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Russian Ambassador to the UN Vasily Nebenzya speaks at the United Nations Security Council in New York, U.S., September 30, 2022.
Hard Numbers: Russia to helm Security Council, Sonko seized, Stubborn EU inflation, Australia vs. climate change
30: Russia is set to helm the UN Security Council as of April 1, a transition of power that Ukraine has dubbed "an April Fool's joke." The council's presidency rotates every 30 days. As president, Russia – and Putin, by extension – will have the ability to set the security council’s agenda. While there have been calls to boycott, Russia's Foreign Minister Sergei Lavrov is expected to chair the meeting in New York in April.
2: Senegalese opposition leader Ousmane Sonko received a 2-month suspended prison sentence on Thursday. He was found guilty of defaming Senegal's minister of tourism by accusing him of embezzlement. Sonko came in third in the last presidential election and is looking like a frontrunner ahead of the 2024 race. In an attempt to placate supporters who saw his arrest as politically motivated, authorities decided the sentence will not prevent Sonko from running for office.
7.8: Inflation in Germany remains stubbornly high, hitting 7.8% this month, despite drops in energy costs and easing economic pressures in the Eurozone. Meanwhile, Spain's annual inflation dropped by half, which sounds promising … but core consumer inflation (which excludes energy and food) remains just as high there as in Deutschland. The report comes on the heels of the European Central Bank raising interest rates by half a percentage point earlier this month.
30: Australia passed an emissions reduction bill on Thursday aimed at lowering greenhouse gas emissions by 30% by 2030. The bill, which uses a "safeguard mechanism" to target the most significant industrial polluters, represents some cooperation on environmental matters in a country where climate change has been a divisive political issue.
An illustrative stock chart and Credit Suisse logo displayed on a phone screen.
Europe now feels the US financial panic
It's been hell week for banks on either side of the Atlantic. Days after the collapse of Silicon Valley Bank and Signature Bank sent shockwaves through the US financial system, now Credit Suisse, a major European bank, is in serious trouble.
Credit Suisse lost roughly 30% of its value Wednesday after disclosing major internal problems, which prompted its largest shareholder, Saudi National Bank, to refuse to give the bank more cash. But then its shares rebounded sharply Thursday thanks to a $54 billion lifeline from the Swiss central bank.
What does this tell us about the state of the global financial system? First, that the US jitters over SVB/SB are reverberating around the world, which means that any bad news about banks is going to get a lot more eyeballs than before. And while Credit Suisse does not yet pose a systemic risk, it might leave big holes in the balance sheets of other European banks if it goes under.
"European central bankers are probably thinking: This can't happen here," says Eurasia Group expert Jens Larsen. "But what's happening in the US will make them think twice."
Second, while big banks are more tightly regulated since 2008, they are not immune to the blowback from high-interest rates. The same way that SVB/SB lost a lot of money when the Fed raised rates to curb inflation, European banks are in a similar spot because the European Central Bank is following the Fed's lead.
Yet, unlike the Fed, Larsen says that whatever happens, the ECB will almost certainly push ahead with another hike on Thursday because "financial stability won't drive ECB monetary policy decision-making.”
Still, if the (in)stability continues, perhaps the ECB may need to rethink its approach and be as flexible as the current fluid situation demands.
ECB President Christine Lagarde during a news conference in Frankfurt, Germany.
Hard Numbers: ECB hikes rates, US seizes crypto-ransoms, Argentina plays with fire, jet stream breaks up
11: Faced with the highest inflation in the EU’s history, the European Central Bank on Thursday raised interest rates by half a percentage point. It’s the first hike in 11 years, bringing the rate to zero (the ECB had been running negative rates for almost a decade to spur sluggish growth).
500,000: The US has seized $500,000 worth of Bitcoin from North Korean hackers who amassed the funds by using ransomware attacks to extort US hospitals and other medical providers.
