Blog AnalysisEconomy Euro zoneRussia Caucasus Ukraine

Could Putin be winning the economic war?

(BRUSSELS2) The sharp drop in the Ukrainian currency, the Hrivnia, has received little comment. And, however, it is not a simple skid. The currency unscrews. In two days, it lost half of its value and could cause certain difficulties for the government of kyiv.

The National Bank of Ukraine was forced to suspend currency exchange before reversing the decision. A demonstration near the Bank degenerated. And the police intervention was not gentle. So much so that Ukrainian Interior Minister Arsen Avakov was forced to apologize for the brutality of the intervention.

The course of the ruble
The price of the Ukrainian Hryvnia over the past 3 months

Besides, the devaluation of the ruble appears rather contained. The skidding continues but in a fairly moderate way. Apart from 2 peaks, on December 15 and at the end of January/beginning of February, we went from a level around 65 rubles for 1 Euro to 70 rubles for 1 Euro. And the rouble, since the beginning of February, has rather regained some color.

Price of the Russian ruble over the last 3 months (source: exchangerates)
The price of the ruble over the last 3 months (source: exchangerates)

Comment: The economic crisis in Russia is severe. But, in Ukraine, it is no less or even more so. On this point, Putin's and the West's tactics (we have to go back to the old Cold War denominations) seem to follow identical and opposite trajectories. With the help of particularly targeted economic sanctions, the European Union and the United States are trying to make the Kremlin give in and bring it to more "tenderness" at the negotiating table. Discreetly, they are also trying to arouse an opposition to fail to bring down Russian power, at least to put it in difficulty. Russia is pursuing similar tactics vis-à-vis Ukraine but with other instruments, less direct but not without effect.

Vladimir Putin does not seek to conquer kyiv but to bring down Ukrainian power himself. With the help of buffers in certain sectors of Dombass, he seeks to succeed in making this territory a viable and autonomous space (access to the airport, to the sea, to certain strategic towns). Even limited (a few % of the territory and the economy), this "secession" weighs economically on the government of Kiev, just like the war effort (called "anti-terrorist operation" or ATO). This tactic is supplemented by more classic terrorist acts, at a low intensity, but which put constant tension on the "rear", intense propaganda and support for certain pro-Russian parties. The aim is to make Ukraine such an insecure place that investors will have little desire to come or stay there. With Ukraine sinking into a deeper economic crisis, this increases the cost for Westerners of their support for the elected government in Kiev and also makes it less popular in the eyes of its population. The objective is to bring it down eventually, either early or at the next election. A race has thus been established between East and West to see who will fall first. It is feared that the more comprehensive, more comprehensive Putin system will win first.

The "failure" of the Ukrainian currency is, at this level, an alert as important as the loss of Debaltseve or other cities of Dombass. It should be observed more carefully. Because it can be synonymous with other cascading events that will compromise the stability of kyiv's power just as much as an artillery offensive.

(Nicolas Gros-Verheyde)

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Nicolas Gros Verheyde

Chief editor of the B2 site. Graduated in European law from the University of Paris I Pantheon Sorbonne and listener to the 65th session of the IHEDN (Institut des Hautes Etudes de la Défense Nationale. Journalist since 1989, founded B2 - Bruxelles2 in 2008. EU/NATO correspondent in Brussels for Sud-Ouest (previously West-France and France-Soir).

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