Ukraine in focus

Ukraine in focus provides commentary on the conflict and outlooks for various facets of the crisis. GIS Founder and Chairman Prince Michael of Liechtenstein explores the long-term view in detailed scenarios for Europe and beyond.

August 9, 2022

In Ukraine, the economy is decisive 

Prince Michael of Liechtenstein

In a speech this summer to the European Parliament’s Foreign Affairs and Security and Defence Committees, NATO Secretary General Jens Stoltenberg offered an eloquent argument for supporting Ukraine:  

“Even if you don’t care about the moral aspect of this, supporting the people of Ukraine, you should care about your own security interests. So, therefore, you have to pay: pay for the support, pay for humanitarian aid, pay the consequences of economic sanctions. Because the alternative is to pay a much higher price later on. … Yes, we pay a price. But the price we pay as the European Union, as NATO, is a price we can measure in currency, in money. The price they pay is measured in lives lost every day. So, we should just stop complaining and step up and provide support. Full stop.” 

This summarized the circumstances from the military and security points of view. But there is also the demographic, economic and social situation, which risks breaking Ukraine’s back. In this context, time is on Moscow’s side. 

The brutality of the war – including the indiscriminate bombing of civilians – has spurred the dislocation of 12 million Ukrainians, or nearly 30 percent of the population. About half of those, mainly women and children, remain abroad, while the other half relocated to safer parts of the country. This is a humanitarian tragedy, but also an economic disaster. The loss of women has left a large gap in the workforce. A significant portion of the male workforce is fighting. Now, there are not enough women to replace them in the workplace. 

Even as early as spring, Ukraine’s authorities said the Russian bombing had destroyed or damaged more than 30 percent of the nation’s infrastructure. 

Rents and property prices are down – some by more than 30 percent – but it depends on the location. In comparatively safe western Ukraine, prices have risen. But it is a fair assumption that a country at war is not a hot property market. Who would buy a home that cannot be insured and that can be bombed at any moment? 

The 30 percent figure appears in several other depressing economic indicators for Ukraine:  

Gross domestic product is expected to shrink by at least 30 percent in 2022, while inflation will top 30 percent. The hryvnia, Ukraine’s currency, has lost more than 30 percent of its value in the last month, although only 25 percent officially.  

Due to the war economy, wages and household income have fallen sharply. Although there is a lack of sufficient labor to reconstruct the country and restart economic growth, the official unemployment rate climbed to some 35 percent, showing the magnitude of the turmoil. 

For Ukraine to survive, Western nations will have to live up to their pledges of material and materiel support. The European Union has disbursed only 1 billion of a promised 9 billion euros

The speed and generosity do not match the urgency of the crisis. Russia is upping the ante by threatening to formally annex the territories it controls in September. Some concerns that the money will be misspent due to corruption or bad governance might arise. This issue should and can be tackled head-on in an open and unemotional way. It would be very helpful for the EU to lower protectionist regulatory barriers in trade with Ukraine. Both sides could reduce red tape at the border. 

Even if the Russian invasion can be contained or pushed back, a dysfunctional economy might become the dagger in Kyiv’s back – and Moscow’s strongest weapon. 

August 3, 2022

Boosting Europe’s energy security

Prince Michael of Liechtenstein

Even in summer, Europe is worrying about affordably staying warm in winter if Russia keeps restricting its natural gas supplies.

If these were normal times, three routes alone – the Baltic Sea’s Nord Stream 1 and 2 pipelines and Ukraine’s land-based network – could easily carry more than 200 billion cubic meters of gas from Russia to Europe yearly. This would be more than enough to go around. But now, the gas is just trickling in. Germany shut down Nord Stream 2 over the Russian invasion of Ukraine. Russia has cut Nord Stream 1 to just 20 percent of capacity. Ukraine’s pipelines are, meanwhile, running largely empty.

Europe, especially Germany, has only itself to blame for becoming hostage to Russian energy supplies that are just another weapon in Vladimir Putin’s arsenal against the West – or at least against those countries that have the audacity to oppose the Kremlin’s war. Nord Stream 1 came online in 2011, after two winter shutoffs of gas through Ukraine and wars in Chechnya and Georgia. Nord Stream 2 was commissioned in 2015, only a year after the Kremlin’s seizure of Ukraine’s Crimean Peninsula and parts of eastern Donbas. German leaders now cautiously admit they were terribly wrong to have risked being taken hostage by Moscow. It was more important for them to make the populistic move of shutting down nuclear power in the country.

In the face of the current adversities and high prices, Europe can seize the opportunity now to boost long-term energy security. This will require increasing oil, gas and coal production in the short term, while pretending to move to more climate-friendly renewable energy sources such as solar, wind and hydropower. But until a political rethinking on continuing nuclear power in Germany takes place, energy dependence on gas will prevail.

The Kremlin likely hopes that Europe, with a poor record of standing up to bullies and defending its principles, will again choose cheap Russian gas over supporting Ukraine as the temperatures drop, recessions bite and political fortunes sour.

Besides needing a mild winter, Europe is pledging a voluntary reduction of 15 percent in gas consumption this winter. It is trying to stock up and store as much as it can now. Of course, some nations like Hungary will not go along and will cut their own deals with Russia, while others want more time to adjust. It is doubtful that a boycott of Russian oil will work, although the U.S. is seeking a united front for a price cap on Russian crude. Natural gas is another matter. Finding buyers and building pipelines outside of Europe will take time.

Germany is already firing up its old coal plants, building liquified natural gas terminals and considering whether to postpone its scheduled 2022 exit from nuclear power – a step it should have never taken in the first place.

For a change, Europe needs to act quickly and decisively. Russia benefits greatly from energy insecurity by selling less gas and oil for more money.

Investment in wind, solar and hydropower technologies has come a long way in recent years. They are paying off and providing more electricity than before. But while renewables and nuclear can help, they will not replace oil, gas and coal for quite some time.

Europe learned a costly lesson by neglecting defense. In the long run, just a credible deterrence will guarantee peace.

July 18, 2022

A rare agreement in the works

Prince Michael of Liechtenstein

While Russia has yet to show interest in ending its war short of Ukrainian capitulation, an agreement is taking shape that offers a glimmer of hope for eventual peace talks.

