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(April 24, 2014)

Dutch version


‘Financial sanctions against Russia could lead to a banking crisis in the West and even a military war’, warned Harold James, a professor in history and international affairs at Princeton University, renowned from his studies “The Creation and Destruction of Value, The Globalization Cycle and “Making the European Monetary System.


In this article for Project Syndicate he stated that even a financial war could hurt the West’s highly complex and interconnected financial system much more than it would hurt Russia’s relatively isolated financial market’. He referred to Lehman’s bankruptcy in 2008 that sparked the U.S. financial crisis to see how banking integration creates vulnerability. And Lehman is small compared with the German and French banks that are heavily exposed to Russia. In the meantime, the major financial players in the U.S. have already been advised about the nasty consequences of further new sanctions.


‘A Russian asset freeze could be catastrophic for European and global markets. With that in mind, Wladimir Putin believes the West can’t possibly be serious about igniting a financial war’, James writes. He also referred to Russia’s natural resources (largest oil- and gas producer), Russia’s nuclear arsenal as well as Russia’s capabilities in cyber war making it a very serious opponent.


Also should kept in mind that Putin considers the financial “neutron bomb”, which the U.S. has developed since 2008, as a serious threat bringing almost any nation to its knees without firing one shot. Or: ‘The United States is centrally planning the entire global monetary system to bring under its hegemony’. Under this regime, it becomes feasible to ban Russian banks and other Russian state entities with a combined debt of $714 billion on their balance sheets from access to other markets. But this would be very unrealistic and could have serious consequences.


Under Section 311 of the Patriot Act each bank, in principle, can be earmarked as a whitewash bank accused of money-laundering and/or underwriting terrorist activities and declared ‘radio active’. For any bank, such a stamp implies the end of operations, even if such a bank has no activities in the U.S. In this regard, the U.S. does not need any support from any country and thus acting as a super sovereign. A contagious bank is left alone as no other bank in the world opts to do business with such a bank knowing that it will be declared contagious as well by this regulation. It is no surprise that this very regulation has already caused a new trend resulting in a retreat from the dollar circuit. Various trade- and currency arrangements have been closed already whilst a new BRIC’s IMF seems to be in the making.


Once Russian banks are put on the ‘black page’, a response from Putin may be anticipated one way or the other. According to James, this could even lead to a serious blow to Wall Street. Though Russia doesn’t possess the power of its Soviet empire, this new situation is pushing Putin to revitalize Russia’s ties with its former socialist republics as well as with China.


Russia may not be as strong as it was, at the same time it is not as weak as it seems. A Russian asset freeze could have a devastating effect on European as well as world markets. Even chancellor George Osborne must have been let into the secrets of U.S. sanction plans. Reason why he issued last week’s alert in Washington, warning City bankers to prepare for a sanctions fall-out. But this also counts for the banking in countries like Germany, France and Austria with a huge exposure to Russia’s financial system.


James also noticed the risk of an “asymmetric” riposte by the Kremlin as Russia’s cyber-warfare experts are among the best. A cyber shutdown on U.S. utilities (electricity, telephone, water systems) or the hacking of air traffic and defence systems can cause a cascade of misery. It is not a coincidence that U.S. defence secretary Leon Panetta already warned of a cyber Pearl Harbor in 2012.  In a cyber war today, the U.S. would be the loosing party according to James. He also referred to the fact that sanctions are as old as time. So are salutary lessons. Pericles tried to cow the city state of Megara in 432 BC by cutting off trade access to markets of the Athenian Empire. He set off the Peloponnesian Wars, bringing  Sparta’s well organised infantry crashing down on Athens, leaving Greece’s economy in shatters at the mercy of Persia.


One could wonder what Western interference in Ukraine has brought about so far other than a severe confrontation with Moscow. Keeping in mind that Ukraine as Russia’s cradle will never join the EU neither NATO – as was intended – without Russia’s consent. Further on, it is undeniable that Wladimir Putin understands how to play chess by suggesting during his last tv happening that the current problems can only be solved through a political compromise or, in other words: there will be no peace without Russia. In the meantime, he left the burden of Ukraine’s economic recovery in the hands of the West. A starting sum of $17 billion was mentioned already but will this be all and what happens in case a civil war starts? For such reasons, wouldn’t a reflection on the current situation be a more obvious option than sable rattling, which will hurt us all?


It is amazing that those facts have hardly caught the public opinion. According to Princeton’s analyses the majority of the American public actually have little influence over the policies the U.S. government adopts. However, Americans do enjoy many features central to democratic governance such as elections, freedom of speech and association. But if policy making is dominated by powerful business organizations and a small number of affluent people, then America’s claims to being a democratic society are seriously threatened. James concluded that the U.S. is an oligarchy indicating that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy. This group also finances the presidential elections making the new president their prey.


One has to realize that the results of such studies also catches the Kremlin’s interest where the primus inter pares start from the same premises. In this context, one could give Putin the benefit of the doubt in that he finds himself in the case of Ukraine much better supported by his subjects thanks to his last tv appearance. 

It is for this reason that Kremlin spokesman Dimitry Peskov on Russia I tv (source: AFP) could openly declare that Russia had deployed troops along its total border (including Ukraine) and that new sanctions and/or NATO militairy reinforcements were absolutely unacceptable. It looks like the waiting is now for the first shot, in other words: the same old song.


Talking about shooting, the question is what will the result be other than Putin seeking cover from his formed ‘allied’ republics and the support of China once getting involved in a range of uncontrollable consequences. In lieu of testing Russia’s weak spots after the fall of the Sovjet Empire (which feels like a humiliation), it would have been smarter had the West offered a new Marshall Plan to Russia, which was refused by Stalin after World War II. With the risk of a second rebuff,  the Russian population nonetheless would have been enthousiastic about such a proposition. See even now how Western brands and products are the preferred.


However, since many signals indicate a contradictory development, we as citizens of Europe and America without any influence on the current developments should by mo means allow that a provoked escalation c.q. confrontation with Russia would bring us in war with the Russians, causing an economic backlash much worse since Lehman’s fall. Therefore, on the brink of a (civil) war I - hopefully supported by many - make an urgent call to our most important policy makers to stop playing with fire!


Robert Broncel


April 24, 2014


CC. José Manuel Barroso, President EU

CC. Anders Fogh Rasmussen, Secretary General of NATO

CC. Barrack Obama, President United States

CC. Mark Rutte, premier The Netherlands



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