THE ROUBLES DIVE EXPOSES PUTINS MISCALCULATION Geopolitics not just economics drives the currency’s plunge __________ The rout of Russia’s rouble is in danger of becoming a currency crisis on the scale of 1998 or 2008. As in those two cases, the trigger is falling oil prices. But there is an important difference. Today’s loss of confidence in the currency reflects not just economic or financial factors, but geopolitical ones. It is no coincidence that the rouble sell-off has intensified amid fears that the ceasefire in Ukraine is unravelling, and that Russian-backed forces may be preparing a new offensive. That, in turn, could intensify the western sanctions that are starting to squeeze Russia’s economy. ... But higher imported food prices will stoke inflation, already more than 8 per cent – one of the few factors history has shown can make Russians turn against their leaders. Failure by the central bank to stabilise the rouble could yet spark a panic consumer sell-off – and the options of further currency intervention, raising interest rates, or capital controls are all deeply unattractive. There are two possible routes out of these interconnected economic and geopolitical crises. Mr Putin could once again start heeding advisers such as Alexei Kudrin, the former finance minister, who has issued clear-eyed warnings of the economic consequences of the president’s foreign policy. He could make a genuine push for peace in east Ukraine, based on the September 5 Minsk protocol. Since Mr Putin authored Minsk’s core provisions, the Russian president could present that domestically as a diplomatic success. ... The other route is for Mr Putin to attempt to blame Russia’s economic woes on a hostile west, and distract domestic attention by stoking new hostilities in Ukraine, or elsewhere. Recent signals suggest, worryingly, that the president and his hardline advisers are veering in this direction. Since Mr Putin’s verbal attack on the US two weeks ago, Russian fighters and bombers have been probing Nato’s defences in numbers scarcely seen since the cold war. Mr Putin this week became the first Moscow leader since Josef Stalin to defend the Molotov-Ribbentrop pact, which carved up Poland on the eve of the second world war. Mr Putin may have become a hostage of his own policy, unleashing nationalist demons for short-term political gain which he cannot now quiet. Sticking to his belligerent path risks locking Russia into a vicious cycle of escalating tensions, sanctions and economic difficulties. This is perilous not just for Russia, but for the security of the entire European continent. __________ Editorial Financial Times
Posted on: Sat, 08 Nov 2014 19:43:29 +0000