Turkey and the United Nations are at the center of a possible deal, to be announced as early as this week, for a food corridor that would end the Russian blockade of Ukraine’s vital agricultural exports through its Black Sea ports. The arrangement would provide safe passage for more than 20 million tons of stored grain, which needs to be cleared to make way for the new harvest. These shipments are particularly important for the food security of consumers in the Middle East and Africa, as well as to tamp down the overall price inflation of commodities. A coordination center in Istanbul would manage the exports of Ukrainian grain.

If the breakthrough comes, it is not clear what motivated this rare moment of cooperation and economic rationality in an otherwise irrational conflict that marks its fifth month on July 24. Perhaps Ukraine’s June 30 recapture of Snake Island from Russia, opening a grain export route through Danube River ports near Romania, gave Russia a taste of what could be coming as international pressure mounts over the issue.

But it is obvious that Turkey’s President Recep Tayyip Erdogan is playing a critical role as an arbiter on this issue, guiding the two nations to progress with UN help. And weeks of painstaking talks signal that both Russia and Ukraine have sufficient trust in Ankara, suggesting Mr. Erdogan may be called on to reprise his mediating role on other issues if both nations finally get serious about peace.

President Erdogan talks regularly with Vladimir Putin and Volodymyr Zelenskiy. Turkey has opposed the Russian invasion and recognizes Crimea as part of Ukraine. It is on the opposite side of Russia in Syria and has sold military drones to Ukraine. But it has not participated in economic sanctions against the Kremlin. 

Turkey is also facing disastrous economic consequences with 79 percent inflation, making it a highly motivated interlocutor in seeing its two food-rich neighbors end their conflict. And Turkey comes to the negotiating table with leverage as a gatekeeper to the Black Sea, able to control the passage of warships through the Bosporus and Dardanelles straits.

Underscoring Turkey’s importance, Mr. Putin is set to make only his second foreign trip since the start of the war when he travels to Tehran on July 19 to meet with his Turkish and Iranian counterparts. The Russian leader also went to Turkmenistan and Tajikistan on a trip in late June.

“Turkey is probably the only country that Russia is ready to look at as a mediator in this conflict,” Fyodor Lukyanov, chairman of a Kremlin advisory board on foreign and defense policy, told the Wall Street Journal. “There are currently no grounds for peace talks, but at some point there will be.”

Mr. Erdogan will undoubtedly explore the groundwork for the war’s endgame in his July 19 meeting with President Putin.

July 11, 2022

Ukraine deserves a successful rebuild and peace

Prince Michael of Liechtenstein

The head of the European Investment Bank estimated the cost of repairing the damage wrought by the war in Ukraine at some 1 trillion euros. The government in Kyiv has said the figure could be around $750 billion. Whatever the sum is, Ukraine’s reconstruction will prove an enormous task.

However, putting a price tag on the project in some ways misses the point. Simply throwing money at Ukraine is not the solution. The task of rebuilding to create a modern, efficient and prosperous country – even from ashes, in some regions – will mainly depend on the Ukrainians themselves.

The bravery and patriotism they have shown in defending their nation against an aggressor with more soldiers and firepower offer a realistic hope that they will apply the same energy in building Ukraine into a thriving country with a cohesive society and a strong market economy. 

Investment from abroad will be necessary, as will an injection of liquidity provided mainly by Europe and the United States. Yet, it would be dangerous to expect that foreign funds will serve as the main component of the rebuild. It is also up to Ukrainians to push for governance reforms and to create a leaner, more effective administration. Ukrainian entrepreneurs, supported by motivated staff, will drive the creation of prosperity.

A big task for the government on both the national and local level will be reforming the country’s civil service and rebuilding infrastructure. Foreign investment in infrastructure will be crucial, and a big task for Europe – but must be based on trust that the Ukrainians will use it efficiently.

Lessons from the Marshall Plan

Besides the important issues raised above, Ukraine should concentrate on building a real market economy based on private initiative. This was one of Germany’s biggest successes after World War II. The Marshall Plan was important for Germany, but it mainly served as a liquidity boost. The United Kingdom received aid from the plan as well, but decided to use it to fund a system of big government and nationalization. West Germany, where the war wrought much deeper destruction, rebuilt quicker and soon overtook the UK in prosperity.

Besides a market economy, Ukraine will need a strong, well-equipped defense force to guarantee its peace in the future. Here it would be appropriate for Kyiv to expect material and financial support from European countries. 

Let us hope that this war, which has already become a war of attrition, will end soon and to Ukraine’s deserved satisfaction. Then the rebuild can start. Can we hope that the forthcoming mediation at the Vatican will bring a solution? The Holy See has been successful in settling several past conflicts, normally through silent diplomacy. This time, the Pope himself intends to talk with Kyiv and Moscow.

June 30, 2022

Western leadership: Words or deeds?

Prince Michael of Liechtenstein

Ukrainian President Volodymyr Zelenskiy has said he wants to put an end to Russia’s war – with a Ukrainian victory – by winter. Achieving that goal will require both Ukraine and its Western backers to dramatically step up their efforts.

The reasons for urgency are clear. Russian bombs are raining down on Ukraine on an almost daily basis – 2,800 cruise missiles since the Kremlin launched the full-scale invasion on February 24. Along with military targets, the Russians have hit shopping centers, schools, kindergartens, hospitals and cultural centers. An estimated 200 Ukrainian and 300 Russian soldiers are killed each day. Russia now controls 20 percent of Ukrainian territory and is again advancing in the east.

Ukraine is threatened with destruction and demographic catastrophe while the global economic fallout of the conflict is deepening. Russia has blocked 15 of Ukraine’s 18 ports and has halted much of its own food exports. Some 400 million people in the world receive food from these sources.

The G7 and other invited nations, as well as the United Nations and NATO all met this week with the war at the top of the agenda. While the rhetoric and statements about unwavering support for Ukraine hit the right notes, the multinational organizations and today’s political leaders have yet to prove they are up to the task of devising a successful strategy to help Ukraine push back Russia.

As the situation on the battleground makes clear, neither the size nor speed nor quality of the weapons delivered thus far have allowed Ukraine to launch major counteroffensives, let alone hold all of its own ground. The West’s timid incrementalism is no way to win a war.

