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Cypriot-‘troika’ deal means that Cyprus is leaving eurozone in all but name

cyrpuseuro

Another late Sunday night in Brussels, another eurozone bailout plan for Cyprus — and it seems likely that the new deal between Cyprus president Nicos Anastasiades, and the ‘troika’ of the European Commission, the European Central Bank and the International Monetary Fund will endure much longer than last week’s disastrous plan, though capital controls to be implemented by the Republic of Cyprus’s government seem likely to lead to a backdoor eurozone exit for the nation of 1.15 million people.
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The Cypriot-troika deal in brief

The deal will shield depositors with under €100,000 in savings from a ‘haircut’ levy, but depositors with funds over €100,000 now face an even more painful result –what amounts to a haircut for depositors and creditors alike at the troubled Bank of Cyprus (the largest Cypriot bank), and an even deeper haircut for Laiki’s depositors and creditors, who will take huge losses as Laiki is wound down.  Laiki (also known as the Cyprus Popular Bank, the country’s second-largest bank) will be split into a ‘bad bank’ and a ‘good bank,’ the latter to be folded into the Bank of Cyprus.

All creditors at the Bank of Cyprus will see their interests restructured into a long-term equity interest and uninsured depositors will take an expected haircut of around 35% or 40%, with their deposits also held up for some time to come.

All the same, as Joseph Cotterill at FT Alphaville writes, the deal is better on two counts:

But there were two major injustices in the first Cyprus-Troika deal which made a mockery of the bail-in principle. Without debate, and upfront, it “taxed” depositors below the insured €100k limit alongside the uninsured. Then the tax was applied to either irrespective of bank. Why should small depositors in Barclays Nicosia or VTB Limassol take pain off large ones in Laiki or BoC, for instance. Well, finally, now we know. They shouldn’t have. The two unjust parts are gone.

Bonus points, I guess (if you’re a eurocrat), for structuring the deal in such a way that it can be implemented directly under Cyprus’s banking authority, so no need for another vote from the Cypriot parliament, which overwhelmingly rejected last week’s plan.  That plan featured a 6.75% levy on all depositors with savings under €100,000 in any Cypriot bank.  The parliamentary run-around, however, will only fuel the ‘democratic deficit’ hand-wringers throughout the European Union and breed resentment inside Cyprus and beyond.

The worst of the Irish and Icelandic precedents

Though the deal is ostensibly narrowed to focus on Cyprus’s two largest banks, and it’s better than last week’s plan, the deal essentially features the worst elements of the Irish and Icelandic examples.

Like Iceland, some of the Cypriot banking sector will be allowed to fail — Laiki’s uninsured depositors are out of luck, no matter whether they are Russian or Cypriot or whatever.  That’s exactly how Iceland approached its banking sector failure.

But unlike Iceland, Cyprus does not control its own monetary policy, so it won’t be able to devalue its currency and take the kind of independent monetary policy steps to rebalance its economy in the way that Iceland has.  Though Iceland is no longer the financial center it was before 2008, it has returned to GDP growth (around 3% in 2011 and 2.5% in 2012) and features relatively low unemployment — just 5.3% as of November 2012.  In contrast, Cyprus remains trapped in the ECB monetary policy straitjacket.

But like Ireland, the rest of the Cypriot banking sector will be essentially nationalized by the Cypriot government, with a European bailout that is likely to require additional bailout assistance and will come with increasingly stringent austerity measures that Cyprus’s government will be forced to take that will invariably depress its own GDP growth.  No one’s optimistic about Cyprus — it seems fated to suffer a fierce GDP contraction and a massive uptick in unemployment, joining Greece and Spain as one of the eurozone’s most troubled economies, no thanks to the Eurogroup’s clumsy policymaking.

Self-inflicted wounds to the European project

It’s worth repeating that the damage from the first Cyprus plan remains and cannot easily be reversed — Cyprus’s banking sector has now been decimated, probably permanently.  As one unsentimental Moscow economist put it, Cyprus’s beaches-and-banks economy is now just beaches.  The best hope for Cyprus’s economy is the rapid development of natural gas deposits that could bost its economy back after what will likely be a double-digit recession. But the ultimate scope and richness of those deposits are still unknown, and there’s no assurance that natural gas will be the country’s economic savior.

