Why a federal Ukraine is a worst-case scenario

Ahead of US-EU-Russia talks on the future of Ukraine on Thursday, pro-Russian protesters – possibly assisted by Russian special forces – have escalated their disruptions in Eastern Ukraine beyond Crimea. While media coverage is understandably alarmist, these disruptions are not necessarily worrying signs. Ahead of negotiations there is always a rush by the negotiating parties to establish facts on the ground to support their positions. This is why Israel inevitably pushes forward with building settlements just ahead of negotiations with Palestine; is why both sides in Sudan’s conflict ramp up hostilities each time peace talks are scheduled. It does not mean the talks are falling apart before they have started. It’s just good strategy. The fact on the ground that Russian President Vladimir Putin hopes to establish prior to talks is the destabilization of more of Eastern Ukraine. This way he will have something to give up, in exchange for what he wants: a federal Ukraine. This is what Russia has been proposing as an acceptable compromise for Ukraine even before it invaded and annexed Crimea. Is also very worrying, as a federal solution is a worst-case scenario for Ukraine. Some may feel that it is a small price to pay in exchange for peace. Russia, the EU, and the US can play their games of influence in a federal Ukraine, jockeying for the sympathies of individual provinces, rather than playing the higher-stakes games of sanctions and energy threats, which have the potential to disrupt the fragile recoveries now emerging in the EU and underway in the US. The problem with the federal solution is that it undermines the...

Russia’s New Direction

Russia’s economy is booming and its debt rated investment grade. And yet, in the past week alone – a near-miss bank run, threats of bankruptcy for energy giant Yukos, and the editor of Forbes magazine’s Russia edition gunned down in an apparent contract hit. Where is Russia headed? (Part two of a two-part series.) To follow the plot in Vladimir Putin’s Russia, one needs to know the characters. In order of appearance – The oligarchs. Russia is amply supplied with so-called “gangster capitalists.” But a few stand head and shoulders above the rest, with fortunes straddling natural resources, industry, banking and the media. A World Bank study – unraveling complex cross-shareholdings and shell companies – uncovered 23 of these “oligarchs,” who between them control an astonishing one-third of Russian industry (by sales) as well as seventeen percent of all banking assets in the country. The oligarchs’ wealth and control of media makes them politically influential. Indeed dominant, in Yeltsin’s day. But they are also vulnerable. Most have broken laws of one kind or another – hard not to, given the chaotic environment of the 1990s. So they are vulnerable to legal attacks. And they are also politically vulnerable. The distribution of wealth in Russia is profoundly inequitable: according to Forbes, Moscow now has more billionaire residents than New York (33 against New York’s 31), yet the average Russian salary is $200 per month – a fact that inspires intense public anger. Not to mention that of the top seven oligarchs, six are Jewish, in a country that remains profoundly anti-Semitic. Two have been hounded into exile, and one, Mikhail...

The Russian Supertanker Turns on a Dime

Russia’s economy is booming and its debt rated investment grade. And yet, in the past week alone – a near-miss bank run, threats of bankruptcy for energy giant Yukos, and the editor of Forbes magazine’s Russia edition gunned down in an apparent contract hit. Where is Russia headed? (Part one of a two-part series.) “Probably about a year after he moves into the Kremlin, Russia’s next president will look in the mirror and see not himself but Boris Nikolaevich Yeltsin.” – Russia scholar Daniel Treisman, in 1999. It would be hard to imagine a more unenviable position than that of Russian president Vladimir Putin when he took office in 1999. Russia was not just a sinking ship. It was a sinking ship with all hands employed either bailing more water onboard or puncturing additional holes in the hull. In the midst of this maritime disaster, changing captains – as Daniel Treisman pointed out – seemed unlikely to make much difference. There is a point at which momentum overcomes heroism, and 1990s Russia seemed long past that point. Supertankers do not turn on a dime. Or do they? A few short years after suffering a financial crisis, the Russian economy is now booming and its debt rated investment grade. The key to understanding how this was possible is to look below deck. The captain was critical. But so was the crew. Bear in mind that Russia’s post-communist relaunch was met with great expectations. It was a course into the unknown, to be sure. But Russia had rich natural resources, extensive industry and infrastructure, a well-educated workforce, top-notch scientists. This was...