Edward Lucas: “Putin is on a Roll and

We Haven’t Seen the Worst of It Yet”

An exclusive interview on Ukraine with Edward Lucas, Sr. Editor, Economist Magazine conducted in Toronto, on April 24, 2014 by Walter Derzko

Walter Derzko: It’s been two years this spring since you last addressed the Ukrainian community in Toronto via Skype during the Strategic Foresight Institute’s Speaker Series. In your book, The New Cold War, you were warning the West about the possibility of renewed aggression from Vladimir Putin. While some dismissed this as fear mongering, preferring the politics of reset between the West and Russia, you stood fast in your convictions. Russia has been re-invigorating, re-arming and showing its teeth. Do you feel vindicated?

Edward Lucas: Well it’s very sad to be vindicated and I’ve been worried about this since the Berlin Wall came down. I felt that we were  carried away by a wave of optimism which was partly justified and partly not. Everything that has happened since the early 1990’s has made me feel first cautious, then worried and then outright fearful about what’s happening in Russia, both the growth of the so called “Chekist” state inside Russia but also the increasing anti-Westernism, and the desire to manipulate neighbors. I’m publishing  a new edition of The New Cold War, which is six years after it first  came out and I feel it can be called: “I told you so.”  I think we haven’t seen the worst of it yet. Putin is on a roll now and we are clearly not standing up to him; we are not deterring him. It’s going to get worse before it gets better.

W.D.: Which leads into my second question. Has the EU responded adequately?

E.L.: Well clearly not. If we responded adequately he would have stopped. And we are absolutely not making him think that the price for this is unacceptable, which is what we should be doing. I don’t think Ukraine can defend itself in the midst of both a financial and constitutional crisis against a larger aggressive neighbor, who is trying to dismember it. So it’s up to us in the EU and NATO to raise the cost of doing business with Putin and his gang to the point where they back off. We know what to do. It means visa sanctions, it means asset freezes, it means money laundering investigations, it means closing down the international financial markets, capital markets and payment systems [to Russia], and making it really expensive and painful.  We know what to do, we just don’t want to do it.

W.D.: Is it a political issue or something else?

E.L.: Well, I wish it was just a political issue. But I think it’s a problem having to do with Russian influence in the West. So in Britain , for example, we have our biggest energy company BP, which is a 20%  shareholder in Rosneft. It’s one of the few things that is going right for BP. They are very vulnerable to Putin putting pressure on Rosneft; maybe cancelling their shares, or causing other difficulties. The City of London really enjoys having dirty Russian money coming in. We are very good at laundering it. We sell respectability in Britain to the Russians by the Pound, Yard or Kilo or by any other measure you want to look at. The same in Germany, you have the German energy industry which is dependent on Russia gas and German companies which sell stuff to Russia. In France, you have the Mistral contracts with Russia. In most European countries you have a Russian lobby, a commercial lobby, which is just trying to block the impacts of sanctions and just trying to get back to making money and doesn’t want any interference.

W.D.: Can the Russian Federation afford a war against Ukraine and Eastern Europe?

E.L.: Russia can’t afford a proper, conventional war, which is why it’s not fighting one. [1] Ultimately,  Russia is a weaker country. The EU has 500 million people and Russian has 140 million. Russia’s GDP is 2 Trillion dollars while NATO’s defense budget is 1 Trillion dollars. So when you’ve got what the Marxists would call an objective correlation of forces, Russia is the looser. But when Russia deploys its concentrated assets, it’s in a stronger position because we are weak, divided, we don’t use our collective strength either on the energy front or any other front.

W.D.: How should Ukraine be responding to this aggression?  What scenarios do you envision?

E.L.: This is a country that you have to have fairly modest expectations from. This is a country that’s starting from an extremely difficult position.

Ukraine is facing three very difficult simultaneous crises.

You’ve got a very serious economic crisis. It’s a country which effectively has no international reserves, huge debts, it can’t pay for its imports- they are down to about 3 weeks of central bank reserves to pay for imports, the currency is collapsing, the banking system owns huge unspecified amounts to Russia. Even if everything else was going all right in Ukraine, just this financial crisis would be a whopper. And the ways out of this will be all politically very painful.

