We continue to monitor Russia -- one of the two catalysts that could disrupt Europe’s happy new QE party (the other, of course, is Greece and its continued teetering on the edge of a Euro exit).
We note that one effect of Russia is division of the European community. On one wing, we have countries such as Poland and Lithuania, who speak loudly about the military dangers of Russian aggression. They should know; both Poles and Lithuanians suffered greatly from Russian aggression in the 20th century. Lithuania has gone so far as to draw up plans for response to a Russian invasion and distribute those plans to the population -- and they are reinstituting the draft. We do not believe these preparations to be merely paranoid, if history is a guide. (We do think that the Baltic states’ NATO membership will make Russia think hard and long before such aggression, however.)
On the other side, though, are countries that are more dovish on Russia -- both loudly and quietly. Hungary’s president, Viktor Orbán, styles his government an “illiberal” one, and recently gave Vladimir Putin a warm reception, to the chagrin of Hungary’s Polish neighbors. Slovakia and the Czech Republic strike a more moderate tone, supporting sanctions, but moderately -- and expressing frustration with European leaders who want more and more. Cracks are appearing in the Visegrád Group, an association of eastern European countries founded in 1991 to protect the bloc’s new independence. But now there is dissent.
What Is Putin Whispering In Orban's Ear?
We are mindful of recent comments we read from Ukrainian Prime Minister Arseniy Yatseniuk. One of Russia’s proximate goals is to do in Europe what it has done in Ukraine: produce discord. Yatseniuk believes the ultimate goal is to drive a wedge between Europe and the United States. We do not doubt that this is true. We have read some of the work of one of Putin’s main ideologues, Aleksandr Dugin, who writes about a “Eurasian axis” to oppose the power of the United States. It may sound like a paranoid fantasy, but this is the kind of thinking that informs much of Putin’s circle of hardliners. We also see the beginnings of this development playing out in the new ties between Russia and China which we mentioned above.
Investment implications: We continue to view the threat of destabilizing Russian aggression as a potential fly in the ointment for the Eurozone’s markets -- otherwise bullish due to newly inaugurated QE. We also see Russia following a longer-term script in which it attempts to sow discord among its enemies and rivals -- and pursue a counter-U.S. hegemony with any allies it can bring on board.