Too many Western leaders are still catering to domestic constituencies. But time is of the essence. The Kremlin again this week said it has no intention of accepting any peace agreement short of Ukrainian surrender.

Missteps, some decades in the making, need to be corrected. Leaders have failed to achieve energy security, the protection of commercial shipping in international waters and, most importantly, adequate security to deter military invasions. The NATO summit in Madrid is taking steps in the right direction, committing to putting 300,000 troops on high-alert status and accelerating the membership applications of Sweden and Finland. Weakness will only lead to more aggression and will send the message to aggressors all over the world: Might makes right. In the end, an efficient defense, made credible by a willingness to fight and deter, will provide peace.

June 22, 2022

Realigning away from Russia

Prince Michael of Liechtenstein

Recent diplomatic and other developments might support Ukraine’s position by potentially showing that Russia is more isolated. Although individually none of these events were either deep or dramatic, together they show a greater international assertiveness against the invasion.

They might also signal to Moscow that the longer it keeps up its attempt to subjugate Ukraine and subvert international norms, the more isolated it will become. Whether this will influence Moscow at this stage is, however, doubtful.

There was the exceptional boldness of Kazakhstan’s President Kassym-Jomart Tokayev telling Russian President Vladimir Putin to his face in St. Petersburg on June 17 that he does not recognize the Russian-controlled “quasi-states” in Ukraine’s Donbas regions of Donetsk and Luhansk.

Then, Vilnius announced it would not allow land passage through Lithuania of prohibited freight to Russia’s Kaliningrad exclave, as dictated by European Union sanctions. The move does not amount to a blockade, unlike the one that Moscow has erected in the Black Sea on Ukrainian exports. But the message is clear enough.

Additionally, Berlin signaled to Moscow that its use of energy as a weapon has its limits. After Russia essentially sanctioned Germany by reducing natural gas exports through the Nord Stream 1 pipeline, Germany responded by saying on June 19 that it will make greater use of its coal plants to stave off a winter energy crisis. It was certainly good that Berlin appeared unimpressed. However, the additional use of coal plants will not fully substitute the steeply reduced gas deliveries. All this poses a credibility problem domestically for the Greens and the Social Democrats in the governing coalition.

Barely noticed was Kyiv’s decision to finally impose visa requirements, starting July 1, on Russians seeking to travel to Ukraine. It is a legal requirement that will not change much now, since travel between the two nations has largely been halted due to the war. But it comes in the same year that Ukraine realigned its energy grid to the European one, cutting another vital link with its Soviet past. It is doing the same with its railways.

The June 16 visit to Kyiv by four leaders of EU nations – Germany, France, Italy and Romania – was noteworthy for their support of Ukraine’s desire to join the 27-nation bloc. It is symbolic, considering the huge gap between candidate status and actual EU membership. Accession for Ukraine is not certain and may take years unless its governance is improved. The visitors from Paris, Berlin and Rome had strong domestic political imperatives that they wanted to satisfy by making the trip. But hopefully, the visit may have also signaled that Germany’s Olaf Scholz, France’s Emmanuel Macron, and Italy’s Mario Draghi have finally concluded that for now there is little point in negotiating with President Putin separately and without clear objectives.

None of this means that Moscow has changed its worldview – as state-controlled Russian TV makes clear on a daily basis. But it might indicate that the way in which Moscow is treated by its regional neighbors is changing in ways that may become more assertive.

June 15, 2022

Vladimir the Great

Prince Michael of Liechtenstein

From the beginning of the war, Russia has used expansion – that is, NATO’s expansion – as the main justification for its invasion of Ukraine. Last weekend, as he cast himself as a modern-day Peter the Great, Russian President Vladimir Putin made clear that another kind of expansion was also motivating him.

“Either a country is sovereign, or it is a colony, no matter what the colonies are called,” the Russian president told Moscow students in remarks on June 9, exactly 350 years after the birth of Peter the Great. “A colony has no historical prospects, no chance for survival in this tough geopolitical struggle.” Which classification Ukraine and many other nations fall into in this dichotomy is clearly implied.

At their peaks, the Russian Empire and its successor, the Soviet Union, stretched over vast territories of Europe and Asia, more than 22 million square kilometers. Besides the 15 republics that constituted the Soviet Union, the Russian Empire also incorporated territories of modern Finland, Poland, and even Alaska, which was sold to the United States in 1867.

Nor is it difficult to guess where Mr. Putin aims to take his own nation. To illustrate his point, he reached back to the Great Northern War of 1700-1721, which became the founding year of the Russian Empire after its defeat of Sweden.

“On the face of it, Peter the Great was at war with Sweden taking something away from it. He was not taking away anything, he was returning,” the Russian president said, adding ominously: “It seems now it’s our turn to get our lands back.”

Empire-building through military conquest is a reality of world history – for centuries before and after Peter the Great’s memorable 52 years on earth. We need to ensure countries’ security, even if it needs to be enforced by military power.

June 8, 2022

Turkey to the rescue?

Prince Michael of Liechtenstein

On June 8, Turkey hosted a meeting with Russian officials, including Foreign Minister Sergei Lavrov, amid rising concerns over global food shortages because of the Kremlin’s blockade of Ukraine’s seaports. Currently, 22-25 million tons of grain are stuck in these ports. The amount could climb to 75 million tons after the Ukrainian harvest in September. The sea, not railways or roads, is the only way to quickly move such vast amounts of grain.

Freedom of commercial navigation in international waters is essential to free trade.

But the initial reports out of the June 8 meeting in Ankara are not encouraging. Turkey and Russia traded accusations about who is to blame, while Turkish Foreign Minister Mevlut Cavusoglu promoted a United Nations proposal in which the international community ensures the safe transport of the stored grain while protecting the security interests of both warring neighbors.

Russia is using food, like it has energy, as a weapon of war. Besides the blockades of the Azov and Black seas, its most recent bombings destroyed one of Ukraine’s largest grain storage terminals in Mykolaiv and a rail car repair shop in Kyiv. It has seized agricultural land in Ukraine and there are credible reports that Russia has stolen large amounts of Ukrainian grain.

