Category Archives: Politics

Britain, Economic, European Union, Financial Markets, Government, Politics, Russia, Society, Ukraine, United States

What will happen next following the crisis in Ukraine?

ECONOMIC REALITIES

Intro: Economic havoc and a global slump could materialise from the crisis in the Crimea

So far, financial markets in the West have remained remarkably undisturbed in the face of the crisis unfolding in Ukraine. Following Crimea’s referendum at the weekend, which effectively sealed Vladimir Putin’s grip of the Ukrainian peninsula, sanctions were always likely to follow. Whilst, then, we may anticipate just how long the sanguine calm will continue, Western leaders should also be careful of supplanting diplomacy with threats to Russia that they are unwilling or unable to back up. The decision by the European Union and United States to impose sanctions on several Russian officials is a limited response to the breach of international law that has taken place in Crimea. The measures include travel bans and the freezing of assets against individuals who were deemed to have played a major role in the referendum – a vote, officials say, in which 97 per cent of voters backed a breakaway from Ukraine and, instead, opted to join the Russian Federation.

In the years since the dissolution of the Soviet Union, Russia has steadily become more integrated into the global economy. We know that many rich Russians have shifted their gains (ill-gotten or otherwise) into more stable and secure environments, such as investing on the London Stock Exchange or by diversifying their stocks in the UK property market. In actual fact, more money has flowed into Russia than out. According to data from the Bank for International Settlements, foreign owned banks have lent the country at least $260 billion. That is nearly double the value of its estimated assets in the West. As a consequence, Russia’s bilateral trade has risen to more than $100 billion annually. Almost a third of Europe’s gas, coal and oil imports come from Russia, and there has been a huge upsurge in direct investment by foreign firms.

Rhetoric used by the international community implied that there would be consequences if the referendum went ahead while the peninsula was still occupied by Russian troops. No doubt, Mr Putin will have considered the penalty a price worth paying. The question now, though, is what will happen next. Washington insists the screw will be tightened if the situation were to escalate in Ukraine – a distinct possibility that could happen fairly swiftly since the aim of the Crimean separatists is to secede from Ukraine within a month. They also aspire to adopt the rouble and by joining the Russian time-zone.

Whilst a military response to Russian aggression has already been ruled out by Western leaders, meaningful sanctions are not really much of an option, either. A full-blown trade-war would inflict serious damage on both sides. However, capital flows between Russia and the West are already in a parlous state in anticipation of lesser action, including assets freezes and travel restrictions already imposed. In order to defend the rouble, Russians are withdrawing billions from Western banks and selling off US Treasury Bonds. Mr Putin also raised interest rates to 7 per cent; a move that will discourage capital outflights from Russia to the West, a rate of interest that will be far more attractive for Russians to invest at home. The West seems certain to reciprocate by dumping Russian assets.

Yet, this all comes at a particularly delicate time for the world economy. Emerging markets, including China, have rapidly slowed down; the Eurozone is expecting a period of deflation to start anytime soon; and, America’s economy has started to inflict severe withdrawal symptoms to many countries around the world following its tapering of quantitative easing. The global economy may be just one sharp shock away from lurching into another recession.

A standoff with Russia over Crimea’s breakaway is the last thing the world needs. Economic considerations cannot surpass the higher purpose of defending international law, and as such must be secondary to it. Nonetheless, the interplay between politics and economics is what is making this situation so dangerous and destabilising. All concerned should be aware of just how very much more disruptive this crisis could yet become.

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Britain, European Union, Foreign Affairs, Government, Military, NATO, Politics, Russia, Society, Ukraine, United Nations, United States

Russian troops amass on Ukraine’s border…

UKRAINE

Intro: As world leaders tell Vladimir Putin to back off, 80,000 Russian soldiers have amassed on Ukraine’s borders. The fear now is that there could be a full-scale invasion…

Ukraine has warned that 80,000 Russian troops have amassed on its borders and could invade. World leaders have told Vladimir Putin to back off.

A senior security chief in Kiev said Moscow could launch a full-scale invasion and Russian troops would be in the Ukrainian capital within ‘two or three hours’ of the order to advance.

Photographs of Russian tanks and armoured personnel carriers close to Ukraine’s borders are adding to the tensions.

British officials have been receiving reports about Russian troops massing on the border since Tuesday and are concerned by the show of force.

British intelligence is unsure whether the movements are intended to back up the annexation of Crimea, preparation for an invasion or simply defensive.

Moscow’s show of force started earlier this week as Ukraine’s prime minister, Arseniy Yatsenyuk, met Barack Obama in the Oval Office and NATO continued military exercises in Poland.

During a week of rising tensions, G7 leaders, including David Cameron and Mr Obama, warned Russia not to annex the Crimea after a referendum in the province, tomorrow, which has been taken over by pro-Putin troops.

Their statement warns the Russian president to ‘cease all efforts to change the status of Crimea contrary to Ukrainian law and in violation of international law’ and threatens ‘further action’ if Moscow seizes Crimea.

British Foreign Secretary William Hague said Russian MPs who voted to use force in Ukraine and Kremlin officials behind the invasion would be hit with asset freezes and a travel ban to the European Union – most likely to be issued at a Brussels summit on Monday.

But the main concern of Western leaders is to deter Russia from seizing the rest of Eastern Ukraine.

