The fact that markets have not reacted more strongly to the turmoil in Ukraine is a sign that the world is not yet appreciating the seriousness of the situation.
If my contacts in Europe are right, then a dangerous economic and geopolitical cocktail is on the way, which will create great turbulence in European and global markets.
Yesterday’s commentary (The Ukraine crisis has big implications for Australia, September 9) had people from Europe alerting me that if Russia moves on Ukraine, it will signal that the USSR is back and that Russia will not stop at Ukraine, particularly given America’s clear reluctance to get involved. The Ukraine crisis comes at a time when the US is under increasing pressure in the Middle East to commit there too -- and the most immediate and direct threat to the US (and Australia) is militant Islam.
Obama is clearly turning out to be a president in the style of former UK prime minister Neville Chamberlain. He has turned out to be a president unlike his predecessors, and will be remembered as a leader who favoured appeasement wherever possible. But he has made the world less stable by doing so.
If Vladimir Putin takes Ukraine, where will he go next? European observers are already analysing where there are significant Russian minorities and whether the Ukrainian technique of encouraging them to revolt can be used.
The messages I received overnight were that the Ukraine ceasefire is not holding and that Russia, under the smokescreen of so called 'rebels', is in on the move and it is winning. Of course the ‘peace deal’ proposed by Russia is effectively a Ukraine surrender.
Everyone held their breath to see whether NATO would back Ukraine with arms, but behind closed doors the US has opposed any vigorous arms action, leaving the way for Russia to take control. The US made it very clear that it was not going to get involved in the European war over Ukraine, and that’s exactly what Russian leader Vladimir had expected.
What this underlines is a dramatic reduction in the preparedness of the US to act as the world's policeman.
Former US Federal Reserve chairman Alan Greenspan emphasised this new development in a speech to KPMG, which underlined that a diminished US military means a less stable world.
Greenspan pointed out that the US is being asked to protect world oil supplies in the Middle East and simultaneously honour its European NATO obligations at a time when US budgets are squeezing available defence money.
If Ukraine were to fall, it would put Putin’s ambition to restore the USSR into clear focus. It will almost certainly see money leave Europe and the euro will fall further. This is likely to put great pressure on the European banks, many of which are already struggling. That in turn could cause a sharemarket correction. For Australians, Ukraine seems remote but our loss of life on Malaysia Airlines Flight 17 underlines how close it is. If markets react sharply, it will come even closer.