Russia’s Ukrainian grab requires a firmer response from West
AT THE start of every year, forecasters try to predict what could go wrong over the next 12 months – and every time, they get it terribly, spectacularly wrong. Just three months ago, the big risks were seen to be China, Iran, tapering or Eurozone deflation – of course, one or all of these could still blow up at any point, and the Chinese economy is certainly cooling dangerously, with exports slumping and the country suffering its first ever onshore corporate bond default.
But no mainstream forecaster, consultancy or investment house thought that the biggest danger for 2014 would be a conflict between Russia and the West over Ukraine. Of course, political economists understood the precarious nature of the region, the role of energy exports and Russia’s neo-imperial policies but the possibility of a devastating bust-up coming to overshadow everything else was on nobody’s radar.
The Ukrainian crisis thus fulfils one of the definitions of a Black Swan event, as developed by Nassim Taleb: it has come as a surprise to decision-makers; it risks triggering an unpredictable chain reaction, inflicting huge damage; and it is now easy to rationalise, with the benefit of hindsight, that all of this was bound to happen.
Yesterday’s referendum result in Crimea – and its ludicrous suggestion that 95.5 per cent of voters backed unification with Russia, with a supposedly huge turnout – represents a serious escalation of the conflict. Referenda results that sound fishy almost always are. This wasn’t a fair ballot: there are Russian troops everywhere, the questions were framed, opposition groups boycotted it and the media is facing increasing controls.
It is of course true that the majority of Crimeans are Russians, but the turnout numbers don’t add up and any election or referendum that produces such an unrealistic result under such unfair conditions cannot be taken as legitimate. None of this will stop Vladimir Putin, of course, and the West – assuming the concept still has any meaning today – has yet to lay down any meaningful but realistic red lines. It is clearer than ever that Barack Obama’s decision to ditch missile defence plans for Eastern Europe was a horrendous miscalculation.
There should be two broad strategic imperatives: first, it is in everybody’s interest that this conflict be de-escalated as quickly as possible; and second, countries in the region, including Poland and the Baltic states, must be given genuine assurances that they will be protected. The US and the European powers have been outflanked over Crimea and perhaps even Ukraine in general; but Russia needs to be told clearly that its expansionism is unacceptable. For as long as Putin remains in power, the policy should now be a combination of containment and coexistence. The West must start to play its cards right before it is too late.
NEW YORK DETHRONES LONDON
FOR the first time in seven years, London is no longer the world’s highest-rated financial centre. New York is back in the lead, albeit narrowly, according to the fifteenth global financial centres index from Z/Yen Group. Britain’s political classes don’t want to talk about this, of course – rather than trying to impose a sensible, firm but fair regulatory settlement on the City, they continue to tighten the screws in an increasingly irrational manner, with Ed Balls’ comparing bankers’ pay to a Ponzi scheme yesterday.
New York, London, Hong Kong and Singapore remain the top four global financial centres – but London’s rating fell by more than any other of the top 50 financial centres. The fact that 23 of the 27 European centres in the index also declined should not be cause for comfort. London no longer competes with Paris; its real rivals are the truly global centres. None of the other major financial centres are facing as hostile a political climate. Britain’s complacency is truly baffling.
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