Opinion

Anatole Kaletsky

Why this Ukraine ceasefire will stick

Anatole Kaletsky
Sep 19, 2014 16:34 UTC

A boy sits on an APC as he poses for a picture during a parade in Luhansk, eastern Ukraine

The war in eastern Ukraine, which has had more impact on the European economy than any news coming out of Frankfurt or Brussels, appears to be ending. Despite the sporadic attacks that have wrecked previous ceasefire attempts.

Investors have mostly assumed that the ceasefire would not hold, either because Russian President Vladimir Putin is deceitful and greedy for more territorial conquest, or because Ukraine’s President Petro Poroshenko would not accept the splintering of his country that Russia demands. But this fashionable pessimism is probably wrong.

The ceasefire no longer relies on good faith or benevolence but on a convergence of interests: Putin has achieved all his key objectives, and Poroshenko recognizes that trying to reverse militarily the Russian gains would be national suicide.

Admittedly, there is still a “party of war” in Kiev, seemingly led by Prime Minister Arsenyi Yatsenyuk, who has called on the North Atlantic Treaty Organization to back his country in an all-out war with Russia. But this week’s vote in the Ukrainian Parliament on temporary autonomy for the rebel regions suggests that most of the country’s politicians have abandoned hope of winning a war with Russia. They also understood that Western military assistance is not coming.

Ukraine President Poroshenko speaks after his meeting with Obama in WashingtonThis may sound like a grimly defeatist analysis. Yet a modest victory for Russia was actually the least bad outcome to be expected — given that there was never any chance of economic sanctions stopping Putin, for reasons explained here in March. There are several good reasons to welcome the incipient Ukraine deal:

Should Brazilians cheer if they lose the World Cup?

Anatole Kaletsky
Jun 13, 2014 19:22 UTC

Brazil's President Rousseff attends a meeting of the Brazilian Forum on Climate Change in Brasilia

As the World Cup kicks off in Sao Paolo this week, the home team is the runaway favorite, with a 45 percent chance of winning the tournament, according to Nate Silver on FiveThirtyEight and 48.5 percent probability according to the statistical boffins at Goldman Sachs. But apart from the bookmakers — who stand to lose a fortune if Brazil wins, since they are offering odds of around 3 to 1, instead of the 1 to 1 suggested by Silver’s and Goldman’s calculations — another, more surprising, group is secretly rooting against the favorite: Brazil’s own financial and business community, along with much of the country’s middle class.

That, at least, was my strong impression after two weeks visiting companies and financial institutions in Brazil. This unusual reversal of national spirit does not represent a breakdown of patriotism. Rather the opposite.

Brazil’s next presidential election is in October, and virtually everyone in business and finance believes that President Dilma Rousseff, the incumbent, must be defeated to save the economy. Whenever a new opinion poll shows a narrowing lead for Dilma (as Brazilians invariably call her), share prices jump. Yet still she remains well ahead of both her opponents.

China-Russia is a match made in heaven, and that’s scary

Anatole Kaletsky
May 22, 2014 17:27 UTC

putin-li

Check-mate.

As Russian President Vladimir Putin signed Russia’s historic $400 billion gas-supply agreement with China, he must have felt the satisfaction of a chess grandmaster revealing the inexorable outcome of a complicated endgame.

In theory, the next phase of the chess match between Russia and the West in Ukraine will only begin with the Ukrainian presidential election on Sunday. But Putin’s positioning of the pieces means the outcome is pre-ordained, no matter who emerges as the next president in Kiev.

putin & troopsNo wonder the Russian stock market and ruble have both rebounded — with the MSCI Russia index gaining 20 percent in dollar terms since its low point on March 14.

Why the Russian sanctions don’t work

Anatole Kaletsky
May 1, 2014 20:53 UTC

putin!!

Why did the U.S. and European sanctions against Russia earlier this week trigger a rebound in the ruble and the Moscow stock market?

To understand this paradox it is worth recalling Yes Minister, the British TV comedy about a blundering politician who stumbles from crisis to crisis with the same justification for every panic response: “Something must be done. This is something –– therefore it must be done.”

