A question of gas

April 9, 2014

Vladimir Putin will meet senior Russian government officials to discuss Russia’s economic ties with Ukraine, including on energy after state-controlled natural gas producer Gazprom said Kiev missed a deadline to pay a $2.2 billion bill.

In previous years, gas disputes between Moscow and Kiev have hurt supplies to Europe. The Ukraine government has said it would take Russia to an arbitration court if Moscow failed to roll back gas price hikes.

U.S. Secretary of State John Kerry accused Russian agents and special forces of stirring separatist unrest in eastern Ukraine, saying Moscow could be trying to prepare for military action as it had in Crimea. Armed pro-Moscow protesters occupied Ukrainian government buildings in two cities in the largely Russian-speaking east.

Speculation is rife that Greece is about to issue its first bond in four years as soon as today though our sources have not supported this and the finance minister has said he is in no rush.

We reported last week that Athens had hired a group of banks for the syndicated sale which we’re told will aim to raise 2 billion euros of five-year paper. Greece sold six-month treasury paper on Tuesday at the cheapest borrowing cost since its debt crisis exploded in 2010.

It’s certainly a propitious time to borrow. Peripheral euro zone bond yields have tumbled this year, benefiting from wobbles in emerging markets and now European Central Bank consideration of printing money has given bond prices a further lift.

More broadly, there is long way to go. Greece’s largest unions have called a private and public sector strike for 24 hours to protest against austerity measures and reforms demanded by the country’s international lenders in exchange for bailout aid.

Interest rate decisions from Poland and Sweden today are highly unlikely to yield a policy shift.

Sweden’s Riskbank held rates at 0.75 percent at its last meeting in February but left open the possibility of further cuts if inflation undershoots. Recent forecasts pointing to solid growth this year suggest a prolonged period of stasis prior to rates rising.

Poland’s central bank governor, meanwhile, has said interest rates may stay at 2.5 percent for the whole of 2014 before a rate hike is considered next year.

The Bank of England, delivering its monthly verdict tomorrow, is just as firmly on hold although real economy data are getting stronger and stronger and Governor Mark Carney has said interest rates could rise from 0.5 percent before UK elections in May 2015, an unwelcome message for the government.

German trade data, just out, showed exports fell more than expected in February while imports rose. The economy ministry will release its monthly report later and German Chancellor Angela Merkel will speak in the Bundestag lower house at the start of a debate on the 2014 budget.

Last night, Italy’s new government gave a clear indication that it plans to push for an easing of European Union fiscal rules after convincing its partners that Rome will keep a lid on public finances and reform a stagnant economy.

Could there be a developing alliance between Paris and Rome to push back against the straitjacket imposed by Berlin and Brussels? The reshuffled French government has already said it will seek yet more time to get the budget deficit down to the EU limit of three percent of GDP in order to fund tax cuts for business and consumers.

The growth versus austerity debate is back with a bang.

The EU’s top jobs are up for grabs later in the year and the race is hotting up. This afternoon, Jean Claude Juncker, the European Commission presidential candidate from the centre-right European People’s Party, and Martin Schulz, the candidate from the centre-left Socialists and Democrats, will hold a live TV debate. In the end, both could be vetoed by Britain among others.

Deposed French finance minister Pierre Moscovici is likely to be put forward by Paris as EU economics chief or Eurogroup head, which would essentially rule other French nationals – Christine Lagarde and Pierre Lamy – out of the running so the field is narrowing. Over the weekend, Finnish premier Jyrki Katainen said he would resign this summer and was available for EU or international roles.

Talks on Iran’s nuclear programme continue in Vienna. Britain, France, China, Russia, Germany and the United States want Tehran to scale back its programme to the point that it take as long as a year to produce fuel for a bomb. Washington said on Tuesday that it currently had the ability to produce fissile material for a nuclear bomb in two months.

Senior British government minister Maria Miller has bowed to a relentless wave of political and media criticism and resigned over an expenses scandal for which she failed to sound very contrite.

The bigger question is over Prime Minister David Cameron’s judgment. He backed her to stay as recently as yesterday, despite members of his own party saying it was playing badly with the electorate – a decision that could hang over next months’ EU elections which already look like they could hand a drubbing to the ruling Conservatives at the expense of the anti-EU UKIP. It’s safe to say he won’t be looking forward to prime minister’s questions in parliament today.

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