Opinion – Martin Wolf: With war in Ukraine, Putin reignites conflict between tyranny and liberal democracy

Nobody knows how this will end. But we know how it started. Vladimir Putin has staged an unprovoked attack on an innocent country. He committed the worst act of aggression on European soil since 1945 and justified his vile act with shameful lies. And for now, he has also united the West against him. Putin is not the first tyrant to confuse a desire for peace with cowardice. Instead, he aroused the ire of western populations. The result is a series of sanctions on Russia, as impressive as they are justified.

Putin may be the most dangerous man who ever lived. He is determined to restore the lost Russian empire, indifferent to the fate of his own people and, above all, owner of a vast nuclear force. But resistance, while risky, is imperative. Some will insist that Putin’s actions are the fault of the West and, above all, the consequence of his decision to expand NATO. The truth is the opposite. Putin reminded us why countries that knew the Russian regime best were desperate for NATO expansion. He also demonstrated why this was necessary. Europe needed a defended border between Russia and its former possessions. Ukraine’s tragedy is being on the wrong side of that line. She posed no threat to Russia, other than wanting to be free; Russia posed a threat to her.

Sanctions are often ineffective. The levies this time will not be. The United States imposed sovereign debt sanctions on the secondary market on February 22. Germany suspended certification of the controversial Nord Stream 2 pipeline on the same day. On February 24, the US, EU and other G7 members limited Russia’s ability to transact in foreign currency. And two days later several Russian banks were removed from the Swift payments network, a freeze was imposed on the assets of the Bank of Russia and transactions with the central bank were banned.

A broader analysis by the Institute of International Finance sums it up as follows: “We expect the sanctions imposed in recent days to have a dramatic effect on Russia’s financial system, as well as the country as a whole.” A large portion of the country’s US$630 billion (R$3.2 trillion) net reserves will become useless. The central bank has already had to double interest rates. There is a run on the banks. With the exception of energy, the economy will be substantially isolated.

The pain will not befall Russia alone. Oil and gas prices will stay high for longer, exacerbating global inflationary pressure. Food prices will also rise. If Russia cuts its energy exports (at great cost to itself), the disruption will be even more severe. Russian natural gas generates 9% of the raw energy available in the eurozone and the EU as a whole. But winter, the peak season, is finally over.

In addition to these relatively specific effects, the combination of war, nuclear threats, and economic sanctions greatly increases uncertainty. Central banks will find it even more difficult to decide how to tighten monetary policy. The same will be true for governments trying to cushion the blow of energy shocks.

In the long term, the economic consequences will follow geopolitics. If the result is a deep and protracted divide between the West and a bloc centered on China and Russia, there will be economic divisions. Everyone will try to reduce their dependence on contentious and unreliable partners. Politics wins over economics in this world. On a global level, the economy would be reconfigured. But in times of war, politics always trumps economics. We still don’t know how.

Europe will certainly change more. A huge step forward has been taken by Germany, with its recognition that its post-Cold War position today is untenable. It needs to become the center of a powerful European security structure capable of protecting itself against a revanchist Russia. This must include a huge effort to reduce energy dependence. Tragically, Europe needs to recognize that the US will not be a reliable ally while Donald Trump, who considers Putin a “genius”, runs the Republican Party. The United Kingdom, for its part, must recognize that it will always be a European power. He must commit himself more deeply to the defense of the continent, particularly of its allies in Eastern Europe. All of this will require decision and money.

In this new world, China’s position will be a central concern. Its leadership needs to understand that supporting Russia today is incompatible with friendly relations with Western countries. On the contrary, the latter will have to make strategic security a predominant imperative of their economic policy. If China decides to rely on a new axis of authoritarian nationalists against the West, global economic division is bound to ensue. Companies need to take note of this.

An optional war against the children of a peaceful democracy is not an act we in the West can afford to forget. Nor can we forgive those who started it or those who support it. Memories of our past must forbid that. We are in a new ideological conflict, not between communists and capitalists, but between nationalist tyranny and liberal democracy. In many ways, this will be more dangerous than the Cold War. Putin wields arbitrary and uncontested power. As long as he is in the Kremlin, the world will be dangerous. It is unclear whether the same is true for China’s Xi Jinping. But we may still know that it is.

This is not a conflict with the Russian population. We must still hope for them a political regime worthy of their contribution to our civilization. It’s a conflict with your regime. Russia emerged as a pariah ruled by a bandit. We cannot live in peace and security with such a neighbor. This invasion must not last, as its success would threaten us all. We are in a new world. We must understand this and act accordingly.

Translated by Luiz Roberto M. Gonçalves