40: To reduce crippling budget deficits, Argentina will hike public transportation fares in the capital, Buenos Aires, by a whopping 40% next month. The decision was taken without input from the public and comes as annual inflation runs at 70%. Argentines know what happened when their neighbors in Chile tried to do this, right?
5: The scorching temperatures currently hitting vast parts of the US, the EU, and China have a common origin: a high-altitude air current configuration known as wavenumber 5, because it forms when the jet stream splits into five separate airwaves. Scientists are studying it closely, as well as a related 7-wave pattern and the dreaded “Omega Wave,” which also causes extreme heat.The Graphic Truth: EU (finally) tackles inflation
In its Thursday meeting, the European Central Bank is expected to raise interest rates by up to 50 basis points — its first hike in more than 11 years — in a bid to tame rising inflation. For months, the ECB has stubbornly resisted calls to boost rates as inflation soared to a record 8.6% in June amid fears of a looming EU-wide recession. The hike will end the ECB's eight-year experiment with negative interest rates, which make it less attractive to save money but help spur demand (and, in turn, inflation). We take a look at Eurozone interest rates compared to inflation over the past 20 years.
This article comes to you from the Signal newsletter team of GZERO Media, a subsidiary of Eurasia Group that offers balanced, nonpartisan reporting, and analysis of foreign affairs. Subscribe to Signal today.
The Graphic Truth: The 20-year euro vs. US dollar race
On Tuesday, the US dollar reached parity with the euro for the first time in 20 years. The euro's recent slump has a lot to do with high energy prices, fears of a looming EU-wide recession, and the European Central Bank dragging its feet on raising interest rates to tame inflation. Over the past two decades, though, 1 euro has consistently been worth more than 1 dollar because ... that's what the forex market decided, regardless of the strength comparison between the two economies. We take a look at how the euro has performed against the dollar since the EU launched the (physical) single currency on Jan. 1, 2002.
Chair Jerome Powell faces reporters after the Fed's meeting in Washington, DC.
What We’re Watching: Fed ups rates, zero-COVID shenanigans in China, Pakistan’s energy crunch, Russian Davos
Central banks unite vs. inflation
On Wednesday, the US Federal Reserve raised interest rates by 75 basis points — the biggest hike since 1994 — as it scrambled to contain runaway inflation. What's more, new projections show that the Fed plans to hike rates by an additional 1.75 percentage points until the end of the year — the most aggressive pace since Paul Volcker engineered a recession with double-digit interest rates to tame sky-high inflation in the early 1980s. Just hours before the Fed concluded its meeting, the European Central Bank unveiled a new bond-buying tool to protect the Eurozone's weakest economies from higher borrowing costs, as the ECB gets ready to fight inflation by jacking up interest rates next month for the first time in 11 years. In recent days, rising premiums on Italian and Spanish bonds compared to German ones had rung alarm bells throughout the Eurozone, with painful memories of its debt crisis in the early 2010s. The twin announcements sent shockwaves through global financial markets, with investors already panicking that a recession might be unavoidable to ease out-of-control prices due to a combination of the war in Ukraine, pandemic-related supply chain snarls, and massive stimulus spending on both sides of the Atlantic.
Want to stop a bank run? Try zero-COVID
This week, multiple residents in the Chinese province of Henan were surprised when their status on the official COVID app turned red. That means they either tested positive or were suspected of carrying the virus and must quarantine for 14 days. Turns out, most of them were customers of four rural banks that froze a combined $6 billion in deposits a couple of months back, sparking angry protests. Is China weaponizing zero-COVID to keep protesters at home? Well, the ruling Communist Party is certainly very worried about the health of its often fraud-ridden, over-leveraged rural banks. These small lenders account for just 1% of total assets in China's banking system, but pose a systemic risk because a run on them could quickly spread to other financial institutions — potentially unleashing a nationwide credit crunch and social unrest. Will the state let them fail or bail them out? Expect something in between, similar to how the government handled the debt crisis of real-estate behemoth Evergrande late last year.
