Crisis Progress Report (3), by Robert Gore

This is a reblog from Straight Line Logic

French President François Hollande, German Chancellor Angela Merkel, Russian President Vladimir Putin, and Ukrainian President Petro Poroshenko, negotiated a cease-fire in Ukraine without the involvement of either President Obama or Secretary of State Kerry. The sour grapes coming from The Wall Street Journal Friday reveal the mindset of much of the US establishment. There were two front page articles: “Doubt Clouds Ukraine Truce” top center, and “Cease-Fire Hopes Exceed Expectations” just below. The tone of both, evident from the headlines, is undisguised skepticism. An editorial excoriated the agreement, and Merkel, Hollande, and Poroshenko, for giving away the store. The editorial said it “gives the Kremlin the benefits of establishing a de facto satrap without having to foot the costs of sustaining it or assume political responsibility.”

Let’s assume the Journal’s assessment is on point. Left unsaid was that Merkel and Hollande may well have reached a conclusion that escalating US and European involvement in the conflict by sending arms to the Ukrainian government was not in their interest. That reckoning would be driven by geography, history, and hard-headed calculation. If Russia is supplying arms and troops to east Ukraine’s ethnic Russian rebels, as the US has repeatedly asserted, sending arms to the Ukrainian government puts the US and allied European nations at war with Russia. However, even with armaments, Ukraine would be crushed by Russia if the Russians invaded in force. What then would be the response?

If the US and Europe escalated their involvement in Ukraine, they would be fighting Russia on its doorstep. That undeniable geographic advantage must give the Europeans pause, and then there is history. Ukraine has, for most of its history, either been part of Russia or within the Russian (or Soviet) orbit. TheJournal’s use of the word “satrap” is ironic, because the present Ukrainian government is a satrap of the US and Europe. Virtually bankrupt, it is dependent on their financial aid and without their military aid it will, on current form, be unable to suppress the east Ukraine rebellion. Do the Europeans really want to go to war over a dependent, financially pressed government actively opposed by a significant part of its population, for a country vitally important to Russia? Military odds-makers would make Russia the favorite, even if the US joined in (the odds-makers have been successively marking down the US with each Middle Eastern fiasco). While the US has never fought Russia head-to-head, the French and Germans have, and those forays did not go well for them.

 "Putin is the enemy and the US political elite wants to use Ukraine as a lever to dislodge him and install a government more tractable to its designs. This is a pipe dream on the order of the neocon fantasy of remaking the Middle East, "

Merckel and Hollande might also have asked themselves: which is more advantageous, bringing Ukraine into the European orbit or a reasonably healthy political and commercial relationship with Russia? Hands down it’s the latter. Ukraine’s economy is a debt-laden basket case and Europe has enough of those. The Europeans have to be apprehensive about the Russian pivot towards China and the rest of Asia. The more that develops, the less Russia needs Europe. Notwithstanding American policymakers’ fervent hopes, Russia’s economy is hardly going down the tubes. It has abundant natural resources, including oil and natural gas, an educated population, low debt, and inefficient Soviet-legacy manufacturing and agriculture whose productivity could be dramatically improved.

The headline of the Journal editorial is “Putin’s Latest Victory.” Putin is the enemy and the US political elite wants to use Ukraine as a lever to dislodge him and install a government more tractable to its designs. This is a pipe dream on the order of the neocon fantasy of remaking the Middle East, and Merkel and Hollande just said “nein” and “non” respectively. If they keep the US from escalating the war in Ukraine (a long odds bet), it would redound to the benefit of both the US and Europe. However, remaking the Middle East and Russia to suit American interests are long-term goals of the bipartisan elite, faithfully trumpeted by its MSM propaganda arm. This is what passes for brains among those running the US, and it reinforces the message of “Buy Asia; Short the US and Europe,” (SLL, 2/3/15). They are dangerous in every sense of the word, posing a grave threat to the lives and remaining wealth of the American people.

Apparently the world’s smart money is grasping the potential of the Asian-Russian linkages US policy has done so much to promote. The Russian stock market hit bottom one month after the Ukrainian coup last year and so far is the world’s best performing market in 2015. The Chinese have pollution issues and massive piles of debt and malinvestment to work through, but their stock market has been on a tear. So has India’s. The Asia-Russia investment thesis has far more appeal than taking a flyer on the debt-saturated economies and central bank-manipulated bond and stock markets of the US and Europe.

The other crisis facing Europe—Greece—is even less amenable to resolution than Ukraine. In fact, it is unresolvable; there will be no happy ending. Greece is tolling the bell, loud and clear, for debt as a way of life in the western welfare states. Like most of the west, Greece has a pile it cannot pay. The only issue now is who bears the loss. Regardless of where it falls, Greeks will be looking at austerity and reduced living standards for many years to come, corresponding to the many years they lived beyond their means. They will not be alone.

In “Crisis Progress Report (2),” SLL advised keeping an eye on interest rates as the ultimate canary in the coal mine, the one variable of which governments and central banks cannot afford to lose control. Rates have continued to creep up and may take off if the Europeans cannot devise some market-pleasing (albeit cosmetic) solution to their Greek woes. The recognition that there are no painless solutions to bankruptcy—that ultimately many people get hurt—shall spread far beyond the borders of Greece. To paraphrase Thomas Jefferson, the tree of credit must be refreshed from time to time with the blood of creditors who accept inadequate compensation for the risks they bear.