Like tomorrow doesn’t exist…

Was curious to hear yesterday in the radio about an article in Gazeta Wyborcza by its correspondent to Riga, capital of Latvia. The piece of writing mentioned in the press review turned out to be a just short story with quite astounding purport.

To sum up, as the author claims, Riga, this year enjoying the status of the European Capital of Culture. One event follows another, the carnival goes on, the Latvians live it up and make the most of the life, before a disaster aborts the festival. Inhabitants of Riga are deeply convinced Putin’s fifth column waits round the corner, ready to intrude into Latvia, as they invaded the Ukraine. The journalist argues an equation mark between Latvia and Ukraine is illegitimate since Latvia, unlike Ukraine, is a member of the EU and NATO and Putin would not dare to attack the military alliance because deep down he and his administration realise they would be defeated by united armies of NATO. Such arguments do not persuade the Latvian interlocutors who point out the Russian president is immensely unpredictable and ingenious and Russians as a rule do not let up.

Whenever hearing about Russian minorities in Baltic countries when the Russian parliament enacted a law entitling the Russian authorities to take every step to defend rights of mongered Russian minorities beyond the borders of Russia, contingency of Russian army stepping in to Latvia seemed incongruent. I had in mind the same argument – Putin would not dare to attack NATO, as it would mean a suicide for him. A few months later, after the Malaysian civil airplane was shot down and given how situation in Eastern Ukraine unfolded, I have changed my mind. Putin might come to a point when, after losing the battle for Ukraine and after suffering other prestigious defeats, he might have nothing to lose. In such situation, i.e. when you are bound to lose everything when you give up but if you take action you may either also lose everything or win something back, placing a dicey bet is economically justified.

The article draws a parallel between what goes on in Latvia and the summer of 1939 in Poland. Three quarters of century after the outbreak of WWII I wonder how it felt like in Poland in August 1939. The war was in the offing, its onset was just a matter of time. There was something in the air, probably the gut feeling something was inexorably about to end soon. Would anyone share the memories of their parents or grandparents?

Let’s figure out how people behave when they realise the end of something draws near and is inescapable. As the history proves they try to relish on every moment, cherish the life and quite frequently indulge in debauchery. Oddly enough, this sinful picture grossly contrasts with Christian commandments. For some reason, God-fearing people rarely pray, go to church to confess their sin ask for penance or beg their fellow men for forgiveness for the harm they have done them. Conversely, they push salvation away from themselves…

If I were to face such situation, from today’s standpoint, I would keep on living the way I do. I have no influence on what the fate brings. Orchestra on sinking Titanic kept doing its job until the very end. Business as usual, one would say and this strikes a chord with me.

Oddly enough, five years ago Mr Tusk and Mr Tusk strolled down the pier in Sopot before commemorations of 70^th anniversary of WWII. Today relations between Poland and Russia are, to put it mildly, tense, but just like five years ago I am glad in have the luck to live in peace.

It’s all about the money...

And if it’s not about the money, most probably it’s about the power (unless also a woman is at stake) and in such context we should consider the recent events in Ukraine and in Russia.

The latter, as the fellow blogger Michael notices, is a hollow country. Its economic prosperity, reliant on ample, but finite resources of natural gas and crude oil, lacks sustainable foundations for economic growth and thus is fragile. Unfortunately, Western Europe is largely dependent on supplies of commodities from Russia, which drives its indulgent stance towards less and less civilised regime of Russia. Economic misery is though not what the nation of Russia fears. Over centuries of suppression by autocratic or totalitarian rulers, they persevered many periods of privation and are capable of withstanding another one. If supplies of gas and oil to Western Europe are cut off, they would wait it out, while the Western Europe would give in. More than bread, Russians need circuses. And more than circuses, they hanker after the great empire. They hark back to times of Soviet Union, leader of two meaningful political and military blocs in the world. They want their empire back, this is one of the reasons, why Mr Putin’s recent actions are popular with 80% of the Russians. Propaganda in the media does its bit, but even without it, many Russians perceive their president as the one with a historical mission to restore the might of the Soviet empire. By attempting to take over Crimea in a manner kind of similar to what was being done by Hitler in 1939 with the part of Czechoslovakia, he wants to make the history, as the one who would bring back to Russia the territory which over the centuries was a part of different realms and actually long could you quarrel who it belongs.

Regarding the Crimea issue, the uttermost question is “why now?”. The Russian majority have inhabited the peninsula for over 20 years since Ukraine regained independence and they would get on with the Ukrainians, enjoyed autonomy, no one heard of any meaningful clashes between Russians and Ukrainians. Being mindful of Russian propaganda machine, I would ask whether Crimea residents (true or recently resettled from Russia) are seizing opportunity to break free. If so, the most likely explanation is that they are grabbing opportunity of weakness of the Ukrainian state, for which they should not be condemned, if we bear in mind Poland gained independence in 1918 thanks for weakness of other countries. If so, they should break away with their own hands and establish a separate country, without any help from Russia.

Let’s face the truth, the Ukraine is weaker than ever over last two decades. When I look at the make-up of the new government, I’m not particularly fond of those people. When names of new ministers were read out in Maidan, the crowd booed some of them, little support was given to Yulia Tymoshenko who declared she would run for presidency in oncoming elections. The key problem of the country is that the heritage of the Orange Revolution has been squandered. The disillusioned nation chose, in democratic elections, Mr Yanukovych for president. Swapping a pro-Russian cabal for a pro-European cabal might change the direction in which Ukraine drifts, but will not move the country forward. I lean towards the opinion that none of the 100 richest Ukrainians should run the country, if it is to take a turn for the better. The wealth distribution in the Ukraine indicates the country is close towards the third world than to Western Europe. The small upper crust, hundreds of tycoons are holding billions of dollars in assets, while more than ninety percent of citizens every month struggle to make ends meet. There’s no, even fledging, as in Poland, middle class there and little prospects for such to emerge.

As an economist, I remain very sceptical about bright future for the Ukraine. The country lacks elite that could run the country and lacks sound institutional framework (rule of law, property rights protection, transparent legal system, etc.) that could spur economic growth. Politically unstable and, let’s face it, uncivilised countries need to offer high rate of return to attract to foreign investor, to compensate for higher risk; the risk which in worst case might materialise if foreign investors’ assets are confiscated in Russia.

Poland, to support Ukraine, is to grant development loans to its Eastern neighbour. As a guy who deals with creditworthiness evaluation, I would prefer a more straightforward move, i.e. giving them money, as we should not expect to recover it, or we should lend it and beforehand estimate what percentage of debt will be relieved. Ukraine lacks capacity to repay the debt. Of course, the foreign loans could be granted for pre-defined purpose of building institutional framework, but in free credit markets, lenders have right to control whether borrowers use loan proceeds for the stated purpose, and if not, call back loans.

We also should note money was what pushed Ukraine into the arms of Russia. The European Union gave little financial support to the Ukraine, while Russia offered this poor country a huge relief in form of much cheaper natural gas and financing public debt, not disinterestedly, but to expand its sphere of influence. With this all in mind, it should not come as a surprise Ukraine drifted towards Russia.

I hope the Crimea blustery does not develop into a full-blown military conflict. I consider this option unlikely, because it does not pay off for anyone. Mr Putin, using his soldiers “wearing uniforms that can be bought at any shop” will carry on with his muscle-flexing campaign, weak Ukraine will do nothing and EU leader will keep on expressing their deep concern over inconsiderate misconduct of the Russian president, fearing overstepping boundaries could spoil economic relations between their countries and Russia.