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Putin Watches Russian Economy Collapse Along With His Stature

The plummeting ruble may force the Russian President to rethink his adventures abroad

Stability was always the watchword of Vladimir Putin’s presidency, and for more than a decade it rang true. Ever since he came to power in 2000, Putin presented himself as the antidote to what Russians call the “wild ’90s,” the decade of economic upheaval that culminated in the crash of 1998. The high price of oil, and the fortunes it brought the Russian petrostate, have since allowed Putin to keep his promise of prosperity and economic growth. But this week the myth of Putin the Stabilizer collapsed, along with the value of the national currency.

Driven down by a six-month plunge in the price of oil, the ruble lost about a quarter of its value against the dollar in the first two days of this week, its steepest fall since the crash of 1998, when Russia defaulted on its debt. The central bank took drastic measures to avoid the risk of another default on Monday night, hiking interest rates from 10.5% to 17% in a desperate attempt to make Russians keep their rubles in the bank instead of spending them on foreign currency. But it came too late. The rate hike, also the steepest since 1998, only managed to forestall the collapse of the ruble for about 10 minutes when markets opened on Tuesday morning.

Putin, meanwhile, kept his head in the sand. Reporters who called his spokesman with questions about the ruble’s fall were told to call the Prime Minister or the Cabinet, as though the economy was not the President’s concern. The most notable item on the Kremlin’s website on Tuesday was a presidential order to prepare a “fundamental” history of the region of Crimea, which Putin annexed from Ukraine this spring. Though it was hardly a tonic for the national economy, this decree hinted at Putin’s plan for riding out the storm.

The annexation of Crimea, which drove Putin’s approval ratings to record highs this year, is still the main pillar propping up his popularity. But that is not likely to remain the case, according to Lev Gudkov, head of Russia’s leading independent pollster, the Levada Center. “The more people are connected to the market economy, the more critical they are of the rhetoric and demagoguery of our President,” Gudkov wrote in an analysis published on Tuesday. By spring, he predicted, public discontent would reach down to the poorest and least educated segments of the population, as economic realities they see all around them stand in ever starker contrast to the rosy picture presented on Russian state TV.

The government admitted as much on Tuesday. “We are ending the year with 15.7 million poor people nationwide,” said Olga Golodets, the Deputy Prime Minister in charge of social affairs. “And in the context of inflation their numbers will inevitably grow, especially among families with children,” she told a meeting of officials and social workers.

That’s a startling prospect for a nation that has seen a steady decline in the poverty rate since Putin came to power. But when the Cabinet held an emergency meeting on Tuesday to discuss the ruble crisis, the ministers failed to come up with any concrete measures to prevent the economy from sinking into a deep depression next year. Already there is talk of Russia being forced to introduce capital controls, or imposing restrictions on foreign trading to make it harder to sell off rubles. That might be enough to save the economy, but it would damage domestic firms and outrage the business elites who have been among Putin’s closest supporters.

MORE: Gorbachev Blames the U.S. for Provoking ‘New Cold War’

As the recession takes hold, the state’s most reliable means of deflecting public outrage will, as usual, involve blaming the West. So far pro-Kremlin news outlets have tended to avoid blaming the fall in the oil price on some kind of American conspiracy, but Putin will be tempted to offer the public such fables as the economy continues to sink. “This is the only answer,” says Kirill Petrov, chief analyst at Minchenko Consulting, a Kremlin-connected political-advisory firm. “This line would be effective, at least in the short term.”

Still, the Kremlin seems to recognize that, in the longer term, it cannot continue its struggle with the West over Ukraine without piling ever more strain on the Russian economy. That much has been clear from Putin’s softer tone toward Ukraine during the recent drop in the ruble’s value. On Tuesday, Russian Foreign Minister Sergei Lavrov even denied that Moscow has “any difficulties” in its dialogue with Ukrainian leaders, and his American counterpart, Secretary of State John Kerry, said the same day that Russia has been making “constructive moves” toward resolving the Ukrainian conflict.

It’s not likely to be enough to persuade the U.S. to ease the pressure on Russia’s economy. Indeed, President Barack Obama is expected later this week to sign a bill piling more sanctions on Russian state companies and businessmen. That may provide fresh ammunition for Putin’s anti-American rhetoric, but it could worsen what is already a dire economic situation at home. And if the President continues trying to dismiss those problems as the necessary price of his foreign policy, the core promise of stability that he made to his people upon taking power will crumble along with his country’s currency. At this rate of economic decline, the “wild ’90s” could wind up feeling tame in comparison with what’s to come.