Brussels has so thoroughly undermined Anastasiades that he allegedly threatened to resign Sunday at one point, so it’s not clear how much legitimacy he’ll have in the next four years and 49 weeks of his five-year term, especially given that his own center-right party Democratic Rally (DISY, Δημοκρατικός Συναγερμός or Dimokratikós Sinayermós) controls just 20 of the 56 seats in the Cypriot House of Representatives (Βουλή των Αντιπροσώπων).

eurogroup

In addition to the obvious ammunition that eurozone leaders have handed to euroskeptics, no one in Spain or Italy or Slovakia or Latvia should be feeling very good these days about keeping their money in national banks, deposit insurance or not.  Already today, Jeroen Dijsselbloem, the newly elected president of the Eurogroup of eurozone finance ministers (pictured above with IMF managing director Christine Lagarde), has released a statement walking back earlier comments that appeared to hail the Cypriot bailout as a precedent for future deals.

It’s been a horrible start for Dijsselbloem, who succeeded Luxembourg prime minister Jean-Claude Juncker — Juncker has already (very gingerly) criticized the Eurogroup’s post-Juncker approach to Cyprus, and it’s hard to believe that Juncker would have made some of the more glaring errors that  Dijsselbloem has made — unlike Juncker, who was Luxembourg’s finance minister from 1989 to 2009 and has been prime minister since 1995, Dijsselbloem has served as the Dutch finance minister for barely over four months. It’s starting to look like the decision to appoint Dijsselbloem as a sort of compromise Eurogroup president (he’s a pro-growth member of the Dutch Labor Party who’s implementing an austerity regime in an otherwise budget-cutting government led by center-right prime minister Mark Rutte) may have been a poor one.

Capital controls are a backdoor Cypriot eurozone exit 

While it’s far from an original observation — more sophisticated financial commentators and economists have made the same point — the biggest takeaway from the weekend is that Cyprus has essentially been booted out of the eurozone, in large part due to the capitol controls that Cyprus looks set to enact tomorrow when banks in the country reopen — here’s a short summary of the menu of options from Yiannis Mouzakis, based on the capital control bill that Cyprus’s parliament passed over the weekend.  There’s optimism that the controls will be ‘very temporary,’ and will be somewhat lighter than originally feared, but it’s worth noting that Iceland’s controls are still in place even today, over four years after their imposition in late 2008.

The inescapable conclusion is that a ‘Cypriot euro’ is no longer the same thing as a euro throughout the rest of the eurozone.

As former banker Frances Coppola wrote over the weekend, the imposition of capital controls transforms Cyprus into something far short of an equal member of the eurozone:

Once full capital controls are imposed, a Euro in Cyprus will no longer be the same as a Euro anywhere else in the Euro area. It cannot leave the island. The Cyprus Euro will in effect be a new domestic currency. The imposition of capital controls in Cyprus is therefore the end of the single currency in its present form.  Continue reading Cypriot-‘troika’ deal means that Cyprus is leaving eurozone in all but name

What comes next for Cyprus and the EU following Friday’s haircut ‘bail-in’?

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So much for ‘nice Nic’ — it’s not that he’s reverted back to ‘nasty Nic’ so much as ‘nonessential Nic.’European_Unioncyprus_world_flag

Fifteen days after his inauguration as Cyprus’s new president, Nicos Anastasiades (pictured above, bottom), was forced into what’s now become a growing domestic, eurozone and international crisis when European Union and International Monetary Fund leaders presented Anastasiades with a €10 billion bailout package.

The catch, of which you’re almost certainly aware at this point, is that an additional €5.8 billion of savings will come in the form of a one-time levy on all bank accounts in Cyprus — deposits of  €100,000 will pay a 9.9% levy and deposits of under €100,000 will pay a 6.75% levy, even those deposits are insured by a system similar to the FDIC guarantee in the United States.  Senior bondholders won’t take a haircut.

So if you’re a hedge fund, for now at least, you’ll receive fully 100% of the face value of any debt you hold in Cypriot banks.  If you’re, say, a widowed Cypriot pensioner with €30,000 saved in a Cypriot bank, you’ll wake up Tuesday morning to find that you now have just €27,975.

