After Crimea: Next Moves

In response to the Crimean referendum, new sanctions have been announced.  European Union has announced sanctions against 21 Russian individuals.  This was the bare minimum expected.   It will include travel visa bans and freezing assets.  The longer list, which reported will be used to escalate the pressure includes 130 names.  It is not thought to impact senior Russian leadership, as Putin or his family, though new US sanctions include a few Putin aides.

There appears to be some lingering, if misplaced hope that there is an opportunity for Russia to hold off annexing Crimea. 
This may be meant for domestic consumption in the US and Europe than sending Russia a powerful message.  Such an opportunity seems very small.  Russia secured a natural gas asset in east Ukraine that services Crimea over the weekend.  On April 1, the Russian ruble will be introduced in Crimea.  The plan appears to allow the Ukrainian hryvnia to continue until the beginning of 2016.

At the end of the day, officials will accept Crimea is Russian controlled.  They may not like it, and they may continue to protest, but the facts on the ground will be accepted.  The key now is what does Russia do next.  It has been making the argument that Kiev is 1) not a legitimate government and 2) that it is not protecting the Russian ethnic people in parts of eastern Ukraine.  It claims it has the right to do move protect those people, even though some for the social disturbance is believed to be at least partly spurred by Russian agitators.

After Russia and Georgia fought in 2008, the US, Poland and the Baltics favored extending NATO to Georgia (and Ukraine). 
France and Germany objected and shortly after that  Russia moved into  South Ossetia that it continues to occupy.    The signals that the US and EU send  now are very important. 

In addition to using the visa and asset sanctions on middle level officials, pushing them into the upper echelons of the Russian government would still be seen as fairly benign, like holding the G7 meeting in London in June instead of a G8 meeting in Russia.  However, four other measures would be more potent.

First, a Membership Action Plan (MAP) to extend NATO to Georgia and Ukraine could be proposed.  Second, the US could acquiesce to the Ukrainian request for military assistance.  Third, a list of US and European companies doing business in Russia can be formally warned that such activity is under review.  Fourth, and partially related, Germany and France could freeze arms sales to Russia.  Shortly after the Russian conflict in 2008, France sold Russia state-of-the-art amphibious assault ships  and other deals followed.  Germany recently sold a state-of-the-art brigade-level training facility

German Foreign Minister Steinmeier acknowledged Europe's faux pas.
  He conceded that EU foreign ministers had been too quick in the early days of the crisis in Kiev to engage the opposition and too slow to take into account the larger geopolitical forces.  This is to admit that the Europe over-reached and failed to take into account Russia's interests.   The price to be paid is Crimea, but it does not necessarily have to be east Ukraine, as well.

Some observers are willing to concede that the vast majority of Crimean voted in favor of joining Russia.  Democracy is not simply majority rule, but also the rule of law.  There are legal reasons why Scotland's referendum later this year is legitimate, but the one in Catalonia, Spain is not.   Italians in Venice will have a non-binding internet-based vote this week aimed at boosting interest in a bill calling for a referendum on whether the Veneto region should break away from Italy, which polls suggest nearly 2/3 of the Venetians would like to do.

The continued rally of European peripheral bonds markets and the euro in the suggests the financial markets are undeterred by the Crimean referendum and sanctions.  Although many policy wonks talk about the break from the post-Cold War order, investors seem to be saying not much has really changed or will change. 

After Crimea: Next Moves After Crimea: Next Moves Reviewed by Marc Chandler on March 17, 2014 Rating: 5
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