Putin Talks Tough But Wants a Deal
The picture Russian President Vladimir Putin painted of his country at today's annual press conference was Panglossian: Unemployment low, industrial production and the trade surplus up, more people having babies -- what could be better? As for the crashing ruble and oil price, these things would correct themselves -- within two years at the most.
This was vintage Putin: unrepentant, belligerent and -- to anyone outside the bubble of Russia's state-strangled media at least -- bordering paranoid-delusional, with his talk of an ominous Other (read: the U.S.) wanting to chain, de-claw and stuff the Russian bear.
Still, there were at least two important messages to read between the lines of all this bravado. The first was that Putin isn't as confident about the economy as he makes out; the second, that he may be willing to talk more seriously about ending the conflict in Ukraine.
The two-year time frame Putin described for the economy was important, because it's the back-of-the-envelope number many analysts use for the length of time Russia could survive under sanctions and a low oil price, before its foreign currency reserves run out. (Putin said these currently stand at $419 billion.) Putin probably knows more than any other world leader about the energy business, so he also knows this is pure guesswork. Oil may surge in January, or in five years or more.
Putin went on to suggest Russia's economy was vulnerable because it had failed to diversify beyond commodities, despite 20 years of trying (which is true). Now, according to Putin, Russia is in a position to succeed with diversification, because "life itself" will force the change. Sanctions, which he said account for about 25 percent to 30 percent of Russia's woes, will make domestic investors finally do the right thing and invest in something other than energy and metals.
That's improbable. Putin's instinct since the crisis struck has been to push any available funds towards the state-owned resource behemoths that are run by his closest allies, not to invest in start-ups. In order for the country's economy to be diversified, the political and economic system he has built to secure maximum control of the state would need to be unraveled. Token gestures -- like releasing businessman Vladimir Evtushenkov from house arrest and inviting him to a meeting -- simply won't suffice.
Moreover, Putin promised to keep pensions topped up; subsidize mortgages, now that the central bank has increased the base interest rate to 17 percent; and generally stop ordinary Russians from feeling the pain of recession. Doing all that would be massively expensive -- and would probably shorten his two-year window.
The most interesting message in Putin's hours-long bravado, however, may have been on Ukraine. Beyond his usual accusations that Russia's neighbor got into trouble because it invaded itself, he called for a quick political settlement that would restore Ukraine as "a single political space." Later in the speech, Putin -- prefacing his comments with "I’ll say an important thing. Look, I’d like everyone to hear this" -- said that the rebels were part of the problem. He said that at the last peace deal in Minsk, they refused to sign crucial protocols the defining cease-fire lines. He also said he believed Ukrainian President Petro Poroshenko genuinely wants a deal.
So Russia's leader, not for the first time, is offering himself as peacemaker. (In his words, an intermediary.) The question for Ukraine, the U.S. and Europe is whether he means it.
It's worth finding out. Pro-Russian separatists recently decided to fully abide by a cease-fire -- the first time they've done so since the conflict began. That wouldn't have happened without pressure from Moscow. The U.S. and European Union should encourage Ukraine to resume peace talks in the knowledge that this may be the best chance for a settlement.
They should also challenge Putin to agree on a deal that really would keep Ukraine whole and independent. That has to start with removing all Russian "volunteers", together with their tanks, artillery and anti-aircraft weapons from Ukrainian territory, and putting a force of international observers on the border between Russia and the separatists that's big enough to inspect everything that crosses.
As if on cue, after Putin's press conference, French President Francois Hollande called for the EU to "bring about a de-escalation." "Once Russia engages in a process that could contribute to resolving the Ukrainian situation, there would be no reason for us to prolong this," he said. Interestingly, Hollande recently made an unscheduled stop in Moscow to talk to Putin.
That language is far too squishy -- Russia needs to do more than "engage in a process" -- but the the idea is right. Sanctions were designed to bring Putin to this point. Thanks to the falling price of oil, he faces an economic crisis far sooner than anybody could have predicted. So the smart thing to do now is to state loudly and clearly that a settlement and permanent Russian withdrawal would produce an end to those penalties that aren't tied to Crimea's annexation. Then leave it to Putin to deliver.
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