President Vladimir Putin has disastrously miscalculated and Russia now faces deeper isolation, tougher sanctions and greater economic hardship than at any time since the Cold War. So declared President Obama after the NATO summit in Brussels.

European leaders have sounded even tougher than Obama, though less specific. Some whose countries lie far from Russia - for example, British Prime Minister David Cameron - have whipped themselves into a fury reminiscent of "King Lear": "I will do such things - what they are, yet I know not, but they shall be the terrors of the earth."

For more specificity we must turn to pundits. Geopolitical experts have predicted global anarchy because of the violation of postwar borders; economists have warned of crippling trade wars as European financial sanctions collide with Russian energy counter-measures, and eminent financial analysts have argued that investors and businesses are dangerously under-pricing enormous geopolitical risks.

Yet Putin seems unperturbed by these threats - and financial markets seem to agree with him. Since the Crimean referendum in mid-March, stock markets around the world have rebounded to almost their record highs, and the ruble and the Moscow stock exchange have been among the world's strongest markets. Investors seem to have accepted the Russian annexation of Crimea as a fairly harmless fait accompli, with no major consequences for global prosperity or even for Europe.

Markets do not always get politics right. But in this case there are persuasive reasons for putting more faith in the calm financial judgment than in dramatic headlines and belligerent political rhetoric.

Putin and the markets are probably right because the Russian leader has already achieved all the main objectives he set himself after the overthrow of President Viktor Yanukovich in Kiev. His initial objective was to punish Ukrainian nationalists and their Western allies for ousting Yanukovich by inflicting on Ukraine a serious geopolitical loss and military humiliation. This he has done spectacularly.

More important, Putin has delivered to the Russian people their first territorial conquest since the 1940s. And not just any old territorial conquest - but one with historical and strategic importance, as well as sentimental and cultural resonance for every Russian who had dreamt of retiring in the Crimea, a region whose status in the old Soviet Union could be roughly equated to Florida or the Cote d'Azur. By annexing Crimea, with its spectacular scenery, beautiful resorts and balmy climate (at least by Russian standards), Putin has won enormous popularity with the Russian public.

Perhaps most important, Putin's rapid reaction put a stop to any potential political contagion - where the populist overthrow of a corrupt and authoritarian oligarch in Kiev might have metastasized into a revolutionary movement that could sweep across Eastern Europe all the way to Moscow. Just as the Arab Spring had swept across North Africa to Cairo.

Not bad for a week's work. Now, as he plans for the coming months and years, will Putin prefer to enjoy the fruits of his victory in Crimea? Or will he seek further confrontation with the West by trying to expand Russian territory even more or trying to reconstitute the old Soviet Union?

Though nobody can be sure of the answer, the past behavior, not only of Putin but of most Russian leaders, has been primarily defensive. This makes the first option more likely - as long as the West and Ukraine do not seriously challenge the annexation of Crimea, which Putin must now regard as his greatest historic achievement and his guarantee of popularity and power.

Since all Western leaders recognize that Crimea will not be recovered - and is not worth fighting for - there will soon be no point in seriously challenging Russia's annexation, any more than the West challenges Israel's annexation of Jerusalem. Once Western pressures subside on Crimea, Russian threats to intervene in the rest of Ukraine will likely disappear.

That, in turn, will mean no tightening of Western sanctions against Russia. For despite the belligerent tone of this week's remarks from Obama and other Western leaders, their content was quite conciliatory. They all agreed that sanctions would be tightened only if Russia takes further action against Ukraine or other countries. If that doesn't happen - and there is no reason to think it will - the current cosmetic sanctions could remain in place forever without causing any major inconvenience to either side.

Once this stalemate is acknowledged, as it presumably will be after a few months of posturing, all sides in the conflict will have strong incentives to agree on a mutually satisfactory resolution. Putin will want to restore relations with the West. Ukraine will desperately want to restore Russian trade and avoid resentment among the Russian-speaking population. And the West will want Russian cooperation in stabilizing Ukraine - since Russian hostility would permanently cripple the Ukrainian economy, making it far too expensive for the European Union to support.

Luckily, the main conditions of a mutually satisfactory deal are clear and have in fact been suggested by all sides at different times. It includes a new Ukrainian constitution with decentralized powers for the Russian-speaking regions, de facto, if not de jure; acquiescence in Russian control of Crimea, and agreement that Ukraine will not be economic ready or militarily eligible to join either the North Atlantic Treaty Organization or the European Union for at least a decade or two.

Why, then, is almost nobody predicting such a conciliatory, negotiated resolution to the Ukraine crisis? The main reason is one I have often noted in this column, when discussing far more mundane battles over monetary and fiscal policy in Washington. Politicians, the media and even financial analysts often have vested interests in dramatizing confrontation - the media because battles are more interesting than negotiations; politicians because confrontations makes them seem tough; analysts because high drama justifies high pay.

Over-dramatizing is achieved through a simple rhetorical device. Political speeches and media stories ignore the events that probably will happen - like those described above - because these are deemed too dull. Instead politicians and commentators focus on the exciting and dramatic events that could happen in some improbable scenario, such as an all-out war between Russia and Ukraine, while ignoring the low probability.

But if high drama is more important than high probability, why bother with Putin, Obama and Yanukovich? Why not watch a truly great drama like "King Lear"?

© (c) Copyright Thomson Reuters 2014. Click For Restrictions - http://about.reuters.com/fulllegal.asp