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Cyprus, European Union

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

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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 →

Cyprus, European Union

Cypriot parliament overwhelmingly rejects EU bailout terms, turns to Plan B

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Protesters take part in an anti-bailout rally outside the parliament in Nicosia

This was not surprising.

After a couple of delays, Cyprus’s 56-member House of Representatives (Βουλή των Αντιπροσώπων) has rejected the European Union-led bailout of Cyprus’s banks by a vote of 0 to 36, with 19 abstaining and one not present.European_Unioncyprus_world_flag

As I wrote yesterday, the parliamentary rejection became increasingly likely as the vote became delayed.

So where do things stand now?

The crisis continues to unfold in real time — although the bailout terms ( €10 billion loan to Cyprus, with an additional €5.8 billion to be raised by means of a haircut on all Cypriot depositors) were announced Friday night, Cypriot banks are now closed through at least Thursday while everyone scrambles for a Plan B.

The European Central Bank has, for now, agreed to continue ‘its commitment to provide liquidity as needed within the existing rules,’ but who know what that means?  The current crisis started over the weekend when the ECB threatened to pull that support.

Obviously, EU leaders and the International Monetary Fund will probably go back to the negotiating table with newly inaugurated Cypriot president Nicos Anastasiades to determine a new approach — the EU position now seems to be that they don’t care how Cyprus raises the €5.8 billion, so long as they raise it.  Essentially, that means some kind of rebalancing of the burden to be shared by depositors in Cyprus — that means perhaps raising the 9.9% levy on deposits over €100,000 and lowering the 6.75% levy on deposits under €100,000.

Meanwhile, there’s word that Cyprus and Russia are now in talks over, potentially, either a solution that involves Russia or Gazprom — Cypriot finance minister Michael Sarris actually flew to Moscow Tuesday, which indicates that the Cypriots and the Russians are extremely serious.

In this regard, today’s vote probably bought some crucial time to come up with a credible counter-offer from Moscow.  Russian president Vladimir Putin is, in particular, upset about the approach because around 22% of deposits in Cypriot banks are held by Russian citizens.  That, in fact, is one of the reasons why the EU was so wary of providing a full bailout to Cyprus over the weekend.  Russia has designs on future exploration of natural gas deposits in Cyprus, and it could also well have designs on a greater military presence in Cyprus as well.  All of this has profound geopolitical security implications — for the EU and Greek Cypriots, but also for Turkish Cypriots, the United States, and its NATO allies, including Turkey.

Whether Anastasiades is serious or not about the Russian alternative, it certainly gives him more negotiation leverage with the EU and the IMF, which could conceivably revert back to a full  €17 billion bailout, via the ‘troika’ or through the European Stability Mechanism, as Open Europe notes in a great post.

We’re also in such uncharted territory that if ‘EU Plan B’ or ‘Russia Plan B’ don’t work, then Plan C is pretty much a disorderly default that finds Cyprus tumbling out of the eurozone, with even greater pain for Cypriot savers, Russians depositors, and all of the holders of private and public Cypriot debt, to say nothing of the costs to the eurozone — now that EU minds from Brussels to Berlin to Helsinki have escalated the bailout into an international crisis, it could catalyze an entirely self-inflicted domino effect that would pretty rapidly bring the eurozone to 2008-crisis levels.

So let’s hope we don’t get to that, though with the United Kingdom airlifting €1 million in cash to Cyprus to cover military personnel unable to access their own funds and with Russian ultranationalist Vladimir Zhirinovsky mock-eulogizing private property in the EU, the Cypriot situation has already reached a pretty high crisis mode.

One question that I haven’t heard asked in the past 72 hours, and one I wish I had an answer: why hasn’t Moscow been involved in the Cypriot bailout talks from last June onward? It’s clear that there’s a Russian interest in an orderly bailout (or even selective default) for Cyprus and its debt-bloated banks.

Russia has already extended a €2.5 billion loan to Cyprus, and Cyprus and the EU are dependent on Russia’s rolling over than loan soon if the current EU-led bailout to have any chance of working.

Are the channels of communication between Brussels and Moscow really so poor?

All of this was predictable nine months ago.

