Marc Champion writes: The picture Russian President Vladimir Putin painted of his country at his annual press conference was Panglossian: Unemployment low, industrial production and the trade surplus up, more people having babies — what could be better? As for the crashing ruble and oil price, these things would correct themselves — within two years at the most.
There were at least two important messages to read between the lines of all this bravado. The first was that Putin isn’t as confident about the economy as he makes out; the second, that he may be willing to talk more seriously about ending the conflict in Ukraine.
The two-year time frame Putin described for the economy was important, because it’s the back-of-the-envelope number many analysts use for the length of time Russia could survive under sanctions and a low oil price, before its foreign currency reserves run out.
Putin went on to suggest Russia’s economy was vulnerable because it had failed to diversify beyond commodities. Now, according to Putin, Russia is in a position to succeed with diversification, because “life itself” will force the change. Sanctions, which he said account for about 25 percent to 30 percent of Russia’s woes, will make domestic investors finally do the right thing and invest in something other than energy and metals.
Putin promised to keep pensions topped up; subsidize mortgages, now that the central bank has increased the base interest rate to 17 percent; and generally stop ordinary Russians from feeling the pain of recession.
French President Francois Hollande called for the EU to “bring about a de-escalation.” “Once Russia engages in a process that could contribute to resolving the Ukrainian situation, there would be no reason for us to prolong this,” he said. Interestingly, Hollande recently made an unscheduled stop in Moscow to talk to Putin.
That language is far too squishy. Russia needs to do more than “engage in a process” — but the the idea is right. Sanctions were designed to bring Putin to this point. Thanks to the falling price of oil, he faces an economic crisis sooner than anybody could have predicted. The smart thing to do now is to state loudly and clearly that a settlement and permanent Russian withdrawal would produce an end to those penalties that aren’t tied to Crimea’s annexation. Then leave it to Putin to deliver.
