The Watergate Style Break In That Covered Up Shocking Wave Of Clinton State Department Scandals

Via Disobedient Media

In 2013, it was first reported that the Clinton State Department had called off eight separate internal investigations into alleged misconduct by the diplomatic corps. When whistleblowers attempted to highlight the wave of coverups, they were subjected to a harassment campaign by the State Department. The law firm representing the former State Department employee who publicized the misconduct was broken into and key evidence stolen in an apparent effort to further obfuscate efforts to ensure a proper investigation into the crimes was carried out. The event was not given widespread attention by the media when it first emerged.

I. The U.S. Government Failed To Appoint An Inspector General For Five Years

Hillary Clinton was appointed to her position as Secretary of State on January 21, 2009, serving until February 1, 2013.  From January 16, 2008 to September 30, 2013, the Obama administration had failed to appoint an Inspector General for the Department of State (DS).  This led some lawmakers to question DS as to why the agency’s top watchdog position, tasked with investigating the practices of roughly 260 embassies worldwide, had been left empty for more than five years, creating the longest such vacancy in the history of any federal agency.  This led Rep. Ed Royce (R-CA), chairman of the House Foreign Affairs Committee, and ranking member Rep. Eliot Engel (D-NY) to write a letter to then Secretary of State John Kerry requesting that he urge the President to nominate a permanent Inspector General for the Department of State as soon as possible. Because DS lacked an Inspector General, Harold W. Geisel, the Deputy Inspector General, was appointed the interim Inspector General of the State Department. Geisel would remain in this position for the next five years, until June 2013.

In 2013, it was first reported that the Clinton State Department had called off eight separate internal investigations into alleged misconduct by the diplomatic corps during the time that there was no appointed inspector general. Of these eight quashed investigations, the one which has found its way back into the limelight, as a result of the media’s complete blackout of President Trump’s human trafficking busts, is that of the former U.S. Ambassador to Belgium, Howard Gutman. MSNBC’s Chuck Todd detailed these allegations in a video report from early June of 2013.

II. Ambassador Gutman Was Shielded From Criminal Charges By The State Department

Howard W. Gutman was sworn in as the U.S. Ambassador to Belgium on August 14, 2009. Before being sworn into his role as Ambassador, Gutman was known to be one of President Obama’s top donors, raising a staggering $775,000 for the 2008 campaign and inauguration committee.  In 2016, hacker Guccifer2.0 began releasing documents from the DNC and DCCC.  According to these documents, Gutman is said to have raised a total of $816,550 for Obama For America (OFA) and $724,500 for the DNC.  The donations are part of what was a culture of pay to play politics in the Obama administration. Four years later, Gutman would again be find himself in the public eye, after the release of a ‘damning’ internal memo.

According to this memo, the Department of State assigned an agent to conduct an investigation into possible criminal behavior involving the ambassador to Belgium.  The agent reported that Ambassador Gutman would regularly leave his protective security detail, in order to solicit sexual favors from both prostitutes and minors.  However, after only two days of preliminary inquiry, the agent was directed to stop any further investigation into the matter, because of a decision by senior Department officials to treat the matter as a “management issue.”  In June of 2011, in response to the allegations and information obtained by the agent, Ambassador Gutman was recalled to Washington D.C., where he met with Under Secretary of State for Management Patrick F. Kennedy, and then Chief of Staff and Counselor to the Secretary of State, Cheryl Mills.  During the meeting, the Ambassador denied all allegations of wrongdoing, and was then permitted to return to his post, with no further action being sought.

Despite the decision to terminate the investigation after only two days, DS Management argued to OIG that the decision was proper, as “no further investigation was possible”.  However, in its findings, OIG concluded that DS was wrong, and that further evidence could have in fact been recovered.  According to the memo, OIG found that over the course of the two-day investigation, “only one of multiple potential witnesses on the embassy’s security staff had been interviewed.”  OIG further found that not only did DS fail to interview Ambassador Gutman, but DS did not follow its normal, established investigative procedures of assigning an investigative case number to the matter or opening.  Lastly, OIG found that DS failed to even keep investigative case files on the matter.

Patrick Kennedy told OIG that he decided to handle the incident as a “management issue”, based on disciplinary provision 3 FAM 4322.2 of the Foreign Affairs Manual.  According to this provision, when “exceptional circumstances” exist, the Under Secretary need not refer the suspected misconduct to OIG or DS for further investigation.  Kennedy went on to explain that he cited as “exceptional circumstances” the fact that the Ambassador worked overseas. When questioned about his determination to terminate the investigation and characterize the explosive allegations as a “management issue”, Kennedy responded that he has, “always acted to honor the brave men and women I serve, while also holding accountable anyone guilty of wrongdoing. In my current position, it is my responsibility to make sure the Department and all of our employees-no matter their rank-are held to the highest standard, and I have never once interfered, nor would I condone interfering, in any investigation.”

