CaliToday (22/9/2025): Any further economic move by the occupying state of Russia will only worsen its already dire situation, forcing the Kremlin into a hopeless position where it must choose between abandoning its war against Ukraine or defunding its other critical budget expenditures.
This stark assessment comes from Andriy Novak, Chairman of the Association of Ukrainian Economists, who argues that Russia is trapped in a classic "zugzwang"—a situation where any possible move leads to a worse outcome.
The 'Classic Zugzwang' Explained
In an interview with the publication Glavred, Novak explained that Russia's economy is cornered. If the Kremlin decides to lower its key interest rate, inflation will inevitably surge. Conversely, raising the key rate will choke off access to credit for businesses, leading to widespread bankruptcies.
A similar lose-lose scenario exists with the national currency.
"Russia is in a classic zugzwang, where any move only worsens the situation," Novak explained. "If they lower the key rate, they will unleash inflation. If they raise the key rate, they will increase the risk of bankruptcy for Russian companies because it will be impossible to get loans, and most businesses now survive on credit. If they try to artificially restrain the ruble's exchange rate, the budget deficit will grow even faster. If they devalue the ruble, they will experience hyperinflation, which is a powerful blow to the vast majority of Russians, with 80-85% of the population living below the subsistence level. So, for the Russians, any move by the government or the central bank will only make things worse."
"There is No Way Out"
According to Novak, Russia is in a truly hopeless position and will be forced to abandon either its war effort or its domestic financial commitments.
"Russia has no way out. Despite the common philosophical assertions that hopeless situations do not exist, Russia is now in one," Novak emphasized. "They have to give up something significant and serious to have a chance of survival: either abandon the war (which the Kremlin cannot do) or refuse to finance other budget expenditures (which means collapse for both the Russian people and Russian businesses). This is the diagnosis that can be given to the Russian economy today."
P.S. Explanatory Note:
"Zugzwang" is a term from chess and checkers where a player is put at a disadvantage because they are forced to make a move, and any move they make worsens their position. Today, the term is used not only in chess but also in other sports, gambling, board games, and various other fields to describe crises in politics, economics, and society, as well as in everyday life.
