Sanctions – not
(Business New Europe – bne.eu – Ben Aris in Moscow – March 7, 2014)
Let’s get a few things straight at the start. Russia’s actions in Crimea is not the start of a war nor is it an invasion. There are no tanks on the street. No shots have been fired. No one has died. In fact almost no force has been used at all as the bulk of the people in Crimea have actually welcomed the Russian troops. To judge by most of the (confused and hyperbolic) reports coming out of the region the mood on the streets is pretty calm, with the exception of a few pockets of tension around a few military installations.
But as always with Russia, everyone has lost their mind. The press is full of screaming headlines announcing war, a new Cold War, invasion, anschlusses and other extreme and evocative rhetorical monikers for the current, and very real, political crisis. Things escalated on March 6 when the US and then EU announced they would impose sanctions (that at this point amounts to no more than a very limited list of visa bans for some Russian officials).
The visa bans reflect, “a policy decision to deny visas to those responsible for or complicit in threatening the sovereignty and territorial integrity of Ukraine,” White House Press Secretary Jay Carney wrote in a statement. “This new step stands in addition to the policy already implemented to deny visas to those involved in human rights abuses related to political oppression in Ukraine,” otherwise known as the Magnitsky list. So the sum total of the US “retaliation” to Russia’s “annexation” of Ukraine’s Crimea so far amounts to banning less than 50 people from entering the country.
Even this rather pathetic action is hasty. The legal arguments over the rights and wrongs of the arrival of thousands of Russian military personal are actually pretty complicated and need to be resolved before punishments are meted out. However, before I go any further into the subsequent discussion of reasons and points of law it is necessary that all this discussion is actually irrelevant. What is unfolding now is a purely and very emotional clash of raw power: both sides have decided they want to “take” Ukraine, largely because they simply don’t want the other side to “have” it.
But because these clashes are played out in the language of diplomacy we will have to drill down into the justifications both sides are putting up. Because the logic is only a gloss for a geopolitical showdown that reflects the shifting power in Europe, the positions on both sides are riddled with logical inconsistencies.
The White House holds that the Kremlin has occupied the region, implying it has been done against the will of both the government and the local population. But both these points are wide open to question. Clearly the people that occupied Kyiv’s central square known as Maidan are against the arrival of Russian troops, but they only represent half the country (polls showed about 50% supported Maidan protests, but 42% were against them). The people in the east, whose interests were not represented by the Maidan protests, are happy to see these forces. Indeed, at the core of this conflict was Europe’s decision to ignore the interests of the people in the east. The White House statements are full of talk about what “Ukraine” wants, implying there is some sort of unity of opinion when in fact the country is deeply divided.
In the same vein, the White House statements imply the “invasion” has been done in defiance of the government’s wishes, but this point can also be disputed. Clearly the new government that was installed (for want of a better word) by the crowds on Maidan doesn’t want to see Russian troops, but the Kremlin has refused to recognise this government and the Russian president says his forces were invited by the former president Viktor Yanukovych, which the Kremlin regards as still being the legitimate president.
And on this point Putin is actually on extremely firm ground. The fact that the White House and all the reporting is blithely skating over is that a legitimate, negotiated deal was cut between Yanukovych and the troika of opposition leaders on February 21, which would have lead to early elections in December and a legitimate change of power. The problem is that the Maidan protestors rejected this deal and told the president to “leave by Saturday or we will come and get you.” Yanukovych fled the country because if he hadn’t, he probably have been killed. This is not a legal way to oust democratically elected presidents. (Having said that, it is transparently clear, as bne argued in its February cover story, that Yanukovych is a crook and totally unsuited for the job of president.)
Next point: under the terms of the treaty covering the rent of Simferopol naval base Russia is legally entitled to station up to 25,000 military personnel in the Crimea at their approximately (according to reports) 1,000 bases in the peninsular. Again reports are very confused, but the consensus is that currently Russia has 16,000 troops in Crimea.
Here it should be noted that Putin will be very careful to stay within the letter, at least, of international law and will also stick to the terms of his treaty. Putin is a legalist (which is also why he stepped down as president in 2008 as he had to under the Russian constitution). Indeed, many of the people at the top of the Kremlin are lawyers (PM Dmitry Medvedev was a law professor, deputy PM Igor Shuvalov has a PhD in law). Putin has a vision of building a “multipolar” world that breaks the US hegemony over global affairs and the only way the interests of lots of powerful countries’ interests can be coordinated is if there is an effective and functioning body of international law. And during his recent press conference Putin was careful to spell out the legal basis for his actions in Crimea. Moreover, on March 6 Russia applied to the Vienna Commission for a ruling on the legitimacy of the Maidan government.
The US, on the other hand, is still operating in its “unipolar” framework where it is top dog and does what it likes, irrespective of international law. From the Russian perspective the US has a long track record of unjustified (in terms of international law) aggression, such as the invasion of Iraq and more recently the ovErstepping of the UN mandate for “military intervention” in Libya that turned into regime change by the US and European allies. This clash between these unipolar vs multipolar approaches to geopolitics is also at the core of the current standoff. The two sides are talking different languages: the Kremlin believes it has a legal justification for what it is doing, but the White House simply doesn’t care if this is the case, as it doesn’t like what the Kremlin is doing irrespective of the legality of it.
