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Putin Is Soviet Still Mad It Dissolved: Bloomberg Businessweek

March 06, 2014

During the Cold War, Vladimir Putin manned the KGB’s post in Dresden, East Germany, recruiting local journalists, scientists, and engineers to spy on the West.

It was a cushy job for a while: Putin took his family on weekend trips to Saxony, ate lunch at home, and drank the finest beers East Germany had to offer, straight from the keg.

After the Berlin Wall fell on Nov. 9, 1989, Putin and his fellow agents in Dresden burned so many secret documents that their furnace broke. At one point, a mob of locals surrounded the office, preparing to ransack it.

When Soviet troops stationed nearby refused to help, Putin pulled out a pistol and warned the trespassers in German that he would open fire if they came closer. While the crowd dispersed, Putin recounted in his memoir that he viewed the Soviet Union’s demise as a personal humiliation.

“The whole country no longer existed,” he lamented. “It disappeared.”

Twenty five years later, that experience helps explain Putin’s decision to launch a military adventure that has pushed Russia to the brink of war with neighboring Ukraine, a country of 46 million; sent the Russian stock market plunging and the ruble to record lows; and provoked the most bitter clash between Russia and the U.S. in a generation.

Putin has long seen his role in epochal terms -- to restore Russia’s imperial glory and reclaim the sphere of influence the nation surrendered after the collapse of communism. The Feb. 22 overthrow of Ukraine’s pro-Russian president, Viktor Yanukovych, was as much a blow to Putin’s self-image as to Russian national interests.

Asserting Control

In ordering troops to assert control over Crimea, a predominantly Russian-speaking peninsula given to Ukraine by Nikita Khrushchev, Putin dispelled any doubt about his willingness to use force to advance his ambitions.

The Ukraine crisis is both an old-fashioned great-power showdown and a reminder of the volatility and messiness of a multipolar world, Bloomberg Businessweek reports in the Opening Remarks of its next edition. It’s suddenly become the defining foreign policy test of Barack Obama’s presidency, at least until the next one comes along.

Before the crisis erupted, the U.S. was attempting to negotiate a deal with Iran over its nuclear program, restart the Middle East peace process, conduct an orderly withdrawal from Afghanistan, contain the killing in Syria, and defuse tensions between China and Japan. Going to the mat with Putin over Ukraine wasn’t on the president’s second-term agenda.

Asset Freezes

But if the U.S. and Russia can’t figure out a way to resolve their differences, their standoff could overshadow everything else.

The Obama administration has threatened Russia with a range of diplomatic and economic punishments, from visa and asset freezes aimed at members of Putin’s inner circle to the suspension of Russia’s membership in the Group of Eight industrialized nations.

Visiting Kiev on March 4, Secretary of State John Kerry pledged $1 billion in loan guarantees to Ukraine’s provisional government, while the European Union is mulling over an aid package to Ukraine worth as much as $15 billion over the next seven years.

It’s doubtful such measures can persuade Putin to pull his forces out of Crimea. Although European leaders such as German Chancellor Angela Merkel have expressed frustration with Putin - - he’s “in another world,” she told Obama, according to the New York Times -- they are reluctant to isolate Russia, which provides Europe with 30 percent of its gas supplies.

All Means

During a news conference on March 4, Putin said Russia has no immediate desire to intervene in Ukraine beyond Crimea, though he didn’t rule out “using all means at our disposal” to protect Russian-speaking people in other parts of the country.

Critics of Obama’s handling of Putin want him to bring more pressure to bear, up to and including threatening NATO intervention if Russia sends troops deeper into Ukraine. “Putin thinks we’re wussies and the president is the wussy-in-chief,” says Andrew Kuchins, director of the Russia and Eurasia Program at the Center for Strategic and International Studies. “That perception has got to be altered.”

