February 27, 2015


Putin's Gas Problem (Paul R. Gregory, 2/25/15, Project Syndicate)

[C]ontrary to what Putin seems to believe, neither Europe nor Ukraine is likely to be the biggest loser in Russia's effort to redirect its gas exports. Gazprom receives two-thirds of its hard-currency revenues from Europe, and a period of falling exports and domestic economic crisis is not the ideal time to play games with your best customer.

Indeed, the European market is already slipping away. Gazprom's European sales plummeted in the third quarter of last year and fell by 25% in the fourth quarter. The slump in demand is coming at a time when Russia is desperate for hard currency, owing to sanctions that exclude it from credit markets. Its major companies are facing huge debt refinancing needs, its currency reserves are collapsing, its economy is heading toward a deep recession, and the ruble is plumbing new lows.

In redirecting its exports, Russia is in effect demanding that Europe spend billions of euros on new infrastructure to replace a perfectly good pipeline, only to satisfy Putin's desire to cause trouble in Ukraine. In January, Gazprom's CEO, Alexey Miller, imperiously brushed off European concerns, stating, "We have informed our European partners, and now it is up to them to put in place the necessary infrastructure starting from the Turkish-Greek border."

The initial reaction in Europe was that Putin either was bluffing or had taken leave of his senses. "The decision makes no economic sense," was how Maroš Šefčovič, the European Commission's vice president for energy union, put it. "We're good customers. We're paying a lot of money. We're paying on time, and we're paying in hard currency. So I think we should be treated accordingly."

Putin's erratic and economically oblivious policies are frittering away the last remnants of what was once Gazprom's monopoly position in the European gas market. Clearly, if Europe is to spend billions on pipelines, it would be better off doing so as part of an effort to diversify its sources of natural gas, rather than deepen its dependence on Russia. After all, memories are long, especially when it comes to frigid winters of unheated homes and closed factories.

Europe Isn't Really Worried About Putin (Leonid Bershidsky, 2/25/15, Bloomberg View)

For all the alarmist rhetoric about Russian barbarians at the gate, NATO countries are reluctant to put their money where their mouth is. Only the countries closest to Russia's borders are increasing their military spending this year, while other, bigger ones are making cuts. Regardless of what their leaders say about Vladimir Putin, they don't seem to believe he's a real threat to the West.

In a paper released today by the European Leadership Network think tank, Denitsa Raynova and Ian Kearns analyzed this year's spending plans for 14 NATO countries. The U.K., Germany, Canada, Italy, Hungary and Bulgaria will cut military expenditure, and France will keep it at last year's level. Only six countries -- Estonia, Latvia, Lithuania, Norway, Romania and the Netherlands -- will increase their defense spending. Four of them are Russia's close neighbors, and the fifth, the Netherlands, suffered greatly this year from the Ukraine conflict when an airliner filled with Dutch citizens was shot down over eastern Ukraine.

Among the six, however, only proud little Estonia will spend more than 2 percent of its economic output on defense. 

The only people worried about Putin are the Russians and nostalgic neocons.

Posted by at February 27, 2015 4:12 PM

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