August 18, 2016
Watch out for a return of the Ukraine crisis
There is very little news from within the eurozone this week as we are still in the middle of the holiday seasons. The story that caught our attention today is this report in the FT that the Russian/Ukranian war may be about to flare up again. The Russians are insisting on elections in the Donbass region before any ceasefire. The report said that Russia had positioned thousands of troops to the north and the east of the Ukranian border, in Crimea, and in Transdnistria. They were signs that the Russians were preparing for fighting. There were previous reports from Crimea about a large deployment of artillery and tanks within range of Ukraine. The article also quotes Ukranian intelligence that a Russian air defence regiment had been stationed with the separatists in the Donbass region of Ukraine.
What is not clear yet is whether Russia is moving towards open war, or whether they are posturing. The article quotes Kathleen Weinberg at the Institute for the Study of War as saying that Russia was showing an aggressive 20%, but is leaving 80% of what they are doing unclear. Russia might find that ambiguity works to its advantage, while an open invasion might not. This view is also shared by Ihor Romanenko, a former deputy head of the Ukranian general staff, who said that Vladimir Putin would not go for a full-scale invasion now because the losses would be too big, and because victory is far from certain. The military build-up might also be part of an effort to bring diplmatic pressure to bear on Angela Merkel and François Hollande, whom Putin will meet at the G20 summit on September 4 in Hangzhou. The article suggested that Putin may be betting on European fatigue, to try and get them to recalibrate the Minsk protocol to his advantage.
One of the interesting questions will be how Germany will react to Russia's increasing assertiveness. Frankfurter Allgemeine has a critical article on the role played by Frank-Walter Steinmeier, the German foreign minister who is often accused of being pro-Russian. The article says that his criticism of a small build-up of Nato's presence in eastern Europe raises doubts about his policy intent. Merkel and Steinmeier managed to overcome their policy divisions during the 2005-2009 grand coalition, but those divisions are now flaring up again ahead of the German elections. (We would not be surprised if Putin were trying to drive a wedge between Merkel and Steinmeier, too.)