BERLIN – With the crisis in Ukraine intensifying, the United States and the European Union are locked in a battle of wills – and sanctions – with Russia. Indeed, in retaliation for the intensification of Western financial sanctions, Russia has announced a ban on food and agricultural imports from the US and the EU. But the real threat to the West lies in the potential impact of a financial crisis sparked by its own sanctions against Russia.
Consider Russia’s 1998 financial crisis. In August of that year, then-President Boris Yeltsin declared, “There will be no devaluation – that is firm and definite.” Three days later, the ruble was devalued, and Russian financial markets went into a tailspin. With capital pouring out of the country, the Russian government was forced to restructure its debt, and the economy entered a deep recession.