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The West’s Financial Arsenal

PRINCETON – The revolution in Ukraine and Russia’s illegal annexation of Crimea have generated a serious security crisis in Europe. But, with Western leaders testing a new kind of financial warfare, the situation could become even more dangerous.

A democratic, stable, and prosperous Ukraine would be a constant irritant – and rebuke – to President Vladimir Putin’s autocratic and economically sclerotic Russian Federation. In order to prevent such an outcome, Putin is trying to destabilize Ukraine, by seizing Crimea and fomenting ethnic conflict in the eastern part of the country.

At the same time, Putin is attempting to boost Russia’s appeal by doubling Crimeans’ pensions, boosting the salaries of the region’s 200,000 civil servants, and constructing large, Sochi-style infrastructure, including a $3 billion bridge across the Kerch Strait. This strategy’s long-term sustainability is dubious, owing to the strain that it will put on Russia’s public finances. But it will nonetheless serve Putin’s goal of projecting Russia’s influence.

For their part, the European Union and the United States have no desire for military intervention to defend Ukraine’s sovereignty and territorial integrity. But verbal protests alone would make the West look ridiculous and ineffective to the rest of the international community, ultimately giving rise to further – and increasingly far-ranging – security challenges. This leaves Western powers with one option: to launch a financial war against Russia.