Tuesday, December 23, 2014
 
Follow sptimesonline on Facebook Follow sptimesonline on Twitter Follow sptimesonline on RSS Download APP
MOST READ



PARTNER NEWS



BLOGS



OPINION



WHERE TO GO?

19th Century Portraits

History of St. Petersburg Museum: Rumyantsev Mansion

 

Перевести на русский Перевести на русский

EU Sanctions Are a Double-Edged Sword

Published: August 4, 2014 (Issue # 1822)




  • Photo:

The financial elements of the European Union's "third stage" sanctions are sure to have a serious effect on the Russian economy. By prohibiting EU citizens and firms from trading in the new debt or equity of state-owned Russian banks, the EU has effectively shut Russian government-sponsored enterprises out of European capital markets.

But while these sanctions will hopefully be enough to end Kremlin interference in Ukraine, the EU should be cautious in its use of financial leverage. Although the EU's role as the world's banker gives it a powerful diplomatic tool, using its power carelessly may drive non-Western countries to create alternative financing models.

In the short term, financial sanctions place Russia under a great deal of strain. According to estimates published in the Financial Times, state-owned banks like Gazprombank, Rosselkhozbank, Sberbank, Vneshekonombank, and VTB have roughly 25 billion euros ($33 billion) in foreign currency denominated debt to roll over in the coming year.

Much of that debt is in dollars or euros. Without access to capital markets in the United States and now Europe, these banks will have to look to either Russia's Central Bank or other foreign lenders for support. In turn, Russia will see a drop in demand for its currency and a draw-down on the Central Bank's foreign currency reserves. Rating actions are also likely. The cost of capital will rise in Russia as a result. Indeed, that is the EU's goal.

The policy will have a significant impact on Europe. London will start hurting almost immediately as large financial firms lose new business providing services to Russian banks. Amid the growing uncertainty over Russia's future, spooked European and U.S. investors are likely to offload their exposure to Russia, if they have not already done so.

Over time, however, it is the countries with the largest financial exposure to Russia that will take the biggest hit. In absolute terms, the focus is on France (Societe Generale), Italy (UniCredit) and Austria (Raiffeisen). Once relative size is taken into account, however, even smaller countries like Hungary (OTP) should be added to the list.

Before long, the interest-rate shock will spread to trade financing and begin to suppress investment and consumption. That means trade with Europe will fall off, and European export-led growth along with it. Here the impact will be felt not only on traditional net exporters like Germany but any country that borders Russia (and so benefits from that proximity) as well.

Pages: [1] [2 ] [3]






 


ALL ABOUT TOWN

Tuesday, Dec. 23


Meet Arctic explorers Fedor Konukhov and Viktor Simonov during SPIBA’s and Capital Legal Service’s event “Arctic Expedition” this morning in the Mertens House business center at 21 Nevsky Prospekt. The meeting will discuss the explorers’ ongoing eco-social project and how companies can use the project as a unique marketing opportunity. Email office@spiba.ru by Dec. 22 if you wish to attend.



Wednesday, Dec. 24


The Anglican Church of St. Petersburg we will be holding a Christmas Eve service at 7 p.m. led by Rev Wm. Shepley Curtis of the Episcopal Church. The service will be held at the Swedish Church at 1/3 Malaya Konyushennaya Ulitsa.



To have your event included in All About Town, email tot@sptimes.ru



Times Talk