Andriy Parubly, secretary of Ukraine’s National Security and Defence Council, has said that even Kiev may not be safe from Putin’s troops, who were regrouping in ‘an offensive manner’.

Mr Parubly claimed that forces massing included ‘over 80,000 personnel, up to 270 tanks, 180 armoured vehicles, 380 artillery systems, 18 multiple-launch missile systems, 140 combat aircraft, 90 combat helicopters and 19 warships and cutters’. He added: ‘Critical is the situation not only in Crimea, but along the entire north-eastern frontier. In fact, Russian troop units are two or three hours of travel from Kiev.’

Former Putin adviser Andrey Illarionov has predicted that in addition to Crimea, Putin may move to annex other major cities in Ukraine – including Kharkov, Donetsk, Dnepropetrovsk, Lugansk, Zaporozhye, Kherson and Odessa.

Pictures of Russian armoured vehicles on the move in regions close to the Ukrainian border include motorised infantry vehicles and tanks. The military movements are also said to include Grad BM-21 multiple rocket launch vehicles. Tanks have also been pictured being carried by rail in Belgorod, and are reported to be parked in a village just 12 miles from the border.

The moves came as the Russian armed forces announced a huge military exercise by its airborne troops. The three-day exercise ordered by Putin involved a vast ‘landing operation’ by 4,000 paratroopers.

NATO has conducted its own show of force to reassure countries in Eastern Europe. The US and Poland began war games during the week that involved at least 12 American F-16 fighter jets. A joint naval exercise of US, Bulgarian and Romanian naval forces in the Black Sea also started.

Events have been building to a crunch point when tomorrow Crimea will vote on whether to join Russia. If Putin recognises the province as Russian, sanctions will follow.

US Secretary of State John Kerry and Russian foreign minister Sergei Lavrov met in London yesterday, but as expected those talks failed to make any progress on the crisis.

Infographic:

Geo-political infographic of Ukraine and of Crimea.

Geo-political infographic of Ukraine and of Crimea

 

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Economic, European Union, Government, Politics, Russia, Society, Ukraine, United States

Ukraine and its future stability…

Intro: For Ukraine to have a stable future it is imperative that Russia, the European Union and the US work together in collaboration if that stability is to be assured

Despite all the tumult of recent weeks, the crisis in Ukraine is just at the beginning. Europe’s seventh most populous country will be without a fully-elected government until at least May, a situation that has arisen following its former president who was stripped of his power and who has been on the run since being forced out. It is believed Viktor Yanukovych has found safe haven in Russia, Ukraine’s closest ally in the region.

The underlying mood appears to be one of score settling. Separatism in the east is stirring, especially in Crimea, which is predominately Russian by culture and history. Ukraine is strategically important for Moscow: the Russian’s maintain a major naval base at Sevastopol, allowing the Russian navy to deploy quickly into the Black Sea as the need arises.

Ukraine is broke, precipitated by the immediate origins of the crisis which was economic. The currency, the hryvnia, has depreciated by 12 per cent since the start of the year, and the public finances are teetering on the verge of collapse. According to the interim-government in Ukraine, one which is attempting to aid transition to a newly elected government, the country needs £21 billion between now and the end of 2015 simply to pay its bills. Mr Yanukovych is widely reported as having taken bribes in accepting Russian aid and membership of the Moscow sponsored Eurasian Union, rather than entering into trade deals and agreements with the EU.

The West needs to be careful in any vainglorious attempt of portraying or by assuming it has won following the overthrow of Mr Yanukovych. The geopolitics, best seen as a tug-of-war, is fraught with difficulties. For Ukraine to have a stable future it is imperative that Russia, the European Union and the US work together in collaboration if that stability is to be assured. The danger is that any one of these superpowers treats the country as the prize in a zero-sum game.

America’s approach has been cautious. President Obama has, thus far, shown no desire for a full-scale showdown with Moscow. But this attitude is shared by his European allies, too, as they strive to put together an economic rescue package in which Russia would ideally be involved. In reality, though, the real uncertainty surrounds how Moscow will react to the fate of its southern neighbour. Where culture and history are so closely interwoven, Russia is likely to be wary of any western driven agenda.

The initial response of the Kremlin to events in Kiev was one of ferocious outrage. Dmitry Medvedev, the Prime Minister, accused Europe of turning a blind eye to the dictatorial and ‘sometimes terrorist methods’ used by the new authorities to suppress dissent in eastern Ukraine – the area of the country which is particularly sympathetic to Russian ideals. Mr Medvedev has also declared that the opposition had seized power by an ‘armed mutiny’, a belief which could still lead to direct military action by Russia in the Crimea. A request by the Crimeans for Russian protection would be the pretext for the worst possible outcome.

However, since that outburst, the tone from Moscow has been more restrained. Earlier this week, Sergei Lavrov, the Russian Foreign Minister, indicated that the policy of ‘non-intervention’ would continue. He said, rather curiously, that it was in Moscow’s interests for Ukraine to be part of a ‘broad European family’. However, the Kremlin has an array of options of how it might influence events such as how it will control vital gas exports to all parts of the Ukraine.

Gauging how the crisis will end is no easy task. A form of partition is one possibility, but that can only happen if the considered consent is given by all interested parties. Demarcation along similar lines to the 1993 ‘velvet divorce’ between the Czech Republic and Slovakia is one model that might prove helpful if negotiators are looking for historical references in bringing about an ordered and peaceful outcome in Ukraine.

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