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Tags: russia | ukraine | europe | sanctions

Red Alert: Putin Hasn't Changed His Colors Despite Russian Sanctions

By    |   Tuesday, 22 July 2014 09:41 AM EDT

The foreign ministers of the European Union will meet in Brussels to discuss how to modify their sanctions against Russia. There is no clear idea about how far that escalation should go as there remain serious divisions between the different EU member states on that extremely delicate and complicated subject.

Such complications were clearly demonstrated earlier this month when the EU failed to appoint a new High Representative (HR) of the Union for Foreign Affairs and Security Policy, which is the main coordinator and representative of the Common Foreign and Security Policy (CFSP) within the EU, as successor to Catherine Ashton, who is the current and outgoing High Representative. It was the question of how to take on Russia and the extension of sanctions that caused the disagreement among the European leaders.

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Markets are probably not paying sufficient attention to this situation because of the very simple reason that an escalation of sanctions against Russia will have both economic and political consequences. Sanction discussions have been largely governed by economic interests, but after the Malaysian Airlines passenger jet was shot down over Eastern Ukraine, very high level diplomatic and strategic interests have gotten a more forceful role.

I think long-term investors should be prepared for sudden unpleasant surprises that could pop up at any time. They shouldn't expect Russian President Vladimir Putin to change his long-standing plans and related actions. I certainly don’t have any hope at all.

The current tension reminds me of what Putin said about the United States in his prepared speech in Germany in 2007. He communicated the basic themes that would dominate his career as president of Russia. He accused the United States of establishing, or trying to establish, a “uni-polar” world. “What is a uni-polar world? No matter how we beautify this term, it means one single center of power, one single center of force and one single master … adding … the U.S. had gone from one conflict to another without achieving a fully-fledged solution to any of them…”

Unfortunately to me, it seems Putin hasn’t changed much since then. I’d remain extremely cautious about “big tail” risks that are out there — economic as well as political.

Remember that the European Union ranks fourth in total trade with the U.S. after Canada, China and Mexico, while Japan ranks fifth. If even stricter sanctions are imposed on Russia, Europe will suffer. No doubt about that.

Meanwhile, International Monetary Fund (IMF) Managing Director Christine Lagarde said financial markets were “perhaps too upbeat” on Europe because high unemployment and high debt could drag down investment and hurt future growth prospects.

“There is the danger of a vicious cycle: persistently high unemployment and high debt-to-GDP ratios jeopardize investment and lower future growth,” she said.

Europe isn't out of the woods yet. I wouldn’t bet that things will change for the better in Europe anytime soon.

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An escalation of sanctions against Russia will have both economic and political consequences.
russia, ukraine, europe, sanctions
Tuesday, 22 July 2014 09:41 AM
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