Even if the EU ultimately blinks, it’s already done a lot of damage that it can’t well undo — it’s still the case that the EU has undermined Anastasiades just days into his administration, pretty much destroyed the short-term future of the Cypriot finance sector, undermined the concept of deposit insurance throughout the eurozone, given every euroskeptic on the continent a prime example of the anti-democratic nature of the EU project.

Above all, the Cypriot crisis has undermined global confidence in EU leaders at a time when most everyone was certain that the worst of the eurozone crisis was behind us.

The good news? No word of significant bank runs in Italy or Spain, though I’d love to see how much capital quietly leaves those two countries electronically in the two weeks following March 15.

Photo credit to Yorgos Karahalis of Reuters.

Cyprus, European Union

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

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nicenic

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’? →

Ukraine

More final thoughts on Ukraine’s election and Tymoshenko’s future

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It’s been a busy week, but it’s worth taking a moment to explore the results from Ukraine’s parliamentary election on October 28 in greater detail.

We have a final set of preliminary numbers now, which lines up with what exit polls had forecasted after polls closed Sunday night — the governing pro-Russian party of president Viktor Yanukovych, the Party of Regions (Партія регіонів), won just 30.08% of the vote, but it will take 42% of the seats in the 450-member Verkhovna Rada, Ukraine’s unicameral parliament.  Indeed, Yanukovych and his allies quickly declared victory on Sunday night.

It was able to do so because of a change in the electoral law — in the previous election in 2007, all of the parliamentary seats were determined by proportional representation, but in 2012, half of the seats were elected through single-member districts, allowing Yanukovych’s united party to take advantage of a split opposition.

In this case, the opposition party of former prime minister Yulia Tymoshenko, the center-right ‘All Ukrainian Union — Fatherland’ party (Всеукраїнське об’єднання “Батьківщина, Batkivshchyna) wound up competing, to some degree, with the new reformist Ukrainian Democratic Alliance for Reform (Український демократичний альянс за реформи), formed by heavyweight boxing champion Vitaliy Klychko.

 On the proportional representation vote, Yanukovych’s Party of Regions won 73 seats, versus 61 for Batkivshchyna/Fatherland and 34 for UDAR.

In the constituencies, however, Yanukovych’s party won 114 to just 42 for Batkivshchyna/Fatherland and a mere six for UDAR.

The result will be a parliamentary majority that gives Yanukovych and his prime minister Mykola Azarov slightly greater control over government.

The somewhat fragmented results also show, however, an electorate that is none too pleased with Yanukovych’s increasingly authoritarian rule, his grip over Ukraine’s economy, the graft benefitting his friends and family, and the ongoing economic malaise, unemployment and stalled economic reform.  Despite his apparent gains last Sunday, it’s not clear that Ukrainians — especially members of Ukraine’s increasingly fragile business elite — will remain pliant in the face of policies that pull the country further from the goal of eventual integration into the European Union.

Indeed, the victory comes in an election that was far from free and fair — the Organization for Security and Co-operation in Europe has a detailed report on the unfair advantages that Yanukovych brought to the election.

Tymoshenko, who served as prime minister in 2005 and then again from 2007 to 2010 under former reformist president (and ‘Orange Revolution’ leader) Viktor Yushchenko, narrowly lost the 2010 presidential election to Yanukovych.  Since then, she has been imprisoned on politically-motivated charges stemming from her negotiation of an energy deal with Russia following a 2009 crisis when Russia stopped the flow of natural gas to Ukraine and to the rest of Europe.  It’s puzzling, however, that the relatively more Russian-friendly Yanukovych would pursue those charges against the relatively more Europe-oriented Tymoshenko, and he certainly hasn’t bothered Moscow with a request to renegotiate the agreement.  Indeed, Moscow will be happy to see gains for the pro-Russian party, following a month of elections in former Soviet republics generally seen as wins for Russia’s attempt to restore its influence in what it calls the ‘near-abroad.’

