From Bloomberg::
The U.K. will press European Union leaders to consider blocking Russian access to the SWIFT banking transaction system under an expansion of sanctions over the conflict in Ukraine, a British government official said.
…
“There’s no doubt that in the short term restricting Russian usage of SWIFT would be extremely disruptive to Russian financial and commercial activities,” said Richard Reid, a research fellow for finance and regulation at the University of Dundee in Scotland.
Russian economic authorities themselves accede to the increasing likelihood of recession [0], just as non-Russian forecasters [1]. Economists’s beliefs that no further sanctions would be imposed, cited in the Bloomberg survey, are likely to be tested by new information regarding the incursion of Russian forces in Ukraine. (Note: the ruble has hit a new low, despite likely forex intervention; MICEX again down, 1.32%, RTS cash index, down 2.11%).
It seems no longer so implausible that the worst case scenario for the Russian economy, including a cumulative 5% decline in output (IIF, March 2014), becomes a reality.
Figure 1: Russian real GDP q/q growth rate (non-annualized). Source: TradingEconomics. Last observation is for 2014Q1.
Western powers are still in a weak position. What if sanctions are maximized and Russia then decides to annex Ukraine? Western powers will throw their hands up in the air and say “we lost,” and conclude what’s the point of continuing the sanctions, which are also hurting us?
Western powers should’ve taken a hard line, e.g. when Russia decided to vote to annex Crimea, NATO should’ve decided to vote on making Ukraine a full member of NATO. If Russia voted to annex Crimea, then NATO would’ve voted to make Ukraine a NATO member, send tens of thousands of troops to Ukraine, and build bases, including air bases around Crimea.
The US and UK can sent as many of their own soldiers and tanks to this place, if they feel they have obligations.
This is utter nonsense. Becoming a member of NATO means more than just having members join some after school club. As a military alliance it means integrating weapons, training, logistics and doctrine. Those things are all completely alien to the Ukrainian armed forces. And those are not things that are done overnight. As badly as the Russians have been behaving, it’s not as though the Ukrainians were saints either. For 20 years it’s been a parade of one incompetent and corrupt government after another, with a lot of the corruption coming from the eastern third. Some day the Ukrainians might even thank Putin for cutting off the most backward and retrograde part of the country, much the same way some of us might thank Spain if they took back Mississippi.
It’s not at all clear just how Putin comes out ahead in all of this. Yes, he’ll end up with bases in the Crimea, but as a practical matter there was never any real question that the (rather pathetic) Russian navy would always have access to the Black Sea. But the Black Sea is just a small lake with little strategic significance. It was important during the Bronze Age and perhaps for some Viking (“Rus”) traders, but other than that, who cares? It’s mostly just symbolic. Putin is paying a very high price for objectives that he could have had at far less cost. A weak Russian economy will not be able to afford Putin’s military dreams. And now Putin will have to pin down a lot more of his troops and materiel along the Ukraine border…which means he will have to redeploy those forces from somewhere else. Putin is a very stupid man.
Peak Trader,
why should NATO or EU have taken a hard line? That is real-political nonsense. Ukraine was neither memeber of NATO nor or EU.
At the moment Putin can choose between pest and cholera, he has either to spend resources to maintain a position he got almost for free two years ago or he loses eastern parts of Ukraine and his face. To occupy western parts of Ukraine is IMHO not possible, the Ukrainian population is simply too large and anti-Russian.
BTW Russia’s long term problems are not solved: Complete lack of soft power in the struggle against EU and still no useful changes of the Russian economy, that with stagnating oil production. I wish Putin good luck.
http://s17.postimg.org/kiaqs3inj/Russia_Invades_Ukraine.png
Europe will accept any Russian incursions into Ukraine as long as the oil and gas pipelines are still pumping. The value of the ruble is irrelevant since those petroleum payments are generally dollar-denominated. Low ruble values mean that Putin’s oligarchic cronies can buy even more Russian stuff with their profits. But without SWIFT how will those payments get to Moscow? Daily couriers with a few hundred gigabytes of USB drives in briefcases, I suppose — paper documents are so 20th century.
Putin’s logic is very simple. If he can reacquire Ukraine at low cost, then he will. Low cost involves a few hundred to thousands of Russian casualties, sanctions and a recession. If he regains Ukraine, his name will live forever among great Russian leaders. The rest will be forgotten.
Putin must be astounded that the western powers are so irresolute and weak. The US and Germany alone have 10 times Russia’s GDP and 2.5x its population. That these countries should sit around wringing their hands in impotence must be quite an eye-opener to Putin. If Germany and the US say no boots on the ground, then Putin will advance until he controls all of Ukraine. Why not? The western powers have virtually ceded the country to him pre-emptively. And then there’s Belarus and Kazakhstan, which can be added later.
For China, unless it wishes to escalate events into WW III, Russian success in Ukraine may prove a national security disaster. In 1994, in return for giving up the second largest nuclear arsenal in the world, Ukraine received security guarantees laid down in the Budapest Memorandum. Signed by Bill Clinton it “refers to assurances, not defined, but less than a military guarantee of intervention”, according to Wikipedia. Ukraine will have paid an enormous price for having given up its weapons, something which may not be lost on the South Koreans, Japanese, or Vietnamese. Thus, North Korea may well interpret events in Ukraine–in which a much stronger US and Germany collapsed in the face of a minor autocrat–as a signal that it can blackmail Japan with its own nuclear weapons. If I were Japanese leadership, I would not wait until Tuesday to exit the NPT and build my own weapons. If the US cannot deter a weak Russia, whom can it deter? Thus, Ukraine may serve as a reverse “axis of evil” lesson, in which the invasion of Iraq prompted North Korea and Iran to rush for their own nuclear weapons. Given that the US is now invested in global chaos and will not see down even minor competitors, any number of countries may decide they need to provide for their own nuclear security. For Japan, I would consider it indispensable.
