Україна Ukraine

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• Bergman: Maria, I want to turn to you about kind of future prospects o fthe Russian economy as we look out over the next year. I think Mike has always been a sanctions pessimist. I've been a sanctions optimist, and right now, Mike may be slightly winning that conversation, but it does strike me that Russia is running its economy quite hot. We're seeing inflation start to go up, there's labor challenges, now if Russia has to do another partial mobilization, that will put a lot of strain on the Russian economy. How do you see this sort of playing out. Let's take the optimistic view: Ukraine is able to hold on as Russia goes on the offensive for much of this year, Russia probably doesn't gain very much. Maybe it loses quite a lot in terms of man power and resources. Where do you think that the Russian economy will be in six months, a year or now, or what are the vulnerabilities there?

• Snegovaya: So when it comes to material factors like how much it costs for Russia to run this war [illegible] economist has estimated that Russia can pull it off forever, at the very least for within the foreseeable future, and given Putin's international amibition that we've discussed here he'd probably want to have...there are other factors that are accumulating. They're not decisive in any way at this point, but certaily some of them at some point may skyrocket. The first one is inflation in general...for the lack of external investment. Russia is only maintaining its economy by essentially some sort of Keynesian policy of investing its own resources into the economy, which always leads to inflation. Russia is no exception; the official numbers of inflation are very unreliable but it certainly...the unofficial numbers are certainly above 10%. Lots of complaining about the price of eggs and certainly some of the problems are emerging such as disappearance of eggs or other items. That is also combined with so-called regressive import substitution, where Russia is unable to get the best possible articles at the give price because fo the sanctions, so they have to find other ways to import something that's potentially-inferior in quality and also more expensive because of all the supply chains that they have to restructure in the long term that certainly might be accumulating and contributing to the war fatigue. There is also a less-notable exchaustion of the rainy day fund that's also happening. So, for example, the national wellbeing fund is slowly getting eroded, and it's unclear how much more it will take until its totally gone. While the Kremlin does have the resources right now, as we have discussed, due to variable energy dynamic in the long term, especially if there is a shock...let's imagine something happens and the oil prices dramatically fall. This is where there will be a lot of problems for the Kremlin all of a sudden, because they just don't any longer have these resources that they accumulated. This is partly because of the sanctions, for example the freezing of the Central Bank of Russia reserves. They do contribute, because now Russia has no resources to maintain the ruble, and it keeps flucuturing to the extent that they can maintain they have to use the resources they are not accumulating...so it's not ideal. Essentially, if there is an economic shock, it will be a problem, and it might create the chain of unforseeable events which will be problematic for the regime. Then of course, there's labor deficit. There is unprecedented, low, low levels of unemployment, and that contributes to the limitation and furtuer overheats the economy. Last but not the least, this also created this...uh...perhaps a war economy. It's not a really militarized economy in the Soviet sense, but it does...the economy really runs to a large extent on the military expenses, and this creates this trap for the Kremlin that it really can't stop the war even if they wanted to, beause then there's not any other kind of factor that will create the GDP growth, that will create this push for the economy, so essentially they trap themselves in this situation which potentially can skyrocket. None of these factors as we have discussed is catastrophic at the moment, bu tthey do have this quality of accumulating and, uh, say in Argentina, we've seen a decade of inflation which was really problematic for in the long term for the governments. So it does tend overall to accumulate and create problems. Having said that, probably we should not be basing our hopes on just this analysis and I want to echo Michael Kofman in his call for the importance of rethinking and actually coming up with a long-term strategy in the West. One of the problems why we're having all of these ocnversations is the lack of long-term strategy on the side of the US and European administrations, like: how do they really see this war going? What is it that they're trying to achieve for Ukraine? Once they have that clear goal in mind, maybe they can contribute certain resources given how important this war is. Max, I have a summing up statement for you. It's a paraphrase of the Austrian humorist Carl Krauss, and you know you could take his words and rework thema nd say that the situation in the west is hopeless but not serious and the situation in Ukraine is serious but not hopeless, and I think that may sum up our conversation today. So if the West can become more-serious, it renders the situation in Ukraine less-hopeless.

• Bergman: I think that's a great short summary. I think that's a really great way to encapsulated it, that in some ways continuing to support Ukraine is not...it's not causing our price of eggs to increase. It's having very little, almost no impact on the United States. In fact, almost all of it is going into US defense production and expanding US defense production which supports American jobs and actually expands our defense industrial production which is seen as one of the major things that have happened. Well, we're out of time, so we're going to have to wrap it up.