Merkel Chance to Put Putin in His Place
Comment of the Day

March 13 2014

Commentary by David Fuller

Merkel Chance to Put Putin in His Place

Here is a section from this good, informative editorial from Bloomberg:

Russia's formal annexation of Crimea, which seems all but certain to follow a phony referendum on the peninsula on Sunday, would obliterate the 1994 treaty that the U.S. and Russia signed to guarantee Ukraine's sovereign borders in exchange for relinquishing its nuclear deterrent. Honoring that guarantee is fundamental to nonproliferation efforts around the world, including with Iran.

Merkel stopped short in her speech of tying tougher sanctions to any Russian annexation of Crimea, making it likely that effective measures would be rolled out only if Putin moved troops into other parts of Ukraine. That pledge is a vital step forward, but it should apply to Crimea's annexation, too. The response that Merkel and the EU have promised for Monday if the referendum goes forward -- visa bans and asset freezes for the Russian officials responsible -- is relatively feeble. With Russia mobilizing troops on Ukraine's eastern border today, Merkel's pledge to impose much more painful sanctions if Putin attempts to move into other parts of the country is crucial.

Merkel should commit to that strong response now, in private to Putin if necessary, before the first Russian soldier has crossed into eastern Ukraine. She should make clear to him exactly what collective sanctions he would face from the EU, Russia's biggest trading partner and the provider of an estimated 75 percent of its foreign direct investment.

Those measures should include financial sanctions that would severely hit the Russian elite (and the City of London) as well as the ability of Russian banks to process transactions, including for the export of oil and gas. Russia is preparing for the potential imposition of Iran-style sanctions by the U.S. that would cut off Russian banks from U.S. dollar transactions, and she should commit to do the same in Europe.

David Fuller's view

Angela Merkel is certainly the most credible and influential politician with access to Vladimir Putin’s ear.  However, after a recent telephone call with Putin, she described him as being “In another world.”

Putin’s world is one of grief and resentment over the bankruptcy of the former Soviet Union.  It is also a world of KGB propaganda, lies and murders.  It is a world of personal insecurity, evidenced by shoe lifts, botox facial treatments, hair dyes and the macho image. 

This makes him a dangerous and unpredictable leader to deal with.  Millions of cultivated, worldly Russians will be well aware of this.  So will the military.  The question is: when will these people conclude that Putin is a liability in terms of Russia’s 21st Century prospects, and replace him?

Confirming evidence is provided by Russia’s slumping stock market (weekly & daily) and weakening currency, shown inversely against the USD.  This could get a lot worse.

Short of Putin backing down, the growing tensions that he has created with not only Ukraine but also the West contain sufficient uncertainty and risk to tip most stock markets into a further setback.  These include Wall Street, where complacency and good long-term prospects have held off the next 10%+ correction for an unusually long time, with the help of that massive monetary tailwind. 

I described the US stock market as temporarily overstretched and looking tired in Wednesday’s Audio.  Today’s downward dynamics evident on these daily charts for the DJIA, SPX, CCMP and RTY reveal a loss if upside momentum and susceptibility to at least a mean reversion test of the 200-day moving averages.

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