Cicero's Songs

James Sherr, the former head of the Russia and Eurasia programme at Chatham House, is a very distinguished analyst who understands the condition of Russia better than almost all the commentators on that subject. Over the years I have learned that his views of Russia ring more and more true. One idea that I find particularly compelling is the idea that Russia is in many ways an unreformed absolutist state, more similar to the time of the early Stuarts in Britain than to any modern political system.  Furthermore, far from modernizing Russia, the Soviet period set back Russian political reform to an even more primitive political era. The impact of this insight is to change the way that we analyse decision taking in Moscow.  Rational expectations must be put aside in favour of a psychological or even slightly mystical analysis. Thus we examine Russia's unfolding disaster in Ukraine. There have been several Western analysts who have argued that the attempted seizure of Ukraine is a...

One way analysts have chosen to examine the dysfunctional political system of Russia is as a "power vertical" where closely linked economic and political interests share out the spoils of the economy. Like all models it is a simplification, but it has sometimes explained events that make no other sense. As the Russian forces in Ukraine have increased their hostile activity- the latest being a renewed offensive against Mariupol- there is now increasing evidence that the power vertical is less united than it has been for sometime. As I noted a few days ago, the campaigning season in Ukraine is getting short, and with only a few weeks left there is great pressure on the Kremlin to break the deadlock before further help can get to the Ukrainian armed forces and the balance of power turns more strongly against the invaders. What is true for the military may also be true for Russia's internal politics. The announcement that Yakunin may be running for the Federation Council s...

Well, it only took a few hours from my last comment about the blood in the Russian interbank market, before the first of the Russian banks needed rescuing. An estimated $531 million to rescue National Bank Trust  is just the first order of business for the CBR. Clearly there is a huge level of work to do before the Russian financial sector can even begin to recover, even if-for the time being- the oil price seems to have stabilised at around $60/bbl. After the crash, investors are beginning to put prices on Russian risk- and these are hugely discounted. For some Russian assets, there is simply no bid at all, so although a floor might be visible in some areas, it is still the case that international appetite for Russia is exceptionally low. This is not just because of sanctions, it is also because there is the growing realisation that the economic impact of Putin's aggressive incompetence will be long lasting, and in some sectors the damage is permanent. Both policy makers and i...

In the early days after the Russian invasion of Ukraine in March, the German Chancellor, Angela Merkel made a widely reported comment that Vladimir Putin was "living in another world" .  The point being that the statements that were being made by the Kremlin were so completely untrue that they had literally no basis in reality.  Over the past few months we have started to become used to Russian propaganda: astroturfing, Putintrolls, and all the rest of it, but nevertheless, no matter how vehemently propagated, the Kremlin position remains completely at odds with objective, evidence based truth. The well funded Russian propaganda machine is slick, well presented and almost entirely half truths and whole lies. According to Peter Pomerantsev, in his book "Nothing is true and everything is permitted: the surreal heart of the new Russia" , the kleptocratic cabal that now controls the Kremlin does not believe in truth even as a concept. Instead they believe that anyt...

Amid the occasionally rambling and bizarre comments from Vladimir Putin's annual press conference yesterday, a couple of critical points are rather obvious.  Firstly, Putin accepts no responsibility for the crisis that has hit Russia, continuing to believe his own paranoid fantasy of Western economic destabilization .   Secondly, he intends to double down and continue his aggressive and disastrous policies . However, despite the current dead cat bounce in the Rouble, there are two things that could rapidly make the economic situation for Russia irretrievable. The first is in the small print of the Rosneft placement that triggered the deep crash in the currency . Essentially the Bank of Russia underwrote the placement of RUR 625 billion at 150 b.p. below Russian sovereign risk price- and since Rosneft had $7 billion to pay on 21st December, the whole placement went into the forex market. The implication is clear: The Russian central bank, in addition to being the lender o...

Yesterday the dam finally broke in the Russian markets: the Rouble had a heart attack and fell over 10%. The continued erosion of the price of oil down to $61 is placing Russian government finances in considerable jeopardy at a time when even a relatively small deficit is unlikely to be financed by Western lenders, and the increasing refinance risk on the existing debts of Rossneft and the banking sector is creating still further demands on the Russian public purse. At 1 am the Russian central bank raised rates by 6.5% to 17%. Moscow has made a choice to attempt to defend the Rouble from collapse, but the price of that choice will be a deep recession as the economy digests the rate rise shock. In fact this could prove to be a catastrophic decision. Russia urgently needs investment capital in order to modernize and diversify its economy: this has been true for some time. It is also recognized by the authorities as a strategic goal. Indeed the decision to impose sanctions on fore...