Read next: Why Russia Is Destroying Its Own Economy

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Exclusive: Gorbachev Blames the U.S. for Provoking ‘New Cold War’

Former Soviet leader Mikhail Gorbachev in Berlin, Nov. 8, 2014.
Former Soviet leader Mikhail Gorbachev in Berlin, Nov. 8, 2014. Sean Gallup—Getty Images

"It’s America calling the shots in everything!” the former Soviet leader tells TIME

In the offices of Mikhail Gorbachev, still sharp at 83 and plainspoken as ever, the walls are lined with photos from his travels as the leader of the Soviet Union and, in the years after its demise, as a living icon of the Cold War. One picture shows him with his late wife Raisa standing arm-in-arm with Mickey Mouse and Minnie Mouse. In another frame he wears a cowboy hat and jeans as he stands beside Ronald Reagan, the U.S. President who famously branded Gorbachev’s country an “evil empire” in 1983. These portraits, like many others in his Moscow office, betray Gorbachev’s affection for his former American adversaries.

But in the course of this year those feelings seem to have been subsumed in a rising sense of animosity, as Russia and the West enter what Gorbachev calls a new Cold War. “Are we in the middle of a new Cold War? Indeed we are,” he tells TIME in an interview last month at the Moscow branch of the Gorbachev Foundation, the international advocacy group he founded in 1991, when he was forced to resign from his post as President due to the dissolution of the Soviet Union.

MORE: Vladimir Putin, TIME Person of the Year runner-up

The elder statesman, who was named TIME’s Person of the Year in 1987 and ‘Man of the Decade’ two years later, is not the first to declare the start of a new Cold War this year. Russia’s annexation of Crimea in March has caused officials and pundits around the world to warn that the West’s efforts to isolate Russia have opened a dangerous gulf between them. But the roots of the present standoff run deeper than this spring, says Gorbachev, and the blame for it lies with the Americans.

In the years that followed the Soviet collapse, the West “tried to turn us into some kind of backwater, a province,” he says. “Our nation could not let that pass. It’s not just about pride. It’s about a situation where people speak to you however they want, impose limitations, and so on. It’s America calling the shots in everything!”

For a country whose leaders remember the years when Russia was a superpower, the American dominance of global affairs has always been a taunting reality and a constant source of frustration. Instead of treating Russia as an equal partner, the West tried to “push us out of politics,” says Gorbachev, most recently during the revolution that brought a pro-Western government to power in Ukraine early this year. Vladimir Putin’s reaction to that uprising sought to claw back some of the influence Russia had lost, and for that the Russian President has earned Gorbachev’s admiration.

“Putin started acting on his own,” says Gorbachev, referring to the annexation of Crimea from Ukraine. “And his position was in the interests of the majority.”

Even a year ago such praise would have been hard to imagine coming from Putin’s Soviet predecessor. In the spring of 2013, Gorbachev attacked Putin for persecuting opposition activists and silencing dissent. He called that year’s crackdown an “attack on the rights of citizens” during an interview with the BBC, and gave Putin the following advice: “For goodness sake, you shouldn’t be afraid of your own people…What people want and expect their president to do is to restore an open, direct dialogue with them.”

Such criticism has since vanished from Gorbachev’s public remarks, much as it has from the rhetoric of many of Putin’s former critics. The annexation of Crimea sent the President’s approval ratings soaring to record highs of well over 80% this year, driven upward by a jingoistic sense of pride even as Western sanctions eat into the value of the Russian currency and push its economy toward recession. Gorbachev now seems willing to forgive Putin for his authoritarian tendencies as long as he works to restore the “great power” status that Russia lost.

“There are still elements of autocracy, of authoritarianism” in Russia today, he tells TIME. “But I’ll say this. The manual control of authoritarianism was also needed to overcome the situation that our friends, our former friends and allies, created for Russia by pushing us out of geopolitics.”

MORE: Russia’s fifth column

The new East-West divide does evoke a sense of foreboding in Gorbachev. In particular Putin’s recent warnings that Russia is a “nuclear power,” and that foreigners would be wise “not to mess with us,” all feel like reminders of the arms race that kept the world on the edge of a catastrophic war as Gorbachev climbed the ladder of the Soviet Communist Party to become its last General Secretary. “People are talking again not only about a new Cold War but a hot one,” he says. “It’s as if a time of great troubles has arrived. The world is roiling.”

But that does not mean that Putin should back down in the face of Western sanctions. The man who pursued reforms at home and peace talks with the West in the late 1980s now feels it must be the Americans who learn a sense of humility toward Russia and stop resisting its rightful role as a global power. “It’s hard to belittle the Russians,” says Gorbachev. “We know our worth.” And if the U.S. does start to seek a new thaw in relations with Russia, he has a fresh bit of advice to offer Putin going forward: “I learned that you can listen to the Americans, but you cannot trust them,” he says. “When they get an idea to do something, they’ll turn the world onto a different axis to get it done.”

Still, as our interview winds down, Gorbachev seems to snap back into the mode of reconciliation that won him the Nobel Peace Prize a quarter century ago. “We have to return to dialogue. We have to stop this process,” he says warily. “We have to return to what we started with at the end of the Cold War.” But so far, he admits, the world is moving in the opposite direction.

