I have been anxiously awaiting the reflections of Anatole Kalestky after the results in the Crimean’s referendum.
Why? Crystal clear. He has been the only one able to predict the movements that gradually have been happening in this conflict.
Now, and after just after having read his last (and valuable) reflection, I’m glad to share with you some of his conclusions:
“This crisis is now very likely to dissipate. All else being equal, this is good news for markets”
Markets should welcome the result of yesterday’s referendum in the Crimea. Had the result been ambiguous, whether because of a low turn-out, or a split electorate, then the more fanatical elements on either side of the divide might have been tempted to take up arms to settle the issue. However, with the vox populi confirming the ‘way of the strong’, the whole Ukraine problem is now more likely to be resolved without much further confrontation.
Any genuine appreciation of the challenges ahead had to acknowledge that having made his move, Vladimir Putin was never going to back out of Crimea. Now, following yesterday’s vote, leaders in the US, European Union and also Kiev will have little choice but to accept this reality. After all, why support Kosovo’s secession from Serbia, but not Crimea’s from the Ukraine? The Crimean question now resolved, investors still have to confront some few uncertainties.
Will Putin now try to take over other parts of Ukraine? No, unless there is serious provocation from the Ukrainian government (e.g. degrading the use of the Russian language) or the US and Europe (e.g. suggestions that Ukraine might join NATO). The suggestion that Putin will invade eastern Ukraine now that his appetite has been whetted by Crimea is ludicrous. After all, Russia does not really have any ‘permanent interests’ in eastern Ukraine. It does not need to incorporate a bunch of economically backward provinces with lousy infrastructure. Russia already has plenty of those!
Will the Ukrainian government try to retaliate? No. the leaders in Kiev surely know that any action against Russians in the east will expose them to overwhelming military attack, as well as enormous economic costs. Does it make more sense for Ukraine to attack Russia over the Crimean vote? Or will Ukraine’s new leaders instead try to negotiate a constitutional compromise that will allow them to continue ruling an independent and increasingly Western-oriented Ukraine while reassuring Russians speakers, restoring economic ties with Russia and saving face for Putin? The current leadership in Kiev clearly believes that Ukraine’s long term interest is to integrate the country further into the greater EU. How will that interest be served by declaring war on Russia? The choice between a Europe facing posture or a ruinous war is a no-brainer for even the most ardent Ukrainian nationalist. Hence, there is a high chance that Ukraine will soon propose a new constitutional settlement acceptable to Putin, perhaps including a second “legitimate” and internationally recognized referendum to confirm the transfer of Crimea.
Will the US and EU feel they have to intensify sanctions against Russia to uphold international law and the sanctity of national boundaries? Western politicians claim that Russia will be excluded from the community of nations and that normal commercial relations will be impossible while Russia keeps control of territory annexed from another sovereign state. This claim is nonsense. Russia controls territories such as South Ossetia, but the clearest counter-example is Israel, which has maintained an “illegal occupation” that has never been recognized by the United Nations. Russia’s annexation, by contrast, will never be deemed illegal since Russia will veto any such resolution—and China may too, given its potential interest in one day annexing islands from Japan, Vietnam or the Philippines. And as mentioned above, Russia will easily plead that there is little difference between the carving out of the Crimea and NATO’s support for the emergence of an independent Kosovo.
Can the US and EU find a formula for restoring normal relations with Russia while formally refusing to recognize the annexation of Crimea? The answer is clearly Yes. If the Ukrainian government is prepared (reluctantly) to accept the status quo, the US and EU can easily start to resolve the conflict by proposing diplomatic negotiations. The purpose would be to create a new constitution for Ukraine, perhaps based on Belgian dual-language arrangements, and with guarantees for both EU and Russian interests. A subsidiary objective would be to agree on a final settlement of the Crimea and Eastern Ukraine issue. These negotiations could, in principle, go on for years without forcing the US and Europe either to recognize Russia’s annexation of Crimea or to do anything much to oppose it.
So in conclusion, this crisis is very likely to dissipate. All else being equal, this is good news for markets. And it is of course good news for humanity in general as the last thing the world needs is a war in which the Red Army is involved!
