The showdown over Ukraine threatens an already frail economic and political balance. By immediately embracing a Kiev regime whose legitimacy is suspect, the European Union (aggressively pushed by Washington) is engaging in an adventure that will prove extremely costly, both in terms of money and credibility. After all, Russia is the union’s fourth-largest export market and EU banks have huge exposures to both Russia and the Ukraine. Where is the Ukrainian crisis headed? It seems to us that there are two possible outcomes. One is a tense but relatively peaceful move toward a de facto split of the country, mostly along ethnic lines. The other is a drawn-out showdown in which Russia will restrain itself, but inflict harsh financial punishment on “Western” Ukraine and its European and American friends, until it gets control of territories that are strategically important and have significant Russian ethnicity. There are those who predict an all-out military confrontation, but we believe Russia is not interested in risking a war over a Western Ukraine that has historically been hostile and would prove very difficult to govern. We also believe that U.S. attention will soon be diverted by other crises.