Markets already see a Putin win

o13-iconAnatole Kaletsky writes: Oscar Wilde described marriage as the triumph of hope over experience. In finance and geopolitics, by contrast, experience must always prevail over hope, and realism over wishful thinking.

A grim case in point is the confrontation between Russia and the West in Ukraine. What makes this conflict so dangerous is that U.S. and EU policy seems to be motivated entirely by hope and wishful thinking. Hope that Russian President Vladimir Putin will “see sense” — or at least be deterred by the threat of sanctions to Russia’s economic interests and the personal wealth of his oligarch friends. Wishful thinking about “democracy and freedom” inevitably overcoming dictatorship and military bullying.

Investors and businesses cannot afford to be so sentimental. Though we should never forget Nathan Rothschild’s advice at the battle of Waterloo — “buy on the sound of gunfire” — the market response to this week’s events in Ukraine makes sense only if we believe that Russia has won.

The alternative to acquiescence in the Russian annexation of Crimea would be for the Ukrainian government to try to fight back, either by military means or by pressuring the Russian minority in the rest of the country. That, in turn, would almost inevitably imply a descent into Yugoslav-style civil war — with the strong possibility of sucking in Poland, the North Atlantic Treaty Organization and the United States.

The West has no intermediate option between accepting the Russian invasion and full-scale war because it seems inconceivable that Putin would voluntarily withdraw from Crimea. Having grabbed Crimea by force, to give it up now would almost certainly mean the end of Putin’s presidency. The Russian public, not to mention the military and security apparatus, believes almost unanimously that Crimea is “naturally” part of Russia, having been transferred to Ukraine, almost by accident, in 1954. In fact, many Russians think, rightly or wrongly, that the entire Ukraine “belongs” to them. (The word “u-krainy” in Russian means “at the frontier,” and definitely not “beyond the frontier.”)

Under these circumstances, the idea that Putin would respond to Western economic sanctions, no matter how stringent, by giving up his newly gained territory is pure wishful thinking. [Continue reading…]

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1 thought on “Markets already see a Putin win

  1. rust. h

    Why would the US and EU engage in “wishful thinking” that democracy and freedom will overcome dictatorship and military bullying? It has been their official policy to support dictators, create new ones, bully many nations militarily and subject those nations to untold atrocities. This next to their unofficial policy of encouraging genocide,
    torture, sending in agents ( Vitali Klitschko who came with the compliments of the Konrad Adenauer Stiftung ) and many more such underhand operations. The refugee tsunami that will crash down over Europe, can only weaken those “sovereign nations”, and one can realistically ask the question;- Is that not the intention?

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