War Unlikely

Few experts think a war between Russia and the West is desirable or likely, but “we are bound for a significant deterioration of the relationship” that could last years, according to Eugene Rumer, a senior associate at the Carnegie Endowment for International Peace.

Though hawks in Washington and Moscow might welcome it, a prolonged U.S.-Russian standoff would be damaging to both countries. The Ukraine crisis has awakened the ghosts of the Cold War, but it also shows why neither side can afford to relive the past.

Putin justified his invasion of Crimea by claiming that the region’s Russian speakers were under threat from the new authorities in Kiev. But his true motives had more to do with vanity, vindictiveness, and fear.

In the eyes of Russian hardliners, Yanukovych’s overthrow amounted to an extra-legal coup d’etat, carried out by anti-Russian, nationalist hooligans and financed by the U.S. and the EU. The prospect of an EU-aligned Ukraine is intolerable to Putin, who has designs on absorbing his western neighbor into an economic union of regional client states.

Kathryn Stoner, a Russia expert at Stanford University, says the Kremlin bristles at what it perceives as American and European meddling in Russia’s historical backyard.

Buffer Zone

“They see it as an erosion of their buffer zone, a further Western incursion into their natural sphere of influence,” she said. “It would be like Russia going to Mexico and saying to the Mexican president, we stand with you against the U.S. That’s the way they see it. They don’t see what possible interest we could have in Ukraine.”

That the upheaval in Kiev occurred during the Winter Olympics in Sochi -- a $51 billion showcase of Russian resurgence -- likely made Putin even more determined to strike back. It also fueled his paranoia: If the world stood by while revolutionaries deposed an elected government in Kiev, what would stop the same thing from happening in Moscow?

For all his suspicions of the West, Putin calculates that NATO has no appetite for a war to restore Ukrainian sovereignty over Crimea, a region of 2 million that is home to Russia’s Black Sea Fleet.

U.S. Forces

Charles Kupchan, a senior fellow at the Council on Foreign Relations, said in a March 3 conference call that “the Russians have established effective military and political control over the Crimean peninsula. And I don’t think anybody believes it’s of significant enough interest to introduce NATO or American forces.”

Even if it faces no direct military response, Russia may still pay a heavy price for its aggression.

Putin’s chief vulnerability is the $2 trillion Russian economy, which decelerated for a fourth straight year in 2013, growing at just 1.3 percent.

“There’s nothing more powerful than what the markets can do to punish Russia,” says Kuchins of the Center for Strategic and International Studies. Since the start of the year, the ruble has fallen 9 percent against the dollar, the most among 24 emerging-market currencies tracked by Bloomberg, after Argentina’s peso.

Oil, Gas

Stock market declines are hitting some of the most powerful players in Putin’s oil-and-gas dependent nation: Ally Gennady Timchenko and his partner Leonid Mikhelson lost a combined $3.2 billion of their wealth after their gas producer Novatek Oao (NVTK) tumbled 18 percent following the incursion into Crimea.

The instability in Ukraine and the threat of sanctions against Russia are causing an acceleration in capital outflows, which hit $35 billion in the first quarter; some $65 billion had already left Russia in 2013.

According to Bloomberg News, at least $8 billion in international loans to Russian companies could be jeopardized should the U.S. impose asset freezes and travel bans on Kremlin officials.

If Putin and his cronies believe they can weather the storm of U.S. sanctions, it’s because they’re convinced Europeans will continue doing business with Russia, the chief supplier of energy to the continent.

Shale Revolution

But as Matthew Klein of Bloomberg View points out, European demand for natural gas has been falling steadily since 2010.

Meanwhile, the shale revolution in the U.S. has produced an oil and gas glut that is pushing down energy prices and could spell catastrophe for Russia, which depends on energy exports for half of government revenue.

Should Putin’s truculence persist in the face of international calls for him to pull back from Ukraine, Russia’s membership in the World Trade Organization could also be put at risk.

