Saturday, February 21, 2015

Ukraine: Deal or No Deal?

Much like Greece, last week we had an agreement signed. The agreement was supposed to be a ceasefire. But apparently the term ceasefire means different things to different people. As usual, both sides blame the other. As usual, it is unlikely we will ever get the full truth. Below are links to news articles illustrating once again that you will get a different spin on things from various media sources.


US Says Russian action in Ukraine endangers Global Order

"The United States warned Russia on Friday that its continued support of separatists fighting in Ukraine despite a cease-fire agreement was a direct threat to the "modern global order" and could bring additional costs."    . . . . 

BBC News - UK and EU badly misread Russia

"The House of Lords EU committee claimed Europe "sleepwalked" into the crisis.
The EU had not realised the depth of Russian hostility to its plans for closer relations with Ukraine, it said.
It comes as French President Francois Hollande and German Chancellor Angela Merkel spoke about the crisis at a joint news conference in Paris.
Prime Minister David Cameron said blame for what had happened in Ukraine "lies absolutely squarely with Vladimir Putin and Russia". . . . . 
"The U.S. and Europe stepped up warnings Friday of additional sanctions on Russia unless cease-fire violations in eastern Ukraine stop, as the government in Kiev said more Russian tanks and other weapons were crossing the border to bolster pro-Moscow separatists.
The peace plan was brokered by the leaders of France and Germany in Minsk, Belarus, on Feb. 12, but the first step—a truce—has yet to fully take effect." . . . .

Now for the Russian media:
"Russia will always find an adequate response to any pressure coming from the outside, Russian President Vladimir Putin said during a gala-show ahead of the upcoming Defender of the Fatherland Day, which honors those who served in the armed forces." . . . .
"Vladimir Putin said that Kiev is being armed by Western allies, according to Moscow's information, but insisted he was “optimistic” about implementing the Minsk agreement, noting that the intensity of fighting has declined.
“According to our data, weapons are already being supplied [to Kiev],” the Russian leader said at a press conference following his meeting with Hungarian Prime Minister Viktor Orban. “This is not surprising. I am convinced that whoever is supplying the weapons, the number of victims may grow, but the outcome will not change. The vast majority of soldiers serving in the Ukrainian army have no motivation to participate in an internecine conflict away from home, while the Donbass militia have every reason to defend their families.” . . . .
"The Ukrainian government released an amateurish report supposedly showing all the damage that Russia has caused in the country. The thing is, it wasn’t Moscow that ruined East Ukraine, but Kiev."    . . . . .

"Although Kiev does have some supporters in the West who say that Russia has ‘invaded’ and ‘occupied’ Ukraine, not a single shred of incontestable proof has even been procured to support this fantasy, and those that ascribe to this myth also typically reject the actual proof of entrenched and indigenous resistance to Kiev."

My added comments:

I wish anyone looking for the full truth of what is behind all this in the Ukraine good luck. We live in a bizarre world where every conflict involves massive spin campaigns to convince the public each side are the "good guys." 

The situation in the Ukraine takes bizarre to its fullest extreme. Here are some bullet point facts about this conflict that illustrate what I mean:

- Russia says the US started this whole conflict by using US agents operating in the Ukraine to essentially promote the uprising that led to the ousting of the previous government. They say the US is trying to get the Ukraine into NATO to allow the movement of missile systems close the Russian border.  They say that is an existential threat to Russia.

-the US (and the EU for now) say that the uprising in the Ukraine that started all this was a spontaneous event by the people of the Ukraine who wanted closer ties to the EU than Russia. They say Russia is using the conflict to seize more territory.

-Russia has loaned large sums of money to support the Ukraine including a $3 billion bond they can call due later this year.

-Russia supplies natural gas to the Ukraine and the Ukraine pays Russia for the gas while fighting what they say are Russian backed troops being supported from Moscow.

-the IMF loaned the Ukraine billions to try and keep the country from defaulting on loans (including the money it owes to Russia). So, a chunk of the money from the IMF is surely going to Russia to pay loan obligations and to pay for natural gas. All this while the west is trying to hurt Russia financially with sanctions.. How's that for bizarre?

-the IMF recently announced a new additional loan package of $40 billion (after badly underestimating the funds needed in the first loan package) even while war is still raging, the Ukraine just suffered a huge military loss, and a big chunk of the Ukraine is in ruins. It  cannot possibly generate enough GDP to pay back the loans. How's that for bizarre?

-On top of all this, in the Minsk agreement, Putin got the Ukraine to agree to pay the safety net costs (food, welfare, etc)  for the areas currently under the control of the pro Russian forces. So, more IMF money will likely flow to places under pro Russian control if the Ukraine lives up to that part of the agreement. How's that for bizarre?

-In a world turned fully upside down, some former members of the Reagan Administration (who once called the Soviet Union an evil empire) are now basically taking Russia's side. David Stockman and Paul Craig Roberts are two well known examples. They agree more with Russia that this whole conflict was started by the US. How's that for bizarre?

-the EU seems caught between a rock and a hard place. They are going along with sanctions to support the US position for now, but there are increasing signs of stress within the EU about this. Some are openly questioning the wisdom of sanctions (recent example is Hungary). The EU is taking a huge economic hit due to the sanctions while the US does not. The EU is also contributing to the loan fund package to the Ukraine, some of which will flow on to Russia as noted above. How's that for bizarre?

Concluding Comments:

We are covering this situation because whatever happens in the Ukraine can clearly impact the global financial system and the monetary system. For example, does this escalate into a full scale global split between West and East making it impossible for the IMF to function as a global representative for both sides? (both sides are IMF members) 

Or, is all this just a temporary situation that ends up leading to the IMF (and UN) stepping in as the global problem solvers? (instead of the US/UK for example). If that happens, is it a signal that global institutions will take the lead now instead of the US/UK? 

I don't have many answers. The whole thing is bizarre to me. I have no idea who really started this or what their motives were. I have no idea where this is going or how it will end up. We have a strange war where one side is trying to hurt the other economically while at the same time providing funding that will end up going to the other side.

I have little hope of ever getting the full truth because in a conflict like this, there are entire departments in each nation's intelligence services devoted to spinning public opinion to their side. You can be sure the other side will always be said to be at fault because winning public opinion is crucial to each side. The truth is usually one of the casualties of war.

All we can do here is try to keep readers informed since this can surely impact the global financial system. For the sake of the people having to live through this nightmare in the Ukraine, we hope that at least the military part of the conflict ends as soon as possible.

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