Russia says it will be happy to grant safe passage to grain-carrying ships out of Odesa’s Black Sea ports if Ukraine would kindly remove its mines. Yet Russian promises in this regard are not to be believed. Demining would give the 20 or so warships of the Russian Black Sea Fleet a straight shot at attacking Odesa, the No. 3 city in Ukraine, plus Russia is believed to have placed its own mines in the sea.

Russia also claims that Western sanctions are preventing it from exporting its agricultural bounty to needy nations in Africa and elsewhere. This is also not true, as debunked on June 6 by United States Secretary of State Antony Blinken and by European Council President Charles Michel at the United Nations. The West exempted food from sanctions and Russian shipping bans do not extend outside the countries that are imposing them.

Ukraine’s importance as a food exporter – helping to feed an estimated 400 million people in the world – is underscored by U.S. Department of Agriculture statistics.

Turkey’s call for an international convoy to ensure safe passage is the best option available today. There are also numerous precedents for providing military escorts to commercial shipping, including U.S. convoys in the 1980s to prevent Iran from blocking passage through the Strait of Hormuz for oil tankers. But this idea may founder for the same reason that Ukrainian calls for a no-fly zone have been rebuffed. As in the air, a naval convoy would run the risk of a direct military conflict between the West and Russia.

This brings us to the vital role of Turkey. The nation of 84 million people is a NATO ally and imports food from Russia and Ukraine. It also is the gatekeeper in controlling access to the Black Sea through the Dardanelles and Bosporus straits thanks to the 1936 Montreux Convention. Since the onset of Russia’s war, Turkey has already used its powers to restrict the entry of warships to prevent the escalation of the conflict.

It is hard to say what the savvy negotiator President Recep Tayyip Erdogan has up his sleeve. Turkey remains neutral in the war but has good relations with Russia and Ukraine. It is conceivable that Turkey, perhaps with Black Sea NATO allies Bulgaria and Romania, can find a way out of this crisis that protects the security interests of both Russia and Ukraine, does not provoke military escalation and yet gets the food to the millions of people who desperately need it. The world would be most grateful.

June 6, 2022

A stalemate in more ways than one

Prince Michael of Liechtenstein

There are many conventional ways to measure whether Russia or Ukraine is winning or losing in the war that enters its 100th day on June 3. The main one, of course, is territory held. On that score, there is no clear-cut winner.

Since Russia’s invasion on February 24, 2022, it has expanded its hold perhaps to nearly 20 percent of Ukrainian territory, a major increase from the 7 percent occupied before the full-scale assault. But the Kremlin’s grip is shaky. Ukraine has pushed Russia away from the two biggest cities – Kyiv and Kharkiv – and is mounting counteroffensives to regain lost territory in the south, particularly around Kherson, while trying to hold on in the east against a fierce Russian barrage.

But there is another telling measure of the state of the war today – and that too shows something of a draw.

Memories remain fresh of Ukrainians frantically crowding highways and railway stations to escape Russian bombing early in the war. An estimated 6.6 million people fled the country, most to European Union countries, where they have been largely welcomed and afforded the opportunity to stay and work for up to three years. Another 8 million Ukrainians have relocated within the country, generally as far from the Russian border as possible.

But the tide is turning.

As of May 24, 2022, some 2.2 million Ukrainians had already returned, according to United Nations estimates cited by the BBC. Kyiv Mayor Vitali Klitschko says the capital, with a prewar population of 3 million people, emptied out by two-thirds when Russian forces were advancing in late February and March. Now it is only one-third empty.

State Border Service figures from April, the latest full month available, show almost a dead heat between daily arrivals and departures. Presidential advisor Timofiy Mylovanov, an ex-economy minister who is president of the Kyiv School of Economics, recently posted a photo on his Facebook page showing a long line of Ukrainians waiting to get into the country from Poland. And more recent statistics show more Ukrainians are returning than leaving.

This is good news. Ukraine will need more of its 40 million citizens back to revive an economy that has shrunk by half since Russia’s invasion. It will take serious Russian setbacks on the battlefield – at least enough to force a reasonable peace agreement – before more Ukrainians feel confident enough to return.

Many key events lie ahead. But a big one to watch will come on September 1, the traditional start of the school year. Since Ukrainian males aged 18 to 60 are still not allowed to leave Ukraine, and many elderly people refuse to leave their homes, the refugees abroad are mostly women and children. How many of those children answer the first school bell in Ukraine will give the world another key indicator of this war’s direction.

May 25, 2022

War crimes and corruption

Prince Michael of Liechtenstein

Ukraine’s judicial system moved with unusual speed in securing the May 24, 2022, conviction of a Russian soldier, Vadim Shishimarin, 21, for killing an unarmed civilian, Oleksandr Shelipov, 62, in the first of what promises to be many war-crimes investigations and trials.

It is too bad the Ukrainian courts, prosecutors and police have not shown the same determination in solving major crimes, including those involving corruption, throughout almost 31 years as an independent nation. There has not been a single case of major corruption successfully prosecuted since the 1991 breakup of the Soviet Union.

In the governance and corruption scales, Russia fares worse than the neighbor it invaded on February 24, 2022.

Ukraine’s democracy is messy and imperfect – but it has, among other achievements, allowed its people to freely elect six presidents and numerous parliaments. Russia, meanwhile, has had Vladimir Putin as president or prime minister for all but eight years of its post-Soviet existence. People debate whether Mr. Putin is a dictator or an autocrat, but it is not much of a distinction. In Transparency International’s Corruption Practices Index, neither country has bragging rights – Ukraine ranks 122 and Russia 136 among the 180 nations studied.

Ukraine has largely shelved its nasty political disputes during the war in favor of national unity. But cracks are appearing.

Viktor Medvedchuk, a friend of Mr. Putin, is facing treason charges – but not quietly. The pro-Russian member of parliament has accused ex-President Petro Poroshenko of illegally privatizing a section of a Ukrainian pipeline that also operates in Russia to profit from the diesel fuel trade. That section has since been renationalized under Mr. Poroshenko’s successor, Volodymyr Zelenskiy. Mr. Medvedchuk also alleges Mr. Poroshenko sought his help as a back-channel conduit to Moscow in illegally buying coal from areas of the Ukrainian Donbas controlled by Russian forces. The ex-president’s lawyer dismissed the charges as a baseless public relations stunt.