The problem with this syllogism is that doing something may be worse than doing nothing — and the Western decision to rely on economic sanctions in the Ukraine crisis is a case in point.

Forget the drama: A solution for Crimea

Anatole Kaletsky
Mar 28, 2014 03:29 UTC

President Vladimir Putin has disastrously miscalculated and Russia now faces deeper isolation, tougher sanctions and greater economic hardship than at any time since the Cold War. So declared President Obama after the NATO summit in Brussels.

European leaders have sounded even tougher than Obama, though less specific. Some whose countries lie far from Russia — for example, British Prime Minister David Cameron — have whipped themselves into a fury reminiscent of King Lear: “I will do such things — what they are, yet I know not, but they shall be the terrors of the earth.”

For more specificity we must turn to pundits. Geopolitical experts have predicted global anarchy because of the violation of postwar borders; economists have warned of crippling trade wars as European financial sanctions collide with Russian energy counter-measures, and eminent financial analysts have argued that investors and businesses are dangerously under-pricing enormous geopolitical risks.

Markets already see a Putin win

Anatole Kaletsky
Mar 6, 2014 21:24 UTC

Oscar Wilde described marriage as the triumph of hope over experience. In finance and geopolitics, by contrast, experience must always prevail over hope, and realism over wishful thinking.

A grim case in point is the confrontation between Russia and the West in Ukraine. What makes this conflict so dangerous is that U.S. and EU policy seems to be motivated entirely by hope and wishful thinking. Hope that Russian President Vladimir Putin will “see sense” — or at least be deterred by the threat of sanctions to Russia’s economic interests and the personal wealth of his oligarch friends. Wishful thinking about “democracy and freedom” inevitably overcoming dictatorship and military bullying.

Investors and businesses cannot afford to be so sentimental. Though we should never forget Nathan Rothschild’s advice at the battle of Waterloo — “buy on the sound of gunfire” — the market response to this week’s events in Ukraine makes sense only if we believe that Russia has won.

Behind the wave of market anxiety

Anatole Kaletsky
Feb 6, 2014 23:33 UTC

What has caused the sudden anxiety attack that overwhelmed financial markets after the New Year? We may find out the answer at 8.30 on Friday morning, Eastern Standard Time.

Almost all agree that the market turmoil has been linked to alarming events in several emerging economies — including Turkey, Thailand, Argentina and Ukraine — that has spilled over into concerns about more important economies, such as China, Russia, South Africa, Indonesia and Brazil.

But why has near-panic hit so many emerging markets at the same time?

There seem to be four broad explanations. Whether this current volatility marks the end of the straight-line ascent in asset prices that started in March 2009, or whether it is just another opportunity to “buy on dips,” will largely depend on the relative importance of each of these factors.

Will Putin attempt a last-minute Cyprus rescue?

Anatole Kaletsky
Mar 25, 2013 01:59 UTC

Vladimir Putin could restore Russia’s great power status and maybe go down in history as the country’s most visionary leader since Peter the Great. He could win respect from Beijing and Washington for averting a second global financial crisis and he could prove that Russia understands market economics better than the EU. His miraculous opportunity to do all this started with the Mafia-style “offer you can’t refuse”  presented by the EU to Cyprus on Sunday. It will end on Tuesday morning, if Cyprus banks then re-open under the conditions imposed by the European Troika, as currently planned.

One of the mysteries of the Cyprus crisis has been the lack of response from Russia, despite the obvious strategic opportunities, not just to protect its offshore deposits, but also to exploit the island’s strategic location and its military and energy potential. A possible explanation is that Europe’s indecision also paralyzed Russia -  until last night.

As long as Europe’s policy on Cyprus kept shifting, it was impossible for Russia to intervene, since any help it offered could be rejected or outbid by the EU. As a chess player, Putin probably understood that his best strategy was to wait for Cyprus to get weaker and more desperate, while the EU, and especially Germany, became more impatient and obstinate. The moment to make his move would be when Europe presented an ultimatum too painful or humiliating for Cyprus to accept. That moment arrived last night.

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