Read next: Exclusive: Putin Cut Ukraine Criticism From Speech Ahead of Peace Talks

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CIA Torture Report Creates Few Ripples Across the Pond

The Senate's revelations don't pose much risk of a rupture in transatlantic ties

Europe wasn’t exactly silent. But considering the scale of the abuses that the U.S. Senate Intelligence Committee revealed on Tuesday in its report on CIA torture, one might have expected a bit more outrage from the leaders of the Old World.

Instead, the most common reaction was to praise the report as a sign of American transparency and accountability—two of the values meant to bind the West together—while many European statesmen have so far avoided saying anything at all.

That includes the leaders of France and Germany, who made no public reaction in the 24 hours that followed the report’s release. British Prime Minister David Cameron only mentioned it while on a visit to Turkey on Wednesday when a reporter asked him for a response. “I’m satisfied that our system is dealing with all of these issues,” Cameron said. The practice of torture, he confidently added, is “wrong.”

The most prominent sign of European contrition came from Poland, whose former President finally admitted during a press conference on Wednesday that his country hosted one of the CIA’s “black sites,” or secret prisons, where the abuse of detainees occurred. The U.S. had asked Poland “to find a quiet place, where effective measures could be taken to obtain information,” said Alexander Kwasniewski, who served as President from 1995 to 2005. Poland had consented to the request, he added, without knowing that the “quiet place” could be used for torture. He did not clarify the year when the facility was shut down.

But the prevailing sentiment among Europe-watchers was that these revelations were considered old news. “All of this was ten years ago,” explains Constanze Stelzenmueller, an expert on European politics at the Brookings Institution in Washington, D.C. “What’s striking is that the Americans are now really trying to do a reasonably honest and non-partisan accounting of what happened.”

That American admission of guilt, and the integrity it required, did not go unnoticed even in some of the most damning editorials published in the mainstream European press. “The United States makes mistakes, sometimes terrible ones,” read an editorial in Der Spiegel, Germany’s leading newsmagazine. “But it has the strength to acknowledge it and learn from it.”

The muted reaction from European leaders, says Stelzenmueller, is perhaps best explained by the dilemma this issue presents. If one of them praises the report’s transparency, they could be perceived as downplaying the gravity of the crimes committed in the execution of the war on terror. If one of them condemns those crimes, they will almost certainly face questions about their own country’s complicity, if not also its direct involvement, in torture and illegal detention. “The risk of the follow-up question is in any case greater than the political gains,” Stelzenmueller says.

But that did not stop some European politicians from using the report as political ammunition. In Germany, the co-chairman of the opposition Left Party, Bernd Riexinger, called for Foreign Minister Frank-Walter Steinmeier to resign over the revelations. He also demanded Berlin rethink its cooperation with the U.S. on matters of intelligence. “I see no basis for cooperation with torturers,” Riexinger, whose party controls about 10% of the seats in the German parliament, told the Handelsblatt newspaper.

The Foreign Minister, who also held the position from 2005 to 2009, did not deign to respond to the remarks, though he did issue one of the harsher condemnations against the CIA’s torture practices to issue from the European leadership.

“What was then considered right and done in the fight against Islamic terrorism was unacceptable and a serious mistake,” Steinmeier told the German daily Bild, adding that the CIA’s activities amounted to a “gross violation of our liberal, democratic values.”

But experts still saw no real chance of the report forcing Berlin or any other major European power to question their transatlantic ties. The reason, says Joerg Forbrig, an expert on Central and Eastern Europe at the German Marshall Fund in Berlin, has to do with the ongoing standoff with Russia over Ukraine, which has urged the West to band together against what they perceive as a common threat to their security.

“The key ingredient to any successful Russia policy is Western unity,” he says. And as German Chancellor Angela Merkel pursues an ever tougher line against Moscow, “She needs to rally the Europeans, and she needs to make sure the coordination with the Americans remains intact.” So if the White House was expecting the Senate report to freeze relations across the Atlantic, it can probably breathe a sigh of relief.

Read next: Here’s What the CIA Actually Did in Interrogations

TIME russia

Exclusive: Putin Cut Ukraine Criticism From Speech Ahead of Peace Talks

President Vladimir Putin speaks during his meeting with Human Rights activists in the Grand Kremlin Palace, Moscow, Dec. 5, 2014.
President Vladimir Putin speaks during his meeting with Human Rights activists in the Grand Kremlin Palace, Moscow, Dec. 5, 2014. Yuri Kozyrev—Noor for TIME

A reference to the “mass destruction of [Ukraine's] own citizens” was dropped from a draft copy of a Dec. 5 speech, TIME discovers

Russian President Vladimir Putin apparently cut out a blistering critique of Ukrainian authorities in a speech to human-rights advocates last week, as he seeks to carve out a peace deal with his country’s neighbor.

In a draft prepared by Putin’s speechwriters and obtained by TIME, the President was set to accuse Ukrainian authorities of the “mass destruction of their own citizens” during their ongoing conflict with Moscow-backed separatist rebels. But at the last moment, Putin appears to have dropped that line. The speech, as he delivered it on Dec. 5, made no mention of Ukraine whatsoever.