On January 23, 2017, amid rumors that he would be replaced, Kennedy left the State Department, ending a career which began in 1973.  This was the same day Secretary of State Rex Tillerson made his first trip to the State Department, in order to introduce himself.

III. State Department Memos Were Edited To Prevent Scandal, Cover Up Embarrassing Details

Earlier drafts of the memo provided to the Washington Examiner, showed DS interim Inspector General, Harold W. Geisel, along with other state officials, editing out passages of the memo, that would have been extremely embarrassing to Hillary Clinton just days before she stepped down from her post.

According to a draft dated November 16, senior officials in the State Department would actively influence the progress and results of internal investigations, as well as to shield “rising stars” from criminal charges or embarrassment that could potentially harm their career. One case, which triggered outraged comment from several special investigations division sources, related to allegations that a Regional Security Officer engaged in serious criminal conduct including sexual abuse of local embassy staff during a series of embassy postings. Sources also stated that a senior diplomatic security official successfully protected some agents on the Secretary of State Hillary Clinton’s security detail from investigations into misbehavior while on official trips. The Examiner reported that no explanation was given as to why this text was removed from the final OIG report published in February 2013.

Another passage that was removed from the February 2013 report indicates that officials from the State Department’s “7th Floor Group” shielded Ambassador Gutman from an investigation into alleged pedophilia. In a separate draft from November 27, next to the passage detailing the investigation into the pedophilia allegations against Ambassador Gutman, someone had typed: “[T]hese allegations must be deleted.” However, this comment was removed from the November 28 draft.

However, the case against Ambassador Gutman is just one of many State Department cover-ups outlined in the memo. Some of the other alleged cover-ups include:

  • Justine Sincavage, Director of Diplomatic Security Service, closing an investigation into former DS regional security officer in Beirut, Chuck Lisenbee, after he was accused of multiple sexual assaults on guards in Baghdad, Khartoum and Monrovia. Sincavage declared the allegations a “witch hunt” and gave agents “only three days” to investigate before closing the investigation.
  • Details about an “underground drug ring” operating near the U.S. Embassy in Baghdad which supplied State Department security contractors with drugs, causing one individual to die of a methadone overdose, which he was taking to counteract his addiction to oxycodone.  DS regional security officer prevented a special investigation into these matters.
  • One passage, completely redacted in the final memo, which revealed that many bureau of diplomatic security officials whom were the subject of investigations, would often come to work with their firearms, leading some investigators to do the same.
  • William Brownfield, assistant Secretary of State for the Bureau of International Narcotics and Law Enforcement Affairs allegedly “gave the impression” to the Diplomatic Security Service that a probe into the deaths of four Hondurans involving the Drug Enforcement Administration (DEA) should not be pursued.  At the time the memo was written, the case reportedly remained open, as the DEA refused to cooperate.
  • Clinton’s Chief of Staff, Cheryl Mills’ intervention into an investigation into an affair between then-Iraq Ambassador-designee, Brett McGurk and Wall Street Journal reporter Gina Chon, after his emails were leaked.
  • The ‘endemic’ hiring of prostitutes among agents belonging to then Secretary of State Hillary Clinton’s security detail.  According to the memo, seven security agents were accused of paying for sex while they were traveling overseas with Secretary Clinton.  Two of these agents would confessed to the allegations, while a third stated that he ‘paid for services that were ultimately not received’.  Despite these confessions, senior State Department personnel allowed one of the offending agents to continue his role in securing a Moscow hotel, ‘despite obvious counterintelligence issues.’  Investigators would later uncover evidence against four more agents, however, senior officials would halt any further investigation into the remaining agents, ‘despite the possibility of counterintelligence issues.’

IV. The State Department Harassed Whistleblowers Who Made The Scandals Public

The Examiner obtained these earlier drafts from Richard Higbie, a senior criminal investigator at the Bureau of Diplomatic Security, after he had disclosed the documents to several members of Congress, as well as multiple congressional committees, under federal whistleblower protections. In a live interview with The Blaze, Higbie provides further insight into the alleged State Department cover-ups. Many of these documents were provided by whistleblower, Aurelia Fedenisn, through a subpoena issued by Higbie’s legal team.

