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The Ukraine crisis

By Michael Knox - posted Thursday, 24 February 2022

Putin sees himself as standing in the way of a historical process. This process is the eastward expansion of the European Union (EU). As the EU has expanded eastward, so has the North Atlantic Treaty Organisation (NATO).

Before the fall of the Berlin Wall, there was another large economic community east of the EU. This was called Comecon. The pronunciation of this word is now delightfully similar to that of the Comic Convention – Comic Con. Comecon was an economic association of the communist countries of Eastern Europe including the Soviet Union. This association collapsed with the Soviet Union.

When this happened in the 1990s, Russia was given firm assurances that Poland, Lithuania, Latvia and Estonia would not become part of NATO. What then happened was that each became a member of the EU and then each became a member of the NATO.


On 21 February 2019, the Constitution of the Ukraine was formally amended, the strategic course for membership of the EU and NATO were enshrined in the preamble of the Basic Law, three articles and transitional provisions. Ukraine is preparing to formally apply for EU membership in 2024 in order to join the EU in the 2030s.

Putin appears to believe that if Ukraine becomes part of the EU, then Russia would inevitably become unable to defend its western border. Even if Ukraine became an independent but rearmed country within the EU without NATO, the cost to Russia defending its western border could be prohibitive.

Again, commentators have said that Ukraine can join the EU without joining NATO. But recent history is that all previous Comecon countries that joined the EU did become members of NATO despite assurances to Russia.

Putin has a multistep diplomatic and military strategy. The first step was the publication of a major article on 12 July 2021: "On the Historical Unity of Russians and Ukrainians".

In that article, he talked about a long history of Russia beginning with Kiev as the ruling city in the 9th century AD. It is only in the 15th century AD that power moves to Moscow. By the 17th century power is very formally in Moscow.

Interestingly, Putin's article appears to show the increasing influence of Germans on the Soviet Union and the Ukraine after the Great War. Putin appears to feel that the expansion of the EU eastwards, since 1990, is similar to the expansion of Germany eastwards in the 20th century.


It is Germany, not the United States, which he perceives as the major player. It is Germany after all, that is the dominant country in the EU. It is Germany that determines what countries can enter the EU and when.

It is possible that no-one is truly frightened of Joe Biden except his biographers. Certainly, Vladimir Putin is not. Nor does Putin think the US is the important power making the decisions about the eastward expansion of the EU. Putin has worked very hard to build up a good working relationship with Germany. The dependence of Germany on Russian natural gas is an example of this.

I think that Germany here, not the US, is the major player. The recent visit by German Chancellor Olaf Scholz seems to have been fruitful. It is Germany after all, not the US that decides Ukraine's future in the EU and NATO, not the US.

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The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk.

This report was prepared as private communication to clients of Morgans and is not intended for public circulation, publication or for use by any third party. The contents of this report may not be reproduced in whole or in part without the prior written consent of Morgans. While this report is based on information from sources which Morgans believes are reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Morgans judgement at this date and are subject to change. Morgans is under no obligation to provide revised assessments in the event of changed circumstances. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.

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About the Author

Michael Knox is Chief Economist and Director of Strategy at Morgans.

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