It’s impossible to overstate just how politically explosive the plan was — in one fell swoop, Europe’s leaders have single-handedly done all of the following:

  • undermined the Cypriot presidential administration just days after it was elected with the support of those same European leaders and a promise by Anastasiades that any bailout would not include deposit haircuts;
  • provided ammunition to every euroskeptic in Europe from Beppe Grillo in Italy to Nigel Farage in the United Kingdom by reinforcing the notion that European institutions suffer from a lack of democratic legitimacy and gratuitously trample national sovereignty;
  • pulled the rug out from under the financial industry in Cyprus, essentially the only growing sector in the Cypriot economy;
  • handed to Cyprus’s parliament — where Anastasiades’s center-right Democratic Rally (DISY, Δημοκρατικός Συναγερμός or Dimokratikós Sinayermós), controls just 20 out of 56 seats — a strong reason to vote against the deal, thereby exacerbating the uncertainty throughout the week;
  • undermined the concept of deposit insurance throughout the entire eurozone;
  • by Europeanizing — or even internationalizing — what should have been a small matter in a country with a GDP ten times smaller than Greece’s, potentially initiated bank runs in Italy, Spain, and who knows where else throughout Europe;
  • needlessly antagonized Russia in the process, and may have provoked Russia into making a politically explosive counter-offer to Cyprus; and
  • probably did nothing to help Cyprus’s long-term economic outlook, because if the levy weren’t enough to depress Cypriot growth and undermine its banking industry, further austerity designed to reduce Cyprus’s public debt is certain to send Cyprus’s GDP swooning for some time to come.

That’s right — the first major decision of the Eurogroup of eurozone finance ministers since choosing as its president Jeroen Dijsselbloem, a center-left finance minister newly elected in the Netherlands just last autumn, is to demand an increase in the Cypriot corporate tax rate from 10% to 12.5% and a further increase on Cyprus’s savings tax.

That’s in addition to the deposit haircut that everyone’s mostly focused upon.

Anastasiades seems to have had very little option but to accept the deal, despite the fact that European leaders, including German chancellor Angela Merkel, actively supported his presidential bid in last month’s election:

[Anastasiades] spoke on Saturday of a ready-made decision imposed on Nicosia in the form of a blackmail: Take it or have the eurozone crumble….

In a written statement he issued on Saturday afternoon, Anastasiades said “Cyprus came across a previously made decision, a fait accompli.” In his defense he said that the emergency situation “did not arise in the last 15 days that we have undertaken the country’s administration.”

In the February 24 presidential runoff, Anastasiades won a landslide victory, with 57.48% of the vote to just 42.52% for health minister Stavros Malas, the candidate of the socialist Progressive Party of Working People (AKEL, Aνορθωτικό Κόμμα Εργαζόμενου Λαού or Anorthotikó Kómma Ergazómenou Laoú).  

Anastasiades, in an address to the nation Sunday night, meekly argued that depositors would nonetheless receive bank shares in return for the one-time assessment and remained optimistic that recently discovered natural gas deposits in Cyprus might well boost Cyprus’s banks in the near future.

ATM Cyprus

The political fallout for Cyprus 

To the extent domestic politics is to blame for the current Cypriot crisis, AKEL is far from blameless — it’s unclear whether Cypriots will fault Anastasiades less than half a month into his administration more than his predecessor, Demetris Christofias, the country’s president from 2008 until last month.

Christofias and European leaders opened talks in June 2012 to secure a bailout, and Christofias even began to implement some small reforms, including a 5% VAT on food and drugs and an increase in the bank levy and tobacco taxes, but fell far short of European demands to reform public employment, the public pension system, and privatization of state-run industries in a country where unemployment has now risen to 14.7%.

In addition, the bailout talks were particular complex for other factors, including the outsized amount of the Cypriot banking sector’s debt, tied in large part to the Greek debt crisis.  In addition, many Russian oligarchs have deposited money in Cyprus’s banks, and Cyprus has been scolded in the past for the facilitation of money laundering from less-than-pristine Russian sources.

With Merkel up for reelection in September, it would have hardly been palatable for her to push through a German-funded bailout of dodgy Russian depositors, which was apparent enough in the latest round:

Merkel’s Finance Minister Wolfgang Schäuble had gone to Brussels with a firm mandate from Berlin: “no bail-in, no bailout”, said a member of her government. That meant: unless depositors took a hit, there would be no agreement and Germany would not contribute towards a package for Cyprus.

So talks never quite progressed, and with Cyprus facing imminent sovereign default, Anastasiades came rather easily to office with a plan to renew those talks, though he repeatedly refused to accept a deposit haircut of the kind now being implemented.

Although today was a bank holiday in Cyprus, banks were initially set to close on Tuesday, but will now be closed until Thursday as well, as the Cypriot parliament has repeatedly delayed taking up debate on the Cypriot package.

