Can Europe's Economy Handle Russian Sanctions? | Frances Coppola
Apr 25, 2022
01:24:17
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Quick takeaways
The limited sanctions on Russian energy, particularly gas, prevent a more comprehensive impact on the Russian economy.
A comprehensive strategy is required to effectively respond to the Ukraine crisis, including arming Ukraine and addressing the underlying conflict through diplomatic means.
The strength of the dollar is driven by the Federal Reserve's tapering and potential reduction of its balance sheet, contrasting with the ECB and Bank of Japan's unwillingness to tighten monetary conditions.
Deep dives
Impact of Sanctions on Russian Individuals
The recent sanctions imposed by the West on Russia have primarily targeted individuals, such as oligarchs and influential figures within Putin's regime. These sanctions aim to put pressure on those close to Putin in the hopes of influencing his plans regarding Ukraine. While the overall effectiveness of this strategy is debated, it has caused significant disruption for those affected, including restrictions on business operations and attempts to prevent the transfer of assets. However, it is noted that the most influential figures around Putin may not necessarily be those targeted by sanctions, raising questions about the extent of their impact.
Impact of Sanctions on the Russian Economy
The sanctions imposed on Russia have had a significant impact on its economy. Estimates suggest that Russia is facing a recession with a potential collapse of foreign GDP of around 10%. Capital flights have also been observed, and certain sectors of the economy have been particularly affected. However, it is noted that until there is a comprehensive ban on the sales of oil and gas to the West, the economic impact may not be as severe as it could be. The limited nature of the sanctions on the energy sector, especially gas, means that Russia can still export and other countries can continue buying, preventing a more comprehensive effect on the Russian economy.
Challenges and Considerations in Dealing with the Ukraine Crisis
The podcast episode also addresses the broader geopolitical implications of the Ukraine crisis and the challenges faced by the West in effectively responding to the situation. It highlights the need for a comprehensive strategy that goes beyond sanctions alone. While sanctions play a role in exerting pressure, it is emphasized that the West should also focus on arming Ukraine and providing tangible support. This would involve choking off the supply of military equipment to Russia, as well as addressing the underlying conflict through a diplomatic and political approach. The episode underscores the importance of understanding Russia's historical actions and intentions to formulate a more effective response.
Market Pricing in Net Easing due to Recession
The euro dollar futures indicate a terminal rate above 3% by the end of 2023, but then gradually decreasing, suggesting that the market expects a net easing. This is likely due to the anticipation of a recession. The market's pricing indicates a shift towards easing policies.
Rising Bond Yields and the Dollar's Strength
Despite the negative outlook for the US economy, bond yields are rising, indicating optimism among investors. The strength of the dollar is attributed to the unwillingness of the European Central Bank (ECB) and the Bank of Japan to tighten monetary conditions in response to inflation. In contrast, the Federal Reserve's tapering and the potential reduction of its balance sheet contribute to the dollar's rise.
Frances Coppola, Economist, Author & banking expert, joins Forward Guidance to give an update on how the West's new sanctions on Russia are playing out. Coppola explains how key commodities such as Russian natural gas and oil continue to flow to Western countries, and she makes an impassioned case for why a ban on Russian energy is necessary to thwart the imperial ambitions of Russian President Vladimir Putin.
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Follow Frances Coppola on Twitter: https://twitter.com/Frances_Coppola
Follow Jack Farley on Twitter: https://twitter.com/JackFarley96
Follow Blockworks on Twitter: https://twitter.com/Blockworks_
BCB is Europe’s leading provider of business accounts and trading services for the digital asset economy. With a dedicated focus on institutional payment services, BCB Group provides business banking, cryptocurrency and foreign exchange market liquidity for some of the world’s largest crypto-engaged financial institutions.
For more information, please visit https://bcbgroup.com/jack
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(00:00) Introduction
(00:58) Overview of Sanctions on Russia
(07:08) Oil & Natural Gas
(09:30) Wheat
(14:20) Demand Destruction and Recession Risk
(18:00) When Will We Hit Peak Inflation?
(21:20) Central Bank Response Function
(27:01) The European Central Bank (ECB) And Inflation
(32:02) BCB Ad
(35:45) The Dollar's Surge
(1:20:36) Breton Woods III
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