THE BLOG

Putin's Folly

I've read quite a few pundits in the past few weeks who seem to think Vladimir Putin is playing a masterful game of chess in the Ukraine. One of them recently wailed, "He's always a step ahead of us!"

Really? I had a conversation years ago with Grigory Yavlinsky, who lost to Putin in Russia's 2000 presidential election. When I asked what Putin was like, Yavlinsky said, "He has the mind of a mid-level KGB officer."

That struck me as right then, and in the years since and especially in the last couple of months I think Yavlinsky has been proven right.

In the short term, Putin has looked like he is in the catbird's seat. The incredibly expensive and corrupt Sochi Olympics fiasco upset a lot of Russians and gave some ammunition to reform-minded opponents. But Putin knew there's nothing like fake outrage against foreign powers to appeal to nationalistic pride. He also knew he had developed special forces military that could take advantage of the ouster of the Ukraine's President Yankulovich by taking over Crimea and destabilizing the rest of the country. And he bet that the Europeans, especially the Germans, would resist initiating serious economic sanctions against Russia because of their dependence on Russian oil and gas. Not looking much beyond the next couple of months, he thought he could get away with his incursions and pump up his approval numbers.

They are, indeed, at an all-time high. But foreign policy is a long-term game, and Putin's chickens are starting to come home to roost. The huge mistake he made is not recognizing that we have moved light years away from the Cold War into a truly globalized world economy. Economic power now trumps military power, and private sector capital flow can be far more important than government actions.

The sanctions the United States has already put in place are dramatically bringing those truths home to Russia. In today's world, Russia is neither a global military or economic power. President Obama was right when he said, "Russia is a regional power that is threatening some of its immediate neighbors -- not out of strength but out of weakness." And John McCain, with whom I have recently seldom agreed on foreign policy, had the best line when he said, "Russia is a gas station masquerading as a country."

Let's look at some of Putin's now-roosting chickens. A couple of weeks ago, Standard and Poor's cut Russia's sovereign debt rating to BBB-, one level above "junk." The European Central Bank estimates that capital flight from the country since the beginning of the Ukrainian crisis is over $220 billion. The stock market has taken a huge hit, as has the value of the ruble. Most economists believe the Russian economy is already in a recession. How popular will Putin be when millions of his people lose their jobs and their savings?

As bad as the economic news is for Russia, one European banker, Danske Bank's Lars Christiansen, said just before Putin's announcement last week that he was pulling troops away from the Ukrainian border, "Markets seem to be betting that the Kremlin can't let things get worse in Ukraine because it would be insane, yet it is happening anyway. We think there will be a much more serious correction in the Russian markets."

Putin, no doubt prodded by the billionaire Russian oligarchs on whose support he depends, may finally have looked into that abyss and flinched. On May 7, Bloomberg reported "Russian stocks and bonds rallied the most in seven weeks and the ruble gained as President Vladimir Putin said he was pulling troops away from the Ukrainian border while urging separatists to delay a referendum to ease tension."

The threat in Ukraine is not over. But President Putin, not much of a chess player but perhaps a reluctant realist, seems to be beginning to understand the dimensions of his blunder.

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