3.18.2014

Ukraine: The Unnecessary Crisis

English: Vladimir Putin and Gerhard Schroeder
Vladimir Putin with Gerhard Schroeder
With Crimea voting to secede and Ukraine torn between  the pro Russian East and anti-Russian West, not to mention the Muslem ethnic minority, it looks like a balkanization of Ukraine - and perhaps even a Cold War scenario if you throw in American and European indignant reactions and calls for sanctions against Russia.

But is all this hullaballoo really needed? After all, Putin is playing in his own backyard. Crimea is part of Russian History and an emotional part too - one million russians lost their lives in Crimea fighting the nazi occupants in World War II. People have a right to auto-determination, don't they?

Political map of Ukraine, highlighting Crimean...

Yet Obama and Merkel in primis will have none of it, rejecting any notion of geo-political regions. As soon as the results of the referendum in Crimea were in and Putin claimed victory, they called for sanctions. The sanctions passed were actually puny and aimed at a handful of individuals in Putin's entourage, carefully avoiding Putin himself, of course. 

Why bother with sanctions at all?  Personally, as an economist, I'm dead set against economic sanctions of any kind, including the "big variety" aimed at a whole country (and not just a few individuals as here). Historically, sanctions have been shown never to work, starting with the most famous one, Napoleon's blockade of Europe, aimed at the British - we know with what scant results! Sanctions always create a black market and inevitably hurt the poor while filling the pockets of speculators. 

Sanctions should never be used by any responsible political leader.But are our leaders responsible? I seriously doubt it. 

On the very day the sanctions were passed, two major deals were concluded with Russian businessmen: Rosneft invested in Pirelli, the giant Italian tire manufacturer becoming its top investor, and two Russian billionaires invested $7.1 billion in the troubled German energy utilities company RWE, buying an oil and gas unit that gave them access to the U.K., Germany and the North Sea (see here and here).

This just shows the strength of market globalization. Annual trade figures, both ways, between Germany and Russia are in the neighborhood of $37 billion. Russia is a major oil and gas supplier to Europe. Under the circumstances, is war conceivable? Of course not. 

The problem in Ukraine - now that Crimea has seceded - is what happens to the eastern, russophone region. This is what diplomacy should focus on: the goal is to create a federal Ukrainian state that respects everyone's identity (language and religion) and is recognized by Russia, rather than waste time on threatening further sanctions - as Ms. Merkel does, unless she means that as a move in a complex chess game she is playing against Putin? Maybe so.

In any case, what is not needed here is any American intervention. This is a purely European crisis - if it has to be a crisis at all. The hope is that our leaders, Merkel included, will see the light of day and understand the way out - through negotiations, not sanctions, and much less a military intervention which is unthinkable, or if thought of, profoundly stupid.
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