The Competing Narratives in Ukraine — Which Will Win?

This tale stretched to include other baleful notions. Europe is divided, Germany depends on Russian energy, the growing ranks of the world’s autocrats will support Putin, the U.S. is intractably divided with a weak president and a substantial body of support for Putin and what he represents. All of this has some element of truth, of course. The point is how narratives feed on themselves so that all points that don’t fit with them are ignored. They can become self-fulfilling prophecies.

Markets also move on narratives. With the strength of the received wisdom at the time that the invasion started, and the headlines of the first few hours, it was easy for the narrative that fueled the rebound to take hold. As a swiftly victorious Putin who then went back to minding his own business would imply greater global stability, that imagined scenario swiftly became market-positive.

This whole story is now in shreds. The strength and success of the Ukrainian resistance to date, the brutality of the Russian assault, and the support for Ukraine in the rest of the world and even among Russians has seen to that. Now, two narratives are competing for primacy.

One is that this proves to be “The Great Turning Point.” On this analysis, the European Union now gets its act together, the world’s other autocrats decide to toe the line, the mad pro-Russian strain within American conservatism is decisively defeated, giving the U.S. a credible center-right party once more while bringing the president a new lease of life. And maybe, just maybe, this is the moment when Russia turns on Putin. Liberalism at last wins the upper hand on authoritarian populism. Here are some of the talking points in favor:

• Germany has ended a policy of limited military involvement that had lasted for decades by sending weapons to Ukraine, and is unrolling a dramatic increase in defense spending;
• Hungary’s Viktor Orban, generally included with Putin on lists of the world’s worst autocrats, is supporting sanctions, even if he is not going along with pleas from his opposition to do more;
• Turkey’s Recep Tayyip Erdogan, another authoritarian friendly with Putin and a member of NATO, appears to be ready to block Russian forces from passing through Turkish waters in the Dardanelles;
• China seems to be distancing itself from Putin;
• Putin apologists in the U.S. are desperately trying to change their story;
• The EU is agreeing to much tougher financial sanctions, and acting with startling unity.

The other narrative needs just one word: “Chaos.”

• Putin cannot turn back now. Like many invaders before, he will continue in the attempt to avoid humiliation. Russian military power is such that it cannot be denied (if, that is, Putin sees some point in taking a country he regards as Russian by destroying it.) Russian behavior in Syria provides an idea of what could happen;
• The western financial upheaval, just to enforce Russia’s new pariah status, will be immense and painful; news that BP Plc will take a $25 billion hit to drop its stake in the huge Russian oil producer Rosneft, in a painful strategic blow, shows the scale of what’s ahead;
• Sanctions are creating what looks like an incipient bank run in Russia, as people try to get access to foreign currency when there’s still a chance, while the effects on bonds and the ruble could be profound;
• Transport bans across Europe threaten to reintroduce the kind of problems created by the pandemic;
• Putin’s rationality looks very questionable at this point, and he’s been hinting at the use of nuclear weapons.

Coverage, as far as I can gauge at present, is veering between these two narratives, with a whiff of premature triumphalism mixing with deepening alarm. In the long run, it matters hugely which one wins out; in the short run, the fact that Putin can’t just take Ukraine leaving the West powerless to do anything about it means that the situation is much riskier than it appeared last week.

Many historical analogies are doing the rounds. I think the best might be with “Red Monday,” Aug. 19, 1991, when Mikhail Gorbachev was detained in his dacha and a group of Soviet hardliners declared a coup. The era of glasnost and perestroika was over; the world would have to get used to a Brezhnev-style Soviet Union once more. Markets sold off. Then Boris Yeltsin famously stood on top of a tank, the coup collapsed, and by the Friday, Yeltsin was thrusting a piece of paper in Gorbachev’s face and demanding that he sign a law outlawing the Communist Party.

Within five days, the narrative went from “Back to Brezhnev” to “Russia is no longer communist.” By the end of the year, the Soviet Union was over. Those were frighteningly swift developments, which re-echoed throughout the subsequent decades. They’re having serious ramifications in Ukraine at this moment. The roles of Gorbachev and Yeltsin, both regarded as unambiguous heroes at one point, remain controversial. But the chances that we will come to see an analogy between Volodymyr Zelenskiy and his social media posts with Yeltsin’s speech from a tank look strong. And even if Putin finds himself in the Gorbachev role, which still seems unlikely, there is ample room for things to go right or wrong in the years that come.

This time around, the narrative has spun from “Putin can have what he wants” with equally stunning swiftness. The lesson for investors is to be extremely cautious, and to remember that a short-term market-unfriendly outcome (more uncertainty) is a consummation devoutly to be wished for the long term.

Survival Tips

Last week, as some noticed, I didn’t include a “Survival Tips” section for the first time since the early days of the pandemic. I did write one, but it seemed in bad taste in such circumstances. Obviously, we should all hope (and those who pray should pray) for the survival of the many people whose lives are now in danger in Ukraine.

Then, irony upon irony, on Friday morning I tested positive for Covid-19, for the first time. Just as soon as Putin had persuaded me to forget about the coronavirus, I at last succumbed. My survival is not in any danger, but as many of you already know, I can report that this is a thoroughly unpleasant experience. Even with the horrors in Ukraine, we cannot yet declare that we’re through with Covid, unfortunately. In the interests of karma, this is what I wrote last Thursday night:

And as Russia is so unpopular with so many at this juncture, let me offer a few reminders of the country's great cultural contribution to the world. Two musical pieces that speak a lot to me about Russia's experience in the first half of the 20th century, Prokofiev's Cantata for the 20th Anniversary of the October Revolution, written in 1937, and Shostakovich's Seventh Symphony ("The Leningrad.") The first is a setting of the works of Marx, Engels, Lenin and Stalin (and the music has always strongly suggested to me that Prokofiev didn't have total respect for these men, and was gambling successfully on Stalin being too much of a Philistine to understand the point he was making.) The second is a musical depiction of the siege of Leningrad. For more Russian works of musical genius, try Rachmaninov's Vespers (sung in this version by a Ukrainian choir), Stravinsky's Rite of Spring, and Tchaikovsky's Fifth Symphony.

I also had the same beautiful suggestion from more than one reader. Chopin’s Revolutionary Etude, played by the Russian pianist Vladimir Horowitz, and here by Georgian Khatia Buniatishvili. It’s also known as the Etude on the Bombardment of Warsaw, written in response to a failed revolution against Russia. It’s a powerful piece of music. And here’s another: the Polish composer’s Military Polonaise, played here by the Russian-born Austrian concert pianist Anastasia Huppmann.

With that, please try to have a good week everyone. Be safe.

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