Ukraine Plans NATO Membership - Poking The Bear Into A War
Jeffrey C. Borneman | August 21, 2014
Foreign Affairs writer John J. Mearsheimer's (CFR) piece "Why The Ukraine Crisis is the West's Fault" is must reading (linked below) as he pulls back the curtain on the 5 W's of the Ukrainian Crisis. What do we find there? DEMAND for Defense spending, or, Inflation at any cost.
The quote below explains the chess move Putin was forced to make in Ukraine. I'm not a Putin apologist, but investors should understand the region's history (read the entire Mearsheimer article for an excellent overview):
"Since the mid-1990s, Russian leaders have adamantly opposed NATO enlargement ... For Putin, the illegal overthrow of Ukraine’s democratically elected and pro-Russian president -- which he rightly labeled a “coup” -- was the final straw. He responded by taking Crimea, a peninsula he feared would host a NATO naval base, and working to destabilize Ukraine until it abandoned its efforts to join the West."
Why is this a DEMAND for Defense issue?
In a scene reminiscent of "The Postman" Germany chancellor Merkel spoke in Latvia on Monday of Article V of the NATO contract saying "Nato will defend Baltic states if need be, but will not build permanent military bases in the region ... I want to stress that ... Article V of the Nato contract - the duty to provide mutual support - is not something which just exists on paper, but is also something which must be filled with life,” according to the EUobserver.
Ukraine's parliament speaker, Oleksandr Turchynov, said on a visit to Lithuania that "Ukraine plans to join the EU in the next five years and to join Nato: I believe Ukraine has to not only be an EU member but also a Nato member. It would be a strong guarantee against Russia's future intentions”, he told the BNS news agency.
The next statement should be read for what it is: A demonetization of Russia for protecting its regional interests:
Merkel noted that "German jets will start Nato air policing operations in Latvia on 20 August and that Nato is to build up a rapid reaction force to be used if Russia tries to destabilize its Baltic neighbors on the Ukraine model."
The "Ukraine Model"? Merkel knows full well why Russia moved into Crimea yet she speaks the NATO meme of Russian aggression - why? Because Germany's economy is in a desperate state (but the best of the European Union). Following historic precedence for a failing economy, what does the playbook mandate?
First, find a worrisome adversary (resurrection of an old foe always works) to draw the people's attention away from economic woes. Second, build up the military (DEMAND for Defense) spending (Speed Chess discussed here) to generate some economic activity and Inflation. Finally, institute economic sanctions to the point of pain justifying a military conflict (War). Check, check and check.
How has Russia been preparing itself under the threat of NATO article V? According to Adm. Cecil Haney, commander of the U.S. Strategic Command: "Russian nuclear activities ... included the test launch of six air-launched cruise missiles in a show of force. Additionally, we have seen significant Russian strategic aircraft deployments in the vicinity of places like Japan, Korea, and even our West Coast,’ adding, "Russia continues to modernize its strategic capabilities across all legs of its triad ... ".
The final justification for conflict is always the economy. Regarding the recent Russian Food embargo the German central bank noted (via EUobserver) "the EU-Russia chill is holding back Europe’s economic recovery ... Geopolitical tensions in eastern Europe owing to the Ukraine conflict as well as in other parts of the world are now appearing to weigh more heavily on corporate sentiment” (emphasis mine).
What are the takeaways for investors? DEMAND for Defense will continue as we learn that NATO openly plans to include Ukraine. Russia has made it clear that further NATO expansion will not be tolerated. Investors will remember that in mid-June of this year Russia warned Finland (here) that NATO membership would mean War.
A final note to investors: Quantitative Easing has failed to stoke the Inflation considered necessary for economic recovery. This leaves only direct government spending which will serve to meet the DEMAND for Defense.
If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.
U.S. and European leaders blundered in attempting to turn Ukraine into a Western stronghold on Russia’s border.
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By: of Foreign Affairs (CFR) Article Date: 2014-08-20