Reached by TIME on Monday, Putin’s spokesman Dmitri Peskov declined to comment on why the President had omitted this entire section when he delivered the speech in the Kremlin throne room that afternoon. Asked whether the change signaled a shift in Putin’s position on Ukraine, Peskov said, “No, absolutely not.”

But Russia’s position on the Ukraine conflict had already softened ahead of the next round of peace talks to be held later this week. Those talks, which will involve representatives of Russia, Ukraine and the separatists who control large portions of eastern Ukraine, as well as European mediators, will provide all sides with the best chance they’ve had in months to reach a lasting cease-fire in the eight-month-old conflict, which has already claimed more than 4,000 lives. (The date for the talks, initially set for Dec. 9, could be delayed by several days at the requests of the separatist leaders, who have asked for more time to prepare.)

Ahead of those negotiations, Putin has appeared to take a more conciliatory approach, as Russia faces immense political and economic pressure from the West to call off its support for the Ukrainian separatists. Three days before the talks were due to commence in Minsk, French President François Hollande made a surprise visit to Moscow, and Putin took the unusual step of meeting Hollande at the airport rather than having the French leader come to him, as diplomatic protocol would normally require.

When the two Presidents sat down on Saturday at Vnukovo airport for two hours of discussions on Ukraine, Putin said, “We need to resolve” the conflict and the rift it has caused between Russia and the West. Following the closed-door meeting, Putin told reporters that Russia respects Ukraine’s territorial integrity and wants to see it restored. Hollande then spoke with his German counterpart, Angela Merkel, about the “prospects for progress that have emerged” in relations with Russia.

But Putin’s last-minute redaction of the speech on Friday is perhaps the clearest sign yet of a change in rhetoric. He has tended throughout the conflict in Ukraine not to miss an opportunity to denounce the Ukrainian authorities for violating the rights of ethnic Russians, and Friday’s meeting with rights advocates in the Kremlin seemed like an ideal venue to trot out those claims once more.

According to the copy of the draft speech distributed at the Kremlin press center on Friday, Putin was meant to tell his audience that, “Neither international acts nor the structures meant to defend human rights have been able to stop the Ukrainian authorities’ mass destruction of their own citizens. Despite the fact that international observers are present in Ukraine, people are unable to stop the violation of their most basic right, the right to life.”

Gleb Pavlovsky, a former Kremlin adviser and political consultant, says the redaction appears to be part of a broader shift in Russia’s messaging. “The turn on the Ukraine issue is clear, even obvious,” he says. “Putin now wants to strengthen the message of friendliness, and the Kremlin is trying in various ways to turn down the heat on the Ukrainian issue.”

Russian state television networks, for instance, have gradually stopped labeling the Ukrainian government “fascist” in their reports, and on Saturday, Russian Foreign Minister Sergei Lavrov referred to the separatist-controlled regions of eastern Ukraine as an “open boil” on the body of the country, that needed to heal. Even a month ago it would have been hard to imagine such language coming from senior Kremlin officials, who have doggedly supported the separatists ever since their war against Ukraine began in April. “But now Moscow is trying to distance itself from them,” says Pavlovsky.

One of Putin’s imagemakers from the start of his presidency until 2011, Pavlovsky says it is not rare for the President to make last-minute changes to the texts that his speechwriters prepare. And he would almost certainly have approved the original version denouncing rights violations in Ukraine, Pavlovsky says. “Otherwise it would not have been there. But at the last minute he apparently decided that it’s not appropriate.”

The reason seems to be the troubling state of Russia’s economy. Over the past nine months, the U.S. and its allies have imposed several rounds of sanctions against Russia to force a change in the Kremlin’s interventionist policies in Ukraine, and those sanctions have managed to inflict substantial pain on Russian elites and state-connected firms. At the same time, a sharp drop in the price of oil, Russia’s most important export, has decimated federal coffers and the national currency, which has lost about 40% of its value against the dollar since the start of the year.

But a sudden change of course on Ukraine could damage the Russian President, Pavlovsky warns. The Kremlin’s propaganda channels have spent months stirring up public support for the separatist cause, and the President could see a drop in his sky-high approval if he is seen as submitting to Western pressure at this stage in the conflict, he says. “They don’t want the public to notice this shift.”

Read next: TIME Unveils Finalists for 2014 Person of the Year

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Putin’s Rambling State of the Nation Speech Unnerves Russia’s Elites

Russian President Vladimir Putin gives his annual state of the nation address in the Kremlin in Moscow on Dec. 4, 2014.
Russian President Vladimir Putin gives his annual state of the nation address in the Kremlin in Moscow on Dec. 4, 2014. Pavel Golovkin—AP

The euphoria among the Kremlin elites that followed the annexation of Crimea has faded as economic and security issues pile up

Vladimir Putin’s state of the nation address on Thursday looked at first like a flashback to the not-so-distant past. It was held in St. George’s Hall, the same ornate room in the Kremlin where the Russian President announced his decision in March to annex the region of Crimea. The same honor guard opened the gilded doors when it came time for the President to enter, and Putin sprung into the hall with his usual strut, at once cocky and contained, like a boxer trotting into the ring. He also surprised exactly no one by repeating his hackneyed slogans of defiance toward the West: “It is pointless trying to talk to Russia from a position of strength,” he declared. And later on: “No one can gain military superiority over Russia!”

