Without a lot of noise Russian President Putin and his boys are taking over sections of the Ukraine in the Crimea area. The border there has been a little fuzzy with the majority of the citizens apparently favoring Russia. In the middle of Crimean section of the Ukraine is a strategically located Russian Navy base located in Sevastopol.
There are reports of Russian tanks on the move near Crimea on a training mission. Sevastopol is a mere 290km from the border town of Kerch. Reuters reports Russian sympathizers have stormed the Crimea parliament building and raised the Russian flag.
While Putin continues to deploy his military, NATO is threatening the Russians with talk. The NATO chief says armed groups in Crimea are "dangerous and irresponsible" (NYSEARCA:AND) "NATO urges Russia not to do anything that would escalate tension or create misunderstanding."
The problem with the tough talk is NATO has little to back up the threats. There are currently 28 NATO members that have pledged to allocate 2% of their GDP on military expenditures. Only the US, the UK, Greece and Estonia are spending that percentage. And according to the NY Times, the US has been providing money for 75% of the NATO budget.
The current Secretary General of NATO is Anders Fogh Rasmussen, formerly an author, and twice Danish Prime Minister. It remains to be seen if Putin will be bluffed by NATO's empty threats. With the US Secretary of Defense calling for a reduction in the US military to pre WW2 levels, it would seem unlikely the US will do much except join the brigade of European talkers. Unless, of course, there is the unlikely possibility the US President will let the tail wag the dog.
While Putin is preparing to have some fun roughing up the hapless Ukrainians, the ruble has been sinking. The Ukraine instability is one reason, but there might also be a ruble run as money is fleeing from emerging markets. How long will this last and how long before Gazprom FY) raises gas prices for all of Europe?
It is unfortunate that Western Europe has a bully for one of their near neighbors. Since they are so reliant on the Russians for their energy needs, the European economy is vulnerable should the Ukrainian crises accelerate. While the euro may be gaining on the ruble today, however, it would not take much adversity to end the tepid European recovery, and with it would go the EU recovery.
There will be numerous economic reports about the EU area recovery ahead of next week's ECB meeting. A major issue is the failure of the EU M-3 money supply to grow. Released today, it was up only 1.2%. EU loans to the private sector were down 2.2%, another problem. These reports mean that ECB President Draghi will need to do something to increase the EU money supply, either in March or at the April meeting, should EU conditions not improve. This, combined with the unsettled situation in the Ukraine, will most likely weigh on the euro as safe havens return to be in vogue.
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