Fallout from Obama’s Russia Strategy Is Spreading through Europe

Fallout from Obama’s Russia Strategy Is Spreading through Europe

The Obama administration’s sanctions against Russia, reluctantly supported by the Europeans, bite more deeply every day. But it is also clearer with each daily news report that Russians are not going to suffer alone.

Russia’s immediate neighbors and the Europeans will, too. And—not to be missed—so will the trans-Atlantic alliance that has served as the backbone of Western policy since the postwar order was established 70 years ago next spring.

This president is intent on making history. But does he distinguish between good history and the other kind?

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It’ll be the other kind if the European Union swoons into another recession as a consequence of America’s geopolitical ambitions to Europe’s east. Emphatically it’ll be the other kind if Obama hastens a drift in Washington’s ties to the European capitals that have been faintly discernible, if papered over, for decades.     

Let’s look at this from all angles.

President Putin, in his freewheeling annual encounter with journalists last week, told Russians they faced not a crisis but two years of “trying times.” Then he added offhandedly, “Call it what you want.” Taking his advice, let’s say the Russian economy is now either in crisis or at the edge of one.

That’s today’s news: The world’s No. 8 economic power could well go down. Tomorrow’s is all about contagion.

The Commonwealth of Independent States, as well as former Soviet satellites that are not CIS members, are catching cold and starting to shiver. Those West Europeans whose economies are most extensively interdependent with Russia’s, notably but not only the Germans, are next.

Now, there’s an even bigger body headed for sickbay. In a single week, Obama signed a bill authorizing a new round of sanctions against Russia while several members of the European Union voiced open objections to the sanctions strategy for the first time.

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The Ukraine Freedom Support Act has been in the making since the Senate Foreign Relations Committee reported it out last September. Given that it authorizes a new round of very stringent sanctions and $350 million in military aid to Ukraine, it is Cold War aggression by any other name. Obama was tone-deaf to sign it into law last Thursday.

One, it is obvious now that sanctions already in place are devastating the ruble, Russia’s access to international capital, Russia’s equity and bond markets, and, as the economics ministry just reported, Russian GDP. Two, if you’re sitting in Europe instead of Foggy Bottom, it is cold-sweat obvious that Russia’s mess is heading westward.

On Friday the Polish zloty hit a 15-month low against the euro—straight-ahead fallout from Russia’s crisis. Among the CIS nations, Belarus just doubled interest rates, to 50 percent, and imposed a 30 percent tax on forex transactions.

Kyrgyzstan is closing private currency exchanges, and Armenia is letting the dram, its currency, collapse—17 percent in the past month—in a policy it calls “hyper-devaluation.” Further afield, the Indian rupee, the South African rand, and the Turkish lira are among the emerging-market currencies taking hits from the ruble crisis.

Flipping these eggs over, Switzerland just imposed negative interest rates to discourage a stampede of weak-currency holders from piling into the franc in search of a safe haven.

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It would take a genius to anticipate all these ripples. It would take a halfway smart economics graduate to know there would be ripples aplenty as Washington began its effort to take down the Russian economy and humiliate Putin to the max. 

What happened as E.U. ministers and heads of state convened in Brussels last week can come as no surprise.

On one hand, German Chancellor Angela Merkel and British Prime Minister David Cameron insisted that Europeans must “stay the course” on Russia. Just before the Brussels summit, the E.U. barred investments in Crimea—a gesture more than anything else, but one with clear intent. 

On the other hand, deep divisions are now on the surface. Italian Prime Minister Matteo Renzi declared “absolutely no” to more sanctions, and François Hollande seemed to say no to the sanctions already in place. Noting signs of progress on Ukraine, the French president said, “If gestures are sent by Russia, as we expect, there would be no reason to impose new sanctions, but on the contrary to look at how we could bring about a de-escalation from our side.”

Danish Foreign Minister Martin Lidegaard asserted that the sanctions already in place may be hitting too hard. We want to modulate Russia’s behavior, he said in an especially astute distinction, not destroy Russia’s economy.

Related: Obama Says Putin Presiding Over Economic Contraction

In short, two serious fissures are emerging as the hard line against Russia advances. One, the E.U. is plainly getting fractious. Reflecting the rainbow of political tendencies among their leaders, Europeans may have reached their limit in acquiescing in the Obama administration’s tough-and-getting-tougher policies. Note, in this context: Europe has nothing like the fiscal and monetary wherewithal it had six years ago to withstand another bout of financial and economic contagion. 

Two, Obama appears ever closer to overplaying America’s hand with the Europeans. Tensions between Washington and Europe have simmered just out of sight since the Cold War decades. There are significant signs now that Obama has let the Ukraine crisis worsen them to the point the tenor of trans-Atlantic ties is permanently modulated. If this goes any further it will be very big indeed. 

Chancellor Merkel, not surprisingly, is the very personification of these difficult divisions. As a former East German and a conservative she honors the E.U.-U.S. relationship, plainly. At the same time, she must address dissenters in the E.U. and keep the European alliance together.  

At home, Merkel faces a gathering crowd of Putin Versteher, “Putin understanders,” who include not only leftist political people, but a goodly number of business executives. The latter appear to be in a rising state of anxiety as relations with Russia deteriorate.

Question: Do President Obama’s big-think people at State and the Treasury know the magnitude of the game they’re playing? This is the issue the economic fallout of sanctions and the new shifts in Europe raise. 

Follow-on query, not pleasant to ask but it must be put: Does Obama have any big thinkers in either department? As the consequences of this administration’s Russia policy unfurl, they appear to travel on a wing and a prayer—“making it up as they go along,” as a friend and Foreign Service refugee said over lunch the other day.

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