How Will Russian Conflict Impact Europe?

03/24/2014 12:01 am EST

Focus: GLOBAL

Jim Jubak

Founder and Editor, JubakPicks.com

MoneyShow's Jim Jubak takes a hard look at the current crisis in Russia, Ukraine, and Crimea in relation to its effect on the whole of Europe.

You know the old question, what comes first, the chicken or the egg, it's the egg by the way, I think that really applies to what's going on with Russia and the Ukraine and the Crimea. You can say the Russian economy, we've seen a lot of news about sanctions being put on where they're going to hurt the Russian economy. The truth is, the Russian economy was in the dumpster before this. Russian economy is based on oil prices, oil prices are low, it's not a terribly efficient economy, rampant inflation, the ruble falling anyway. Russia's economy was in trouble.

Spending money to support the Crimea after you annex it, because it's not a self-sufficient area is going to be another drain on the Russian budget, but the real question, if you look at this is, did Vladimir Putin invade the Crimea, annex the Crimea, because he was feeling strong, or was he feeling weak? Classic move by a government that's feeling pressure at home is to try to divert people's opinions from their own issues to the larger national issue. I think this is largely a war, a propaganda war, that was fought on the basis of economic weakness, so, if that's true, looking forward, this doesn't solve any of those problems. Russia remains a really, really weak economy. The Russian financial system is not, you know, not, we're not talking about a replay of 1998 when the Russian system collapsed and they had to default, but this is certainly a weakness here.

If you look at this and, sort of, go, “okay, well, does Russia have any influence in the markets in general?” They do on emerging markets, a weakness in Russia makes people think twice about investing in Brazil, or India, or China, but the real problem here is that you're looking at major trading partner, sanctions aside, with Europe, so if Russia is weak, if Russia's economy is weak, if there are troubles there, it does tend to spread into western Europe, an area that really doesn't need a whole lot in the way of more negative news, so the weakness of the Russian economy, before the Crimea/Ukraine, will continue after the Crimea/Ukraine, it won't get any better, certainly, but this is a problem to look for as we move forward, even after this political situation is resolved one way or another, assuming it does.

This is Jim Jubak for the MoneyShow.com video network.

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