In peacetime, corruption has serious consequences. In war, those consequences turn deadly. Ukraine would have had greater national security and may have even been strong enough to deter Russia’s invasion had it created the rule of law earlier. Corruption, meanwhile, has cost Russia dearly – from erroneous assumptions of easy victory to a hobbled invasion force hollowed out by graft.

It is an ugly spectacle as the war enters its fourth month with no end in sight.

May 17, 2022

Who wins from shutting down business in Russia?

Prince Michael of Liechtenstein

The truth may be the first casualty of war, but economic destruction is not far behind. These inevitabilities are increasingly obvious to the world as the war in Ukraine approaches its three-month mark on May 24.

I have long viewed government-ordered economic sanctions against Russia or other powerful states as generally ineffective and more harmful to economies in general than the intended targets. Sanctions can often be evaded and, in the case of essential global commodities, there will always be buyers. Military superiority, motivation and morale are the three ways to win wars.

Nevertheless, more and more businesses are choosing to leave Russia on their own – a self-sanctioning spurred by international outrage and pressure from clients, but also perhaps because the Russian market is simply no longer as attractive as it was before Vladimir Putin’s great misadventure.

Fast-food giant McDonald’s became the latest big-name brand to pull out of Russia, announcing the sale of all 850 of its outlets and casting the decision in moral terms.

“We have a commitment to our global community and must remain steadfast in our values,” said the company’s CEO Chris Kempczinski in a May 16 statement. “Our commitment to our values means that we can no longer keep the arches shining there.”

French carmaker Renault also announced on May 16 that it would exit Russia, but gave itself the option of returning within six years.

The question is whether these so-called “value-driven” decisions will have much influence on the Russian state’s bottom line.

While international firms leaving may at first look bad for Moscow, in reality, their assets will be quickly snapped up – likely by a well-connected businessperson, ready to rebrand the company and use its facilities and assets – at a bargain price. People will keep their jobs.

For companies like McDonald’s and Renault, their actions may give them a quick public relations boost. But leaving a market of 140 million people will take a significant chunk out of revenues – even if Russia has temporarily lost some attractiveness. McDonald’s expects a write-off of $1.2-1.4 billion. That Renault left itself the option to return quickly is telling. And while McDonald’s closed its restaurants in Russia months ago, it still plans to hold onto its trademarks there.

So, these companies may end up hurting themselves, could come back anyway (but in a weaker market position), and in the meantime, the business they were doing will simply be done by someone else. The Russia-based firms that take their place could get a boost from patriotic consumers, while they fill the Kremlin’s coffers with tax rubles. Nobody wins.

Except, perhaps, for Mr. Putin’s standing within Russia. This is why he seems impervious to the economic fallout and willing to continue the war anyway. Closing businesses will certainly not help.

May 10, 2022

Victory Day ambiguities

Prince Michael of Liechtenstein

The West approached Victory Day, the 77th anniversary of the Allies’ defeat of Nazi Germany, with trepidation. Many Ukrainians remained outside of their country, fearing a nuclear Armageddon on May 9 or at least intensified attacks from Russia. And while the frequency of air raid sirens has increased throughout Ukraine in recent days, the carnage has remained largely contained to the contested eastern areas near Russia’s border.

Vladimir Putin’s words were closely watched during the traditional Red Square parade for clues about where the war was heading. What the world heard was ambiguity in a brief address from Russia’s president, who cut a solitary figure on the stage as other world leaders boycotted the Moscow event.

He did not declare victory. He did not officially declare war, so what remains is a “special military operation” launched on February 24. He did not announce a full-scale mobilization. He did not talk about taking over the whole of Ukraine. He did not state specific aims.

Rather, Mr. Putin continued to play the victim, insisting Russia was engaged in a defensive operation to thwart a NATO-backed plot to invade the Russian homeland, including the eastern Donbas and on the Crimean Peninsula. (The international community regards these territories, of course, as part of Ukraine.)

Where does this leave us, besides guessing? The Russian president – in line with centuries of Russian political tradition – is a master at presenting enigmas. It is unlikely, however, that he will silently give up.

It was somewhat naive to believe that the May 9 celebration would prompt President Putin to disclose plans or start specific actions.

Unfortunately, we cannot see a light at the end of the tunnel.

May 4, 2022

Another casualty of war: Agricultural production

Prince Michael of Liechtenstein

It is not only the human toll of Russia’s war on Ukraine that grows daily. The economic fallout is already rippling through the global economy, contributing to higher inflation, energy prices and food costs. 

Russia and Ukraine are major agricultural producers, together producing 12 percent of the world’s calories. Combined, Russia and Ukraine account for 14 percent of the world’s wheat production and 28 percent of all traded wheat. Ukraine is also a top 10 producer of sunflowers, barley and corn, while Russia and its ally, Belarus, supply a lot of fertilizers to the world.

The war is putting all this at risk. The fighting (and Western sanctions) are damaging Russia’s economy, which may shrink by 10 percent in 2022. Still, Moscow is getting off lightly compared to Kyiv. Ukraine’s loss is simply devastating – a 45 percent drop in gross domestic product is expected this year alone. Ukraine’s famously fertile black-earth soil has made it a breadbasket of the world – and a target for invaders.

Today, Russia stands accused not only of war crimes, which it denies, but of blockading the Black Sea so that Ukraine cannot export its grain to the world. Accusations of outright theft of stored grain and farm equipment have been made, reviving horrible memories of the Holodomor, during which Soviet leader Joseph Stalin starved to death an estimated 4 million Ukrainians in 1932-1933.

Spring is the time for renewing life – and for farmers to be in the fields. The longer that this war goes on, the likelier it becomes that some of the world’s neediest will be hungrier while the more fortunate among us will be paying a “war premium” on the purchase of our next loaf of bread or sirloin steak. 

April 27, 2022

Darkness before dawn?

Prince Michael of Liechtenstein

As the destruction mounts in Ukraine, the West has beefed up its military assistance to Kyiv. The more muscular response should be welcomed and could, hopefully, bring the world mercifully closer to peace. The end to Russia’s invasion cannot come fast enough amid global economic and other challenges.