Fedenisn, a former investigator for the State Department Inspector General for 26 years, stated that she wanted to share the original memo with the media, in order to show how internal investigations were being influenced by officials in the State Department.  In an interview with CBS, Fedenisn stated that investigators, “uncovered several allegations of criminal wrongdoing in cases, some of which never became cases.”  Fedenisn explained that agents were very upset with the pushback they received from senior State Department officials: “We were very upset. We expect to see influence, but the degree to which that influence existed and how high up it went, was very disturbing.” According to Fedenisn, when a high-ranking State Department security official was shown a draft of their findings, detailing how investigations were being interfered with by senior State Department officials, he said, “This is going to kill us.”

However, once the final report was released, all references to these specific cases had been removed. Regarding how investigators felt after receiving so much pushback for simply doing their jobs, Fedenisn stated, “I mean my heart really went out to the agents in that office, because they really want to do the right thing, they want to investigate the cases fully, correctly, accurately … and they can’t.” Cary Schulman, Fedenisn’s lawyer, told NBC that her client felt it was important that Congress get this information. Schulman went on to state, “It’s a coverup…The whole agency is impaired. Undue influence . . . is coming from political appointees. It’s coming from above the criminal investigation unit.”

Fedenisn claimed that in response to bringing this information to light, she has been the subject of an intimidation campaign by the Department of State. In an interview with The Cable, Fedenisn’s attorney stated that the Department of State had law enforcement officers camp out in front of Fedenisn’s house, harass her children and attempt to incriminate her. Schulman said after Fedenisn’s interview with CBS, investigators from the State Department’s Inspector General, arrived at Fedenisn’s residence and went to the door where they talked to both of her children and never identified themselves. Investigators talked to the “…older brother and then the younger daughter, a minor, asking for their mom’s place of work and cell phone number…They camped out for four to five hours.” According to Schulman, the purpose of the investigators visit was to have Fedenisn sign a document admitting that she stole State Department materials. However, Fedenisn’s separation agreement with the State Department includes a provision, which legally allows disclosures of misconduct. Schulman further stated that none of this material was classified.

V. Intruders Broke Into The Firm Representing Whistleblowers To Steal Evidence

On June 29, 2013, the firm representing both Higbie and Fedenisn, Schulman & Mathias, was broken into multiple times. The entire incident was captured on camera and reported by the local Fox affiliate. The report states that after kicking the glass of the door in, the two burglars sawed a hole through the wall from an adjoining office and stole three computers, leaving behind other valuables. The firm was the only suite burglarized in the high-rise office building, while all other offices were left untouched.

Security camera footage showing break in at Schulman & Mathias

In a statement to The Cable, Schulman noted that the break-in was, “…a crazy, strange and suspicious situation… It’s clear to me that it was somebody looking for information and not money. My most high-profile case right now is the Aurelia Fedenisn case, and I can’t think of any other case where someone would go to these great lengths to get our information.”

The break-in came shortly after it was reported that Higbie’s email account had been hacked. According to Schulman, the hack targeted Higbie’s Gmail account and the perpetrators, deleted four years of emails, some detailing alleged wrongdoing at the State Department. As reported by the New York Post the deleted e-mails included evidence of misconduct by top officials at the department, communications with other potential whistleblowers there, correspondence with members of Congress who were investigating the allegations, and correspondence between Higbie and Schulman regarding legal strategy. Schulman, calling the hacking job “sophisticated” and the targeting of his client is “alarming”, noted, “Obviously, somebody is not happy with something he’s doing and wanted to get that information and also cause him an inability in the future to have ready access to that.”

Although it’s been nearly four years since this story broke, Disobedient Media was able to contact Damon Mathias, formerly of the Schulman & Mathias law firm. When asked about the circumstances surrounding the break-in, Mathias noted that he was “fresh out of law school”, and that they were a very small firm.

“I was a very young attorney and I partnered with an older attorney…and we had a very small, humble office, it was just us two. We weren’t exactly a prime target. I flew to Washington that same week the story broke…[and] gave testimony before Congressional committees. And then…15 days later all the computers are taken”

When asked if they ever heard back from members of Congress after giving testimony before committees, Mathias confirmed a disappointing truth: that these Congressional hearings are simply just for show. While Congressmen enjoy getting their names in an article in relation to the topic, the subject is usually dropped soon afterwards. “It’s all a show, it’s all a show. And right after I met with them, you saw the OIG meeting with Royce’s committee and after that it was crickets. It was over” Mathias said. Recounting his experience with the information he was able to see, Mathias stated, “At the end of the day…the glimpse that I saw going through those documents, and going through everything was just, wow, you know, in our name? We are citizens and they go abroad in our name. The stuff that they’re doing…It definitely needs to be brought to light.”