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But there was one big difference: the reaction. The audience’s composition was the same as before, the rows packed with the same sycophantic lawmakers, technocrats, and propagandists who attended Putin’s blistering Crimea speech on March 18. But the applause Putin received this time was a lot more muted. Not a single standing ovation interrupted him, and even the most crowd-pleasing quips – “Our army,” Putin said, “is polite but terrifying” – hardly got more than a chuckle and a golf clap.

It’s not hard to see why. On the eve of Putin’s big speech, the problem of violent separatism sprung up again on Russia’s southern flank, a security issue far more immediate and close to home than the military threat emanating from Ukraine. On Wednesday night, a group of at least ten gunmen in the region of Chechnya sparked a massive shootout and manhunt in the regional capital of Grozny, reportedly leaving at least ten police officers dead before sealing themselves off in a school and the local House of Press with caches of explosives. Only on Thursday morning, a couple of hours before Putin’s address, did the national anti-terrorism committee announced that it had “liquidated” all the terrorists. “Street battle in Grozny,” remarked Carl Bildt, Sweden’s ex-Minister of Foreign Affairs and a vocal critic of the Kremlin. “Moscow should have more pressing priorities than destabilising Ukraine,” he tweeted on Thursday.

But the trouble at the top of most people’s minds in Moscow was not the one beamed in from Chechnya by the television news. It was the one afflicting the savings accounts and travel plans of millions of regular Russians. The national currency, the ruble, has lost about 40% of its value against the dollar since Putin’s annexation of Crimea, and that has made it a lot harder for Russians to afford the foreign holidays and Western goods they love. Apple, for instance, hiked prices for its iPhone by up to 25% this week to make up for the ruble’s drop in value, as did IKEA for the furniture sold at its Russian locations.

Putin’s attempts to address these issues, however, did little to ease the tension on the faces of his audience. For one thing, he suggested that the ruble’s record-low value is the fault of mysterious “currency speculators,” rather than what everyone knows is really to blame – the Western sanctions launched by the U.S. and the EU after the annexation of Crimea, multiplied by the five-months long plunge in the price of oil, Russia’s biggest export. To repair the economic slide, he ordered the Russian Central Bank and other watchdogs to track down speculators and make them stop messing with the ruble. “The authorities know who these speculators are,” Putin claimed. “And we have instruments to influence them.” On hearing this, Central Bank Chairwoman Elvira Nabiullina, a celebrated economist, bowed her head and appeared to wince. Across the hall, Finance Minister Anton Siluanov, who sat bold upright at the edge of his seat, continued to compulsively bite his lower lip as Putin laid out his economic roadmap.

It soon became clear that Putin did not have much of a roadmap at all. His idea for coping with the isolation from the West, and for dealing with the recession that is almost certain to hit next year, revolved around the adage of “import replacement,” which would see Russia break its dependence on foreign technology, food and consumer goods by producing everything it needed at home. “We have to break our critical dependence on foreign technology and industrial products,” he said.

But in the near term, that’s just not possible, according to Sergei Aleksashenko, a prominent economist and former deputy chairman of the Russian Central Bank, because Russia has never produced a lot of the technology that its modern industries need to function. “It even seemed like Putin took to the podium not because he had something important to say, but only because he was constitutionally obligated to do so,” Aleksashenko wrote in an analysis of the President’s speech. “The superficial analysis of the situation reflected a disconnect with real life, an ‘alternate reality,’ in which the Kremlin now seems to live.”

More perhaps than the sanctions themselves, Putin’s lack of a practical vision in trying to solve Russia’s economic troubles has unnerved the establishment in Moscow in the last few weeks. “The business elite, people close to Putin, there’s a nervousness that we haven’t had for a long time,” says Michael McFaul, the former U.S. ambassador to Moscow who now studies Russia as a Senior Fellow at the Hoover Institution at Stanford University. “I don’t know if that’s overreaction, but it feels palpable to me from people I know. They used to be very cocky. They used to have a lot of bravado, and I don’t see that anymore,” he says by phone from California.

There was not much bravado on show as the officials filed out of the hall on Thursday following their President’s speech. Making their way passed the Kremlin’s throne room and toward the stairs, they were pursued by TV crews demanding information about the slump in the ruble. “If you knew there are speculators why didn’t you take some action to stop them months ago,” a correspondent for state-run Channel One demanded of every official he could get in front of the camera.

