To no one’s surprise, the people of Crimea voted overwhelmingly yesterday to become part of Russia. In a few days or a few months, it will be a fait accompli and the Crimea will once again be part of Russia.
That is Strike 3, Barry!
Strike 1 _ Barry’s Russian Reset was a one-sided when for Putin. Barry agreed not to build the missile shield in Eastern Europe and Putin agreed to accept that idea.
Strike 2 _ Barry was all puffed up after tumbling the governments of Egypt and Libya he thought he could do the same thing in Syria. But, Putin threw him a curve ball and Barry whiffed.
Strike 3 _ Barry and his friends in the EU have had their eye on the Ukraine for a long time. The EU would like the Ukraine to come into their fold so that they are in a better position to negotiate gas price with the Russians. Barry and his NATO allies would like to pressure Russia by having NATO forces on the Russian border. You can see why Putin might see these intentions being against Russian interests. So, the recent ouster of Ukraine’s “democratically” elected president was seen by Putin as a coup that was funded secretly by Barry and his EU buddies. (Ask yourself if the governments of France or Canada had been overthrown in the same manner would the US and the EU have been so quick to recognize the new governments?) At any rate, Barry and his friends over played their hand and apparently didn’t expect Putin to react so decidedly and quickly.
Barry is complaining that Putin’s Crimean pitch was low and outside. He has warned Putin that Russia would pay a price for what they have done. Putin warned Barry that hurting the Russian economy would backfire on the US.
Will Barry do something stupid? Is Putin bluffing? I think the answer to the first question is yes and the answer to the second question is no.
Fox News is reporting that Barry and his EU friends have made their first move.
The White House has announced new sanctions against seven Russian officials in retaliation for Ukraine’s Crimea region voting to join Russia, as the European Union announced similar penalties.
If that is the sum total of what Barry and the EU are prepared to do, then no real harm and no foul. However, if they go much further, their sanctions on Russia are likely to backfire in Barry’s face and the same for Europe. Here is another quote from that Fox News article:
Before Monday’s meeting in Brussels, German Foreign Minister Frank-Walter Steinmeier said sanctions must leave “ways and possibilities open to prevent a further escalation that could lead to the division of Europe.”
Could lead to the division of Europe? He’s talking about Germany of course. This article may explain his concern:
Anton Börner, president of the German Association of Exporters (BGA), which represents 120,000 companies, the lifeblood of the economy, warned at a press conference in Berlin that further escalation of the crisis in the Ukraine could hit exporters very hard. He said that the BGA expected exports to rise 3% to €1.13 trillion and imports 2% to €914 billion for a trade surplus of €215.6 billion – the highest in history. But “if the crisis in the Crimea escalates further,” these wondrous forecasts of endlessly growing exports and surpluses “could turn very quickly into a mal-calculation.”
It isn’t just German exporters that are fretting, and lobbying with all their might. Russia, with an economy that is already stagnating, and dogged by vicious bouts of capital flight, has$732 billion in foreign debt. Relatively little of it is sovereign debt, but nearly $700 billion is owed by banks and corporations – most of them owned or controlled by the Kremlin. Oil major Rosneft and gas mastodon Gazprom owe $90 billion combined to foreign entities; the four state banks Sberbank, VTB, VEB, and Rosselkhozbank owe $60 billion. Some of this debt matures this year and next year.
Some European banks, including some German banks, might crater. Even the possibility of a major loss would further rattle the confidence in these banks with their over-leveraged and inscrutable balance sheets and their assets that are still exuding whiffs of putrefaction. And this sort of fiasco, as the financial crisis has made clear, has an unpleasant way of snowballing – and taking down the already shaky global economy with it.
Yes indeed! One should be careful about those unintended consequences. But, if Barry goes too far, Russia has promised to attack the US dollar. How could a small economy like Russia harm the mighty US dollar, you ask? This excellent article explains (H/T to my friend, 5etester):
From the economic point of view, everyone should get ready for tough actions from Moscow. Sergei Glazyev, the most hardline of Putin’s advisors, sketched the retaliation strategy: Drop the dollar, sell US Treasuries, encourage Russian companies to default on their dollar-denominated debts, and create an alternative currency system (reference currency) with the BRICS and hydrocarbon producers like Venezuela and Iran.
“Why should we have dollar contracts with China, India, Turkey?” he said. “Why do we need this? We must have contracts in national currencies. And this applies to energy and other spheres.” The focus would be on Russian oil and gas companies. “They must be braver in signing contracts in rubles and the currencies of partner-countries,” he said. “I think now there is an additional impetus to finally finish this job.”
And the “currency reserve policy” would need some adjustment with maximum focus on “local currencies”; it was the normal way, he said. In Mândrăşescu’s analysis, Ulyukaev was outlining an attack on the petrodollar system and the enormous advantages it confers on the US, with the goal of creating parallel petro-currencies.
Russia would need the help of China to bring down the dollar and that could very well happen.
I want to believe that Barry has some smart people advising him on the dangers of pushing Putin too far. But will he listen to them?
Well, that’s what I’m thinking. What are your thoughts?