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Two of a kind

9 November 2016 By George Hay, Sarah Hurst

Vladimir Putin has been handed what can only be described as a trump card. The election of Donald Trump as the United States’ 45th president leaves a host of key eastern European policy issues more favourable to his Russian counterpart. The question is what scope Putin has to capitalise on them.

The status quo that Americans rejected along with losing presidential candidate Hillary Clinton in Nov. 8’s poll favoured stability in the region. That included the preservation of international sanctions following Russian action in Ukraine, and in Clinton’s case a probable heightened commitment to NATO, the 28-state alliance of American and European powers. In blunt terms, NATO’s sphere of influence stops Russia marching into the rest of Ukraine and the Baltic states – Latvia, Lithuania and Estonia – were it ever minded to.

Trump’s election changes the dynamic, potentially significantly. In the election campaign, the president-elect spoke admiringly of Putin, and appeared to make any American support in the event of a Russian invasion of the Baltic states contingent on whether the attacked parties had “fulfilled their obligations to us”. Of the three, only Estonia complies with NATO’s guideline that members spend over 2 percent of GDP on defence.

Several factors stand in the way of anything happening soon, though. Judging by his emollient victory speech, Trump’s campaign rhetoric may have been hot air. Putin, meanwhile, is embroiled militarily in both Ukraine and Syria, neither of which is universally popular at home. Cutting the budget deficit from 3.2 percent to 1.3 percent by 2019 won’t be easy in a contracting economy, especially as all the sums are based on oil at $40 a barrel, only just below where it trades now.

That may explain the comparatively sanguine market reaction on Wednesday. Yields on Ukraine’s three-year bonds rose 58 basis points to 8.4 percent, but yields on Baltic state debt showed minimal movement. Putin has been dealt a good hand by the U.S. election outcome, but one that is part of a long poker game.


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