Some of Putin’s closest allies did put on a brave face, but they appeared to lack the defiant confidence they exuded after gaining control of Crimea. Sergei Glazev, the Kremlin’s point man on Ukraine and a key economic adviser, dismissed the apparent lack of enthusiasm for Putin’s speech this time around.

“Applause is a subjective measure,” he told TIME as he retrieved his fur hat from the cloakroom.”Besides, you can’t compare the situation now with what it was after Crimea.” Indeed, those nine months have dampened not just Russia’s enthusiasm, but its president’s aura of defiant invincibility.

Read next: 19 Dead in Gun Battle in Chechen Capital

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Putin’s Loss of German Trust Seals the West’s Isolation of Russia

President Putin gives press conference following G20 Summit
Russia's President Vladimir Putin looks on at a press conference following the G20 Leaders' Summit in Brisbane, Australia. Klimentyev Mikhail—EPA

After a night spent debating the Ukraine crisis with the Russian President, German Chancellor Angela Merkel came out more determined than ever to push the Kremlin out of Eastern Europe

Vladimir Putin has long had a soft spot for Germany. As an officer of the KGB in the late 1980s, he was stationed in the East German city of Dresden, where he developed a love of the language and, according to his memoirs, for the enormous steins of pilsner he drank at a beer hall in the town of Radeberg with friends.

As President, Putin’s foreign and economic policies have always looked to Germany as a pivotal ally, a vital partner in trade and a sympathetic ear for Russian interests. He seemed to feel that no matter what political headwinds came his way, the German sense of pragmatism would prevail in keeping Berlin on his side. That illusion has just been shattered.

During a speech on Monday, German Chancellor Angela Merkel predicted a drawn-out confrontation with Moscow. Breaking from her normally subdued political style, she even invoked the worst years of the 20th century in describing the West’s conflict with Russia over Ukraine. “After the horrors of two world wars and the end of the Cold War, this challenges the peaceful order in Europe,” she said, referring to what she called Putin’s “old-thinking” view of Eastern Europe as Russia’s stomping ground. “I am convinced this won’t succeed,” she said. In the end, the West would win out against the challenge emanating from Russia, “even if the path will be long and hard and full of setbacks,” Merkel told a conference in Brisbane, Australia.

It was in many ways the low point for Putin’s deepening estrangement from the West. During the G20 summit of world leaders held in Brisbane over the weekend, the Russian leader was broadly ostracized by the most powerful figures at the table, and some of them were far less diplomatic toward Putin than Merkel has been. In greeting Putin on Saturday, Canadian Prime Minister Stephen Harper reportedly said, “I guess I’ll shake your hand, but I have only one thing to say to you: you need to get out of Ukraine.”

Later that day, Merkel came to the Hilton Hotel in central Brisbane for an unscheduled meeting with Putin that reportedly lasted almost six hours, running well into Sunday morning. The subject was the conflict in Ukraine, and according to the Kremlin, Putin did his best to “clarify in detail the Russian approach to this situation.” But his efforts to win Merkel’s sympathy – or at least her understanding – appear to have done the opposite. He emerged from their encounter apparently so exhausted that he decided to leave the summit early, saying he needed to get some sleep.

The letdown seemed all the more painful considering his recent attempt to reach out to the German public. A few days before the G20 summit began, Putin decided to give a rare one-on-one interview to the national German television network ARD, whose correspondent grilled him on Russia’s support for separatist rebels in eastern Ukraine. Putin tried to sound conciliatory. “Of course we expect the situation to change for the better,” he said. “Of course we expect the Ukrainian crisis to end. Of course we want to have normal relations with our partners, including in the United States and Europe.”

Particularly for Germany, he argued, it is important to work things out with Russia, because their economies are so closely intertwined. Trade with Russia accounts for as many as 300,000 German jobs, Putin said, and by going along with the sanctions that the West has imposed on Russia, Berlin risks hurting its own economic growth. “Sooner or later,” he said, “it will begin to affect you as much as us.”

The warning, more plaintive than defiant in its tone, was aimed as much at the political elites in Germany as its powerful business interests, which rely on Russia for natural resources and a huge consumer market. Last year the trade between the two countries was worth more than $100 billion, compared to less than $40 billion between the U.S. and Russia. To fuel its energy-intensive industrial base, Germany also gets a third of its oil and gas from Russia, and 14% of everything that Russia imports is made in Germany.

But Putin, for all his appeals to German pragmatism, was wrong to hope that Russia’s isolation could boomerang back on the German economy, or on Merkel’s popularity. Even as the sanctions war choked off trade between Russia and the West, Germany’s total exports reached an all-time high in September. At the same time, Russia’s reputation among the German public has been scraping bottom. In a nationwide survey conducted in August, a German pollster reportedly found that 82% of Germans do not believe that Russia can be trusted, while 70% called for tougher sanctions against the Russian economy.

“So it seems clear that Putin has miscalculated,” says Joerg Forbrig, an expert on Eastern Europe at the German Marshall Fund in Berlin. “Certainly when it comes to Germany.”

