Even a weak Russia is a problem for Europe

LONDON, Feb 20 (Reuters Breakingviews) - Almost a year after Russia invaded Ukraine it is hard to see Vladimir Putin winning his war. But a lasting peace is not on the cards either.

Europe seems destined for an arms race and further economic decoupling from its neighbour, which could drag on even if the Russian president goes. Still, the costs of extra defence spending, lost business and rebuilding Ukraine are much better than a Russian victory.

There are many possible scenarios for how the military conflict will evolve. The most probable is that neither Russia nor Ukraine prevails on the battlefield and there won’t be a formal peace deal for a long time. After all, that would involve either Ukraine surrendering land, which it cannot accept, or Russia giving up all the territory it has occupied including Crimea, which Putin won’t do.

This means that the two sides will either keep fighting or there will be a frozen conflict like the one between North and South Korea. Either of these outcomes will not just impose big costs on Ukraine and its adversary, but on the rest of Europe too.

Russia’s war economy is increasingly churning out tanks, missiles, ammunition and planes. The Kremlin, whose budget deficit soared to $25 billion last month, will soon find it impossible to shield ordinary Russians from these costs. The population will pay with higher taxes, lower welfare spending or inflation. Meanwhile, Putin will throw more young soldiers at Ukraine’s battle lines.

As a result, the brain drain that started a year ago will continue. Russia’s economy is set for stagnation or decline, says Tim Ash, a strategist at BlueBay Asset Management.

Ukraine will bear the brunt of the conflict in terms of lost lives, destroyed buildings and economic hardship, as it has for the past year. The European Union and United Kingdom will also share some pain. They are already having to find alternatives to Russian gas. Although gas price futures for next winter have fallen from last year’s peak, they are still four times higher than two years ago. This has boosted inflation and undermined industrial competitiveness. Meanwhile, by shunning Russian oil, Europe is paying more for crude imports while China and India buy the black stuff at a discount.

Further economic decoupling is likely. The EU is discussing tightening sanctions on Russia. European companies see less benefit in doing business in the country and are under pressure from customers, employees and shareholders to disengage.

POST-PUTIN POSSIBILITIES

The other big question is what happens if Putin dies or is pushed out. Again, there are multiple scenarios. Bruno Tertrais, deputy director of the Fondation pour la Recherche Stratégique, a French think-tank, outlines four: Russia makes a democratic transition just as West Germany did after World War Two; it seals itself from the rest of the world like North Korea; it nurses its grievances with the aim of reconquering territory when it is stronger; or it breaks up.

Tertrais thinks the most optimistic outcome - a democratic transition - is also the least likely. This is partly because America and its allies won’t be occupying Russia and pouring in aid, as they did in West Germany after 1945.

Others are more optimistic. Radoslaw Sikorski, a former Polish foreign minister who is now a member of the European Parliament, says Russia only reforms itself after military defeats like the Crimean War, the Russo-Japanese War, World War One and the Cold War.

Some hope Russia can become democratic under its own steam, just as so-called “coloured revolutions” brought change to former Soviet states like Ukraine and Georgia. However, that doesn’t seem likely given the Kremlin’s capacity to terrorise its own people.

Another possibility is that a different dictator who is less aggressive to Europe replaces Putin. The new autocrat might conclude it was easier to control the Russian population if the country was not economically isolated and did not wish to become China’s pawn. “A Putin 2.0 may be more realistic about the economy and China,” says Michel Duclos, special adviser for geopolitics at the Institut Montaigne think-tank.

ARMS AND ALMS

In this last scenario, Europe and America would be interested in rapprochement, especially if they saw a way to pull Russia out of China’s orbit. Any significant thawing of relations would have to wait for a formal peace deal with Ukraine, though.

Even then, Russia has no way back to becoming a significant supplier of gas to Europe, as the EU and UK will have soon secured alternative sources and ramped up their renewable energy. The country won’t be an interesting place for investors, tech firms or makers of consumer products to do business either.

What’s more, a less aggressive Russia would still be a threat unless it made a full transition to democracy. Even if the Ukraine conflict has severely weakened its army, it will still have nuclear weapons.

Europe, which was late to appreciate the danger posed by Putin, won’t quickly forget the lesson even if he goes. Germany and France are already planning much bigger defence budgets, while the UK is also debating higher spending. With the United States keen to turn its attention back to the challenge from China, Europe will be paying more for its protection for years to come.

Then there is the cost of rebuilding Ukraine, which the World Bank now estimates at 500 billion euros and rising. There’s no way the private sector will pay for all of this given Ukraine’s annual economic output before the war was only $200 billion. The EU, which has promised Kyiv membership of the bloc, seems likely to be landed with the lion’s share of the bill.

These costs pale by comparison with a scenario where Putin had triumphed in Ukraine. In that case Europe would now be worrying how to protect the Baltic States and Poland from his aggression. Yet even a Russia weakened by a year of war and sanctions remains a problem for Europe.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Refiles to fix location in dateline and add graphic.)

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