Nonetheless, Tymoshenko’s support held up despite her imprisonment, with her party winning 25.47% of the vote.  That’s in no small part due to the capable leadership of Arseniy Yatsenyuk, who served as minister of the economy from 2005 to 2006, foreign minister in 2007 and chairman of the Verkhovna Rada from 2007 to 2008.  Although the party will have lost 53 seats since the last parliamentary election in 2007, they will retain the strongest opposition group in Ukraine’s parliament — by far.  It’s a tactical and political victory for Yatsenyuk, of course, who could well be the opposition presidential candidate in 2014, but it’s also a moral victory for Tymoshenko, whose imprisonment now remains the primary symbol of Ukraine’s legal, democratic and economic backslide under Yanukovych.

Although it was UDAR’s first elections in Ukraine, Klychko will have been disappointed to have won just 13.92% and 40 seats.  Surely, Klychko hoped that his campaign would install him as the major opposition figure in Ukraine and perhaps given him an opportunity for a knockout punch against Yanukovych as well.  That’s clearly not going to be the case, although Klychko has established himself as a key reformer in Ukraine, and I expect his bloc of reform-minded MPs will certainly work with Batkivshchyna/Fatherland to make the case for liberalization, other economic reforms, rule of law, and keeping Ukraine’s wider orientation toward eventual European Union membership.

But Klychko’s support was not much more than the other major parties in Ukraine — for example, the Soviet retro Communist Party (Комуністична партія України), which has allied with Yanukovych in the past, won 13.20% and 32 seats.

More troubling, the far-right nationalist All-Ukrainian Union “Svoboda” (Всеукраїнське об’єднання «Свобода») won 10.42% and 37 seats. Although Svoboda, like UDAR and Batkivshchyna/Fatherland, opposes making Russian a national language in Ukraine, the similarities stop there — think of Svoboda as closer to Greece’s Golden Dawn than to, say, a moderately nationalist Christian democratic party in Western Europe. Continue reading More final thoughts on Ukraine’s election and Tymoshenko’s future →

Ukraine

Yanukovych declares victory in Ukraine with exit polls showing narrow win

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Ukrainian president Viktor Yanukovych (pictured above) and his pro-Russian Party of Regions (Партія регіонів) appear to have won Sunday’s parliamentary elections in Ukraine, and his prime minister Mykola Azarov has declared victory, although there were indications Sunday of electoral fraud. 

One exit poll out of Kiev early Monday morning showed the following result:

  • The Party of Regions has apparently won 30.1%, which may yield enough seats for a majority in the 450-member Verkhovna Rada, Ukraine’s parliament.  Because the vote is based one-half on proportional representation and one-half on direct districts, it’s believed that the Party of Regions will win a significantly
  • The main opposition party of former prime minister Yulia Tymoshenko, the center-right ‘All Ukrainian Union — Fatherland’ party (Всеукраїнське об’єднання “Батьківщина, Batkivshchyna) won a robust 22.8%, according to the exit poll, a strong result notwithstanding Tymoshenko’s imprisonment.  Tymoshenko, who narrowly lost the 2010 presidential race to Yanukovych, has been convicted on charges related to the natural gas deal that she negotiated as prime minister in 2009 with Russia — European Union leaders have expressed concern that the conviction seems politically motivated.
  • Heavyweight boxing champion Vitaliy Klychko’s Ukrainian Democratic Alliance for Reform (Український демократичний альянс за реформи) finished a bit far behind in third place, with 14.8%, according to the exit poll.  The result will be enough to make Klychko a player in Ukrainian politics, but it will be a bit of a disappointment for his supporters who had hoped he could displace Tymoshenko’s party as the chief opposition.
  • The far-right, Ukrainian nationalist  All-Ukrainian Union “Svoboda” (Всеукраїнське об’єднання «Свобода») has apparently won a stronger-than-expected 12.6% — a troubling sign, perhaps, given the ultranationalist turn, but nonetheless a sign that Ukrainians are not incredibly enthusiastic about Yanukovych.
  • Ukraine’s Communist Party (Комуністична партія України), which is the current iteration of the former Soviet Ukrainian communist party and an Yanukovych ally, has apparently won around 11.6%.

Notwithstanding the vote, a loss for Ukraine’s minority could embolden Yanukovych to turn more toward Russia and away from Europe, and to allow a once vibrant movement for reform to wither under corruption and soft authoritarianism.  An absolute majority for Yanukovych’s allies would likely further stall Ukraine’s potential entry into the European Union.