This is a costly mistake. In trying to sway Berlin, Putin pursued his best, and perhaps only, chance of breaking the West’s resolve against him. The business lobby in Germany is both more powerful and more sympathetic toward Russia than any major European state, and the German electorate has generally favored a neutral stance on foreign policy.

Just a few weeks after Russia invaded and annexed the Ukrainian region of Crimea in March, nearly half of Germans said that their government should not take sides in the conflict, while 35% urged their leaders to seek an understanding with Moscow. This core of German Russophiles now looks to have evaporated, and with it Putin loses the only Western partner that could have stopped the isolation of his country.

Many in Moscow have watched that turn in German feelings with surprise. “Even during the Cold War, we were laying [oil and gas] pipelines to Germany,” says Leonid Kalashnikov, vice chairman of the foreign affairs committee in Russia’s lower house of parliament. “Back then nobody seemed to mind.”

Under Putin, those energy links have been vastly expanded. In 2011, he launched the Nord Stream natural gas pipeline to pump fuel from Russia to Germany under the Baltic Sea. (In a sign of just how well-connected Putin was in Berlin at the time, Merkel’s predecessor, Gerhard Schroeder, took a job as chairman of that pipeline project after his term as chancellor ran out in 2005.) But at the end of September, Merkel said the European Union may need to break its addiction to Russian fuel in the long term, especially if the Kremlin’s expansionist policies continue to violate “basic principles.”

But even the threat of losing the European market – disastrous as that would be for the Russian economy – is not likely to make the Kremlin yield. “There’s one thing the West just doesn’t understand,” says Kalashnikov. “They can use sanctions to coerce a small country. But Russia is not one of them. We will not get on our knees and do as we’re told.”

Thanks largely to his own anti-Western bluster, Putin’s support in Russia now relies more than ever on his defiance toward the West, and he will sooner accept the role of a pariah abroad than weakling at home. “We’re just not going to chastise him into changing his tune,” says Matthew Rojansky, a Russia expert at the Wilson Center in Washington.

Much more likely, the West’s ostracism will “foreclose” any remaining channels for swaying Putin through dialogue, adds Rojansky. But if Putin was searching for such a channel during his night of debating with Merkel, he has come up empty-handed. It’s not clear if he has anywhere else in the West to turn.

Read next: Russia to Create Its Own ‘Alternative Wikipedia’

TIME Ukraine

Cease-Fire in Ukraine Fails and Preparations for War Begin

The newly elected leader of the self-proclaimed Donetsk People's Republic, Alexander Zakharchenko, takes the oath on Nov. 4, 2014 during an inauguration ceremony in the eastern Ukrainian city of Donetsk.
The newly elected leader of the self-proclaimed Donetsk People's Republic, Alexander Zakharchenko, takes the oath on Nov. 4, 2014, during an inauguration ceremony in the eastern Ukrainian city of Donetsk Alexander Khudoteply—AFP/Getty Images

Ukraine and pro-Russian forces are arming for the next round of conflict

The shelling of Mariupol, a city on the front lines of the war in eastern Ukraine, resumed in earnest at the end of October, just as the country had finished electing a new parliament. It has not let up since. “Day and night, they have been bombing from two directions,” says Vasyl Arbuzov, an adviser to the local authorities in Mariupol, referring to the pro-Russian rebels who have approached the city from the east. “So most people, yes, are preparing for an invasion at any time, from minute to minute.”

If some of the locals still believed in the conflict’s cease-fire — the so-called Minsk protocol signed on Sept. 5 — they have been forced in the past week to part with their illusions. Both the Ukrainian forces and the pro-Russian separatists have been mobilizing troops and weapons for another round of vicious fighting, and the truce has all but broken down in the war that has already claimed some 4,000 lives since April.

“We will continue intensive reinforcement,” President Petro Poroshenko told the Ukrainian people in a televised address on Monday, referring to the rebel leaders as “bandits, terrorists and interventionists.” The following day, he announced during a meeting with his security council that several new military units had been formed to aid in the defense of Mariupol and two other cities near the war zone. The forces in Mariupol, he said, have built three lines of fortifications around the city and received “modern offensive and reconnaissance weapons” from the Ukrainian military.

But it is far from clear whether that will be enough to defend the city of nearly half a million people, a strategic port and industrial powerhouse on the coast of the Azov Sea. Its defenders barely managed to repel the last attack in August, when NATO officials observed thousands of regular Russian troops rushing across the border in an apparent effort to take the sea’s entire northern coast. They managed to seize the seaside town of Novoazovsk, securing access to the sea for the breakaway rebel enclaves in eastern Ukraine. But they were stopped at the outskirts of Mariupol.

