MacroScope

Putin welcomes Crimea in

Vladimir Putin has told Russia’s Duma that he has approved a draft treaty to bring Ukraine’s Crimea region into Russia and in doing so continues to turn a deaf ear to the West’s sanctions-backed plea to come to the negotiating table.

Overnight, Japan added its weight to the sanctions drive, suspending talks with Moscow on an investment pact and relaxation of visa requirements. EU and U.S. measures have targeted a relatively small number of Russians and Ukrainians but presumably there is scope to go considerably further, particularly if Putin decided to move into eastern Ukraine too.

EU foreign ministers yesterday began discussing how to reduce energy reliance on Russia. That’s a long-term project but one that could deal a hammer blow to the Russian economy if it succeeds.

No short-term action is likely on gas as the EU can’t really do without Russia’s supplies and Moscow cannot afford to turn it off. World markets – and even Russian markets – have shrugged off Crimea’s vote to secede … so far.

In an attempt to show it is engaging, Moscow responded to Western pressure for an international “contact group” to mediate in the crisis by proposing a “support group” of states that would push for recognition of the Crimean referendum and urge a new constitution for rump Ukraine that would require it to uphold political and military neutrality.

Last-ditch talks on Crimea

U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov will meet in London, a last chance by the look of it to make diplomatic headway before Sunday’s Crimean referendum on joining Russia which the West says is illegal.

Kerry said he would present “a series of options that are appropriate in order to try to respect the people of Ukraine, international law, and the interests of all concerned” and that sanctions would be imposed against Moscow if the referendum went ahead.

A full NATO meeting will take place in Brussels with the Russian and Ukrainian ambassadors invited. There is no sign yet of Vladimir Putin coming to the negotiating table.

Brazil looking most vulnerable in Latam to any bursting of China’s credit bubble

Higher taxes, rising prices, political turbulence. The outlook for Brazil over the next months and years is tough, as Reuters reported on Wednesday, but it could get a lot worse if there is a banking crisis in China, according to the British firm Oxford Economics.

Brazil is the most vulnerable Latin American country if China’s credit bubble were to burst, economists Aryam Vazquez and Marcos Casarin argued, because of the potential impact on exports of soy and iron ore and the likely plunge in commodities prices overall. Despite all recent efforts by President Dilma Rousseff, Brazil would fall in a recession in 2015, shrinking 1.1 percent from this year, according to their calculations.

Impact on Brazil’s GDP would be not only sharp, but would also last long, according to their exercise. Brazil’s economy in 2018 would be 6.6 percent smaller than in the more likely scenario in which China avoids a crisis, compared to a 3.6 percent impact on the U.S. economy.

Sanctions loom for Russia

The European Union, as we exclusively reported yesterday, has agreed on a framework for sanctions against Russia, including travel restrictions and asset freezes, which goes further than many expected. The list of targeted individuals is still being worked on but will be ready for the bloc’s foreign ministers to look at on Monday.

Angela Merkel will speak to the German Bundestag about the standoff with Russia. Merkel has been cautious about imposing anything too tough as she tries to convince Vladimir Putin to agree to a “contact group” that would reopen communications between Moscow and Kiev. But yesterday she said measures would be imposed next week – after a Crimean referendum on joining Russia which the West says is illegal – unless diplomatic progress is made.

There is no sign of Vladimir Putin coming to the negotiating table and no question of western force being deployed. In Washington, Ukrainian Prime Minister Arseny Yatseniuk said his government was ready to negotiate over Moscow’s concerns for the rights of ethnic Russians in Crimea – a possible diplomatic avenue? The U.N. Security Council will discuss the crisis in an open meeting later.

Odds on Britain leaving EU shift again

Kiev has appealed for Western help to stop Moscow annexing Crimea, where a referendum on joining Russia will be held on Sunday. Ukrainian Prime Minister Arseny Yatseniuk will take that message to Washington and the United Nations.

