From the USA, Presidential candidate John McCain has led the charge with the call to expel Russia from the G8. Other voices have called for denying Russia entry to WTO. I have even heard talk of a possible boycott of the Sochi Olympics in 2014. All of which seems to be a question of more bark than bite.
The latest meeting of European leaders has shown how even these steps are controversial. Clearly, as most likely Putin predicted, Europe is too divided or too dependent on Russian energy supplies to develop any effective measures to the invasion of Georgia.
Fortunately, despite the prevarications of European governments, the market has a clear way of expressing its disapproval of the Russian invasion.
As Anders Aslund, the Swedish economist, has noted (http://www.moscowtimes.ru/article/1016/42/370643.htm) Putin’s decision to invade Georgia has ” he wiped out half a trillion dollars of stock market value, stalled all domestic reforms and isolated Russia from the outside world.”
The ramifications of this are much greater than simply the market value of some Russian companies decreasing. Russia has clearly benefited from the increase in oil prices which have driven the economy for the past 8 years and transformed Russia from a country that defaulted on its international loans in 1998 to accruing a substantial government reserve. But, as Aslund points out, Russia is still dependent on acceptance and investment from the rest of the world.
The more Russia is viewed as a high-risk country for investors, the less chance for economic development. Even if the European governments are too fearful to stand up to Putin, international investors are much quicker to express their disapproval. In the short run, Russia may have occupied South Ossetia. They may be paying for this victory for many years to come.
