- - Sunday, March 16, 2014


From faculty lounges and think tanks, foreign policy thought leaders explain that Russian President Vladimir Putin’s “thuggish” behavior in Ukraine damns him and his country before the civilized world.

These experts miss important points — chief among them is that Mr. Putin’s target audience questions whether the path the West has followed under President Obama makes sense economically or geopolitically.

Principles matter

It takes a contortionist to find consistency in the principles that animate America’s opposition to Russia’s actions regarding Ukraine.

Under Mr. Obama, the U.S. has been quick to agitate for regime change when we assess that change to be in our national interest. Contrarily, the U.S. stands pat when popular uprisings abroad might not benefit our agenda.

SEE ALSO: ORTEL: As the world convulses, America’s greatest danger lies at home from mounting debt

Why are we sure that supporting the recent regime change in Ukraine promotes U.S. interests? Regime change certainly hurt us in Libya and Egypt, and haven’t helped us much in Iraq and Afghanistan.

Before we rush to assume that Ukrainians will choose to embrace the European Union, it behooves us to look more closely at the progress of and prospects for this collective.

How financially extended is the European Union?

Inside the European Union, there are surprising differences in government activity between the 11 member nations that once were part of or allied to the Soviet Union and the other 17 countries.

As a group, the 11 states formerly in the Soviet fold are much less prone to public sector borrowing, and manage governments that are far more constrained in their spending.

By 2013, these states had accumulated public debt equal to 48.6 percent of their GDP, whereas the other 17 states had public debt equal to 92.6 percent of their GDP.

Compared to their larger peers, whose annual government spending was 49.3 percent of GDP, government spending for the 11 former Soviet republics was just 32 percent of GDP.

One measure analysts use to assess whether a government is stretched financially is the ratio of external debt compared to a country’s economic output.

Looking more closely, we find that the 11 Soviet-fold states had external debt net of foreign exchange reserves that totaled just $785 billion, or 57 percent of their aggregated GDP, in 2012.

In contrast, the other 17 states had external debt net of foreign exchange reserves that totaled $38.5 trillion, or 242 percent of GDP, in 2012.

Is it really clear that cash-strapped Ukraine would derive superior economic advantages by joining more closely with a European Union that seems challenged financially?

What might happen if one or more member states decides to leave the European Union?

Who will support senior citizens in the EU?

Because of persistently declining birth rates and ever-increasing life expectancies, the ratio of dependent persons aged 55 and older compared to active persons aged 25 to 54 is far higher in some European Union states than among the 11 former Soviet entrants.

In those 11 states, there are 73 senior persons for every 100 active persons. In the other 17 states, there are 91 senior persons for every 100 active persons.

When the European Union can continue to borrow to finance retirement costs, economic security in old age seems assured.

But what happens when financial markets decide that the European Union must start to reduce its debt load, possibly on short notice?

Expect Putin to pack a punch

As the Obama administration abandons the Monroe Doctrine and shrinks from leadership, Mr. Putin will make plain that Russia calls the shots in territories the Soviet Union once controlled.

By his actions and speeches we can soon expect him to make, Mr. Putin will define a new role for Russia among European countries once allied to the Soviet Union. He will challenge the reserve status of the euro and the dollar, placing added pressure on most financial markets.

Investors will start this St. Patrick’s Day with a hangover before touching a drop of alcohol.

Charles Ortel serves as managing director of Newport Value Partners (newportvalue.com), which provides economic research to executives and to investment firms.

• Charles Ortel can be reached at ckortel@yahoo.com.

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