MacroScope

Putin’s Ukraine “victory” — pyrrhic?

By Mike Peacock
December 3, 2013

Ukraine continues to top the European worry list.

Monday demonstrated how quickly the financial side of the equation can spiral out of control. The hryvnia currency slumped and the cost of insuring against Ukrainian default soared, forcing the central bank to intervene and urge its citizens not to spark a bank run.

Having turned its back on the EU, Kiev must find more than $17 billion next year to meet gas bills and debt repayments. Presumably Russia will have to help out if it is not to have a basket case on its doorstep.

Has Vladimir Putin factored that into his diplomacy? He is certainly concerned, describing the protestors who blockaded government buildings on Monday of pursuing pogrom – about as loaded a term as he could choose – engineered by “outsiders”, not revolution.

His apparent victory in persuading President Viktor Yanukovich to look to Moscow rather than Brussels could prove short-lived.

Ukraine’s prime minister talked of an attempted coup d’etat yet Yanukovich is heading for China on a planned visit. Does that denote less concern on his part and/or is this a desperate bid to drum up funds? 

With Italy’s coalition government on stronger ground following the expulsion of Silvio Berlusconi from parliament and the splitting of his party, Prime Minister Enrico Letta must overhaul of the country’s electoral law which consistently delivers fractured, unstable administrations.

Today, the constitutional court is due to hear a challenge on the grounds that the system deprives voters of their constitutional rights to fair representation and a working system of government. A ruling is unlikely until January.

Could that allow Letta to seize an opportunity? Nearly everyone agrees on the need to create a more stable system but no one can agree how to get there. Letta speaks at an infrastructure conference today with pressure also mounting on him over the 2014 budget.

EU economics czar Olli Rehn said Italy was “not respecting” the required pace of debt reduction and has no wiggle room over cutting its structural deficit. Data last night showed the state sector budget deficit widened significantly in November year-on-year.

Portugal will swap 2014 and 2015 bonds for bonds maturing in 2017 and 2018 in order to alleviate bond redemptions next year when the country hopes to exit its international bailout. Yesterday, we interviewed a Portuguese treasury minister who revealed that Lisbon is pushing to issue a bond early next year to demonstrate its ability to return to market debt financing by mid-year. It would aim to issue regularly thereafter. Today marks a first step in the reduction.

After its manufacturing PMI survey slid surprisingly back into negative territory yesterday, Spain will issue November jobless numbers which will look as grim as ever despite its economy ending nine quarters of recession.
Economy Minister Luis de Guindos will present a report on Spanish economy with accountancy giant PwC.

Earlier, an annual report from watchdog Transparency International showed Spain has slumped 10 places to a rank of 40 in a global index of perceived official corruption after a spate of scandals in its ruling centre-right ruling party and the royal family.

The British Retail Consortium reported overnight that UK retail sales made a slow start to November before picking up with overall growth slowing from October. Coming up is the PMI construction survey after the manufacturing equivalent on Monday showed the strongest pace of growth in almost three years in November.
This is all grist to the political mill with finance minister George Osborne to deliver his autumn budget statement on Thursday where he will be able to tout the first upgraded growth forecasts in years.

Worth keeping an eye on Romania after President Traian Basescu said last night he would not ratify the government’s review of a standby loan deal with the International Monetary Fund and the European Commission because he opposes introducing a new fuel tax.

Basescu said “practically speaking” Romania no longer had a standby agreement with the IMF. Since the deal was done earlier this year, market pressure has eased, allowing the central bank to cut interest rates sharply by 125 basis points since July. What happens now?

Comments
One comment so far | RSS Comments RSS

This article is ALL over the place! Reuters is usually pitching something, but this is incomprehensible on any level. Is it some kind of news wrap-up? What’s the headline about, if not the subject of the article? President Eisenhower was once cautioned about tough questions he was going to get after a press conference. His reply was, “Don’t worry. I’ll just confuse them.”

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