The situation in Ukraine can become the financial markets’ nightmare. Global indexes continued to rise in uncoordinated fashion as the United States fell by about 3.5% in January 2015, while Europe grew by about 7%. This growing divergence may not only result from the end of quantitative easing (QE) in the former and the beginning in the latter, but from a different awareness about geopolitical instability that could threaten the relative stability of today’s world finance. As contradictory as it sounds, it seems that the US business community has developed increased attention on the war in Ukraine that their European counterparts seem to lack.
There is a war going on in the far east of Europe, but this does not mean much for the west of Europe. The constant – likely increasing – involvement of the US government – “defensive weapons” could be delivered to the Ukrainian armed forces – against pro-Russian separatists may explain this fact as European governments avoid any operational involvement. As soon as the newly-elected Greek government took office in Athens, the Russian government was quick to offer financial support, this way highlighting the extent of what a serious complication in Ukraine could cause to the European economy.
Pro-Russian separatists called for the recruiting of 100,000 volunteers to continue, if not expand, military operations with all the risky consequences that go with it. Their weapons, allegedly supplied by Russia, have become increasingly modern, a clear evidence the separatists gained real experience through this first year of war, which lets one foresee a possible hardening of the conflict. So there are only two possible scenarios: first, a status quo that would endorse the current situation but which in the long term will appear satisfactory to neither side, the second, a more deadly war that could spill beyond the borders of Ukraine. In both cases, it is an event of sufficient seriousness for one to operate the financial markets with some heightened caution this year.