Sunday, 16 March 2014

The Ruble vs. The Euro: What Putin Didn't See.

In the good old days of the Soviet Union, the leadership of the Kremlin did not really have to care much about neither public opinion nor world markets.  During the 1980s, the citizens of the Soviet Europe did not even know there was a war on in Afghanistan until the dead and wounded started to return and mothers started to take to the streets to prevent their sons from being drafted.

Things have changed a great deal since then.  Take a moment to consider this:

This graph (courtesy of XE shows the fall of the Russian Ruble against the Euro since mid January. 
Here are some “highlights” of events in neighbouring Ukraine.
A.  22 January: Street protests in Kiev spread beyond the capital to other cities. 
B. 12 February: in the Russian weekly Zavtra, the Izborsk Club publish an article titled Save Ukraine! In it, the authors appeal for Russian intervention to prevent the Ukraine’s, as they put it, fascist and Nazi creeping coup”.   According to the Centre of Research on Globalization, the Izbork Club is a think tank that has gained prominence under the leadership of Vladimir Putin.
C.  18 February: Night of violent riots in Kiev with deaths, as police surround Independence Square.  There are reports of police using plastic and live rounds, as well as fragmentation grenades against protesters.
D.  21 February: EU intervention leads to a compromise agreement being reached between President Yanukovych and  demonstration leaders agreeing to early elections and the return to the 2004 constitution.  The Ukrainian Parliament passes a bill approving the release of former president Yulia Timoshenko.  
E.  22 Febuary: President Yanukovych flees the capital after being impeached by parliament.   25 Febuary sees Pro-Russian Aleksey Chaly appointed mayor of Sevastopol as pro-Russian rallies in Crimea gain strength.  Russian troops mobilise outside their barracks.
F.  2 March:  The day after the Russian Parliament approves the use of troops in the Ukraine, Russian forces take over the Crimea.
G.  5 March: US Secretary John Kerry has face-to-face talks with his Russian counterpart Sergey Lavrov and Ukrainian foreign minister Andriy Deshchytsia.  Talks fail as Lavrov refuses to talk with Deshchytsia.
H.     6 March onwards.  US imposes visa sanctions on selected Russian and Ukrainian officials and Russian annexation of the Crimea continues.

In the past, the Soviets controlled very effectively what their people were aware of, both in their empire and in the world beyond.  That is no longer possible.  Nor was the Ruble  a transferable currency.  It is now.

During the past week, I was listening to City Radio, Moscow.  There was a phone-in during which business people and small traders had made the link between the Ukrainian crisis and the fall of the Ruble against the Euro.  Now the drop in value may not seem much: around about ten percent.  But, as one restaurateur pointed out, he has to import seventy five percent of his ingredients.  The fall in the value of the Ruble is causing real hardship for business, some are starting to fail, and they are vocal in their complaints.   
The unwritten deal with Putin and the Russian people is that in exchange for power, he will provide economic stability.  The longer this crisis continues, one very much laid at his feet by the business owners phoning in, the more he will fail.
One also has to wonder what the reaction of the people of the Crimea will be when they convert to the Ruble (currently scheduled for April), only to find themselves instantly more poor.

Other sources:

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