But for now, let’s wait until we see some hard numbers from Kiev.

Ukraine

Klychko hopes to deliver knockout punch in Ukrainian election

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As Ukraine’s elections approach this Sunday, WBC heavyweight Vitaliy Klychko is hoping he can deliver a terminal blow to the government of president Viktor Yanukovych.

He’s in many ways the latest beta version of Ukraine’s opposition — after the disenchantment with former president Viktor Yushchenko, whose presidency from 2005 to 2010 degenerated into a splintered majority that failed to enact the promise of 2004’s ‘Orange Revolution,’ and after the imprisonment of former presidential candidate Yulia Tymoshenko, jailed on the politically-motivated charge of negotiating too unfavorable of a contract with Russia on behalf of Ukraine during the 2009 natural gas crisis (even though Russia had essentially turned off the gas to Ukraine and its neighbors), the newest kid on the block is Klychko, the reigning heavyweight world champion.

Klychko heads a new upstart opposition party,  the Ukrainian Democratic Alliance for Reform (UDAR, Український демократичний альянс за реформи) that has gained the most momentum throughout the campaign — the latest poll, heading into Sunday’s election, shows UDAR with 17.9%, versus only 23.0% for Yanukovych’s relatively unpopular pro-Russian Party of Regions (Партія регіонів) based in eastern Ukraine.

UDAR also means ‘punch’ in Ukrainian — get it? Vote for the boxer!

Within western and central Ukraine, UDAR will be competing for the more reformist pro-European vote with the center-right ‘All Ukrainian Union — Fatherland’ party (Всеукраїнське об’єднання “Батьківщина, Batkivshchyna), which wins 16.9%, although its leader Yulia Tymoshenko remains imprisoned over what most observes believe are politically-motivated charges.  Tymoshenko, who parted ways with her one-time ally Yushchenko, only narrowly lost the 2010 president election to Yanukovych.

Ukraine’s Communist Party (Комуністична партія України), which dates back to the Ukrainian branch of the Soviet Communist Party and which has backed Yanukovych in the past, won 12.8% in the latest poll.

Klychko has ruled out any coalition with Yanukovych — he is firmly in favor of liberalization and economic development and in favor of Ukraine’s continued turn toward the EU and toward further integration with NATO as well.  As someone who’s made his fortune as a boxer on the world stage, many Ukrainians see him as less likely to succumb to the temptation for corruption in the less-than-pristine environment of Ukrainian politics.

Klychko entered electoral politics with a run for mayor of Kiev in 2008 — he lost that race to Leonid Chernovetskyi, but placed a strong second and won a seat on the Kiev city council.  It probably made no difference, however, as Yanukovych essentially pushed a law through Ukraine’s parliament in 2010 to allow the president to appoint the city administrator directly; Yanukovych dismissed Chernovetskyi and named a loyalist in his place.

Yanukovych is hoping to take advantage of the split in this weekend’s elections for the 450 members of the unicameral parliament, the Verkhovna Rada.  Unlike in 2007 parliamentary elections, when all seats were determined by proportional representation, only half of the seats will be elected by proportional representation (parties with over 5% support will be awarded a share of those seats).  There are already doubts about how free and fair the elections will be, amid media suppression, political-based assaults and outright bribery, with Yanukovych’s government deploying state resources in the furtherance of winning the election. At stake is Ukraine’s potential entry to the European Union — a strong win by Yanukovych and his allies would pull Ukraine ever closer to Russia and further away from possible EU accession.  Yanukovych and his family enjoy considerable control over much of the country’s economy.

The other half will be elected directly in districts — a significant change from the last elections in 2007, which were fully determined by proportional representation, and which Yanukovych could win if UDAR and Batkivshchyna split too much of the opposition vote in the single-district constituencies.  Although UDAR and Batkivshchyna have agreed on a mutual support pact to withdraw certain candidates in favor of a united opposition candidate, but the two parties are still apparently fielding their own candidates in some of the more competitive districts in Kiev.