Anastasiades’s DISY, as noted above, controls just 20 out of 56 elected seats in the Cypriot House of Representatives (Βουλή των Αντιπροσώπων) and AKEL controls 19.  The centrist Democratic Party (DIKO, Δημοκρατικό Κόμμα or Dimokratikó Kómma), which backed Anastasiades in the presidential race, controls another nine seats.  Three additional parties that largely supported the center-left, independent Giorgos Lillikas in the presidential election control an addition eight seats, including five by the Movement for Social Democracy (EDEK, Κίνημα Σοσιαλδημοκρατών or Kinima Sosialdimokraton).

That means that if AKEL, EDEK and other small parties oppose the deal, DISY and DIKO hold just of 29 votes, just enough to pass the Cypriot package without any defections.

Moreover, DIKO’s leader has already called for changes to the bailout legislation, and it looks increasingly like Anastasiades lacks the support to win a vote in parliament, which means that European leaders will have to renegotiate the previous deal.  It’s not clear how much time Cyprus has before its banks (or its government) become insolvent.

Cold War redux?

Meanwhile, Russian president Vladimir Putin denounced the decision as ‘unfair, unprofessional and dangerous.’

Russia hasn’t indicated whether it will extend or otherwise change the terms of an existing €2.5 billion loan to Cyprus — if Russia refuses to extend the loan for another five years, the Cypriot bailout will need to be even larger.  So there’s that.

I wouldn’t be surprised if Anastasiades and members of the Russian government are discussing an alternative to the current European-IMF plan — the Republic of Cyprus, which occupies the southern half of the island of Cyprus, is not a member of the North Atlantic Treaty Organization, and a €17 billion bailout would be a small price for Russia to pay in exchange for closer military ties or a Russian naval base on the island.

Perhaps even more tantalizing for Russia, and its state-owned natural gas company Gazprom, are newly discovered natural gas deposits that Cyprus hopes will fuel future economic growth.  Indeed, there are already vague reports of a Russian counteroffer — the official Russian news agency seems to indicate that emergency talks have now been initiated:

Russia’s Gazprom has not offered the Republic of Cyprus financial assistance in restructuring the country’s banks in exchange for the right to gas production in the exclusive economic zone of Cyprus. Gazprombank initiated this offer, a spokesman for the gas giant told Tass.

That result would cause dismay among the United States and its European and NATO allies which, by the way, includes Turkey.  Turkey has occupied the northern half of the island of Cyprus since the 1970s — the Turkish Republic of Northern Cyprus declared its independence from the Greek Cypriot republic to the south in 1983, and the two have remained divided ever since.  So what’s an economic crisis and a domestic political crisis could also become a geopolitical security crisis soon enough.

The economic and political fallout for the eurozone

Reaction from economic commentators has been essentially universally negative since news broke early last weekend. Continue reading What comes next for Cyprus and the EU following Friday’s haircut ‘bail-in’?

Red October? Four autumn elections boost Moscow’s influence in Russian ‘near-abroad’

It’s been a good October for Moscow.

In each of the four former Soviet republics with elections scheduled for late September and October 2012 (Belarus, Georgia, Lithuania and Ukraine), Russia has reason to believe that its relations with each such country will strengthen.  The elections have ranged in character from incredibly free, open and fair to completely rigged, and the countries fall across the spectrum of geography, economics and political development.

The one factor they have in common is the success of political leaders who aim to nudge their country’s foreign relations some degree friendlier with Russia:

  • In Belarus on September 23, Alexander Lukashenko and his allies ‘won’ all of the seats in the House of Representatives in an unfair and unfree election.  Lukashenko, in power since 1994, is one of the most pro-Russian leaders among former Soviet republics; Belarus and Russia share very tight-knit economic ties, a common approach to rule of law and human rights (not particularly progressive), and Lukashenko has at various times contemplated bringing Belarus and Russia back into some form of union.  Belarus and Kazakhstan, for instance, joined a formal customs union with Russia in January 2012.
  • In Georgia on October 1, an opposition coalition led by Georgia’s richest man Bidzina Ivanishvili took control of the Georgian parliament from the party of Georgia’s president Mikheil Saakashvili.  Ivanishvili, an oligarch who made his fortune in the 1990s and 2000s in post-Soviet Russia, has argued that Georgia can remain committed to economic and democratic reforms and the rule of law and strive for better relations with Russia (though Ivanishvili says he’d still like to seek Georgian membership in the North Atlantic Treaty Organization).  Under Saakashvili, Russia imposed a trade ban on many Georgian exports, including wine, agricultural products and mineral water; in 2008, after provocation from Saakashvili, Russian president Vladimir Putin sent Russian troops to the breakway provinces of South Ossetia and Abkhazia, which remain occupied by Russian forces.
  • In Lithuania on October 14, in the first round of parliamentary elections, the Labour Party of Russian-born Viktor Uspaskich narrowly won the largest share of the vote and will likely form part of the next government coalition.  Uspaskich’s party also finished first in 2004, but since then, Uspaskich has been charged with corruption and spent parts of 2006 and 2007 in apparent hiding in Russia.  In any event, Uspaskich’s presence in the government could bring about more favorable relations with Russia, and it could possibly slow Lithuanian accession into the eurozone.
  • In Ukraine on October 28, pro-Russian president Viktor Yanukovych, who narrowly defeated the more pro-Western Yulia Tymoshenko in the 2010 election (who was promptly charged, tried and imprisoned on politically motivated charges relating to the 2009 pipeline crisis with Russia) is leading his largely united pro-Russian Party of Regions in parliamentary elections, while the various pro-Western political parties remain split.