I make little apology for returning to the subject of Russia. The crisis in Ukraine is rapidly becoming a crisis in -and for- Russia. The third term of Vladimir Putin, began with a constitutional sleight-of-hand to allow the job swap between Dimitri Medvedev and Putin to take place- and we can date the breakdown of Russia quite precisely from the announcement of this cosy arrangement on 24th September 2011. Since that time the political atmosphere has darkened dramatically. As I have noted several times, Russia has already fallen 61 places in Transparency International's Index of corruption perceptions since the beginning of Putin's first term, but the breakdown of all rule of law has been confirmed by a series of extra-legal decisions taken in the past few months. The gap between rich and poor is now on most measures the widest in the world, and the ruling elite now comprises merely a few ten of individuals wielding astonishing power and wealth against an increasingly impo...

OK, I know readers of this blog now "get it": Russia under Putin is a bad guy and a serious threat to global peace.  However it is now a race against time: Putin's greed and contempt for all laws, whether domestic or international, is sending the Russian economy straight onto the rocks. On current trends, the Putin regime is creating so much damage that Russia has a very short window of maybe less than 3 years before its sustained challenge to the international system leads to firstly economic crack up and secondly political meltdown. The latest numbers must make for sobering reading in the fetid Kremlin corridors where Putin struts, basking in the short-run popularity of a "good war". As of last week, Russia had already seen $70 billion leave the country in 2014. The forecast for capital flight from Russia this year is now an eye-popping $170 billion. Just to put that in context, the total Russian reserves before the crisis broke were about $470 billion. ...

Vladimir Putin is not de-escalating or looking for the off-ramp. As he reinforces his occupation of Crimea with a rigged "vote", he is now upping the rhetoric re: Eastern Ukraine. His supporters have killed Maidan supporters in Kharkiv, but apparently this instability- which has been created solely at his instigation- will justify further Russian military intervention. It seems clear that he does not believe that the West can or will do very much to stop him. After his abrogation of the Budapest memorandum, through his invasion of Crimea, he has now essentially abrogated the conventional forces treaties that govern the movement of troops in Europe. He has also said that he know longer feels bound by the nuclear limitations of either the strategic arms reduction treaties or the intermediate weapons treaties. He has essentially repudiated several of the key arms control and confidence building measures that the Russian Federation has signed up to in the course of the pas...

Hundreds of Thousands of people on the streets of K'yiv.  Viktor Yanukovych at bay facing allegations of corruption and criminality.  Why it could almost be the Orange revolution of 2004 all over again. Except it is 2013, and the stakes are even higher this time. The root of the crisis does not lie in K'yiv, but in Moscow. The Kremlin is seeking to restore its influence in a remade USSR: the Eurasian Union. Ukraine is a country as similar to Russia as Denmark is to Sweden, so the idea that it would reject the Kremlin's overtures is shocking to many Russians. Yet the fact is that the Eurasian Union bears little resemblance to the European Union, which it seeks both to emulate and to compete with. Politically, Vladimir Putin's government lost its political legitimacy the day he sought to return to the Presidency, and as a result he was forced to fix the election in order to win it. Economically, Russia has little to offer except basic goods: oil, gas and other co...

The Economist blog, Free Exchange reports the growing evidence that the Eurozone crisis is sucking capital out of the peripheral European economies . Here in Estonia, we are inside the Eurozone, but there is certainly some increasing anecdotal evidence that suggest that Russia is being hit increasingly badly. Colleagues who work with Russian investors suggest that there is a serious liquidity problem and that Russian banks are facing a funding strike. The impact of the de facto collapse of the Bank of Moscow  in July has underlined concerns about a large number of smaller banks in Russia. In Lithuania, Bankas Snoras a bank that was owned by Russians, with a large client focus there has been declared bankrup t, and there are growing concerns about similar institutions in the Baltic region. The Russian government, in principle, has a healthy funding balance, because the higher oil prices of recent years have allowed the country's reserves to grow substantially. However there is...

As the impact of the financial storm in the US sinks in, there may be some surprising losers. Not so much the "masters of the Universe", since they know full well that with high rewards come high risks, but some who arrogantly believed themselves immune to the storms of the financial markets. Six weeks ago, Russia was basking in the warm economic climes caused by a massive surge in the price of oil and other commodities. Though their balance sheet was relatively small, they believed that the biggest problem that they had to face was the inflationary risks of so much money coming into their economy. The liquid reserves would allow them to weather any storm. Since then we have seen the BP TNK mess underline the real risks that even one of the largest and most powerful global corporations face when dealing with the crooked and opaque business world of the Silovik state. We have seen aggressive comments by Vladimir Putin about the running of Mechel undermine confidence still furt...