China now faces two distinct choices, in my opinion.
First, it can seek to enforce the Nine Dashes by force, that is, accelerate the militarization of the China Sea and seize islands before the Japanese develop their own nuclear capability.
Alternatively, the Chinese could take leadership over the situation. These involves two distinct steps:
1. Actively provide military hardware support to Ukraine or Eastern Europe, or punish Russia. This is easily done, if the will is there.
2. Separate security from expansionist policies relating specifically to Fiery Cross. This involves
a. Laying down the principle that, because the US has proven itself incapable or unwilling to provide security for critical Chinese oil imports from the Middle East, China reserves the right to build or otherwise acquire the necessary bases to provide oil security from Hainan Island to the loading terminals in Basra. Under the circumstances, this is not a hard argument to make.
b. Lead the initiative to resolve China Sea stresses. This involves championing a far more neutral set of boundaries, with some internationalized zone under which the various countries can operate with respect to natural resource extraction, fishing and other uses under common rules. By doing so, China would separate security issues from territorial claims.
The former strategy will lead to a militarization of Asia. If China is viewed as an aggressor and the US as impotent, then the countries of East Asia will have to depend on their own security capability, including nuclear weapons.
The latter would lead to the positioning of China as an “honest broker” and problem-solver. It would go a long way to the political marginalization of the US in East Asia; to the morally defensible construction of naval basis to the Middle East; and to an East Asia which accepts Chinese leadership as largely benign (and therefore not to be resisted), even if countries like Japan and the Philippines may not be entirely comfortable with the matter.
We’ve seen very little sophistication from the Chinese in foreign affairs recently, which would argue for the first strategy mentioned above. On the other hand, playing a more subtle game, China could see its global position substantially advanced with little resistance from others.
I think there’s quite a lot on the line in Ukraine, and not just for Europe.
Oh my word! We are going to take away their credit cards. They are now going to have to pay cash. Wow, what a powerful response. That is really flexing our muscles. Putin must be shaking in his boots.
Steven Kopits,
Why shouldn’t North Korea push below the 38th Parallel? Perhaps a few thousand North Korean regulars could simply go on vacation and get lost below the demarcation line.
Yes, as I’ve written elsewhere, a US failure to act in Ukraine could prompt a major re-ordering elsewhere, including increased adventurism from the North Koreans, and more importantly, the nuclearisation of at least some of South Korea, Japan and Vietnam.
“Being able to change borders in Europe without consequences, and attacking other countries with troops, is in my view a far greater danger than having to accept certain disadvantages for the economy,” Merkel said in Berlin.
Best guess: Merkel mobilizes the Germans by the end of the week.
And let me add, that the US will have its hand forced. It will also either mobilize, or the NPT is dead.
Also, if I’m Putin, I convert this into a blitzkrieg at this point, hoping to acquire all of Ukraine before the Allies have time to react.
U.S., allies to stage exercises in West Ukraine as battles rage in East
By Peter Apps
WASHINGTON Tue Sep 2, 2014 1:41pm EDT
(Reuters) – As fighting between the army and Russian-backed rebels rages in eastern Ukraine, preparations are under way near its western border for a joint military exercise this month with more than 1,000 troops from the United States and its allies.
The decision to go ahead with the Rapid Trident exercise Sept. 16-26 is seen as a sign of the commitment of NATO states to support non-NATO member Ukraine while stopping well short of military intervention in the conflict.
The annual exercise, to take place in the Yavoriv training center near Ukraine’s border with Poland, was initially scheduled for July, but was put back because early planning was disrupted by the crisis in the eastern part of the country.
“At the moment, we are still planning for (the exercise) to go ahead,” U.S. Navy Captain Gregory Hicks, spokesman for the U.S. Army’s European Command said on Tuesday.
NATO stepped up military activity in its eastern member states after Russia’s annexation of Crimea in March, and is expected to agree at a summit in Wales this week to create a new rapid reaction force of several thousand troops.
In addition to staging air force exercises, the United States is moving tanks and 600 troops to Poland and the Baltic states of Estonia, Latvia and Lithuania for joint maneuvers in October, replacing a more lightly armed force of paratroopers.
But Rapid Trident will entail the first significant deployment of U.S. and other personnel to Ukraine since the crisis erupted.
President Barack Obama will visit Estonia on Wednesday to reassure the former Soviet Baltic states of U.S. support, and Estonia’s prime minister on Tuesday called for a more visible NATO presence in eastern Europe.
Washington has promised Ukraine $52 million in non-lethal security aid and has already provided combat rations, body armor, radios and other equipment. Pentagon leaders have met with Ukrainian counterparts to discuss a range of cooperation, but, for now, arms supplies have been ruled out.
“It is very important to understand that a military solution to this problem is not going to be forthcoming,” Obama told reporters at the White House last week.
The United States European Command (EUCOM) says the exercise this month will involve about 200 U.S. personnel as well as 1,100 others from Ukraine, Azerbaijan, Britain, Canada, Georgia, Germany, Latvia, Lithuania, Moldova, Norway, Poland, Romania and Spain.
Focused on peacekeeping, it will include command post drills, patrolling and dealing with improvised explosive devices.
While it involves many NATO members as well as countries such as Ukraine, who are part of NATO’s broader “Partnership for Peace,” the exercise is not formally a NATO drill.
More broadly, under a broad program titled “Operation Atlantic Resolve” meant to show U.S. commitment to the European allies, NATO is running what officials say is a ramped up version of its regular summer and autumn training schedule.