Skip to comments.Euro-zone Crisis Will Hit Russia Hard
Posted on 05/28/2012 10:15:59 AM PDT by blam
Euro-zone Crisis Will Hit Russia Hard
Economics / Russia
May 28, 2012 - 07:38 AM
The political collapse in Greece and Moody's downgrade of the rankings of 16 Spanish banks at once have led to the decline in stock indexes all over the world. In Russia, the head of the Central Bank, Sergei Ignatiev, showed an optimistic reaction to such unpleasant news. Making a speech at the government last week, the official urged everyone not to panic. According to him, Russia is prepared to the crisis much better than it was four years ago.
Economists say, though, that there are no reasons for optimism. The country is prepared for the new wave of the crisis much worse than it was in 2008. Should something happen to the oil prices, everyone will feel the consequences very soon.
Aleksei Ulyukayev, first deputy chairman of the Central Bank of the Russian Federation, does not believe that the world economic crisis may occur again either. He believes that Russia entered the period of high degree of volatility and is going to stay there for years. It means that the probability of local crises (sovereign debt, stock markets) is rather high. However, one should not expect a decline similar to that in 2008, Ulyukayev said.
Russian experts with the Higher School of Economics compared the state of affairs in the Russian economy in the first quarter of 2012 with the results of the first quarter of 2008. The current economic situation is worse, they concluded.
The research, which the experts conducted, showed that the state of affairs with the foreign debt was better, whereas the growth of the bank crediting was based on the financial support from the Central Bank, rather than on deposits or foreign borrowings, as it was in 2008.
There are reasons for worries, indeed. The outflow of capital from Russia in April made up $7 billion, and the process may continue in May. "In this connection, the optimism of the head of the Central Bank looks more than just strange," experts concluded.
Russia becomes more and more dependent on the oil prices, they added. The level of the oil and gas deficit remains near 10% GDP, and it can not be cut during the forthcoming years.
Even if oil prices drop moderately to $80 per barrel, the volume of the Reserve Fund lwill not let the Russian economy stay afloat for at least one year. Th budget obligations can be fulfilled only if oil prices grow by 8-9 percent annually.
Experts also said that in order to realize grandiose plans, the government needs grandiose assets. The assets can be attracted only if the investment climate in the country improves. However, investors can see presumably negative signs.
The current outflow of capital is comparable to most critical quarters in 2008-2009. they have already exceeded the inflow observed four years ago twice.
In May, the Central Bank of Russia announced the stagnation of the banking sector, which occurred during the first quarter of 2012. The banks do not have the reserves to increase their credit offers. The currency instability is also obvious. The US dollar has gained two rubles to its cost since March 2012.
However, the Central Bank does not believe that the situation is alarming. Quite on the contrary, CB officials say that there is a healthy trend in Russia, which replaced the crazy recovery growth of the recent years, when the financial sector was growing by 20, 30 and even 50 percent. Central Bank officials say that the crisis in the eurozone can pose a risk to the Russian banking system, but such risks will be moderate and acceptable.
It is possible that the Central Bank does not want to cause panic in the country: the Russian market has been extremely nervous lately.
On the other hand the Euro-zone will be just fine?
Past Pravda was hilarious in their contortions to bolster the Communist tyranny government at the expense of anything. Now it seems they still push the socialist-leftist agenda and are disingenuous naysayers about nationalistic or free market principles.
Pravda and their Journolists seems to look like our own MSM, I wonder when the truth will actually please them?
A broke Greece, out of the EU, with Med oil and gas is an opportunity for Russia.
Despite the shaky translation, this seems to be a fairly straightforward report relaying concern about internal finances in Russia. Capital outflows combined with a large decline in oil prices could mean potential trouble for them, with the source this time being Eurozone difficulties as opposed to 2008 which was much more US centric.
I don’t see what you’re seeing at all in this article. If a Greece exit does indeed occur, and crude prices take another big tumble as they appear to be poised to do, I suspect taking Greece into their orbit won’t exactly be top of mind.
I don't see that happening.
The Saudis are near capacity with their sweet crude. The rest of the ME is at cap. China and India want oil, Japan must temporarily, at least, replace nukes. Iran may screw up ME oil and Egypt may screw up Suez.
North Sea is tapering now, Europe is lucky to have kept Libyan oil (how long?).
I believe the Med oil is more important than Pravda/EU want to admit. The majority of that oil and gas will go to Turkey/Lebanon (puppet), or Greece/Israel.
There is the supply end of the equation, with truly astounding increases in proven reserves, and not just in the United States, due to the viability of oil shales and fracking.
Then, there is the demand end of the equation, which has been declining precipitously in the United States for several years, now spreading to the Eurozone and China.
The danger in this is in price declines sufficient to render oil shales and fracking cost uncompetitive. Provided, bowever, that this level is not breached, supply is not a problem.
Greece is a problem. Taking them on in the wake of being kicked out of the EU with their entitlement mentality and huge debts is not going to be all that interesting to Russia or much of anyone else for some time. They made their bed and are going to have to lie in it for a while.
Greece will be receiving emergency foreign aid for basic necessities before this all plays out and settles down, imho.
One thing is sure, it is easier and more likely to screw up existing supply and production, than it is to bring new on line.
Greece will be receiving emergency foreign aid for basic necessities before this all plays out and settles down
Agreed, the EU won't help Greece claim the oil from Turkey, Russia will, and has a UN veto so they can make it stick. Russia won't have to bail Greece out, they can just control and profit from the oil. Israel will agree, and get their share as well without the Russian middleman.
The losers are Turkey and EU governments and middlemen, a point not lost on Russia.
When the financial sector of a national economy is growing faster than the rest, it's always a result of monetary inflation. People start investing in the growth of the money supply instead of in the production of goods and services.
It's why our financial sector growth outpaced manufacturing, farming, and mining for decades. More money to be made in inflating assets than in actual wealth-creation.
Putin has to reform his country, but is he able to do it? The answer is probably No.