The final thought Mathias left us with was a sad, bleak picture regarding the fears held by many other governmental officials who have seen wrongdoing throughout their time in government, and why they either wait until the end of their careers or instead, choose to never whistleblow at all, “I’ll tell you this…the one thing with Aurelia, where it was kind of the perfect storm, is that she was on her way out. There are a lot of people up there who will not say anything… I’m not gonna judge them, but, you know, it’s very tough to do that when you still have a lot riding on the line. And the thing with Aurelia is she was out, so she had that freedom to speak out and the retaliation wasn’t really there…there’s a lot out there, but a lot of people are just way too afraid to speak out, unfortunately. We haven’t really helped whistleblowers in that regard.”

“The Nightmare Scenario” And Everything Else: The Full French Election Matrix

Yesterday, we presented a Deutsche Bank research report which tried to evaluate whether, despite polls suggesting otherwise, a Le Pen-Melenchon first round victory was possible in the French election this coming Sunday. In a surprising break from the conventional wisdom, this is what DB concluded:

Melenchon’s rise in the polls has been one of the key market drivers since the end of March. Further decline in Hamon’s votes is unlikely to support Melenchon to the same extent as it did in the last three weeks. However, the more important point is that the risk around the first round persists as (a) the top 4 candidates are within the historical margin of error and (b) the high level of undecided voters increases the uncertainty of the outcome.

Why so much attention on Le Pen-Melenchon? Because as the WSJ wrote  this morning, “with the start of the French election just days away, investors are contemplating their nightmare scenario: a choice between far-left and far-right candidates. In recent days, a surge in opinion polls has placed Jean-Luc Mélenchon, a left-wing firebrand who promises higher wages and fewer working hours, as a potential candidate to move past this Sunday’s first round of voting. That could set up a second-round vote in May 7 with Marine Le Pen, an economic nationalist who wants to pull France out of the euro.”

A runoff between Ms. Le Pen and Mr. Mélenchon “would be a disaster for France…[and] a disaster for Europe,” said Patrick Zweifel, chief economist at Pictet Asset Management.

 

Under that scenario, investors would dump the debt of France and of weaker European economies and send the euro sharply lower, analysts say. 

Ok, so we know what the nightmare scenario is, and that as DB explains, it is certainly a probable outcome. What are the other 5 possible permutations for the second round? Here, courtesy of Market News is a breakdown of all 6 scenarios:

  • Macron-Le Pen (63%/37%, Ipsos poll April 14): The most plausible. The 2 candidates have led the polls for a few months. This scenario would come with no surprise on the financial markets, which have already integrated it.
  • Melenchon-Le Pen (60%/40%): The most feared. Risk is not fully priced, so it would come as a bomb on markets. Choose between the devil and the deep blue sea.
  • Macron-Fillon (64%/36%): The most welcome. This would give much appeasement with both Le Pen and Melenchon moved away.
  • Melenchon-Fillon (60%/40%): The most surprising. Fillon was not even favoritein the right party primary elections (Juppe was), Melenchon got 11% in 1st Round in 2012 Presidential, but French people know how an outsider can surprise (2002 elections, Le Pen (father) passing in 2nd Round)…
  • Fillon-Le Pen (56%/44%): The most at right. With huge abstention expected from left voters in this scenario, financial markets would not exclude a Le Pen win.
  • Macron-Melenchon (55%/45%): The most erratic. It would be feared that Le Pen voters slide towards Melenchon.

That’s the summary. For those looking for a more detailed matrix-based breakdown of what to expect, here is BofA’s Gilles Moec laying out the nuances of the French “binary event with multiple scenarios”

Next Sunday France will hold the first round of the presidential elections. Out of the 11 candidates, only the two with the highest proportion of the votes will qualify for the decisive second round on May 7. The opinion polls are so tight between the four top contenders that, once taking into account the error margins – as Deutsche Bank has done – they suggest 6 second-round combinations are arithmetically possible, with Le Pen-Melenchon a distinct probability.

BofA continues:

This only should be enough to keep the market on its toes. Indeed, the following scenario analyses indicates that out of these 6 combinations, only one would be “market friendly” (Emmanuel Macron vs François Fillon) in the sense that their stated policies suggest both would strive to keep France in the Euro area and, to varying degrees, would implement reforms to spur potential growth. We also found one scenario “market adverse” (Marine Le Pen vs Jean-Luc Melenchon), with both contenders being eurosceptic to varying degrees and supporting ultra-loose fiscal policy and a re-regulation of
the French economy. The remaining four combinations are binary, opposing one pro-European supply-sider to one Euro-sceptic big spender, see Table 1. We note based on available polls, in three of these cases, the “pro-European” candidate would defeat the “Euro-sceptic” (Macron would win against Le Pen and Melenchon, Fillon would win against Le Pen, although by a smaller margin than Macron). The riskiest of these binary combinations would be Fillon against Melenchon, in our view. Only a few polls tested this hypothesis, but they suggest the radical left candidate would win in this configuration with a comfortable margin.

