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Alarm bells should be ringing in Washington because of two significant events in Europe today likely to speed up processes already underway to weaken the transatlantic economic partnership.
President Barack Obama has been pushing Europe strongly towards economic and political clashes with Russia’s Vladimir Putin because of Moscow’s annexation of Crimea and armed interference in Ukraine.
The US-Europe allies should now be concerned that the damage they are trying to cause to the Russian economy and Putin’s political position may lead to more trouble than they intended.
The unexpected near collapse of oil prices has sharply worsened the bite of US and European Union sanctions on Russia’s banking, oil and gas sectors and Putin’s close coterie of oligarchs.
The first event was Putin’s most important annual policy speech to the country’s top-flight officials, parliamentarians, generals and other dignitaries. The other was the European Central Bank’s failure to come up with a plan to save the EU from recession.
Putin’s anger was undisguised when he accused the West of trying to break up Russia by running “a Yugoslavian scenario in Russia”. Reports quoted him as saying, “Hitler with his misanthropic ideas tried to destroy Russia and throw us back behind the Urals. Just remember how that ended.”
“If [Russia’s annexation of Crimea] had not happened, they would have found another excuse for holding Russia back and Russia down. This has been happening for centuries — every time the west thinks Russia is getting too strong, they use these policies.”
“In the ’90s, [western] countries openly supported separatists and terrorists in our country, these people who are making trouble today in Chechnya again…but our security forces strongly believe they can deal with the situation,” he added.
Some in the US might see these blunt words as the rhetoric of a desperate leader fighting to retain power by raising the bogey of existential menace from the West. They may argue that Obama and Europe have no such intentions.
However, if they have some inkling of Russian culture, they should take pause because Russia’s leaders and people have struggled for over 500 years to gather power to prevent erosion by Western Europeans. They are prone to such suspicion and misunderstandings. Discounting their anger may cause them to dig in their heels behind an authoritarian Putin.
Putin’s Russia is not the Soviet Union, which was a mortal enemy of Western democracy, capitalism and liberal social values. Russia is no longer an enemy trying to spread its ideology across the world, but it does have a different history, cultural values and ambitions compared to the US-led West.
Trying to impoverish Russia to weaken Putin’s political grip over the people is likely to cause severe hurt to European economies. It may not result in war because both sides are heavily armed with nuclear weapons, but low-key economic warfare is already underway.
It is well to remember that the Nazi regime emerged partly because the victors of World War I imposed very punitive economic burdens on Germany. That allowed radical nationalists to grip the German people so tightly as to start World War II, arguing that it would end the economic pain caused by foreign powers. Japan entered the Second World War partly because of severe sanctions that were choking its energy supplies.
There can be many readings of history and the causes of wars but it is hard to find a single case where hurting the economic wellbeing of ordinary people through sanctions has not allowed tyrants to rise in the name of patriotic resistance to foreign pressures.
The US and EU have not imposed severe enough sanctions on Russia to cause economic warfare capable of imposing significant pain on ordinary people. But their effects are being greatly multiplied by the 40% drop in oil and gas prices accompanied by a nearly 40% fall in the ruble’s value in just four months.
Some in the US welcome the pain caused to Putin’s budgets and the Russian economy by the lost earnings of nearly $200 billion and capital flight of over $150 billion. But they should take another look because the EU is also being severely hurt, thus weakening the transatlantic partnership.
The fall in oil and gas prices has brought the EU to the edge of stagflation with some analysts predicting gloom similar to that in Japan for nearly 20 years. The German economy, which alone seemed untouched, is also faltering now. Trade between the EU and Russia is estimated to have taken a hit of $100 billion dollars, causing sharp weakening in small and medium enterprises in Germany and France.
The EU’s economic troubles have no obvious remedy especially as Mario Draghi, the European Central Bank President, and leading members of the Bank’s governing bodies are in open conflict. Inflation is at a five-year low of 0.3 percent instead of the 2% target and is unlikely to head upwards because of weakening oil and gas prices. The euro currency is also weakening against the dollar.
Draghi wants to increase the ECB’s balance sheet by € 1 trillion (about $1.25 trillion) rising to €3 trillion to boost inflation. But strong political forces are aligned against him.
European economic weakness may seem attractive to some Americans because it would increase Europe’s dependence on US trade, oil, gas and financial markets. But the prospect of weak economies grappling with stagflation stretching from Berlin through Moscow and Vladivostok to Tokyo should ring loud alarm bells.
The US cannot preserve its economic lead if that happens even for a couple of years since the entire global economy might falter because China too is weakening.
Putin may have grabbed Crimea and may be lying when he insists that Russian soldiers are not helping pro-Russian rebels in Ukraine. But economic events now raise the question of how far Obama is willing to go to punish Putin in the current economic state of the world.
Economic instability is a prime cause of violence, internal conflicts and regional wars. The US is involved in all of them directly or indirectly because of its global military presence. Yet, its vast military power is failing to provide security and stability in several regions it considers vital for its national interests, including the Middle East, Afghanistan-Pakistan, the Horn of Africa, Libya and elsewhere.
In this context, it may be imprudent to spread instability across the vast Russian Federation. Early today, Islamist gunmen killed 10 police officers in Grozny, the Chechen capital, raising the specter of the bloody Chechnya wars that Putin brutally put down in the early 2000s.
The gunmen were said to be inspired by the Islamic State, which has also set up training camps in Libya according to Gen David Rodriguez, head of the US Africa command. The possibilities are increasing that the Obama-led economic clash with Putin will foster expanded global insecurity without ever extracting Crimea from his hands.