The West says the referendum is illegal. U.S. lawmakers are preparing sanctions against Russia and European Union leaders could impose penalties, such as bans on visas for key Russian officials, as early as Monday if Vladimir Putin does not come to the negotiating table. There is no sign that he will and there is no question of western force being deployed.

Germany’s Angela Merkel is in Warsaw for talks with Prime Minister Donald Tusk. Poland has been pressing for more aggressive action while Germany – with its deep economic and energy ties to Russia – is more reluctant. But it appears the EU is moving closer to imposing sanctions.
Ed Miliband, leader of Britain’s opposition Labour party, has stated in today’s FT that he would only hold an EU referendum if there was a new transfer of power from London to Brussels.

Banking — union or disunion

EU finance ministers face the mammoth task of finalizing everything on banking union that was set out in principle by their leaders at a December summit, since when not much has happened. Last night, the Eurogroup of euro zone finance ministers made little progress bar agreeing that they needed to agree quickly.

Intractable issues such as who decides when a bank is failing, how a decision is taken to wind down a failing bank, what is the precise role of the European Central Bank, European Commission and European Parliament and how long it will take to build up a fund from bank levies to pay for failing lenders all have to be sorted out.

Plan A was for the fund to be built up over 10 years and then be pooled but critics say that leaves the bloc’s governments exposed for too long.

Marathon banking union talks

Shots were fired at an international team of monitors in Crimea over the weekend, violence flared in Sevastopol as thousands staged rallies and Angela Merkel, who perhaps has the most receptive western ear to Vladimir Putin, rebuked him for supporting a referendum on Ukraine’s southern region joining Russia. But in truth we’re not much further forward or backwards in this crisis.

The West from Barack Obama on down has said the referendum vote next Sunday is illegal under international law but it’s hard to put the genie back in the bottle if Ukraine’s southern region chooses to break away. The best guess – but it is only a guess – is that barring an accidental sparking of hostilities, there is not much percentage in Russia putting its forces in Crimea onto a more aggressive footing in advance of the vote.

Euro zone finance ministers meet and are joined by their non-euro counterparts for an Ecofin on Tuesday. They have the mammoth task of finalizing everything on banking union that was set out in principle by their leaders at a December summit, since when not much has happened.

Weather to make February jobs report a crap-shoot too

Blaming bad economic news on winter is getting as tiresome as tales of snarled traffic, flight cancellations and trips out with the snow shovel in freezing winds.

The February jobs report will be no exception to this U.S. season of climactic howling.

Most of the 97 forecasters who contribute to the Reuters Poll on non-farm payrolls have stuck to their forecasts, resisting the temptation to make last-minute changes based on even more disappointing data this week.

Putin unmoved by carrots or sticks

Vladimir Putin said this morning Russia and the United States are still far apart over Ukraine. Moscow, he said, could not ignore “illegitimate decisions” imposed on the east and south of the country and calls for help by ethnic Russians there but the two powers should not sacrifice relations over it.

In an hour-long telephone call last night Barack Obama urged Putin to accept the terms of a potential diplomatic solution to the crisis whereby Moscow would keep its military bases in Crimea while respecting Ukraine’s sovereignty. But he also ordered sanctions – including travel bans and freezing of assets in the U.S. – on people responsible for Moscow’s intervention in Ukraine though Putin himself is not on the list.

Obama also said a Crimean referendum on joining Russia, called for 9 days’ time, violated international law.
Meanwhile, Congress passed a $1 billion loan guarantees package for the new government in Kiev. The European Union has already promised some $15 billion over the next two years, contingent on a deal being signed with the IMF.

Five years of rock-bottom rates for the UK – an unhappy anniversary

Britain’s economy has now been wedded a record low 0.5 percent interest rate for five years.

Traditionally, a fifth anniversary demands a wooden present – perhaps a spoon in Britain’s case. The economy is still smaller than its pre-recession peak (1.4 percent at the last reading), unlike almost all of its major developed economic peers.

When the Bank of England first cut interest rates to 0.5 percent in March 2009, Britain had just reached the nadir of its worst recession in living memory.