Putin advisor: Backed into a corner, Russia is now preparing for war

From Bloomberg:

From his perch as Vladimir Putin’s adviser for building ties with fellow former Soviet republics, Sergei Glazyev perceives the world shifting to a war footing.

There’s a war waged against Russia with economic sanctions and military conflicts roiling Ukraine to Iraq, according to Glazyev, 53, an academician and a native of Ukraine who for the past two years has advised Putin on integration with Belarus and Kazakhstan. Putin struck back this week with a ban on U.S. and European food imports that may benefit the former Soviet allies.

Setting the world ablaze is the U.S., where “hawks” are provoking a global conflict “with the aim of establishing control not only in Europe, but also in Russia, Ukraine,” Glazyev said in an interview in Moscow on Staraya Ploshchad, where the presidential staff has its headquarters. On his office’s walls are a picture of Putin and an updated map of Russia that marks the annexed Crimea peninsula as its territory.

Months of a slow boil of European and U.S. sanctions against Russia over Ukraine have done little more than harden a siege mentality in the Kremlin, thrusting controversial advisers like Glazyev to the forefront in Putin’s showdown against erstwhile Cold War foes. With the country’s richest businessmen shaken by the deepening rift, Glazyev’s flair for provocation is needed to “intimidate the elites,” according to Mikhail Vinogradov, head of the St. Petersburg Politics Foundation.

Russia’s Answer

The retaliatory measures “weren’t our choice, but we won’t leave an escalation of sanctions unanswered,” Russian Deputy Foreign Minister Grigory Karasin told Vygaudas Usackas, head of the European Union delegation in Moscow, according to a statement issued today.

Glazyev, a Soviet-educated economist, has been sanctioned by both the EU and the U.S. for allegedly meddling in Ukraine’s sovereign affairs. A former State Duma deputy and co-founder of the nationalist Rodina party, he ran against Putin for president in 2004.

In 1992-1993, he was the minister for external economic relations, and later served as a senior official at the Eurasian Economic Community and the Customs Union of Russia, Belarus and Kazakhstan. Last year he was considered as a candidate to replace Sergey Ignatiev at the helm of Russia’s central bank, according to Reuters. The job went to Elvira Nabiullina, a former economy minister and aide to Putin.

Crimean Takeover

While some of Glazyev’s proposals have been rebuffed by the government, such as his list of 15 countermeasures against countries that penalize Russia and calls for the central bank to lower interest rates, his denunciation of outside meddling in Ukraine’s internal affairs in January and a defense of then-President Viktor Yanukovych highlighted the turn taken by Kremlin during the crisis, which culminated in the seizure of Crimea in March.

Putin, who has repeatedly denied any involvement in the pro-Russian insurrection raging in eastern Ukraine, said last month that “ultimatums” made by the U.S. and the EU are aiming to destabilize his country. He also accused the U.S. and its allies of exploiting the crash of Malaysian Air Flight 17 to force him to renounce support for people of Russian heritage in Ukraine.

These arguments resonate with Glazyev, who said the U.S. is trying to grow stronger at the expense of others, thwarting integration across Eurasia and checking China’s clout.

Kazakhstan, Belarus

In May, Putin signed a treaty with his counterparts from Kazakhstan and Belarus to create a trading bloc of more than 170 million people. Kyrgyzstan and Armenia are seeking to join by the end of the year. The union, effective from the start of 2015, is intended to yield a free flow of goods, capital and workers, and will level tariff and non-tariff regulations.

Putin has sought to lure Ukraine and its more than 40 million people into the alliance to build a trading bloc to rival the EU. Yanukovych pursued closer ties with the customs union and pulled out of an association agreement with the EU before his ouster in February. His successor, President Petro Poroshenko, signed the free-trade accord with the 28-nation bloc in June.

Russia can’t go it alone against the U.S. and must create an “anti-war coalition” to check the “aggressor,” Glazyev said.

Countering China

“The point of a series of regional wars organized by the Americans, especially today’s catastrophe in Ukraine, centers on the U.S. securing control over all of north Eurasia” to bolster “its position against China,” Glazyev said. “That’s how the U.S. military and oligarchs are trying to maintain leadership in the global competition with China.”

The effort will backfire, said Glazyev, who spoke before a round of retaliatory steps announced by Russia yesterday banning food and agricultural products for one year from the U.S., the EU, Norway, Canada, and Australia. The U.S.-led “economic war” against Russia will ricochet, leaving the EU to pay the steepest costs in the conflict, he said.

The trading bloc stands to lose about 1 trillion euros ($1.3 trillion), an estimate he says includes the possible bankruptcy of several European banks and companies toppled after the cutoff in financial and economic ties. An energy crisis in Europe will bring a sharp spike in prices and a loss of competitiveness for European producers. Meanwhile, Turkish, Chinese, and east Asian nations will fill the void left by the departure of their European rivals from the Russian market.

Germany, Estonia

The fallout will cost 250 billion euros for Germany alone while pushing the three Baltic states to the brink of an “economic catastrophe,” he said. Lithuania and Latvia will lose the equivalent of half of their entire economic output, and the cost for Estonia will reach 50 percent more than its gross domestic product, Glazyev said.

Where does that leave Russia?

“Task no. 1 is to block those threats to economic security that are now coming from the U.S., neutralize them by reducing the dependence of our external economic activity on the mercy of American politicians, whose aggressiveness threatens the entire world,” he said.

To further insulate its economy, Russia should abandon the use of the U.S. dollar as a reserve currency, according to Glazyev. Russia, which international reserves are the world’s fifth-biggest, needs to diversify its holdings to include China’s yuan, India’s rupee, and Brazil’s real.

‘Behave Properly’

“If a country aspires to reserve status for its currency, it should behave properly, and that isn’t the case today,” Glazyev said.

Still, turning Russia into a ringed-off economic fortress isn’t at the heart of Glazyev’s prescriptions. Faced with a souring climate abroad, the country should promote import substitution and policies aimed at reversing the brain drain that has sapped Russia’s scientific prowess.

“What could serve as our chief response is the implementation of a plan for fast-track development of the Russian economy on the basis of a new technological order,” he said. “This plan includes a transition to a sovereign monetary system underpinned by internal sources of credit, an active policy of innovation and support for progress in science and technology.”

Glazyev is at pains to emphasize that Russia, a “victim of aggression,” must build bridges with the international community to rein in America’s “aggressive, paranoid political leadership.” Penalizing European or U.S. companies is “counterproductive” because they can serve as allies in a conflict that doesn’t serve their interest, according to Glazyev.

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