Submitted by Steen Jakobsen, CIO & Chief Economist, Saxobank, via TradingFloor.com [7],
- Russia's failure to reform made crisis inevitable
- Ukraine détente imperative for Russian revival
- Writing off Russia would be unwise
Russia’s years of neglecting to invest and reform pointed to an inevitable crisis. In 2014, that crisis came on two fronts, first in the confrontation over Ukraine from early this year and the resulting sanctions, and then followed by the incredible collapse in oil prices over the last few months.
Russia and its citizens have been here before and know the drill. Everything looks terrible at the moment, but as the old saying goes, times of crisis are also times of maximum opportunity to chart a new course.
So the positive spin from all of this is that we could see a new start from Russia in 2015. But a vital precondition for that new start is a definitive solution to the Ukraine problem that firmly lays to rest the political and financial standoff with Europe and the US.
Without full integration in the global economy, any comeback faces impossible odds. Capital will simply not flow in and out of the country until sanctions have been lifted, and autarky (self-sufficiency) is not an option.
Former US Secretary of State Henry Kissinger’s suggested solution to Ukraine remains the most plausible outcome: make Ukraine a buffer zone between Russia and NATO. At his end of year speech to the Russian press and nation, Putin called the NATO front across Europe a “Berlin Wall”. Allowing Ukraine to remain in the Russian sphere of influence would at least allow a broader zone of Belarus and Ukraine to separate Russia proper from NATO countries.
Kissinger's buffer-zone idea for Ukraine may be the best solution. Photo: Johannes Simon
As I write this, the European Union wants stronger verbal support of Ukraine from Putin, who is not backing down [8]. But let’s give the process and the crisis another three or four months and both Russia and Europe will want to work more constructively toward a solution.
The macro risks remain very high if some of the recent dynamics spin out of control. But let’s hope that Christmas become a time of looking forward and of thinking practically instead of seeking confrontation.
I remain a long term bull of Russia. It may be naïve right now considering President Putin’s speech on Thursday but Russia has the resources and the people to be a great nation, just not with its present policy and economic focus, especially amid a huge external stand-off and sanctions. Hopefully, this crisis produces a positive mandate for change and a new and more balanced path forward. In other words, let’s hope that things have already become so bad that the only way is up. If that’s the way things turn out, Russia could be 2015’s biggest positive surprise.
Photo: Kremlin Picture Office