Then you have a constitutional crisis. Because, under Yanukovych, Ukraine’s already very weak political institutions were destroyed. You had a presidency, which wasn’t a real presidency. You had a parliament, which really wasn’t a parliament. Most of the people in parliament, I have to be careful what I say, got there for reasons other than politics. In effect; you had an illegitimate legislature. You had an active president, who was in the pocket of one of the oligarchs. You’ve got a court system that was systematically ruined and eviscerated under Yanukovych. It’s no coincidence that the head of the Supreme Court is the guy who erased the records of all of Yanukovych’s criminal convictions. And even if the economy was in great shape, this political and constitutional crisis would be mammoth. This is almost as difficult as trying to put Bosnia back together again, after the war.

Then on top of that, you are being attacked by another country. And even if Ukraine had a great economy and a stable democracy, being attacked by Russia would be incredibly difficult and destabilizing. Particularly in this kind of [non traditional, asymmetric] attack [1], where you say we are being attacked and the rest of the world says you have a policing problem, we are going to send a mission from OSCE. Your country is being dismembered under your eyes and you can’t quite get the message across to the outside world that you need serious help and they are not ready to put sanctions on Russia that would make them desist.

So you put those three crises together, and I think we just have to have very modest expectations. My worry is that Ukraine ends up as a failed state. Russia has so many [soft and hard power] weapons and it’s penetrated the Ukrainian system at so many levels, so many Ukrainians are demoralized or maybe they are just cynical or Russia will win anyways and I’ll play both sides, placing most of my bets on Russia. We may have a situation where all of the east and south (Kharkiv to Odesa) ends up in sort of a “grey zone” which is still technically part of Ukraine, with railways still running there and so on but with all this funny stuff going on- Mayors saying I don’t take order from Kyiv and little “green men” occupying checkpoints. We are left with a bitter, resentful, unhappy central and western Ukraine saying the west let us down and they’d be right. If we expect the Ukrainians to sort their problems of their own, I think it’s pretty hopeless. I don’t see how any country can cope with that. The only hope for Ukraine is that we get serious and deter Russia and we are not doing that yet. 

W.D.: What else could we be doing?

E.L.: We can raise the bar with Russia with these sanctions, we can make the cost of doing business with the “Chekists” much greater. We can cut off their access to the financial system. We can say it’s fine to buy Russian oil, it’s just very difficult to pay for it. We did that with Iran and it caused real problems. Russia needs access to capital markets to finance their decrepit energy infrastructure. They need to raise that in London, Frankfurt, New York. We can say sorry-You don’t pass our smell test. You can’t raise money here. We can do more visa sanctions. Larvov’s daughter studies at LSE. I have nothing against her personally but we have to raise the pain thresh-hold. Members of the Federation Council, of the DUMA, anyone who works at the Defence Ministry, Interior Ministry, FSB, GRU, Prosecutor’s Office, etc. can’t come too any western civilised country. They have to go back home at night and their wives say: “ we have three children in British Boarding School and they can't go back to take exams, because of some stupid thing you did at work.” You get 10,000 really angry Russian spouses and 20,000 really angry Russian children, all saying to their dads: I’ve lost my tuition money, I can’t take my exams, I can’t go on holidays or shopping, and it’s your fault. That raises the pain thresh-hold but we are terribly unwilling to do this. Politicians will often say: We know what to do, we just don’t know how to get elected after we do it. I have some sympathy for politicians, because there is little public appetite for doing things that really hurt. The Russians are willing to accept the pain of sanctions, we are not. If you tell people you have to accept some serious economic hardship-higher energy prices or shortages, it’s a very short list of EU countries that would be willing to accept this, like the Baltics did in 1991, to be free from Russia. And Putin knows this.

[1] RUSSIA’S NEW GENERATION WARFARE IN UKRAINE  http://bit.ly/1mQ2E8N

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Edward Lucas, Sr. Editor, Economist Magazine