“We barely held on,” says Serhei Taruta, who was then serving as the governor of the region that includes Mariupol, his hometown. A former mining tycoon and engineer, Taruta told TIME in September that he managed to scrounge up a stock of enormous steel plates from the city’s industrial forges, working with a group of paramilitary fighters to turn them into a system of bomb-proof bunkers at the edge of the city. The Russian forces, he says, “would try to clear a path with intensive shelling, but the bunkers stood firm.” As the Russian forces approached, he recalls, the Ukrainian fighters would jump out of the steel boxes and fire on the advancing Russian columns with shoulder-mounted rocket launchers. It went on like this for several days, Taruta says, before the assault subsided.

Since then, the pro-Russian militias have been preparing for another round. U.S. Air Force General Philip Breedlove, the supreme commander of NATO forces in Europe, said on Monday that the border between Russian and Ukraine has become completely porous, allowing Russian troops and weapons to pass freely into the rebel territory with reinforcements. Since August, Russia has sent six massive convoys of trucks, hundreds of them in all, into the rebel strongholds, carrying what Moscow claims to be humanitarian aid. None of them have been inspected by Ukrainian authorities, who have lost control of the roads leading into rebel territory from Russia, so the government in Kiev suspects the cargo could be loaded down with heavy weaponry.

But it wasn’t the flow of supplies from Russia that led to the erosion of the cease-fire. It was the rebels’ decision on Sunday to held elections on the breakaway territories that run along the Russian border. Touted as a sign of their independent statehood, the ballots were meant to legitimize the rebel leadership with titles such as “President” and “Minister” in the regions they control. The day after the results were announced, Ukraine’s President called them “pseudo elections” and pledged never to recognize the “coronated” men. “They may even call themselves kings or emperors,” Poroshenko said in his televised address. “Still, no matter what they put on their heads, they will remain occupants, criminals and militants.”

In response to the rebel ballot, he ordered parliament to revoke the key concession that Poroshenko made in September to secure the cease-fire. The so-called special status law was meant to give broad powers of autonomy to the disputed regions of Donetsk and Luhansk, where the rebels have set up little protectorates of Moscow. That act of appeasement from the Ukrainians was enough to slow the fighting over the past two months. But Poroshenko now wants the law to be repealed. Instead, a new law must delineate a clear border for the separatist regions and cut them off from all support from the central government in Kiev. “It will let these districts be responsible for their self-funding,” Poroshenko said. “Everyone will be judged by his work.”

If this is an attempt to starve the rebel leaders into submission, it is not likely to work. Russia has proved willing to support them with cheap fuel and other supplies as long as they keep up their rebellion against the government in Kiev. As the peace deal breaks down, they will be tempted to expand the territories they control, thus forcing Poroshenko to cede more and more land to the rebels whenever a new round of peace talks begins.

Oleg Tsarov, who took the title of “Speaker” of the separatist parliament after the weekend ballot, has already hinted that such an offensive was in the works. The pro-Russian uprising, he said in a statement emailed to TIME on Wednesday, began six months ago with the deadly street clashes between protesters in the port city of Odessa, which has remained under Ukrainian control. “I am certain that we must close the circle,” Tsarov said in his statement. “The civil war that started in Odessa must end in Odessa as well.”

A look at the map of Ukraine leaves little doubt of his intentions. In order for the pro-Russian forces to attack Odessa, they would need not only to overrun Mariupol but nearly all of southern Ukraine as well. Russia would then be able to secure a land bridge to the southern region of Crimea, which it invaded and annexed at the outset of the conflict in March. For the military hawks in Moscow, that has been the great temptation all along.

But Tsarov, when reached by phone on Wednesday, tried to ease up on his threat. “We are not preparing an imminent march on Odessa,” he tells TIME. Instead they will bide their time and continue laying down the roots of statehood on their territory, he says. “But if the Ukrainians attack us, they should know that we will not just defend ourselves. We will counter attack.” And if the Russian military once again comes to support them, it could mean the fall of Mariupol fairly quickly, though not without a pile of bodies on both sides.

Read next: Former Aide Says Putin Has No Strategic Plans

TIME russia

Chechen Dissident: ‘I Survived Abduction by Vladimir Putin’s Agents’

The story of one man who says he was tortured for challenging Russia's president

On a warm morning in early August, a 68-year-old Chechen man named Said-Emin Ibragimov packed up his fishing gear and walked to his favorite spot on the west bank of the river that runs through Strasbourg, the city of his exile in eastern France. Ibragimov, who was a minister in the breakaway Chechen government in the 1990s, needed to calm his nerves, and his favorite way to relax was to watch the Ill River, a tributary of the Rhine, flow by as he waited for a fish to bite.

Ibragimov had reason to be nervous. The previous month he had accused Russian President Vladimir Putin of war crimes in a criminal complaint he had sent to the International Criminal Court (ICC) and to the Kremlin. Ibragimov had taken five years to compile evidence of what he considered crimes committed during Russia’s two wars against separatists in the Russian republic of Chechnya. During the second Chechen war, which Putin oversaw in 1999-2000, Russia bombarded the Chechen capital of Grozny and killed thousands of civilians. The U.N. later called Grozny “the most destroyed city on earth.”

Read the full story here.

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