Ukrainians have shown they will courageously and capably defend their nation if properly armed. After initial hesitation, more than 40 nations came together on April 26 in Germany for a conference to pledge continuous military aid.

If the West can help Ukraine gain a decisive upper hand on the battlefield, reality may start to dawn on Moscow that the invasion will have to end.

Unfortunately, Russian President Vladimir Putin has not reached that point and is launching economic attacks of his own against the West. On April 27, Russia’s Gazprom cut off natural gas supplies to Poland and Bulgaria, evidently to punish the willingness of these two nations to arm Ukraine and their refusal to meet Moscow’s demands for payment in rubles.

With Russia’s nuclear saber-rattling increasingly having no effect on the West, Mr. Putin’s best option is to seize on the desire of the world to end this conflict quickly. The Kremlin will find that calling off the invasion is the only way to ease the mounting, but not necessarily permanent, military and economic pressure it faces.

April 12, 2022

The horrible slaughter in Ukraine continues

Prince Michael of Liechtenstein

In the war in Ukraine, the center of gravity has moved away from Kyiv to the east and southeast of the country. However, this does not mean that Kyiv will not again become a target.

It is now clear that the Kremlin miscalculated. Unfortunately, instead of looking at the situation realistically and taking the appropriate measures, the Russian authorities have allowed the military to unleash severe brutality.

Economic measures have never proven effective against savagery. At the present stage, Moscow will only understand force.

Getting Russia to the negotiating table under acceptable conditions requires the West to show credible strength. That means military strength, and the least NATO can do is supply effective weapons systems – including offensive ones – probably through its members. It can neutralize Russia’s nuclear threat by promising to retaliate in kind.

During the war in Iraq, the United States declared a no-fly zone over the entire country, since the enemy was comparatively weak. In the current conflict, it is a big mistake to exclude such measures in advance. This war is not a pure military war anymore, it has degenerated into manslaughter.

April 5, 2022

How Western Europe’s lack of policies helped get us here

Prince Michael of Liechtenstein

This past weekend, we learned that a terrible massacre had occurred in Bucha, a city about 24 kilometers outside Kyiv. The evidence suggests that the Russian army killed hundreds of civilians there during its occupation and retreat. The enormous outrage this has created is justified.

Ukrainian President Volodymyr Zelenskiy invited former German Chancellor Angela Merkel and former French President Nicolas Sarkozy to inspect the site. His argument – which is correct – is that these two leaders’ policies helped to create this war.

It is true that Germany’s past neglect of its defense contributed to Russian assertiveness: Moscow knew very well that Europe was neither ready nor willing to fight militarily. As GIS pointed out years ago, a better response to the occupation of Crimea and the Donbas region would have been efficient investments by Germany in defense, instead of just such lukewarm sanctions.

The irresponsible decision by Chancellor Merkel’s government in 2011 to discontinue nuclear energy led to a high dependence on Russian gas. This dependence means the current, stronger sanctions against Russia will be short-lived. Although Ms. Merkel said that Nord Stream 2 was just a business decision, it was in fact very political.

It is certainly necessary to have relationships with Russia, but as long as Europe cannot reach the same level in matters of defense, it will have a weak position.

April 1, 2022

Long-term opportunities for Ukraine

Prince Michael of Liechtenstein

With its armed forces putting up a courageous fight and its people coming together to support their country, Ukraine is experiencing a unifying moment. Most of its population is made up of either native Ukrainian or Russian speakers. When it comes to the degree of resistance to Russia’s military aggression, there is no difference between these two linguistic groups.

When peace finally comes – hopefully, it is not too far away – this unifying experience could provide a foundation for successful reforms. A postwar government could have broad popular support, which it could use to reduce the country’s oversized bureaucracy, transforming it into an efficient civil service and administration. As reforms in Georgia have proven, such an initiative could go a long way toward solving the country’s biggest problem: pervasive corruption.

Ukraine has well-educated, diligent people, and the potential to be a rich country. Due to excessive bureaucracy and high levels of corruption, it has so far not managed to attain the prosperity its citizens deserve.

March 23, 2022

What Europe can learn from Ukraine

Prince Michael of Liechtenstein

The brave resistance of the Ukrainian people and the determination of their president, Volodymyr Zelenskiy, have aroused a lot of admiration throughout Europe. Refugees have been received in a very friendly and open manner. Sanctions on Russia are continually being ratcheted up.

However, some unnecessary animosity against Russia has also appeared. For instance, a university in Milan halted courses on Fyodor Dostoevsky because he was Russian. Some in Europe have implemented anti-Russian measures without making a distinction between factors that are related to the war and those that are not.

Years of prosperity have led Europeans to worry about minor matters. Gender issues and cancel culture, for example, have recently dominated the headlines and had an outsize influence on politics. Europe needs a call to respect traditions and to recognize that European heritage has brought us freedom and prosperity.

It is worth pushing back against the tendency to misjudge Christianity and Europe’s past. The liberal ideals of freedom and self-responsibility, as well as the protection of life and property, all derive from the Christian tradition.

The Ukraine crisis should be a wake-up call for Europe. It has revealed the foundation of our values and shown us that they are worth fighting for. To deserve peace means to be willing to fight for it.

March 18, 2022

A lesson for Russia

Prince Michael of Liechtenstein

If we are to analyze the reasons for, and the results of, the war in Ukraine, we need to find the causes – which does not mean we want to justify the invasion.

Like many autocrats, Russian President Vladimir Putin tolerated corruption among the people who surround him to ensure their loyalty and dependence. Contrary to popular belief, he is not necessarily enriching himself.

He likely lost control of the extent of the corruption, especially in his country’s defense sector. The Russian army’s inability to take over Ukraine quickly after the invasion must have come as a shock to him. It was a misjudgment, probably based on faulty information.

Due to the corruption, the Russian military had poor-quality equipment, less-than-ideal training and low morale. A major mistake in the information President Putin received is how determined the Ukrainians would be. Another was the status of Russia’s defense forces.

