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August 6, 2014

Who Is in Charge of an End Game in Ukraine?

(Below is my own posting in "Eurasian Outlook" of the Carnegie Moscow Centerhttp://carnegie.ru/eurasiaoutlook/?fa=56325)

In Eastern Ukraine, the inert confrontation between Russia and the United States further escalates, cynically ignoring the lives of the local people. For Russia, this is a matter of national pride and even of her own existence; should Ukraine be lost to NATO, Russia will be doomed to an isolated and weak position. The United States, offended by unnecessarily audacious challenges by Russia, is intent to force Russia into capitulation. But President Barack Obama's unnecessarily blunt words about Russian weakness, largely intended for home consumption, antagonize the Russians and rally them around Putin or his possible successor, forcing the latter to adopt an even more nationalist position. Though neither Russia nor the United States would risk a full-fledged warfare, low intensity battle will linger on.

One of the causes of this quagmire is the misunderstanding about economics on the part of Putin's advisers (not all). Russia's miraculous economic growth in the 2000s was a by-product of U.S. financial deregulation. In the late 1990s, American banks were allowed to invest their assets in speculative vehicles, which inflated the money supply and pushed up oil prices. And this made it possible for Russia, which suffered a default in 1998, to expand her economy by six times by 2008 to become a true member of G8.

The Russians, dazzled by this ephemeral achievement, thought wrongly that the U.S. economy was finished after the Lehman Brothers financial crisis in 2008, and embarked upon building the Eurasian Union. They never realized the fact that the United States keeps the reign of global financial transactions, that the United States never relinquished the position as the largest industrial (I mean manufacturing) power in the world, and that the United States maintains the leading position in technological and business model innovation.

All this strongly reminds me of Japan before World War Two. Japan thought that the United States was weakened after the Great Depression in 1929, so clung to the ownership of Manchuria, her "vital interest," and aspired to build the (unsolicited) "Greater East Asia Co-Prosperity Sphere." Japan had her own allies, but Germany and Italy were too far and too busy with their own business. The United States strengthened sanctions against Japan, and the latter finally rose against the United States simply to be flattened. The thing is that the U.S. economy was not "finished" at that time, either. On the contrary, she doubled the size of her economy on military production.

Some Russians may consider that Russia is not as weak as Japan and that she still has diplomatic resources to shore up her position, by instigating Iran to revive confrontation with the United States, for example, or by asking for the support of China. But Iran's position is weakened because of the growing entente between Saudi Arabia, Israel, Turkey, and Egypt. Xi Jinping, China's leader, has now settled with his opponent Zhou Yongkang, former police chief, and probably will enjoy a free hand in promoting more cooperative relations with the United States and neighboring countries. Therefore, the odds for Russia are not high.

However, there are snags for the United States, too. While some Americans have become so adamant about Russia that they would not mind causing a regime change in Russia, Obama may well hesitate from dealing a decisive blow through military intervention. Even if the "regime" changes in Russia, the next leader, as I already said, will be no less nationalistic than Putin. Thus, the United States will have to confront three major powers simultaneously: China, Russia, and Iran.

In this stalemate, Russia is in a more maneuverable position to offer a deal to the United States, as was the case with Syria and her chemical weapons last September. And no matter what, someone should break the spiral of animosity and stop the vain destruction of people's lives in East Ukraine.



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