So long as Germany maintained its initial position on not imposing sanctions, we thought the Crimean crisis posed only marginal near-term risks to financial markets. Over the past week, German Chancellor Angela Merkel has taken an increasingly hard line toward Russian sanctions, overriding her more cautious Social Democrat coalition partners. Since Germany is the key to an effective sanctions policy, Merkel’s stiffening resolve increases the chance of an escalating sanctions war. If we are right, Putin will likely offer a last minute face-saving compromise (similar to his Syrian strategy) that will be acceptable to the West; therefore, we maintain our overall risk posture in our longer time-frame portfolios, but the increasing risk of a more adverse outcome required that our two more conservative portfolios adopt a less aggressive risk posture.
Here is The Weekly View.
How long these tensions persist is up to Putin and the oligarchs who both support and can also restrain him. As for Angela Merkel, coming from the former East Germany she knows a good deal more about the nature of Putin and his kind than most other Western leaders.
No one starts out in favour of sanctions and we would like this inconvenient problem to go away. However, that is unlikely anytime soon and appeasement would only encourage Putin who is an old-style KGB colonel. In fact, when has appeasement every restrained a dictator?
Sanctions are not good for markets, as numerous people have pointed out. Moreover, in our increasingly globalised world, sanctions have a long reach, both economically and psychologically. Increasingly tough sanctions against Putin today would be uncomfortable. More importantly, they could prevent a bigger problem over the next several years.
(See also: McCain: Putin is a KGB apparatchik colonel, not a man with a soul.)Back to top