Reuters blog archive
If it’s true to its word, the European Union will impose sweeping new sanctions on Russia this week, targeting state-owned Russian banks and their ability to finance Moscow's faltering economy.
EU ambassadors will continue discussions on the detail of new measures, most significant of which would be banning European investors from buying new debt or shares of banks owned 50 percent or more by the state.
An embargo on arms sales to Moscow and restrictions on the supply of energy and dual-use technologies is also on the table but it looks like restrictions to supplying technology to Russia will include oil but exclude the gas sector.
European Council President Herman Van Rompuy wrote to EU leaders asking them to authorise their ambassadors to complete an agreement by Tuesday. That would avoid the need for leaders to hold a special summit to approve the sanctions.
The EU is slowly tightening the screw on Russia, with senior officials proposing yesterday to target state-owned Russian banks in its most serious sanctions so far. Ambassadorial talks on how precisely that is to be done continue today and the measures are likely to be enacted next week.
One key proposal is that European investors would be banned from buying new debt or shares of banks owned 50 percent or more by the state. These banks raised almost half of their 15.8 billion euro capital needs in EU markets last year. That is a big deal and there are increasing signs of investors turning their back on Russia lock, stock and barrel. However, with its giant FX reserves, the central bank can provide dollars to fund external debt for a considerable period of time.
Interesting intervention from former Russian finance minister Alexei Kudrin late yesterday who warned that Russia risked isolation and having its efforts to modernize derailed.
That sort of internal criticism is rare but Kudrin has done so before without censure which suggests Vladimir Putin is – or has been - willing to hear it. Kudrin added that Moscow should not intervene militarily in eastern Ukraine.
Iraq is going up in flames and there appears to be no question of the West putting boots back on the ground in contrast to 2003 when the United States and Britain invaded to topple Saddam Hussein and set in train a decade of chaos that has now exploded again.
Iraq's most senior Shi'ite Muslim cleric has urged his followers to take up arms against a full-blown Sunni militant insurgency to topple Shi'ite Prime Minister Nuri al-Maliki. The chances of ISIL militants taking heavily armed Baghdad are slim but that doesn’t mean conflict will not continue and, with Iraqi Kurdish forces seizing control the oil hub of Kirkuk just outside their autonomous enclave in the north, the prospect of the country splitting along sectarian lines is real.
De-escalation? Forget it. Ukrainian forces killed up to five pro-Moscow rebels in the east yesterday and Russia launched army drills near the border in response.
The big question now is whether Russian troops will cross into eastern Ukraine following a constant stream of warnings from Moscow about the security of Russian speakers there.
European Central Bank President Mario Draghi delivers a speech in Amsterdam which will fixate the markets following his recent statement that a stronger euro would prompt an easing of monetary policy.
Most notably via his Clint Eastwood-style “whatever it takes” declaration the best part of two years ago, Draghi has proved to be peerless in the art of verbal intervention. But even for him there is a law of diminishing returns which may require words to be backed up with action before long.
On the face of it, the good news for the British government keeps on coming. Britain’s economy grew surprisingly fast last year and inflation fell below the Bank of England’s target for the first time in over four years in January. The government this month even got a nod from the International Monetary Fund which only last year criticized its austerity programme.
The latest confidence boost came from jobless figures on Wednesday. Not only did the unemployment rate fall to a five-year low of 6.9 percent but pay growth caught up with inflation for the first time in nearly four years. That provides Prime Minister David Cameron’s government with another lift ahead of the 2015 elections, after it has come under fire from the Labour opposition for overseeing a fall in living standards.
from Lawrence Summers:
The world’s finance ministers and central bank governors will gather in Washington this week for the twice yearly meetings of the International Monetary Fund. Though there will not be the sense of alarm that dominated these meetings after the financial crisis, the unfortunate reality is that the global economy’s medium-term prospects have not been so cloudy for a long time.
The IMF in its current World Economic Outlook essentially endorses the secular stagnation hypothesis -- noting that the real interest rate necessary to bring about enough demand for full employment has declined significantly and is likely to remain depressed for a substantial period. This is evident because inflation is well below target throughout the industrial world and is likely to decline further this year.
Unemployment is sky high, national debt is not far short of double the size of an economy which is still shrinking and its ruling coalition has a wafer-thin majority, yet there are glimmers of hope in Greece.
Having finally struck a deal with the EU and IMF to keep bailout loans flowing, Athens is preparing to dip its toe back into the bond market with a five-year bond for up to 2 billion euros.
From financial forecasters to the International Monetary Fund, calls for the European Central Bank to do more to support the euro zone recovery are growing louder.
With inflation well below the ECB’s 2 percent target ceiling and continuing to fall, 20 of 53 economists in a Reuters Poll conducted last week said the bank was wrong to leave policy unchanged at recent meetings and should do more when it meets on Thursday.