The consequences of Ukraine
wrote a book entitled The IN 1919 KEYNES
Economic Consequences of Peace. It was a little gem of a book, and a masterpiece of historical vision. Therein Keynes predicted that war reparations levied on Germany would trigger a second world war. Admittedly Hitler didn’t come to power simply because the German war debt was un-payable. The unreasonably high German debt stifled the economy, and the famous German hyperinflation of 1923 was a consequence of that. Yet, Hitler came to power in 1933. Not even the 1929 Great Depression and resulting unemployment can explain alone Hitler’s success. There were other factors such as ideology, organization, support from the big business etc. However, Keynes’ argument proved correct: an unbalanced Germany would be a cause for concern. If the Allies really wanted a lasting peace, they ought to have helped Germany economically, and not try to hamper German growth. A prosperous Germany was a guarantee for a lasting peace, but an impoverished country would be a nuisance. The lesson was learned only after WWII. The devastated German economic capacity was quickly rebuilt with the help of international aid in the 1950s, and that helped keep Europe at peace for 75 years. Had the Allies done the same after WWI they could perhaps have prevented WWII.
HISTORICAL PARALLELS
Clearly, Ukraine doesn’t compare to Germany – Germany was an industrial giant, a global power, and a latecomer to imperialistic competition between European powers. That said, Germany alone wasn’t responsible for the advent of WWI. Russia also wanted it, and so did Britain and France. Ukraine is neither economically that important nor is it a superpower geopolitically and militarily. Yet it is one of the few spots that can trigger military escalation between Russia and NATO. Western media spreads fairy tales about Ukraine most of the time, and the Ukrainian Question isn’t that simple. Putin is an autocrat for sure. In terms of values, most of us would feel sympathetic to the cause of the western parts of Ukraine where large groups of non- Orthodox Ukrainians want to embrace western values, and be a member of NATO –and maybe one day of the EU. This is understandable. However, Putin can’t be compared to Hitler before the invasion of Czechoslovakia in 1938. In my humble opinion, Russia doesn’t aspire to build an empire –simply because it knows it can’t. Arguments along false historical parallels are wrong, but Ukraine is here to stay for a long time as an area of conflict, if not a theatre of direct military confrontation between the U.S. and Russia.
THE SHORT RUN
In the short run, Russia seemed to have won the political game until it intervened militarily. Now, anything can happen. Viewed from that angle, was the intervention necessary? After last weeks’ events, it was already hard to imagine that Ukraine would be a NATO member in the future. Given a de facto permanent Russian military presence there, Putin would never accept that anyway. Nevertheless, Putin chose to show muscle and this policy could well be
counter-productive. Civilian casualties may grow in number, and it will be unimaginable to find anyone sympathetic to the Russian cause in the advanced world. That said, Russia’s arguments aren’t entirely unfounded. It was NATO that had agreed to not expand to former Soviet republics when the USSR was soon to be dissolved in 1990. This is what Putin refers to. However, the USSR collapsed in 1991, and nobody remembered the pledge of 1990. In a sense, NATO broke the promise but this was only to be expected in the world of real politik. Furthermore, the 1997 NATO -Russia Founding Act held Russia responsible for peace-keeping in the region. Inciting war goes against that.
THE UKRAINIAN CONUNDRUM
First, a counter-factual geopolitical argument should suffice to see the awkwardness of the situation. Is it imaginable that Russia could deploy its troops in Mexico or in Panama? If Putin cuts a deal with a Latin American Country, a neighbor of the U.S., and establishes a missile launch facility there, would that be acceptable? Of course not, and this closes the first argument. Whether under the guise of NATO or as a stand-alone power, no country can do that in the implicit zone of Russian influence, a cordon sanitaire for Russia. This is Geopolitics 101. Second, contrary to what the Western press tries to make us believe, Ukraine was neither entirely anti-Russian nor anti-Soviet in the 20th Century. During WWI, most Ukrainians fought against Germany and sided with Tsarist Russia. True, there was civil strife during the war, but the division of the population reflected religious beliefs at that time. The majority of the population was Orthodox Christian – not Catholic or Protestant. In the Second World War, there was again a sharp division between Ukrainians and Byelorussians. The western regions of Ukraine embraced German rule, but the East fought back. Pro- German Ukrainian forces were a minority. In the areas that the USSR annexed after the Bolshevik revolution, most people considered Germans invaders. This is in fact odd if we consider the infamous famine orchestrated by Stalinm in 1932-33 (Holodomor) that claimed the lives of at least 4-5 million Ukrainians, if not more. Despite that, most Ukrainians and Byelorussians resisted the Nazis. Only in the areas annexed after the 1939 Treaty – struck between the USSR and Germany, a treaty that divided Poland between the two powers – pro- Germans constituted the majority. Perhaps what is called the “majority ” equally disliked Bolshevism, but simply thought Hitler was worse than Stalin. All that has happened since 2014 follows the footsteps of past ethnic and ideological divisions. Conditions are different, values are different, and institutions have changed, but in terms of stakes it is basically a replication of the 1940s. Is Ukraine historically a part of Europe or is it an appendage to Russia? Or has it always been divided between the two?
A PROBLEM FOR TURKEY’S BALANCE OF PAYMENTS
Turkey imports almost everything, including wheat. 87% of Turkey’s wheat imports are from Russia and Ukraine. This alone makes the situation precarious because these are the two countries we wouldn’t want to see fight each other. Dependence on Russia is obvious though: Turkey imports 32% of its natural gas and 25% of its oil from Russia. Its trade volume with Russia is USD 34.7 billion, and with Ukraine USD 7.4 billion. Oddly enough, it has been selling military equipment, notably combat drones, to Ukraine. Now Ukraine is using them against Russia. On the other hand, Turkey bought military equipment from Russia (S400 missile defense systems) in the recent past, and Russia is currently building nuclear energy plants in Turkey. In Syria, the two countries are face to face.
AS FOR INFLATION…
There is another burning issue. Tourism revenues are especially important this year because the government is counting on tourism to fund its budget. Reserves have already been sold off, so tourism revenues are crucial. Tourists from Ukraine and Russia account for 24.3% of the lot. True, revenues per tourist are lower compared to, say, German tourists, but if war breaks out in the region the resulting tourism revenue loss could quickly reach USD 5-6 billion. There are also finance and construction revenues to be lost because Turkish firms operate in both countries. Taking sides is neither easy nor rational given the strong economic ties with both countries. If indeed war breaks out, a direct consequence will be a global oil price increase. Wheat and oil, that is food and energy, are among the crucial determinants of inflation in Turkey. Clearly, the Lira will depreciate, and that too will translate into higher inflation. The new peak could well be way above current predictions, which are already high. The risks are high, and could potentially change even the election date. Of course, these are risks only. If balanced international politics can be pursued or if the war doesn’t escalate, these things could be avoided. I personally think that the military conflict (war) part of the conflict will be over shortly because, unless NATO steps in, Russia is too powerful for Ukraine to resist.