So while in many ways Klychko is essentially Reformer 3.0 in the mould of Yushchenko and Tymoshenko, and he seems to have the most momentum just two days before Ukrainians vote, the broader fear is that the pro-European opposition based in the western part of the country will splinter, allowing Yanukovych to consolidate power and pull Ukraine in a less democratic direction, toward Russia and away from Europe.  Continue reading Klychko hopes to deliver knockout punch in Ukrainian election →

Belarus, Georgia, Latvia, Lithuania, Russia, Ukraine

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

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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’ →

Ukraine

Fear of democratic backslide under Yanukovych as Ukraine prepares for elections

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In the same month as voters went to the polls in the country that spawned the ‘Rose’ Revolution in 2005, voters in the country that launched the ‘Orange Revolution’ in 2004 will elect a new parliament on October 28.

Unlike in Georgia, where the election has so far augured a peaceful transition of power following a mostly free and fair election, Ukraine’s parliamentary elections seems likely to showcase conditions that are only partly free and fair.  In, Ukraine, the once-robust push for democratic reforms and a stronger rule of law has stalled in the past eight years, with the country’s chief opposition leader, Yulia Tymoshenko, languishing in prison on politically motivated charged.

The former president whose candidacy launched the Orange Revolution, Viktor Yushchenko, is widely unpopular after his presidency was marked by infighting among various pro-Western allies (including Tymoshenko) and the failure to live up to the promise of his candidacy.  Despite being poisoned in advance of the election and a rigged vote that aimed to install the pro-Russian Viktor Yanukovych as president, Ukraine re-held the election under international pressure — Yushchenko won the second election and served as president until 2010.  In the first round of the 2010 presidential election, however, Yushchenko barely won over 5% of the vote.

In that same election, Yanukovych (Yushchenko’s rival in 2004), won a narrow election against the more pro-Western prime minister Tymoshenko (Yushchenko’s subsequent rival).

Since 2010, Yanukovych and his prime minister Mykola Azarov have governed Ukraine with a more pro-Russia foreign policy, but have backtracked somewhat on human rights and rule of law — the most notable instance being Tymoshenko’s trial on charged filed almost immediately after the 2010 president election and her imprisonment in 2011.  Her former minister of internal affairs, Yuri Lutsenko, has also been tried and convicted.

Tymoshenko was found guilty of abuse of office with respect to brokering the Russian gas pipeline deal in 2009 as prime minister.  The European Union and outside observers believe the charges and imprisonment are politically motivated, despite insistence from Yushchenko (after the fact) that the pipeline deal was criminal.  The deal came after Russia had shut off access to gas flows for 13 days to Ukraine and accordingly, much of southeastern Europe.  Yanukovych and Yushchenko both argue that the deal was unfair to Ukraine, although Tymoshenko is hardly a Russian shill and, in any event, the more pro-Russian Yanukovych administration has not so much as tried to renegotiate the deal following Tymoshenko’s conviction.

So it’s not incredibly clear how a former prime minister’s conduct in negotiating an agreement under duress is criminal conduct.

As such, there’s cause for concern that the upcoming elections will memorialize a significant backslide for Ukraine’s fragile democratic institutions.

Ukrainians will elect the 450 members of the unicameral parliament, the Verkhovna Rada, half of whom will be elected by proportional representation (only parties that win over 5% of the vote will be eligible to be awarded seats) and the other half will be elected directly in districts — a significant change from the last elections in 2007, which were fully determined by proportional representation.

Ukrainian politics is highly polarized between Russian-speaking Ukrainians in the east of the country more oriented toward Moscow and Ukrainian speakers in the western half of the country more oriented toward the European Union.   Continue reading Fear of democratic backslide under Yanukovych as Ukraine prepares for elections →

Belarus

Surprise! Lukashenko allies win rout in rigged, boycotted Belarus elections

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Surprising no one, allies of Belarussian strongman Alexander Lukashenko have won all 110 seats in the House of Representatives of Belarus (Палата Представителей in Russian, Палата Прадстаўнікоў in Belarusian) after major opposition parties boycotted elections on Sunday in a system that has been essentially a dictatorship for nearly two decades.