“The Russian economy is hurting, and the only way out is to trade and innovate. And they aren’t going to get there by behaving this way,” says Stoner. “Putin’s going to learn that eventually, but it may take time for him to get the message.”

How patient is the U.S. prepared to be? Russian forces had barely secured control of Crimea before Republicans in Washington laid the crisis at Obama’s feet.

“We have a weak and indecisive president” who “invites aggression,” said South Carolina Senator Lindsey Graham.

Feckless Policy

Senator John McCain of Arizona piled on by describing the administration’s foreign policy as “feckless.” To his critics, Obama’s failure to follow through on threats of military strikes against Syria’s Bashar al-Assad -- and his eagerness to sign on to a Putin-devised plan for removing Syria’s chemical-weapons arsenal -- emboldened the Russians to launch their offensive in Crimea.

“My read on Putin is that he’s an opportunist who takes advantage of weakness,” says Kuchins. “I think he sees a pattern of behavior on this administration’s part and a permissible environment that he’s very happy to take advantage of.”

Yet when it comes to dealing with an increasingly assertive and unpredictable Russia, escalation may be as big a danger as passivity.

“Is this a new Cold War? I’d say no,” says the Carnegie Endowment’s Rumer. “We are not in a global conflict with Russia right now.”

Strained Military

The strength of Russia’s armed forces pales in comparison to the capabilities of the U.S. military -- even one strained from more than 12 years of war. At the same time, Stoner says, “Russia is the only country in the world that can deliver a nuclear warhead to Washington in 30 minutes.”

That argues for a degree of caution, applying economic and diplomatic pressure geared less to provoke an immediate showdown with Putin over Crimea than to moderate Russian behavior over time.

Russia’s no friend of the West, but on many security issues, from arms control to maintaining stability in Afghanistan to preventing an Iranian nuclear weapon, the two sides still have reasons to work together.

“The Russians are pretty good at compartmentalizing their foreign policy,” says Kuchins. “It’s harder in our political environment to work with the Russians right now. But if we stopped doing so, would we be cutting off our nose to spite our face? With the Chinese, we got over Tiananmen Square pretty quickly.”

Cold War

Cold War-style containment of Russia would also be expensive, blowing a hole in the defense budget at a time when the Pentagon is attempting to wind down the war in Afghanistan, shrink the size of the U.S. Army, and turn attention to the rise of China.

“It would be costly in terms of military preparation and military risks, and costly in terms of some issues where we need a degree of Russian cooperation,” says Joseph Nye, a professor of political science at Harvard University and a former assistant secretary of defense. “We are going to find there are areas where, in a realpolitik way, we’re going to need to negotiate and bargain with them even if we don’t see eye to eye.”

Embracing this brand of pragmatism requires, among other things, that the U.S. accept the limits of its influence. America is undoubtedly less globally dominant today than at the end of the Cold War, but some perspective is in order.

The tendency to see every regional crisis as a referendum on American power is myopic and self-defeating.

Sole Nuclear Power

Nye points out that the U.S. was never in a stronger position than it was after 1945, when it was the world’s sole nuclear power and accounted for half the world’s gross domestic product.

“What happened next? We lost China, the Russians developed a nuclear weapon, shortly thereafter we couldn’t protect Vietnam, and by the end of the Eisenhower administration, we lost Cuba,” he says. “That was a period of American primacy, and you still had a set of significant losses. The fact is, we don’t control the world now and we never did.”

The struggle for Ukraine’s future won’t be resolved overnight. Even if the current tensions subside, they may explode again when the country holds elections in May. But a peaceful outcome is still possible, provided leaders in the U.S., Europe, and Moscow resist the temptation to refight the Cold War.

“Diplomacy is not a sign of weakness, but rather more necessary than ever,” German Foreign Minister Frank-Walter Steinmeier told reporters on March 2. If it fails, there may not be any winners the next time around.

To contact the reporter on this story: Romesh Ratnesar in New York at rratnesar@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net


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