 percent, becoming significantly smaller than those of Germany, Russia, or Saudi Arabia, and smaller in proportion to total economic output than 10 of the world’s 25 largest economies. This reflects the fact that China actually does import a decent amount of manufactured goods, and a massive amount of natural resources, from countries around the world.

10.    It`s All About Culture

Lots of people believe that culture is the driving force of economics – that lazy Greeks, efficient Germans, ‘backward’ Arabs, Confucian Chinese, responsible Canadians, and innovative Americans are the determining players of the world we live in. This is mostly nonsense, in my opinion. Not only may such cultural descriptions be over-exaggerated stereotypes, they also fail to take into account the fact that culture – and, relatedly, politics – does not emerge from a vacuum, but instead stems from more fundamental influences like geography and historical circumstance. Indeed, it should not come as a surprise that physical geography alone does a far better job at explaining present economic outcomes than culture does.

Take Europe, for example. Its north-south economic split is not, as many people think it is, primarily the result of Siesta-inclined Mediterranean cultures, but rather is due to the fact that the Mediterranean region is fairly dry and almost entirely hilly or mountainous, whereas the North European Plain and England are mostly flat and filled with navigable rivers. This has led the two regions to develop very different social and political dynamics, and given a sharp economic advantage to northern Europe ever since the discovery of  trade routes to Asia that circumvented the Mediterranean.

Similarly, the few areas of Mediterranean Europe that are flat, fertile, and easily accessible by water (which are located almost entirely in southern France, northern Italy, and Catalonia) occupy less than 20% of the land in Europe that is situated within 400 km of the Mediterranean, yet account for more than half of its wealth. Geo-economic patterns such as these are hardly unique to Europe, in fact. For example, nearly every country in the world to the north or south of the Tropics has a per capita nominal gdp of more than $10,000, whereas nearly every country within the Tropics has a per capita nominal gdp of less than $10,000.