This week, he denounced “national traitors,” especially those who are earning money in Russia but are living in the West, “who have a villa in Miami or the French Riviera, who cannot do without foie gras.”

The leaders in the Kremlin might try to get out of the trap typical to autocrats and sometimes technocrats of surrounding themselves with irresponsible “yes men” who only offer them the information they want to hear.

March 16, 2022

A ray of hope

Prince Michael of Liechtenstein

Kyiv and Moscow are continuing talks and keeping open the possibility for further dialogue. This is already a good sign, and for the first time, yesterday, President Zelenskiy mentioned that these talks have become more substantive.  

Both sides must still strengthen their positions. Ukraine is bravely continuing its resistance, while Russia persists in its attacks. 

The battlefield positions are not changing much. The destruction, misery and casualties are terrible. Ukraine’s strength is in the determination of its armed forces and its people. Russia’s is in its potential for escalation. In fact, Russia has already escalated the conflict significantly and has recently brought in mercenaries to help its efforts.  

A further escalation was Russia’s limitation of its food exports. The resulting food price inflation is a problem for the West. However, the bigger problems will be in Africa and the Middle East, severely hit by the rising costs and shortages. This could also create migratory pressure toward Europe. 

If we take an optimistic view, we can see the strengthening of both countries’ positions as setting the stage for more negotiations in the short term. Those talks could then open up further opportunities for a resolution. 

March 11, 2022

Ukraine and European priorities

Prince Michael of Liechtenstein

The Russian invasion of Ukraine abruptly transformed attitudes and policies in Europe. Several shocks have occurred that have forced countries to reconsider their priorities. 

The first shock for many – especially younger people in Europe – was that war is possible. Attitudes toward defense have changed completely. 

Most see a possible energy crisis as a critical challenge to European prosperity. Such a crisis would not only mean a rise in energy prices, but also a threat to energy security.  

If the supply of energy to Europe were cut off, it would be a severe blow, and could show just how vulnerable highly developed economies can become. Even short blackouts can have long-term effects, hindering the delivery of essential goods. Civil protection throughout the continent should be strengthened. 

The looming danger of an energy crisis also shows how important collaboration and integration are in Europe. However, that integration must be limited to areas where it is strictly necessary. Countries cannot afford to engage in unnecessary harmonization. 

Europe indulged in the luxury of trying to enforce a value standard. That standard did not always include – and sometimes even neglected – the core values of individual freedom, self-responsibility, the right to life and property rights.  

And while checks and balances on power are necessary, European structures (as well as leaders and the media) issued moral judgments against members like Poland and Hungary, while ignoring deficiencies in other countries. Poland was highly criticized for its policies on refugees. Now, however, it is showing a type of generosity not seen in 50 years.  

We can only hope that while supporting Ukraine, Europe will realize that it is necessary to concentrate on core priorities and forget about exaggerating problems about which it is a luxury to worry. Only on this basis can Europe defend its freedom, which could also give a greater sense of security to Ukraine, Georgia, Moldova and the Baltic states.

March 9, 2022

The coming food security challenge

Prince Michael of Liechtenstein

There is a lot of talk these days about Europe’s future energy supply, mainly natural gas. Spot prices for oil and gas continue to see drastic increases. Supply remains constrained: Russia will be cut off from many markets, Saudi Arabia has not yet increased its output and the future of Iranian production is up in the air. 

There is less talk about the effect of the Ukraine crisis on global food markets, though it is even more important. Ukraine is one of the world’s main exporters of wheat and corn, as well as sunflower oil. Sunflower oil is a key frying oil and is used in many prepared foods. The war has hampered not only cultivation, but also shipping of this resource, since many of the country’s ports are now part of a war zone.  

Before the conflict, food prices were already increasing; now that situation will accelerate. Higher food prices could lead to significant unrest and instability in regions like India, Africa and the Middle East. We also have to acknowledge that Russia – now under severe sanctions from many countries – is also one of the world’s main exporters of grain. While it remains crucial that we use all means possible to stop the aggression, we must face the consequences of doing so with realism. We will need to find alternatives to mitigate the pain that high food prices will cause. 

In this context, it is a pity that Argentina and some other large food exporters have implemented socialist policies that reduce the efficiency of their agriculture sectors. It is also a shame that pressure to use biofuels – often produced from crops that would otherwise be sold as food – is reducing the availability of essential foodstuffs on global markets. Organizations like the International Energy Agency promote using biofuels as a means to reduce climate change, but the issue needs to be rethought. 

March 7, 2022

The importance of mediation

Prince Michael of Liechtenstein

The increasing brutality of the war in Ukraine is shocking, bringing to mind images of the Chechen war and the destruction of Grozny. 

At the beginning, it was clear that Moscow intended to take Ukraine via “blitz,” rapidly removing the government and doing little harm to the civilian population. That strategy overlooked the patriotism and bravery of the Ukrainian armed forces, government and people.  

Now the Kremlin has a dilemma. It will be difficult for Russia to extricate itself from this war, but domestically it will also be hard to justify the brutality against populations that according to President Putin are “ethnically Russian.” This is a key difference compared to the war in Chechnya, when Russians were appalled by Chechen terrorist activities in their country.  

Developments could accelerate quickly now that both sides have decided to use mercenaries. Such troops are difficult to control.  

More importantly, leaders like Israeli Prime Minister Naftali Bennett are trying to mediate the conflict. Mediation can help achieve the crucial goals of getting Russian troops to retreat and reestablishing Ukraine’s sovereignty. 

The Russian population will likely understand that its troops cannot become entrenched in Ukraine indefinitely. In this context it must be made clear that the present invasion is unacceptable, but also that Russia as a country will remain a respected major member of the international community once its forces have retreated. 

March 4, 2022

Taking the long-term view

Prince Michael of Liechtenstein

It appears that Russia is serious about advancing further in Ukraine. It will be difficult for Moscow to back down now: the propaganda it has used – calling the Ukrainian government and military “Nazis,” as well as its declarations that it will “demilitarize” the country – makes it difficult to justify not taking control over the entire country.

We can hope that the ongoing negotiations will at least succeed in establishing corridors of safe passage for civilians. Unfortunately, we will have to prepare ourselves for the reality that this war will continue for some time. This will mean more activities by paramilitary groups on both sides, potentially causing the situation to spiral further out of control.