This autumn’s elections follow the September 2011 Latvian parliamentary elections, in which the Harmony Centre party won the largest share of the vote, a watershed for a party that derives much of its support from ethnic Russians and which actually signed an electoral pact with Putin’s ‘United Russia’ party in 2009.  The result caused alarm in Washington and Brussels — Latvia joined NATO in 2004 along with Lithuania and Estonia, so a pro-Putin government in a NATO government would naturally be alarming.  But despite some legitimate doubts about Harmony Centre, its anti-austerity platform attracted even not just ethnic Russians, but ethnic Latvians, and it seems more interested in elevating Russian as an official language in Latvia (one-fourth of Latvia’s population speaks Russian) than reconstituting a political union with Russia. In any event, other Latvian parties united to keep Harmony Centre out of the government.

Although some Western media have already started pearl-clutching about this month’s elections, it’s important to keep some perspective — it’s not exactly the second coming of the Warsaw Pact.

Putin, in 2011 as Russian prime minister, proposed a ‘Eurasian Union,’ although it’s unclear whether that has any chance of succeeding — the Commonwealth of Independent States, which incorporates nine of the 15 former Soviet republics, has not exactly prospered (and ask former French president Nicolas Sarkozy how his proposed ‘Mediterranean Union’ is doing).  In recent years, Russia has reduced energy subsidies to Ukraine and Belarus, despite clearly pro-Putin governments, and it took a curiously lackadaisical approach to the 2010 coup in Kyrgyzstan.  Except for perhaps Belarus, none of the Soviet republics seem to have the stomach to return to a ‘Soviet Union light’ alliance with Russia.

Rather, there’s a more pragmatic realization in the former Soviet republics that even if Russia isn’t quite the superpower that it was in the 20th century, the inevitability of geography suggests that it will continue to exert some influence, for good or for ill, in its ‘near-abroad’ — in terms of economics, energy, security, and in some cases, continued cultural and political ties.  As the Cold War recedes further into history, though, it’s becoming less necessary to think of having to choose between ‘the West’ and Russia as a binary matter.  If former Soviet republics overlearned the lessons of 1990 and 1991, perhaps they are now learning the countervailing lessons of Saakashvili’s mistakes — needlessly antagonizing Russia (not to mention ethnic Russians within former Soviet republics) is probably counterproductive, even for more pro-reform, pro-Western leaders.

Continue reading Red October? Four autumn elections boost Moscow’s influence in Russian ‘near-abroad’

Putin inaugurated for third term, announces Medvedev as PM, amid Moscow protests

Vladimir Putin was sworn in as president today, amid protests across Moscow, following his election on March 4 in a vote widely seen as problematic and fraudulent.

Putin, whose term will run through 2018, also appointed former president Dmitri Medvedev as his prime minister — the appointment had been expected, but was not entirely certain.  Medvedev served as prime minister previously under Putin until his election in 2008 as president.  Putin, in turn, had served as prime minister during the entirety of Medvedev’s presidency.

Perhaps the more important story, however, are ongoing protests in Moscow, which flared over the weekend and drew tens of thousands in protest of Putin’s inauguration:

A number of demonstrators were injured by riot police, who wielded batons in clearing crowds from Bolotnaya Ploshchad, the site of a planned opposition rally Sunday evening to protest Monday’s presidential inauguration. Seventeen people requested medical care for injuries sustained during the event, a hospital source told Interfax.  Around 450 protesters and opposition leaders Alexei Navalny and Sergei Udaltsov were arrested, police said….