Lukashenko (pictured above voting on Sunday) came to power only in 1994 in Belarus, well after the collapse of the Soviet Union — ironically, the one-time director of a state-run farm was elected president on the strength of his anti-corruption reputation.  By 1996, constitutional reforms had transformed Lukashenko into a dictator, and he was subsequently reelected in 2001, 2006 and 2010.

Sunday’s election was not expected to change that in the country that generally has the least amount of personal freedom in Europe and the greatest amount of human rights violations — the photo above shows the police response in Minsk, the Belarusian capital, to protestors leading up to the unfair and unfree 2010 presidential election, and there’s obvious signs of worry from Lukashenko that protests could follow Sunday’s vote as well.

The 2012 parliamentary elections have already been panned by the Organisation for Security and Cooperation in Europe:

“This election was not competitive from the start,” Matteo Mecacci, an OSCE coordinator, said in the statement. “A free election depends on people being free to speak, organize and run for office, and we didn’t see that in this campaign.”

German foreign minister Guido Westerwelle, who has attacked Lukashenko’s human rights record in the past (Lukashenko, in a dig at the openly gay Westerwelle, responded earlier this year that it was better to be a dictator than gay), declared that the vote indicates that “Belarus is the last dictatorship in the heart of Europe.”

Lukashenko joins just three other post-Soviet leaders who have ruled their respective former Soviet republics with an iron fist since the breakup of the Soviet Union in 1991 (or very shortly thereafter): Uzbekistan’s Islam Karimov, Kazakhstan’s Nursultan Nazarbayev (who was reelected last year with 95.5% of the vote!) and Tajikistan’s Emomalii Rahmon, who came to power in 1992.

While all of those leaders rule in central Asia, however, Lukashenko rules a country in the center of Eastern Europe with around 9.5 million people, a country that borders Poland, Ukraine, Lithuania and Latvia, each current or aspiring European Union members.

Lukashenko, ‘the last European dictator,’ however, has cultivated perhaps the closest relationship with Russia of any of the former Soviet republics — and Belarus serves as a transit for Russian oil and gas to the rest of Europe.  Lukashenko’s coziness with the Putin regime in Russia has prompted some discussion last decade that Belarus might even one day join into a more formal union with Russia.

The two leading opposition parties in Belarus — both of which are mainstream center-right, pro-democracy and anti-Lukashenko parties and both of which are observer members of the European People’s Party in the European Parliament, boycotted the election just last week after it became clear they would have no chance to win any support:

  • The Партыя БНФ (the BPF Party, formerly the Belarusian Popular Front ‘Revival’ until 2005, when Lukashenko decreed that the words ‘Belarusian,’ ‘National,’ ‘Popular,’ and ‘People’s’ could not be used in the names of any parties or other political movements) was formed in 1988 to promote Belarusian independence and, since independence, greater democracy and a greater nationalist rebirth of Belarusian identity.  One of its leaders, Aliaksandr Milinkevič, served as the consensus opposition candidate for president in 2006 against Lukashenko, winning support from European leaders, but just 6.2% of the rigged vote (the 2010 presidential election was even more skewed in favor of Lukashenko).
  • The Объединенная гражданская партия (United Civil Party of Belarus, Аб’яднáная грамадзянская пáртыя Беларýсі in Belarusian) was formed in 1995, a merger of the United Democratic Party and the Civil Party as an opponent to Lukashenko’s growing threat to Belarusian democracy.

The country’s $5,881 nominal GDP per capita (in 2011) is akin to the economic development of Serbia (GDP per capita of $6,080) despite a Soviet-style, state-run economy that, in any event, remains highly dependent on a strong Russian market and despite several troubling economic signs: a 2010 financial crisis that stemmed from efforts by the Lukashenko regime to raise wages in advance of his reelection, thereby causing inflation and a balance of payments crisis, and the looming repayment of a $3.5 billion loan from the International Monetary Fund in 2009. Continue reading Surprise! Lukashenko allies win rout in rigged, boycotted Belarus elections →

Russia

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

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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.’

 

Russia

Next steps for the Russian opposition?

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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? →

Russia

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

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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:

 

Russia

Official Russia results

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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.

Russia

Putin 2018: Looking beyond Sunday’s election

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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.