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The war in Ukraine has not done great things for the Russian economy. The Economistcalls the latest sanctions, announced on July 29 in the wake of the downing of Malaysian Airlines flight MH17 in eastern Ukraine, the “end a 25-year-long quest to make Moscow a partner of the West.” The financial embargoes, which target Russia’slargest banks, are not by themselves enough to cripple the country’s finances, but they are still going to be a big blow to an already faltering economy.
The FT Alphaville team writes that part of the quarter-century attempt to bring Russia into the western fold included “efforts to connect Russia to the plumbing which developed markets take for granted,” like adding its domestic sovereign debt to international clearing systems. Those connections are still in place, but a lot of funds are moving toward ignoring Russian markets entirely. MSCI, which provides a number of investment indexes, announced today that it is creating new emerging markets indexes that exclude Russia for investors who want to avoid exposure to the country.
Sanctions, and subsequent trade disruptions, have implications for Europe as well. AnIMF report published today says that exports are only slightly problematic beyond the former Soviet bloc. However, gas and oil imports are a huge deal, especially because the largest pipeline from Russia into Europe goes through Ukraine. David Roche writes that in the long run, Europe could theoretically free itself from reliance on Russian energy imports thanks to the shale revolution, but “in reality neither Europe’s own shale production, nor U.S. imports will come on line sufficiently and speedily enough.”
European defense firms are also somewhat concerned. Sanctions “will squeeze access to an expanding market at a time when governments at home are tightening military spending,” according to the WSJ (although it’s hard to feel too bad for them, since politically that’s sort of the point).
In related ideas, Timothy Taylor offers up a theory that poor economic conditions in Russia created this increased aggression. He says that Russian president Vladimir Putin had something of an unspoken deal with the Russian people in the 2000s: If you settle for less democracy, I’ll stabilize and grow the economy, along with making Russia more important on the global stage. That went okay for a while, but as that growth has leveled off, says Taylor, Putin “feels some pressure to raise the decibel level on Russian assertiveness in international affairs.”
The aggression is all part of Putin’s vast Eurasian plan, says Nouriel Roubini. Because of that, sanctions “may merely reinforce the conviction among Putin and his nationalist Slavophile advisers that Russia’s future lies not in the West, but in a separate integration project in the East.” — Shane Ferro
On to today’s links:
A tale of two middle classes - Branko Milanovic
Graeber and Piketty “discoursing on the deep shit we’re all in and what we might do about climbing out” - The Baffler
Econobloggers’ favorite FRED charts - Ryan McCarthy