Despite the event’s ambitious name, “March of Millions,” organizers did not expect Sunday’s event to draw the estimated tens of thousands who attended.  City Hall had given advance approval for 5,000 participants to take part in the march  and rally.

Protestors came out in force after last December’s blatantly fraudulent parliamentary elections, as well as in the days leading up to and immediately following the March 4 presidential vote, although a show of force on the streets of Moscow on March 5 had appeared to stall the momentum from any such protests — until this weekend.

Ironically, as police were clashing with protestors who were demanding a more democratic Russia, Putin promised in his short inauguration speech to ‘strengthen Russian democracy.’

 

Next steps for the Russian opposition?

 

In the wake of Vladimir Putin’s outsized 64% win in the first round of the Russian presidential election earlier this month, the initial protests against likely fraud — and fraud in December’s legislative elections — have fizzled as Putin and the Russian government quickly made clear they had little appetite for too much protest, deploying a near-military police presence throughout Moscow.

In the subsequent weeks, however, third-place finisher billionaire Mikhail Prokhorov (pictured above, middle) has made good on his promise to keep up the pressure for a more democratic Russia — and appears to be teaming with former Russian finance minister Alexei Kudrin (pictured above, at top) in that effort, leading some amount of credibility to his efforts.

Prokhorov’s campaign was greeted with a healthy amount of skepticism; Prokhorov had previously been on fairly good terms with the Kremlin and his was one of very few candidacies permitted to proceed (unlike longtime liberal reformer Grigory Yavlinksy, who was alleged not to have gathered up enough signatures in the runup to the presidential vote).  Since the election, Prokhorov has also ruled out serving in any future Putin cabinet as well.

Kudrin resigned as finance minister last September over a fight with President Dmitry Medvedev over budget issues, having previously served in the role since 2000.  Kudrin presided over the economic boom that lifted Russia out of the dire economic conditions of the 1990s.  Indeed, notwithstanding the turbulence of the financial crisis in 2008 and onwards, Russia today remains in much better economic condition than in the 1990s in no small part due to Kudrin’s stewardship.  In his 11 years as finance minister, Kudrin prioritized the repayment of Russian’s significant foreign debt accumulated in the 1990s and steered wealth from the oil boom of the mid-2000s into a stabilization fund for Russia.  At a time when Russia became politically more ostracized from the United States and Europe, and as the Putin-Medvedev regime became disturbingly less tolerant of dissent and less respectful of democratic norms and freedoms, Kudrin’s prudence as finance minister won plaudits from global investors.

Since his resignation, Kudrin has expressed enthusiasm in working with Yavlinsky (picture above, at bottom) to consolidate the liberal movement in Russia, supported the protest movement in the wake of December parliamentary elections and established a fund to promote democratic reforms in Russia.

Prokhorov, who owes his fortune to the sale of his share in Russia’s largest nickel mining operation and who owns the New Jersey Nets, could bring a lot of financial firepower to the Kudrin effort and a potentially young, energetic and popular face to the liberal movement — he finished second to Putin in Moscow and St. Petersburg.

The troika of Kudrin, Yavlinsky and Prokhorov would be perhaps the strongest pro-democracy front in Russia’s post-Soviet history and would present a center-right opposition against both Putin’s siloviki state of former military and security officers and the dwindling leftist movement led by the Communist Party (its perennial presidential candidate, Gennady Zyuganov, finished second and attracted almost 20% of voters). Continue reading Next steps for the Russian opposition?

Largest street protests in Moscow since the Soviet Union’s fall?

UPDATE (1:15 pm ET): Alexey Navalny (@navalny), a top blogger and critic of the Putin regime, has been arrested in Moscow.

Protestors are gathering on Pushkin Square in Moscow against widespread fraud in yesterday’s Russian presidential election for what could be the largest anti-government movement since the fall of the Soviet Union.  Former Guardian Moscow correspondent Luke Harding has called this moment newly restored President Vladimir Putin’s “Brezhnev moment,” the moment where Putin stops bearing any semblance to a truly elected leader:

Sunday night was Vladimir Putin’s Brezhnev moment. It was when he ceased simply being an elected leader and segued towards a lifetime presidency. Having neatly sidestepped the rules by doing a stint as prime minister (no Russian leader can serve more than two consecutive presidential terms) Putin can now go on and on. Brezhnev did 18 years, Stalin 31. Despite the whispers of revolution lapping at the Kremlin’s walls, who would bet against Vladimir matching Leonid?

