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    Posted May 13, 2014 by

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    Should We Care What Happens in the World?


    Ostrich policies don’t work in today’s times!


    It fascinates me how many of us choose to view the world beyond our borders as a curious oddity that is perhaps best avoided. At any given time, there is enough turmoil in the world to cause most every one of us to convulse, yet we rarely if ever do.


    For the most part, many governments choose to follow an ostrich policy. If you choose to bury your head in the sand, you won't see what's going on around you, so perhaps it won’t matter. But the truth of the matter is that the world is one interconnected system. A ripple in the pond affects every one of us.


    There are many glaring examples of geopolitical crises that we are staring at today. These include the ongoing turmoil in the Ukraine with Russia flexing its military might, the human rights abuses taking place in Sudan, the recent kidnapping and torture of hundreds of schoolgirls in Nigeria by a terrorist group, and the wanton poaching of wildlife in Africa.


    Why does any of this matter?


    Perhaps the Irish orator, philosopher and politician, Edmund Burke said it best with the following quotation: All that is necessary for the triumph of evil is that good men do nothing. This resonates with social advocates the world over. And there is indeed a great truth and responsibility inherent in these words.


    On a more practical level, the goings-on in remote places around the world do indeed have a direct bearing on economic relationships, political affiliations and global power blocs. The recent conflagration in the Ukraine set in motion a sharp divide between the US and its allies on one hand, and the Russians on the other.


    Vladimir Putin has been emboldened by his annexation of Crimea, and his military expansionist exploits into the Eastern part of the Ukraine. Elections are scheduled for the end of May in the Ukraine, and Russian agitators have been seeking to derail the political process by way of calls for secession.


    Again, why does this matter?


    We live in a world where the rule of law, personal freedoms and territorial integrity needs to be preserved and maintained. Internationally recognized territories and nations have the right, under the law and under treaties with other nations, to have their territorial integrity protected. Any violation of that status quo is in fact a gross violation of international law and needs to be punished accordingly.


    Independence does not come without a cost, and the Ukraine has certainly endured hardship on its path to statehood. The turmoil has disrupted the lives of ordinary citizens and thrown the entire region into chaos.
    The Russians claim no hand in the matter, yet 40,000 soldiers – many of them Special Forces units – have been massing on the Russian/Ukrainian borders. The free world is duty-bound to stand up for what is right – however unpopular such an action may be. Bullying and intimidation have no place in the free world.


    Economic impacts of global crises


    If the moral aspect of international crises does not resonate with everyday citizens, the economic component most certainly does. The Russians have largely dismissed the sanctions that have been imposed upon key businesses, select individuals and banks. However, they have recently been courting Chinese investors to help bolster the flailing Russian economy. Thus, sanctions and isolation are working against Russia.


    The Russian economy has been haemorrhaging massive outflows of money during 2014. In fact, our analysts estimate the capital outflows from Russia are significantly higher than the figures presented by the Russian Finance Ministry. The government of Russia may well be downplaying the capital flight figure when it presented a figure of $51 billion leaving the country during Q1 of 2014.


    New reports issued by the European Central Bank state that it is possible that as much as $222 billion may have been lost from Russia during the first quarter of the year. In fact, so substantial has the capital flight been that the euro exchange rate has been pushed upwards. The European Central Bank (ECB) figure may be misleading, since it does not gel with the current depreciation of the ruble. If the capital outflows have exceeded the official figure of $51 billion, the relatively modest 9% depreciation of the ruble seems odd at best.

    On the Ukraine issue, there appears to be substantial opposition to Russia's expansionary objectives. Japanese Prime Minister Shinzo recently reiterated his country's position that Russia should de-escalate tensions and seek a diplomatic resolution to the Ukrainian crisis. These sentiments were echoed by European Union leaders who fear that the recent surge in violence in the Ukraine will disrupt the May 25th elections.


    European economies may be particularly hard hit by the sanctions levelled against Russia. The interdependence of countries often leads to seemingly impossible situations where it becomes a case of cutting one’s nose to spite one’s face. This is true of Germany which will likely impose additional sanctions and face the consequences of those sanctions too. Certain EU countries – Germany among them – are likely to bear the brunt of the economic fallout of sanctions against Russia. Germany however is fully prepared to take that hit and should be lauded for its actions.


    Agreed with leading economic forecasts that German Gross Domestic Product (GDP) may grow by 0.9% during 2014 – far lower than the pre-sanctions estimate. The estimate for 2015 is expected to be 0.3%. It’s not only German companies that are hurting, it’s companies across the EU. For example Danish beer giant Carlsberg (CABGY) slashed its earnings forecast for 2014 and beer sales across Eastern Europe dropped by 7% during Q1. In France, Societe Generale (SCGLF) shares dropped 1.6%. Q1 net profit is recorded as €416 million – down from €798 million in Q1 2013.

    It is clear that nothing comes without a cost; every action will yield a reaction. Our resolve will certainly be tested on the grand stage, but we cannot in good conscience turn a blind eye to injustice. Ultimately, Russia will toe the line as its economy starts reeling and the pressure is ratcheted up.

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