Finally, here is a detailed breakdown of the supply vs demand economics, and pro-EU vs EU sceptics:

In nutshell, the economic debate around this election is centred on a dichotomy between reform – in particular deregulating the labour market – and protect – in particular affirming the French comprehensive welfare state. The relationship to Europe is to a large extent a by-product of this reform/protection focus. The reformists (Macron/Fillon) insist on the need for France to adapt to the current architecture of the EU, which promotes free competition and sets limits to national fiscal policies. Those who focus on protection consider either that the EU, and in particular the Euro area, is essentially incompatible with maintaining the French welfare state (Le Pen) or needs to be thoroughly reformed to offer space for demand-side fiscal policies and more social rights (Melenchon). Below, we briefly review main stated policies of the main four candidates (starting from the very left going towards the extreme right):

 

Melenchon

 

Melenchon wants to use fiscal policy to bolster the welfare state and growth. This includes a deficit-financed EUR 100bn capex programme and EUR 173bn additional public expenditure over five years. Consequently, the public deficit is expected to balloon to 4.8% in 2018 before gradually declining again, if all goes well (Melenchon explicitly counts on a large multiplier effect). An expansion of social security benefits, and adjustments of public sector pay are intended. Higher tax rates for higher incomes (including an income tax on the revenues of French citizens living and working abroad), revoking past labour market reforms and lowering the statutory pension age to 60 years (from currently 62) are discussed. Nationalisations of previously public companies (energy sector in particular) are among his goals, together with higher regulation and higher taxation for the financial sector.

 

Melenchon is EU sceptic: He has stated that he wants to renegotiate EU Treaties to provide France with more autonomy again, and though not his flagship project, an EU referendum on the renegotiated EU terms is among his considerations. While EMU exit is not explicitly part of his plan (unlike for Marine Le Pen), he is challenging the current functioning of the monetary union. He wants to change the status of the ECB, explicitly allowing the central bank to directly monetise government debt, and lifting the inflation target to 4-5% p.a.

 

In a Melenchon scenario, after an initial sell-off, the market could attempt to stabilise on the belief that Melenchon’s EU goals are sufficiently vague and his parliamentary support sufficiently thin to favour a sort of compromise solution. Although less extreme than Le Pen’s policies, we would still expect that having the second largest economy of the Euro area politically constrained and/or experimenting with ultra-loose fiscal policy would remain a durable drag on any rekindling of animal spirits in the whole region, in our opinion.

 

Macron

 

On fiscal issues, Macron’s policies are more prudent, combining nods to Germany – respecting the 3% limit for the deficit – with a protection of demand: reduction limited to 3% of GDP, public investment programme, no tax hikes and some income boosting measures for low to middle income families (abolition of the payroll tax to fund healthcare, offset by a rise in a wider-base tax , abolition of one local tax  for 80% of households). The idea there is to do just enough to procure from Germany some progress on fiscal union (harmonisation of fiscal policy, taxation, unemployment benefits etc are within his considerations as well as a joint Euro area budget and a Euro area minister of economics) and stabilise French debt.

 

On structural reforms, Marron’s motto is “flexibility”. Effects on potential growth will be predominantly through increased total factor productivity, ie better relations between employers and labour unions and a facilitated integration of innovation in production procedures. But this means that the overall manifesto is vague on the definition of the measures themselves. Here, Macron seems to be pursuing a social-democratic agenda, in which the state sets guidelines but social partners (employers and unions) deal with details at the national or local level. This would allow Macron to avoid frontal controversies with the unions. He wants the pension system to be unified and to offer more choice to employees, but without reducing the overall generosity of the system. The same holds for the unemployment benefit insurance, which would be more efficient – and force jobseekers to be more active – but the overall replacement income would not fall. Working time would be treated in a similar way; 35 hours per week would remain a reference, but with more capacity at the local level to take deviate from it.

 

The overall agenda is tilted towards the supply-side – with for instance a decline in corporate tax from 33% to 25% over the mandate, but the social-democratic approach on structures has never really been tried in France, where unions are weak (less than 10% unionisation) and traditionally the government intervenes in a detailed manner.

 

This unusual approach provides Macron with a sense of novelty, but also deprives him of strong attention-grabbing, quantified measures for investors.

 

While a Macron scenario suggests to us that French and peripheral assets would probably benefit from the disappearance of the Frexit risks, there could be a cap on where French assets could go until proof of some capacity to deliver is shown.

