Russia’s plight

December 22, 2014

Russia's President Putin chairs a meeting of the Security Council at the Russian defense control center in Moscow

Trying to predict the rouble’s path is a fool’s charter but it’s fairly safe to say it won’t return to a level that will take pressure off the Russian economy. It has opened 2 percent higher versus the dollar in Moscow this morning, mirroring a rise in oil from $60 a barrel.

Having shed nearly half its value in the second half of the year, the rouble will push inflation through the roof next year, the central bank has said the economy will contract 5 percent in 2015 and interest rates are at an eye-watering 17 percent. Ordinary Russians are really going to feel this.

Foreign exchange reserves remain plentiful for now but with capital controls consistently ruled out by the Kremlin they could dwindle fast unless efforts to steady the rouble are abandoned. About 1/6th of the reserves have been blown already. The finance ministry said it sold $500 million through the central bank last Thursday.

What is beyond Moscow’s control is the oil price – which analysts expect to hold above $60 but not rise much while Russia had budgeted for $100 a barrel or more – and the grip of western sanctions imposed over Ukraine. A fundamental de-escalation in Ukraine could change everything but few expect Vladimir Putin to take that path yet.

At their year-end summit, European Union leaders warned Moscow they were ready to flex their combined muscle and “stay the course” in a long confrontation if Putin refuses to pull back from Ukraine.

A new round of peace talks aimed at easing the conflict between Ukraine’s government and rebels may take place in the Belarussian capital Minsk this week although no date has been nailed down.

Greek Prime Minister Antonis Samaras offered on Sunday to bring pro-European independents into the government and hold new elections in late 2015 if lawmakers back him to elect a new president.

He said he was duty bound to complete negotiations with the European Union and International Monetary Fund to exit Greece’s bailout but said he was willing to broaden his ruling coalition if Stavros Dimas, his candidate, was chosen as president.

A second round of voting in the Greek parliament takes place on Tuesday. In the first round, Samaras secured the support of 160 of 300 lawmakers, leaving him looking for as many as 20 votes from independents and small parties to avoid snap national elections which polls suggest anti-bailout Syriza would win.

Tomorrow, the winning line remains at 200 lawmakers but in the third round of voting on Dec. 29th it drops to 180. Tuesday’s vote will show whether Samaras has made any progress in winning over more doubters.

Weekend opinion polls showed Syriza would beat the ruling conservatives if an election were held now but its lead has shrunk from last month. It has recently taken a somewhat more moderate line but it is still avowed to write off much of Greece’s debt and reverse years of austerity just as the economy returns to growth, a stance that could see the country shut out of the markets and back to square one.

Veteran Beji Caid Essebsi declared victory in Sunday’s Tunisian presidential run-off vote. Official results are due today and his rival, the incumbent president, refused to concede defeat. Victory for Essebsi would enable him to consolidate power, with his new secular party already controlling parliament after defeating the main Islamist party in legislative elections in October.

Kurdish and Yazidi fighters battled to take the strategic northern Iraqi town of Sinjar back from Islamic State on Sunday after breaking a months-long siege of the mountain above it.

Seizing the town would restore the majority of territory Iraq’s Kurds lost in the summer IS offensive and would hand a major strategic victory to the Iraqi Kurds and Baghdad. U.S. air strikes are supporting the Kurds and last week killed three of the militant group’s top leaders.
Has the pendulum swung a little?

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