Streetwise Professor

September 26, 2014

The Putin Pattern: Pocket a Concession, Demand Even More

Filed under: Economics,Politics,Russia — The Professor @ 1:36 am

Putin keeps ratcheting up the pressure on Ukraine-and the EU. In response to his earlier threats to retaliate against the beleaguered neighbor and the Europeans if they proceeded with a trade association agreement, they agreed to defer implementation of parts of the agreement for 15 months. In particular, though Europe agreed to proceed with lowering barriers on Ukrainian imports, the parties deferred lowering Ukrainian restrictions on imports from the EU to assuage Vlad.

But Vlad was not assuaged. He pocketed that concession-which the parties stated explicitly was made in response to Russian concerns-and is now demanding more:

Vladimir Putin has demanded a reopening of the EU’s recently-ratified trade pact with Ukraine and has threatened “immediate and appropriate retaliatory measures” if Kiev moves to implement any parts of the deal.

. . . .

“We still believe that only systemic adjustments of the association agreement, which take into account the full range of risks to Russian-Ukrainian economic ties and to the whole Russian economy arising from implementation of the agreement, will allow [us] to retain existing trade and economic considerations between the Russian Federation and Ukraine,” Mr Putin says in his letter.

In other words, if Ukraine lowers barriers on European goods, Russia will raise barriers on Ukrainian ones.

The ostensible Russian concern is that better and cheaper European goods will flow to Ukraine, and then on to Russia, undercutting its inefficient producers.

I have to doubt that the concerns are serious, because of country of origin provisions in Russian customs laws. Yes, it is probably true that less restricted import of European goods into Ukraine will make it easier to evade country-of-origin rules, but this hardly seems to be enough of a concern to justify Putin’s ballistic reaction.

And if the concerns are serious, it just goes to demonstrate something I’ve mentioned before: Putin’s recognition of the fundamental inferiority, greater cost, and general non-competitiveness of Russian producers.

This is probably more a political statement than an economic one. Mr. Sovereignty, who Raised Russia From Its Knees, cannot countenance Ukraine being a sovereign entity, and wants to drive it to its knees, and perhaps face down in the dirt. He cannot countenance Ukraine engaging in an independent policy that moves it closer to Europe-and civilization-and further from Russia-and Muscovite barbarism. Knowing that Russia offers nothing positive that can attract friends and allies, it has to coerce vassals.

And note the continued pattern. Putin pockets every concession intended to appease him, and then escalates. He has done that repeatedly militarily in Ukraine, and is now doing it with respect to diplomatic-economic matters involving Ukraine.

You’d think the Europeans would have figured this out by now. Hell, rats in a Skinner Box learn patterns faster than the Euroweenies. But they are so craven and clueless that they make concession after concession. And in response, smart rat that he is, Putin just keeps pushing the lever that delivers the food pellet, and is feasting away.

If the Ukrainians and Europeans cave on this latest demand, Putin will just demand more. They have to draw the line somewhere, and it might as well be here, over the Association Agreement. If they don’t, eventually the line will lie slightly east of Przemsyl.

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