This clash of views comes out clearly in the rhetoric. Putin was making legal arguments last week, whereas this week US Secretary of State John Kerry was talking a risibly indefensible line. In a press conference Kerry talked about the “peaceful demonstrators” who had risen up against a “tyrant” in the pursuit of “democracy.” There is hours of video tape showing protestors throwing Molotov cocktails and pictures of them carrying guns and even some footage of opposition snipers at work. Indeed, another leaked phone conversation made it on to the internet on March 6, this time between EU top diplomat Catherine Ashton and Estonia’s foreign minister Urmas Paet, in which they discuss allegations that someone in the opposition also ordered snipers into the field – confusion now reigns.
And this “tyrant” Yanukovych is the same man that until February 19, the day before the shooting started, the EU and the US were so desperate to do a trade deal with. As for “democracy”, Ukraine already had it in the form of the only truly fair and open democratic election in Eastern Europe since the fall of the Soviet Union in 1991. As mentioned above, threatening to kill democratically elected leaders simply because the people have realised that they made a bad choice is not in any shape or form democratic. But none of this matters as “principles” such as “freedom” are not what is at play here.
Sanctions – not
The US and the West are caught over a barrel with Russia. Putin’s actions are stunningly aggressive, but to be fair to him he has given plenty of warning that it might come to this.
In his famous speech at the Munich Security conference in 2007 he said that Europe was the “natural partner” for Russia, but it had to respect Russia’s interests and meet it half way. Nothing happened. Then in 2012 in his keynote address at the St Petersburg Economic Forum Putin said that Russia had basically given up all hope of cooperating with Europe and launched a programme to modernise the Russian army. Relations have been steadily decaying since then while the number of military exercises have been steadily increasing. This was obvious and bne already ran a cover story on the “new Cold War” making all these points in April last year.
The West has been convinced by its own hyperbole that Russia is a dysfunctional kleptocracy on the verge of collapse, whereas in reality it has been strongly growing and is now the rising economic power in Europe, soon to be the largest consumer market on the Continent. The United Nations Development Programme, for example, upgraded Russia to a “high income” country last year, putting it into the same bracket as the likes of Germany, France and the UK (even if incomes are still on a par with Portugal). But politically it is still being treated like a third world country.
Putin’s adventure in the Crimea is primarily designed to end that perception. The world is in shock at the Russian troop movements. But if this exercise is about scoring debating points, then it has been a huge success because faced with the realities of a rising Russia the West has suddenly discovered that there is not much it can do to stop Russia taking the Crimea if it wants to.
In their current form the visa bans affect no more than a bus-load of tourists. Importantly, the White House specifically did not impose financial sanctions on banks or bank accounts, which has the potential to do real damage to the Russian economy by cutting off firms from credit. Indeed, there is not much else the West can do. Russia really doesn’t do much business with the US. The US multinationals that are already in Russia (mainly carmakers) will not leave, as they are too heavily invested and the market is too profitable. To a lesser extent the same is true for Europe. Russia’s main exports are commodities and Europe especially won’t want to be cut off from Russia’s supplies of food or energy. Europe could stop exports to Russia (mainly of machinery and equipment), but that would hurt its own struggling businesses as much, or more, than it would hurt Russia. And this is all before you consider that Washington needs Russia on board with a raft of other international diplomatic problems, of which Syria is top of the agenda.
And that is what Putin is trying to say: Russia is back and you’d better listen to her. The economies of Europe and Russia are already tied together in a very fundamental way and Russia wants its interests respected. The way out of this mess is to recognise this and have three-way Russia-Ukraine-EU talks, as Ukraine’s troubled economy is even more deeply tied to Russia’s economy.
As for the Ukrainians: they better be careful for what they wish for. Ukrainians may quickly come to regret throwing themselves into the arms of Europe. In return for cash, the International Monetary Fund (IMF) is certain to insist on a wide range of tough economic reforms that will hurt the public first and foremost.
In the short term, any deal with Europe is going to be a lot more painful than the one agreed with Russia in December. Austerity will only serve to inflame the divide between east and west further. For example, the IMF wants the government to quadruple domestic gas prices to bring them in line with what the state has to pay Russia for gas. Next, the hryvna will devalue further, which will drive up inflation and also really punish all those that have a mortgage denominated in dollars.
Ukraine will also have to go back to paying top whack for Russian gas and that will eat up a huge chuck of government revenue (an extra $7bn a year, according to analysts) that can’t be used for badly needed investment or teachers’ salaries. The tax burden on the population will be significantly raised, as someone will have to subsidise the higher gas prices. Of course, in the long term the EU deal probably remains the better one, but as the politics of the country are now so unstable, inflicting short-term economic pain will only destabilise an already unstable situation.
How will all this end? Given Putin’s propensity for international law, the only finesse he can put on the situation now is to allow the Crimea to vote for autonomous status but remain inside Ukraine, in the way that Catalonia is autonomous inside Spain. That would keep Ukraine’s sovereignty intact. But if Russia starts handing out passports (as it is reportedly already doing), then the region can at any time vote to leave Ukraine and join Russia by exercising its right to self-determination – another dearly held US principle. But watch what the White House says if the Crimeans actually try and exercise that right.