 

Fillon

 

The Republican candidate (Fillon) was the first to publish a full-blown and consistent supply-side intense reform program including corporate tax cuts, labour cost cuts, abolishment of the 35 hour week financed by a 2ppt VAT hike and non-replacement of public sector employees bound to retire. Public expenditure is planned to decline by EUR 100bn during the mandate. The pension age is set to increase to 65 (from currently 62). His program is the most reform-intense on paper with the potential to ‘unlock’ potential growth of c 1.5%. But as we argued before, sequencing becomes key for his plan to work: Supply side reforms will likely only work if demand does not falter, making a delayed implementation of the VAT hike, for instance, an important determinant of the potential outcome of his reform programme.

 

Broadly speaking, Fillon is pro-European. His supply-side economics reform approach is not far off what Germany has done in 2002-05, and his focus on lowering the deficit and debt burden would probably facilitate further Franco-German cooperation. However, it is less clear how fast and how much additional integration Fillon is actually envisaging for the EU. His policies are clearer on what he does not want (further EU enlargement, additional free trade agreements), while his plans to negotiate fiscal harmonisation (including a Franco-German initiative on corporate tax) are relatively less emphasised.

 

In a Fillon scenario, in short, while the market would probably react positively to Fillon’s clear economic agenda and higher probability of achieving a working majority in parliament, implementation may not be as far-reaching as it seemed a month ago and some lack of visibility on the European project could take the edge off the relief rally on the periphery.

 

Le Pen:

 

Le Pen’s flagship project is the EU/Euro area referendum. She wants to renegotiate EU Treaties with Brussels in the first six month of her election. Her stated goal is to restore national sovereignty, and hold an EU referendum. She previously argued that her staying in power would be conditional on a referendum outcome.

 

Popular initiatives shall become a more widely used tool, in general, conditional on 500K signatures from the electorate. Her far-right stance comes with strict restrictions on immigration (10K limit per year) and more limitations to citizenship access.

 

Her economic goal is very similar to that of the far-left: bolstering the purchasing power of households, through income taxes in the lower tranches, helping SMEs through targeted corporate tax cuts and enforcing a production and purchases ‘home bias’ by levying a social charge on imports.

 

Explicitly part of her programme is the central bank: Banque de France independence from the ECB is a key feature, including direct credit financing of the government deficit (planned to reach 4.5% of GDP in 2018), hence her goal not only to reshape the EU, but also to take France out of the monetary union.

 

In a Le Pen scenario, in short, after an initial sell-off, the market could attempt to stabilise on the belief that Le Pen’s capacity to trigger and win a Frexit referendum. Still, we would still expect that having the second largest economy of the Euro area politically constrained and/or experimenting with ultra-loose fiscal policy would remain a durable drag on any rekindling of animal spirits in the while region, in our opinion.

* * *

Here is the bottom line: if on Sunday night the two candidates left standing are the following, it may be too late to sell.  

A Ukraine On The Verge Of Disaster Benefits No One

Authored by Federico Pieraccini via The Strategic Culture Foundation,

In the past three months, the lines of contact between Ukraine and the forces in Donbass have seen an escalation of considerable tension. Both the republics of Lugansk and Donetsk have suffered violent attacks at the hands of Kiev’s military forces. Of course all these violations are in stark contrast to what was established in the Minsk II agreements, in particular as regards the use of certain weapons systems.

In addition to the military issues between Donbass and Ukraine, Kiev faces important internal struggle between oligarchs regarding economic issues. Symptomatic of this were the clashes in Avdeevka, then the attempts to capture the water filtration plant in Donetsk, and finally the blockade of coal transit from Donbass to Ukraine. All these have further deepened divisions between the components of the Ukrainian state’s power. The consequences of these events have led to greater instability in the country and decisive moves by the nationalist fringe alongside the Ukrainian SBU and other components of the military, who are the authors of the blockade of the railway lines between the Donbass and the rest of Ukraine. Intensifying the divisions within the country, the meeting between Tymoshenko and Trump has further increased tensions, with Prime Minister Volodymyr Groysman defining Timoshenko as the source of all problems, both economic as well are regarding corruption. Ukraine is politically divided, exacerbated by disputes between Poroshenko and Timoshenko, and these divisions are being exploited by foreign actors like Israel and Turkey, propping up the nationalist and banderist fringe within the National Guard battalion.

External pressure is clearly exerted indirectly on the Poroshenko administration in order to force it to keep the extreme factions of the nationalist battalions under control. For his part, Trump, by meeting with Tymoshenko, has sent a clear signal that in the case of excessive chaos in Kiev, the succession of power has already been decided. In the same way, the IMF exerts pressure on Kiev, slowing down the funding necessary for Ukraine to survive.

