MacroScope

Obama impatient with EU over Russia

The G7 has said tougher sanctions on Russia could be imposed as soon as today. EU ambassadors  are holding an emergency meeting in Brussels.

The EU will extend travel bans and asset freezes to more people involved in the Ukraine intervention. For now, Washington is treading the same path though maybe more explicitly targeting Vladimir Putin’s “cronies”.

Barack Obama is already looking ahead to a third round of measures and hinted at impatience with Europe, saying there had to be a united front if future sanctions on sectors of the Russian economy were to have real bite.

One key question for this week’s measures will be whether Rosneft’s Igor Sechin and Gazprom’s Alexei Miller are put in the firing line this time. A top Obama aide said the measures would target people in Putin’s inner circle who have a significant impact on the Russian economy and the companies they control, and would also curb high-tech exports to Russia’s defense industry.

In eastern Ukraine, there’s been a lot of brinkmanship over the holding by separatists of eight European observers who were there under the auspices of the OSCE.

On leaving the euro zone

The strains on various outlying European economies have triggered talk about a break up of the euro zone (usually swiftly followed by denials that any such thing could happen). Now comes an interesting report from the London-based Centre for European Reform, looking at what would happen practically if a country were to leave the currency union. For an insight, the think tank turned to Jan Mathes, a former Slovak National Bank board member who was around when Czechoslovakia split.

As most euro zone countries don’t have a stock of national currencies in reserve, a leaver would have to create one, he says. But this takes ages. Coins alone require months and bank notes these days have to be high-tech to be secure. A leaving country could still use euros for a while but with a national stamp on (as happened with the old Czechoslovak crown). But it would be easy to remove a stamp and the underlying currency would be a euro — too tempting.

The biggest problem, or course, would be in keeping a new currency above water, which would be difficult because it was leaving the euro zone because of bad fundamentals in the first place. So IMF-style reforms would be needed. “But the same reforms, if introduced early, would also reduce the chances of a country dropping out of the euro in the first place,” Tomas Valasek, author of the CER note, writes.