The bravery of Ukraine’s armed forces and the patriotism of its people are impressive. They deserve help. Lofty words – like U.S. President Joe Biden’s a few days ago – are not enough. They must be backed by action. Demonstrations around the world and displays of sympathy on social media are nice, but ultimately ineffective.

European countries must stay strong and show determination to improve their defense and prepare their economies for a possible energy crisis. The openness to refugees is reassuring. Now, however, it is important to support Ukraine’s defense, find a way to keep what is left of its economy standing, and assure the delivery of food and medical services. All of this will require specific, targeted action.

In the long term, Ukraine’s future will hinge on rebuilding its economy and allowing most refugees to return. That so many people are leaving Ukraine is not only a human tragedy, it represents a massive brain drain.

March 3, 2022

Preparing for the long-term consequences

Prince Michael of Liechtenstein

Moscow’s isolation is increasing. However, because Europe – especially Germany – still depends on Russia for energy, the SWIFT channels that allow countries to pay for those supplies are still open. 

Europe must be prepared for very high energy costs and for an additional bout of inflation. This is the price to be paid for some countries’ ill-fated energy policies. Shutting down nuclear power generation did not only hurt the environment by increasing the reliance on fossil fuels, it was also an exercise in virtue-signaling that may become very difficult to afford. Failed politics and insufficient defense of Europe have brought us to this point. 

The crisis will have other repercussions. Russia and Ukraine are two of the world’s largest producers and exporters of essential food products. Food prices will rise. We will have to adjust to these new realities, and they should not be used as an excuse to allow aggression. 

Preparing for the consequences of the current crisis and finding alternatives will allow us to apply policies that take a long-term view. This is the only way to find satisfactory solutions for Ukraine’s independence and future European relations with Russia based on mutual respect. 

March 2, 2022

Ukraine and the European Union

Prince Michael of Liechtenstein

A few days ago European Commission President Ursula von der Leyen proposed European Union membership for Ukraine. Understandably, Ukrainian President Volodymyr Zelenskiy picked up on this and requested that the bloc immediately grant his country accession under a “special procedure.” Eventual EU membership for Ukraine is worth discussing, but there is a danger in overpromising.

Back in 2014, during the Euromaidan protests in Ukraine, several Western politicians implied that there was hope for EU membership. Little progress was made – for justified reasons, though Kyiv was disappointed.

It is questionable whether it is the European Commission’s role to offer such hopes. We must not forget that the Commission is the EU’s executive body, not its decision-making one – that is the job of the European Council.

Instead of making grandiose, feel-good statements about where Ukraine belongs in the long term, it would be better to find ways to help Ukraine and end the bloodshed.

In 2006, Archduke Otto von Habsburg, a longtime member of the European Parliament, wrote this request to that body: “If economic difficulties persist that prevent the Ukraine from adhering to the Copenhagen criteria, an immediate partnership should be granted Kyiv with a view to obtaining the status of a membership candidate. This would show Russia that the Ukraine belongs to Europe and that one is not ready to betray friend and partner because of pressure from Moscow.

In 2006, this was a long-term view. The goal of Ukrainian membership will not be achieved by raising expectations. We know how long accession negotiations take. Now is the moment that pragmatic solutions need to be achieved, to end the bloodshed and destruction.

March 1, 2022

Refugees

Prince Michael of Liechtenstein

Refugees from the war in Ukraine have begun arriving by the tens of thousands, primarily in Poland but also in neighboring countries. For now, those fleeing the war are mostly women, children and the elderly, while the able-bodied men are staying to keep the country’s essential services running and to volunteer in the defense of their land. 

It is impossible to know how bad this conflict will get or how long it will last – the number of refugees could still increase greatly. Hopes are high that eventually, they will be able to return. Their situation seems temporary.

When the Soviets crushed the Hungarian Revolution of 1956, nearly 200,000 refugees fled to Austria. They had little hope of going back to their homeland. They were warmly welcomed and continued on to various countries in Europe and North America. Some 20 percent remained in Austria. The welcoming spirit remained, and they were quickly integrated into the society and labor market. They were keen to be active.

Today, Ukrainian refugees are also receiving a warm welcome. They often have relatives in neighboring countries. They share cultural similarities with most of the peoples in Europe. If they have to stay longer, they will likely integrate without (take “too much” out) trouble. The situation with migrants from Africa and the Middle East is different. Difficulties in integration could have less predictable effects on society and the economy. 

Now, the challenge is mainly to provide the basic necessities for the refugees: food, shelter and medical treatment, as well as schooling for the children. By the way Poland handles the situation well and generously. It also appears that large numbers of Ukrainians will be absorbed into the rest of Europe. Families are already keen to welcome these unfortunate people in their time of hardship.

February 28, 2022

Western armament and cyber defense

Prince Michael of Liechtenstein

Despite warnings from American intelligence agencies and others, Russia’s full-scale invasion of Ukraine took many by surprise. The Kremlin, however, seems even more shocked by the resistance it has encountered. The Russian leadership appears to have greatly underestimated the determination and bravery of the Ukrainian people, its armed forces and its institutions.

The entire country is finding ways to support the fight. Volunteers are lining up to join militias, while others are helping the medical services or giving blood. Cities and towns across Ukraine are preparing to receive the invaders with Molotov cocktails.

The “blitz” with which the Kremlin sought a quick victory, did not work. Its military operation is already bogged down. Though the blame for the conflict lies with Russia, Europe – and especially Germany – bear some responsibility, since they have been unwilling to invest in defense for years.

During former Chancellor Angela Merkel’s 16 years in office, Germany neglected its defense. Until four days ago, the Scholz government was not ready to support Ukraine effectively. Military attacks cannot be avoided by sanctions, but only by preparedness. This has been one of GIS’s main messages for 10 years.

Germany has now decided to support Ukraine and has also announced that it will dedicate additional 100 billion euros in its defense budget. We hope that these funds will be used more effectively than in the past. The problem is that even with a lot of money, the Bundeswehr’s effectiveness will only increase over the long term. What Europe should do now, besides support Ukraine, is increase its civil protection and especially its cybersecurity.

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