Ukraine

[ArtM72]

Yes, they haven't fully grasped the meaning of the word "reserves"..

...evidently nor the understanding of large numbers.

[admin]

When Soviet troops stationed nearby refused to help, Putin pulled out a pistol and warned the trespassers in German that he would open fire if they came closer. The crowd dispersed, but Putin recounted in his memoir that he viewed the USSR’s demise as a personal humiliation. “The whole country no longer existed,” he lamented. “It disappeared.” A quarter-century later, that experience goes some way toward explaining Putin’s decision to launch a military adventure

Power Delusions: U.S., Russia Face Off Over Ukraine - Businessweek

[ArtM72]

When you want to start a war the first thing you do is gather public opinion by making your adversary take a singular face and make that person appear to be a madman.

We need to understand this formula. It is very effective.

[admin]

Madman isn't the right word. KGB man is much better. That doesn't mean that past humiliations are productive sources to build a better Russia though. Better to concentrate on growing the Russian economy, diversifying it away from tycoon dominated commodities and providing more opportunities for its population. "Empire's," "sphere's of influence," back yard"," these concepts are so 20th century..

[ArtM72]

The team at Planet Money just recorded a 14 minute segment talking about Ukraine and its gas bill problem with Russia. Adds quite a bit of insight to what is going on there. While the price of natural gas sold by Russia to Urkraine is not said to be the fundamental issue, it certainly gets into the mix.

Here's the link: http://www.npr.org/blogs/money/2014/03/07/286900628/episode-523-the-fight-over-ukraines-gas-bill?utm_medium=Email&utm_source=DailyDigest&utm_campaign=20140308.

[admin]

Yea, and here is something else to consider:

75 percent of foreign investments in Russia come from the E.U. "The E.U. economy is so interconnected with Russia's, it means any economic sanctions will also hurt the E.U. That's the reason that countries like Germany and the Nertherlands are withholding support for sanctions and instead pushing for a diplomatic solution

11 Essential Questions About Crimea, Answered | New Republic

[admin]

Investors were not in a wait-and-see mood. Spooked by the news, they went on a selling spree, sending the benchmark MICEX stock index down almost 11 percent in one day and the ruble down 2 percent to a record low of 36.50 against the US dollar. In a bid to stabilize the currency, the central bank sold $11.3 billion of reserves, and unexpectedly raised its main interest rate 150 basis points to 7 percent last Monday in an attempt to quell capital flight. The loss of faith arguably could not have come at a worse time for Russia’s markets. The country’s economy is already struggling with stagnant growth, high inflation and a weakening currency.

Russia’s Crimea Standoff Ominous For Markets - Business Insider

[admin]

Russia counts cost as West tightens sanctions noose

The West has threatened visa bans and an asset freeze on individuals unless Russia steps back from the brink on the annexation of Crimea

By Ambrose Evans-Pritchard

8:48PM GMT 13 Mar 2014

Russia risks a wave of capital flight and a shattering economic crisis as the West prepares a package of sanctions over the seizure of Crimea.

German Chancellor Angela Merkel spelled out the danger for Russia in a speech that silenced pro-Kremlin voices in her own coalition and left no doubt that Europe is now fully behind the US on punitive measures.

“If Russia continues on its course of the past weeks, that will not only be a great catastrophe for Ukraine. It will cause massive damage to Russia, both economically and politically,” she said. “None of us wants it to come to this, but we are determined to act. Let me be absolutely clear; the territorial integrity of Ukraine is not up for discussion.”

The West has threatened visa bans and an asset freeze on individuals as early as Monday unless Russia steps back from the brink on the annexation of Crimea. This now looks certain since Russian troops are continuing to dig in across the peninsula before this Sunday’s vote on secession. “It can get ugly fast if the wrong choices are made, and it can get ugly in multiple directions,” said John Kerry, US Secretary of State.

The US and the EU will escalate to “additional and far-reaching” measures if the picture deteriorates, a likely outcome since Ukraine’s premier Arseniy Yatsenyuk has vowed to resist any loss of sovereign soil.

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Russia has threatened to retaliate with “symmetrical sanctions” but Tim Ash, from Standard Bank, said it is a one-sided contest that Moscow cannot win. “Russia is facing the entire West. Its economy is already very weak and this could end up being as bad as 2008-2009, when GDP contracted by 9pc,” he said.

Russia cannot suspend oil and gas exports without cutting off its own source of foreign revenue. Any such move would destroy its credibility as a supplier of energy, accelerating Europe’s long-term switch to other sources.

Russian companies have $653bn (£392bn) of foreign dollar debt, and must roll over roughly $150bn this year. Yields on five-year bonds have already spiked 200 basis points, even for blue-chip firms. The rouble has fallen 11pc this year after dropping 8pc last year, making dollar debts harder to repay. “It is going to be very difficult to roll over these bonds, and it will be at much higher cost,” said Mr Ash.

Capital flight reached $63bn last year. Former finance minister Alexei Kudrin said this could reach $50bn a quarter as the crisis deepens. The central bank has already raised interest rates sharply to stem outflows, pushing the economy into recession.

Russia has $480bn of foreign reserves but these cannot easily be used in a downturn since it entails monetary tightening. The Kremlin caused a drastic fall in the money supply and a banking crisis when it ran down reserves by $200bn after the Lehman crisis.

Standard Bank said Washington is determined to make Russia pay for tearing up the post-Cold War settlement and undermining the architecture of nuclear non-proliferation. It is drawing up stealth sanctions to freeze Russia out of global finance.

These will be spearheaded by the US Securities and Exchange Commission, which will enforce compliance of the Foreign Corrupt Practices Act. The next step is to place Russia on the “grey list” for money laundering. “This would prevent global banks from dealing with Russian counterparts. Washington is tightening the noose. No bank is going to mess with the SEC,” said Mr Ash.

Chris Weafer, from the Moscow-based group Macro Advisory, said the Russian elites are becoming “extremely nervous” but it is a two-way risk. “There could be contagion back into the West. There are a lot of things Russia can do short of the nuclear option of cutting off gas. It could ban exports of titanium, inflicting severe disruption on Airbus and Boeing,” he said. Both jet makers rely on titanium supplies from the Russia firm VSMPO-Avisma.

“Russia could cut off 2.5m barrels a day of refined products such as diesel that are hard for Europe to replace since it has run down its refineries,” he said.

Germany is in an awkward position since it exports $50bn of cars, machinery and industrial goods to Russia each year. There are 6,200 German companies in the country with vast sunk costs. Last year alone they invested $105bn. Germany’s trade group BDA said a tit-for-tat sanctions war would be “painful” for Germany but “life-threatening” for Russia.

Igor Rudensky, head of the Duma’s Economics Committee, said sanctions will boomerang. “They are a double-edged sword, and Western states should be very careful,” he said.

With emotions running high, it is impossible to know whether Russia will act in its own economic self-interest or choose to bring the temple crashing down on everybody’s heads. Mrs Merkel said Vladimir Putin was becoming hard to reason with after her latest telephone conversation. “He is in his own world,” she said.

Russia counts cost as West tightens sanctions noose - Telegraph

[ArtM72]

Not looking good.

[admin]

Nope. They're emotionally attached to the Crimea and are loath to see Ukraine fall under Western influence and it's possible that this will trump rationality. If it does, it's a lose-lose situation for all concerned.