Analytical Bulletin, Issue 9 (28), September 2014

October 1, 2014

The Institute of Contemporary Development has published its most recent analytical bulletin. The main topics of this issue are: the participation of Russia and Western countries in the settlement of the Ukrainian crisis; new challenges to global security and Russia’s role in global institutions; the Russian financial sector and the impact of sanctions.

The annotation of Analytical Bulletin No. 9 (28), can be found below. The full text of the bulletin in Russian can be found here.

Issue 9 (28)

In this issue:

Janis Urbanovic. The Burden of the Western World, or the Ukrainian Crisis as a Reflection of the Humiliation and Helplessness of Diplomacy

The West’s well-intended by clumsy and perfunctory engagement threatens to turn Ukraine into a failed state, Europe’s new black hole. Unless it wants a new Cold War or perhaps something even more tragic, the West must now use its carrot and stick to force Ukraine to act constructively, get over its inevitable losses and come to terms with Russia. Of course, it will require political and economic (not only financial) support to get beyond these losses. The only rational solution to the Ukrainian crisis is the joint patronage of European Union, United States and the Russian Federation to rehabilitate Ukraine, a sort of new Marshall Plan that would allow the country to heal its wounds and further develop as a sort of connecting link between the European Union and the Customs Union. Of course, the creation of such a “Board of Trustees” would be humiliating for an independent and rather large country. However, the only real alternative seems to be a drawn out military conflict and economic collapse, which would continue to undermine the legitimacy of the state, and a low standard of living.

Igor Yurgens. Ukraine’s Elections and the Future of Greater Europe

Remarks made at the 11th Annual Yalta European Strategy meeting in Kiev on September 13, 2014: Ukraine made its choice in favor of integration with Europe and now the success of this historical project depends on the tenacity of the national character of Ukrainians and the wisdom and foresight of Europeans. This very significant event in the history of the continent does not overshadow the imperative to form a new and constructive platform for political and economic relations in Greater Europe. International efforts to resolve the conflict must assume the development of a completely new configuration of contractual relationships of European countries with regard to trade with the participation of the Eurasian Economic Union, Ukraine and the European Union.

Sergey Kulik. On Personal Security, the State and International Community

Russia must overcome a whole range of systemic risks directly related to personal security and the state. The response measures must include not only financial instruments but also institutional regulatory tools. Participation in institutions of international coordination allows for more timely and adequate assessment of the strengths and weaknesses of its own institutions and instruments of state regulation. In order to pursue the objective of ensuring global security, other world leaders should stop trying to kick Russia out of important international cooperation forums. Instead, they should make an extra effort to increase cooperation despite the challenging situation.

Nikita Maslennikov. Sanctions: the Challenges of the New Reality

On the likelihood of macroeconomic consequences stemming from the West’s sanctions against Russia and the influence of the sanctions on the Russian oil and gas sector as well as the insurance and banking markets. All Russian scenarios take for granted that geopolitical tensions will ease and the sanctions will gradually be lifted. If this is not the case, then the Russian economy will experience two-three years of zero economic growth. However, not everything depends on diplomatic successes and foreign policy achievements. The main factor for market risks remains the uncertainty in economic policy in the mid-term perspective. This includes the lack of congruence between the planned transition to inflation targeting by monetary authorities and the plans of the government with regard to tax and tariff policy, budgetary problems, failure to implement structural reforms, possible new taxes, etc. At the same time, as the new realities of the economy under sanctions sink in, there is a greater chance for measures aimed at accelerating the transition to a new economic model.