The danger that Western planners see is at the same time simple and delicate. On the one hand, there is a need to avoid a failure of the Ukrainian state, and nearly $18 billion of IMF aid serves that purpose. On the other hand, the withholding of IMF funding is applied whenever there is a need to get something done by the government in Kiev. An example can be easily seen with the escalation in Avdeevka that indirectly led the IMF to reduce the overall aid package, with the justification being that corruption remains high in the country. The goal was actually to avoid a complete breakdown of the Minsk II agreements and put a halt to the Ukrainian operation on Avdeevka. Even in the meeting between Tymoshenko and Trump, the strong signal sent to Poroshenko was clear: stop the nationalists and their provocations or there will be consequences.

The subtle game that is being played in Ukraine sees many components involved, often with diverse objectives and methods. The nationalist component hardly responds to the oligarchs in Kiev and to the central authority. They are often the first to receive training and weapons from western colleagues serving in NATO. American and British instructors have for more than two years provided their services to this component in the country. The National Guard received the blessings of the neoconservative factions of American power, as confirmed by the presence of Lindsey Graham and John McCain in Ukraine a few months ago. In addition to support from the Atlantic networks and the local Ukrainian intelligence service (SBU), these battalions have Turkish support, which involves Islamic extremists in the National Guard. Moreover, they receive both political and economic support from infamous oligarch Igor Kolomoisky. Going straight to the problem, one can see that the National Guard, despite strong political and economic support is not able to deliver a decisive blow to the Donbass and inflict any significant damage, let alone organize an efficient offensive. The problem is therefore clear that the alliance between nationalists loyal to NATO/neocons, Turkish extremists, and Israeli oligarchs like Kolomoisky enable the nationalists to carry out provocations but not to organize a serious military offensive against well-fortified and organized positions of the Donbass republics. To attempt an offensive of this kind would at least need a real army that is well organized and motivated.

Ukraine is back to the usual problems that emerged in 2014 and now plague military planners in Kiev. The Ukrainian army, essential to achieving a real push towards Donbass, lacks the motivation needed to fight. These considerations were already clearly known three years ago at the beginning of the infamous anti-terrorist operation (ATO) Kiev carried out in the east of the country. Two years later, Donbass is much stronger. Thanks to a variety of military acquisitions from Russia, as well as targeted training and an important fortification of their defensive positions, Donbass now has a defensive capability that must be taken into account.

In this situation, there are multiple dangers that can unfold for Kiev. Poroshenko must give the nationalists and international networks connected to them the ability to operate virtually without restrictions in Ukraine. He was put in power exactly for that purpose. When this does not happen, as seen in Avdeevka and with the water-supply center in Donetsk, where National Guard battalions had to pull back, there are consequences. In his sense, the National Guard blockade on Donbass is, other than being part of the usual provocations between oligarchs, an explicit message aimed at Kiev, causing considerable economic damage. No wonder Poroshenko sent the army to remove the blockade, which, unsurprisingly, did not actually change the situation.

The blockade actually obliged Kiev to buy coal from Russia, which was ironically left the only supplier. This fact was exploited by the same nationalists who created the blockade in the first place, blasting the Kiev government for buying coal from their enemy. In this mess, the Kiev government and Poroshenko should be aware of the consequences of excessive provocations against Donbass by the National Guard battalions. The ability of the Donbass to provide a firm response to any further aggression should be pondered by Kiev, even as tensions within Poroshenko’s inner circle continue to rise. The Ukrainian president is forced to support the nationalists and their rhetoric against "terrorists in the east" to ward off new Maidan.

At the same time, he needs to by all means avoid a military response from the two separatist republics. Kiev is aware that it does not possess the capacity to conquer the Donbass in terms of personnel and equipment, and is also aware that if the conflict got out of hand, with the complete collapse of the Minsk II agreements, the DPR and LPR would have the capability to extend their boundaries decidedly to the south, setting their sights on the Ukrainian coastline along the Black Sea.

Realistically, this scenario would be a nightmare for all the actors opposing the Donbass, especially for NATO and Poroshenko. Mariupol and Odessa appear to be the likely targets of a hypothetical new advance of the Donbass should the Minsk II agreements collapse. The Russian Federation and Donbass have made it amply clear that any new aggression from Ukraine will be met with a firm response. While this would not involve a direct attack on Kiev, it would establish a larger buffer zone that could include Mariupol and maybe even Odessa. This posture intends to create the necessary awareness in Kiev, and even in NATO, that it is not in their interests for an all-out war to be waged against Donbass.

