Consider what happened this weekend. The Olympics ended with nary an incident occurring in the 17-day time span. Good on the Russian security forces. The Ukraine overthrew its government, stopped the killing and actually appeared to be moving forward on a Parliamentary basis, Italy has a new government which looks very much like the old government but with a new guy running it and the G-20 ended its meeting Down Under with some non-sensical statement about working together to create $2 trillion in new wealth over some period of time to which no one paid any attention. Wow.
The case of the Ukraine is quite remarkable made even more so by what appears to be the fact that it caught every one somewhat flat-footed, especially the Russians who were slow to react or even recognize that events were rapidly turning against them as the medal production turned rapidly in their favor in Sochi. The Europeans were bumbling about and we, as has become the norm, were clueless. Aside from the political situation--which is no where near being settled--what has arisen is one hell of a financial problem with the country virtually on the verge of default across the board now that Russia, as a first response, has withdrawn all offers of financial aide which of course was the Big Bribe for the turn-about from the EU.
First up to deal with that was the IMF, which, if anyone has any brains in their head will be kept well out of shouting distance. More than anything else, this is a political issue not a financial one. It is not an exaggeration to say that a good deal of the future of Europe, and of Eastern Europe as well, may depend upon the solution of this gnarly problem. The amounts of money involved are huge but it is not about money. At one time the U.S. might well have jumped into the leadership role but such actions from this administration are, for better or worse, not to be expected. As things stand right now…and for all I know they may be changing as I write…this is the EU's moment. If the Union is to prosper it must move rapidly and decisively to stabilize the financial aspects of this situation so that the political solution can be found. Whether the EU can accomplish that is, indeed, a very open question, but upon its success very possibly rests the success of the Union itself.
As for Russia, the political stakes are enormous. Mr. Putin's dream in re-establishing Russia's spread of influence in a reconstituted U.S.S.R.-like relationship with the former vassal states ends if the Ukraine ops for full partnership with the West. By the same token, Mr. Putin must realize that if begins to break things he owns them and the Ukraine without western support and capital becomes a very expensive thing to own indeed. He is of course a Moscow Center Hood whose first thoughts must have been the ethnic Russian community in the East and South and what leverage that gives him. Years ago there was a place called the Sudetenland and another little thug and that turned out badly for the entire world. Scary thought, but having been successful in Georgia…then again, this is waaaaay bigger and more important. Surely he knows that.
Anyway, the markets woke up today and barely shrugged. The Euro moved marginally higher, equities sought new highs and interest rates barely budged. I guess everything must be OK. The whole week is before us. We shall see.
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