Julia Ioffe has a thoughtful column in Foreign Policy today that sets forth the fundamental choice that Putin will have to make in the days ahead in response:

What Putin decides to do come March 5 is “the central question, not because Putin decides everything in politics on March 5 but precisely because he can no longer decide everything himself,” says political consultant Gleb Pavlovsky, who worked on Putin’s 2000 presidential campaign but was fired by the Kremlin in the last year. “It’s become a very complicated scene.” The way Pavlovsky sees it, there are two possible paths: modernize and reform the political system or “play the tsar.” The first option is the more difficult one, but should Putin choose the second door, Pavlovsky predicts, “He’ll become a prisoner of his own system, completely out of touch with reality, locked in the Kremlin and with his minions ruling in his name. And this is the worst possible outcome.”

I would put it in even starker terms: if the protests gather the kind of momentum that’s being expected, Putin will have to choose between Iran 2009 and Tunisia 2011.  Putin can “play the tsar” (which is much the same in this context as playing the ayatollah) and use brute force to kill, imprison and scare away the opposition, but in doing so will only delegitimize his regime further in the eyes of the opposition, of the international community and within the Russian elite.  Putin can compromise with the opposition, but risks a slippery-slope that leads to his downfall (much like deposed Tunisian president Zine El Abidine Ben Ali) or, at the very least, the kind of embarrassing electoral re-run that occurred in 2004 after the fraudulent Ukrainian elections spawned the “Orange Revolution.”

Either result would sharply reduce Putin’s current position of strength, which should make the next 12 hours fascinating for Kremlinologists.

In the meanwhile, as protests are scheduled to get underway, we have an indication of what the future might hold:

 

Official Russia results

Official results are in from Russia’s Central Election Commission, notwithstanding reports of massive fraud, as reported widely on Sunday — including the use of “carousels” of voters bussed from one voting district to another with the purpose of casting multiple votes.

To no one’s surprise, the results make clear that Vladimir Putin will be returning to the Kremlin after just the first round of the presidential election, and Putin tearfully declared victory in a Sunday night victory rally.  Putin’s campaign manager Stanislav Govorukhin said the election was the “cleanest in the history of Russia,” notwithstanding thousands of individual reports of fraud.

As previously noted by commentators inside and outside Russia, however, the key question was not the election result, but rather how the Russian populace responds in the coming days, weeks and months to the victory and how the Kremlin, in turn, responds to any protests.

The Moscow Times notes that protests against fraud in both Duma and presidential elections are likely to continue through the summer. It predicts that while President-elect Putin may keep his promise to appoint outgoing president Dmitry Medvedev as prime minister, he could quickly replace him with former finance minister Alexei Kudrin, who has threatened to form a new liberal party in Russia.  Such a move could be seen as a concession to reformers.  Although it seems unlikely that Putin would allow Duma elections to be run again, it is conceivable that he might permit the direct election of state governors, a practice curtailed in 2004 in favor of Putin’s appointment of regional governors in the name of anti-terrorism and state security.

In The Moscow Times live blog of the vote returns, it notes a turnout of 99.59% in Chechnya, the one-time breakaway province that’s been the subject of much brutal force directed from Putin and Boris Yeltsin before him.  Astonishingly, 99.73 of Chechen voters have supported Putin.

In Moscow, Putin was held to under 50% of the vote, with just 48.25% to Prokhorov’s 19.39% and Communist Party leader Gennady Zyuganov’s 18.96%. Prokhorov threw a party in Moscow Sunday, and declared “victory,” but was remained uncommitted to attending any rallies in protest of the vote on Monday.

Putin 2018: Looking beyond Sunday’s election

The Economist‘s cover story this week features “The Beginning of the End of Putin,” with a thoughtful piece looking beyond Sunday’s election and a companion piece about how different Russia is today from the Russia that first elected Putin in 2000 — it is presumed that Putin will win, likely in the first round, and likely with some amount of electoral fraud, which was so comically and blatantly deployed in the December 2011 parliamentary elections to the Duma.

Meanwhile, on the eve of the election, there’s some doubt as to whether Putin will countenance any of the rising protests of the Russia middle class:

  • Putin is already making noises about running for reelection in 2018, which would keep him in office until 2024.
  • He’s refused to a re-run of the Duma elections from December, which were notoriously fraud ridden, sometime to comic effect, as shown in clips on YouTube.
  • News reports have placed in doubt whether current President Dmitri Medvedev, one time a proponent of more liberal reforms in Russia, will return to the prime minister’s office when Putin returns to the Kremlin.