The consequences of these actions call directly into question the NATO strategy in the Black Sea. The ultimate purpose of NATO is not to save Ukraine from a non-existent Russian threat but rather to put continuous pressure on the Russian Federation in every possible way. The objective is not even to reconquer Donbass, something that is also unfeasible for the military planners in Brussels, but the continuum of tension on Russia’s borders, occupying the attention of Moscow and continuously creating hotbeds of tension on its borders. In this regard, the Ukrainian access to the Black Sea is fundamental for NATO. The continued presence of NATO ships in the Black Sea to carry out joint exercises with Ukraine violates the Treaty of Montreux and is done to exert pressure on Russia from the sea. To bypass the Montreux convention and have a semi-permanent presence, the United States intends to donate a couple of ships to the Ukraine Navy in order to change the flag of the vessels, thus ensuring NATO’s legal permanent presence in the Black Sea without violating the Montreux Treaty. The port of Odessa is central in these calculations and it is of no particular surprise that in the event of a Novorossiya offensive following a Ukrainian attack, both Odessa and Mariupol would be difficult to defend for the Ukrainian army. Already in 2014, both Mariupol and Odessa had been calculated as possible targets of a wider strategy to liberate the cities from Kiev’s forces.

The bottom line is that the Kiev government is between two fires. On one side, the oligarchs battle each other, without regard for the life of Ukrainian citizens or the residents of Donbass, solely focussed on enriching themselves. On the other side, the western components in Ukraine (known as neoconservatives) fan the flames of conflict with military trainers and equipment banned by the Minsk II agreements, providing them to the Azov battalion, the most extremist wing of the National Guard. At the same time, Germany, and especially Russia, is gravely concerned over a possibility of the Ukraine economy defaulting, and of what that could mean in terms a huge wave of migration towards both countries, a situation Berlin would struggle to digest after all the migration coming from the Middle East over the last two years.

A potential default of the Ukrainian economy, and resulting destruction of the country, overshadows any struggles between oligarchs, and even the battle against Donbass. Options for Putin, Trump and Merkel all seem to be on the table with economic (nationalization of industries in the Donbass, slowdown in lending by the IMF), political (Trump meets Tymoshenko, a rival of Poroshenko) and military pressure (strong Russian presence behind the two separatist republics) applied in every way to prevent an all-out war in Ukraine.

The main danger is now clear to everyone involved – to Russia, the Donbass, NATO and Kiev. A new war between Donbass and Ukrainian would result in the defeat of Ukrainian forces, with consequences for NATO, since Donbass would hardly stop outside Mariupol and would instead proceed to Odessa. Kiev has a very weak capacity to mobilize motivated forces ready to sacrifice their lives for what are deeply corrupt oligarchs. This situation would cause an internal dilemma for NATO as was the case in 2014. Would NATO deploy its forces alongside those of Kiev to defend the ports in question, especially Odessa? If doubts where high three years ago, hardly anything has changed in recent years. NATO will not rally to the Kiev’s side. And the reasons remain the same, namely the risk of a direct confrontation with Russian troops, although Trump's recent actions in Syria have raised much concern in Moscow in relation to the Ukrainian situation. A war against Donbass could easily lead to a wider conflict between superpowers, something impractical for even the most hyped warmongers on the Atlantic sphere. Realistically, Donbass troops, after repulsing Ukrainian aggression, would go on the offensive, and enjoying clear superiority in the region, thanks to Russia as well as to a higher level of motivation, would probably make their way all the way up to Odessa, securing the entire coastline.

The consequences of such a defeat would lead to the collapse of the central authority in Kiev, to an open war between oligarchical factions, to an end of loans from the International Monetary Fund, condemnation from European and American politicians, and to a definitive collapse of the Ukrainian economy. This would spell the end of business for Poroshenko and other business oligarchs, both in Kiev and in the West. Again, no one is interested in seeing such a scenario coming to fruition.

It is also important not to underestimate the partial unwillingness of Moscow to support an open war on the offensive by the Donbass army, especially given the political and economic consequences that the West would visit on Moscow.

The economic assistance that the Donbass would require from Moscow is another important consideration and something that the Russian Federation would prefer to avoid. It should, however, be stressed that in the unlikely event that Ukraine does not hold at bay its eagerness to wage war in Donbass, Moscow would openly side in favor of the Donbass, and the consequences for Ukraine and NATO would be disastrous, as we have seen. There would be enormous concern in such a scenario from Moscow, and the Russian Federation would take every step to avoid such a scenario, but if things got worse, Putin would be ready to support the advance of Novorossiya up to Odessa in order to secure once and for all the republics of Donetsk and Lugansk.

All the provocateurs in Ukraine should be aware that playing the nationalist card can be dangerous and can even result in a defeat that, when compared to 2014-2015, would be dramatically worse, condemning Ukraine to an economic, social and political crisis without precedent or a way out. It literally could be the beginning of the disintegration of Ukraine as we know it today.