All of which means that the popular response to Sunday’s vote matters more than the actual vote itself.

The fundamental question is not whether the inevitable Russian protests following the vote will grow, but whether the standoff will end like in Iran in 2009 or Tunisia in 2011. Stay tuned.

Kremlin Kops or Keystone Kops?

After a weekend in which anti-Putin protestors united in a ring of defiance around the Kremlin, truly wacky reports have surfaced of a potential assassination plot against Prime Minister and presidential candidate Vladimir Putin, stymied by Ukrainian security forces:

The Russian prime minister’s press secretary, Dmitry Peskov, told the BBC “this was absolutely a plot to kill the prime minister.”

It seems not outside the realm of possibility that Ukraine’s government, which is currently controlled by pro-Russian factions under pro-Russian president Viktor Yanukovych, could be convinced to help legitimize the gravity of the plot.  Certainly, the Kremlin ploy helps to distract, in part, from anti-Putin protests just six days in advance of the first round of Russia’s presidential election.

In a piece in The Guardian yesterday, Russian oligarch Mikhail Khodorkovsky, who was jailed by Putin a decade ago and removed as CEO of Yukos Oil, advocates a vote for any of the four opponents to Putin, thereby forcing Putin into a second-round runoff vote.  He compares the recent grassroots protests against Putin to the Arab Spring protests of 2011 that toppled dictators in Tunisia and Egypt:

By forcing a second round we will push our country down the path of positive change. Presidential power that previously answered to no one would have to start listening to the people it serves. The state that until now took the monopolistic presidential power for granted would be more wary of its hold and start moderating its behaviour. The politicians who gathered the opposition votes could become a force to be reckoned with, a voice for articulating the thoughts and views that have been ignored before. The establishment would have to start negotiating with the opposition and an evolutionary transition could meaningfully begin. Continue reading Kremlin Kops or Keystone Kops?

More evidence of Prokhorov’s seriousness

Not to be outdone by Putin’s sexy ads targeting younger Russian voters, Mikhail Prokhorov campaigns in rap yesterday in Russia.  If neither the New Jersey Nets and the presidential election don’t work out for Prokhorov, maybe he should team up with Jay-Z?

With the latest survey showing that Putin will win the first round of the March 4 presidential election with 66% of the vote (with Communist Party rival Gennady Zyuganov picking up just 15% of the vote for second place), it’s becoming clearer than ever that Prokhorov is not the serious candidate he perhaps once claimed.

The new Putin (or maybe, the new Medvedev)

Reuters today profiles the man it calls the brains behind the Putin campaign: Vyacheslav Volodin, currently Russia’s deputy prime minister.

The profile provides a wealth of information on Volodin, who is sure to remain a key player for the foreseeable future in Kremlin politics — the profile goes so far as to compare him to Stalin’s key aide Vyacheslav Molotov.

With Putin all but sure to win the “election” on March 4, and with the length of the presidential term extended to six years, I wouldn’t bet too many rubles on Volodin surviving the Kremlin gauntlet until 2018 (or longer). Until August 1999, no one had even heard of Vladimir Putin, who served as Boris Yeltsin’s prime minister for five uneventful months before Yeltsin announced his resignation and tacit support for Putin’s candidacy in the presidential election to follow in May 2000. So file this one alongside those speculation pieces on the 2016 US presidential race. Continue reading The new Putin (or maybe, the new Medvedev)

Glasnost ghost

 

 

 

 

 

Mikhail Gorbachev is speaking out on the Russian “election”, advocating for a transition from the Putin era to a new, more democratic era.  Gorbachev, in speaking to Moscow students earlier, called out the upcoming election for what it is — a sham affair with only window-dressing opposition.  Gorbachev predicted a Putin win, but implored for a transition to democracy from a regime that is “exhausted.” Continue reading Glasnost ghost

Putinocracy, 2.0

Vladimir Putin has penned an article in Kommersant today outlining his vision of Russian democracy.  Just try to make it through the opening lines and not laugh:

Real democracy cannot be created overnight and cannot be a carbon copy of some external example. Society must be completely ready for using democratic mechanisms. The majority of people must see themselves as citizens of their country, ready to devote their attention, time and efforts on a regular basis to taking part in the process of governance. In other words, democracy is effective only when people are ready to invest something in it.

If ever a public official neither willing nor ready to invest in democracy, it’s Vladimir Vladimirovich Putin. Continue reading Putinocracy, 2.0