Pakistan suffers energy crunch
The people of crisis-ridden Pakistan can’t seem to catch a break. After months of political turmoil, the country is now facing a severe energy crunch, with power going out in some places for up to 8 hours a day as blackouts roll across the country. Energy prices had already been rising for some time as a result of soaring inflation, which currently tops a whopping 13%. Even before Russia’s invasion of Ukraine sent the global economy into a tailspin, political mismanagement and poor governance under former Prime Minister Imran Khan — who was ousted in April — caused a painful financial squeeze in Pakistan. The current crisis is largely a result of the fallout from Islamabad’s deal with Beijing under the China-Pakistan Economic Corridor initiative. China has shut down multiple power plants recently because Pakistan has failed to make good on its repayments totaling around $1.5 billion. Interestingly, this crunch comes just weeks after Pakistan wrapped up a round of talks with the IMF in hopes of unlocking $6 billion worth of aid. Islamabad says that an unforeseen series of global crises – the pandemic, supply chain chaos, war in Ukraine – have meant that the IMF deal, negotiated in 2019, is now “outdated.” But the IMF is standing firm, saying that to access the cash, Pakistan must implement key reforms — like lifting fuel subsidies — that would be suicidal for the nascent government.
What We’re Ignoring: St. Peter, the Not-So-Great in Russia
For years, the St. Petersburg International Economic Forum (SPIEFF), aka the Russian Davos, was a must-attend event for world business leaders. It was a slickly produced annual schmooze-fest of global and Russian elites. With ambitious if clunky themes like "Efficient Economy! — Decent Life!" or "Emerging Leadership for a New Era!" or "Sustaining Confidence for a World in Transition," the SPIEFF was a chance for the Kremlin to present Russia, however improbably, as something more than a giant gas station: a dynamic, exciting, and innovative economy. Well, dosvidaniya to all that, friends. This year, in the wake of Russia's invasion of Ukraine and the Western sanctions response, almost no one is attending the 25th installment of the forum. The highest-profile foreign guests are Belarusian President Alexander Lukashenko, a smattering of Donbas separatist representatives, and — checks notes — the Taliban.This comes to you from the Signal newsletter team of GZERO Media. Subscribe for your free daily Signal today.
Russian Foreign Minister Sergei Lavrov & Ukrainian Foreign Minister Dmytro Kuleba meet in Antalya, Turkey.
What We're Watching: Russia-Ukraine peace talks, EU & US fight inflation, Indian state elections
Ukraine peace talks fail, Putin pushes back
In the highest-level peace talks since the start of the war, Russia and Ukraine’s top diplomats met on Thursday in Turkey but failed to secure an agreement. The Ukrainians say the Russians refused a brief ceasefire to allow for evacuations of civilians from besieged cities. Russia, meanwhile, pointed fingers at Ukrainian “radicals” for occupying the Mariupol children’s hospital that was bombed on Wednesday. President Vladimir Putin, for his part, banned the export of Russian products to 48 countries in response to Western sanctions. The ban is largely symbolic as it excludes commodities such as oil and natural gas as well as minerals, wheat, and raw materials for fertilizer, all of which could make global prices soar further if the Kremlin removes them from the market. Separately, Russia also unveiled a new accelerated bankruptcy scheme for departing companies, stopping just short of nationalizing them altogether (for now). It seems Putin wants to keep some of his powder dry in case European countries decide to join the US ban on Russian oil imports, or more foreign corporations abandon the country.
Inflation soars, ECB shocks with bond-buying halt
All eyes are on inflation. The European Central Bank on Thursday decided to hold interest rates steady — for now — but surprised analysts by noting that it will end its bond-buying program by September, quicker than anyone expected. Steps to reverse its easy monetary policy reflect concern over inflation, currently nearly 6% in the eurozone. The quicker the ECB ends its stimulus program, the sooner it can begin increasing interest rates to tamp down inflation, which is expected to rise further amid the Ukraine crisis. Meanwhile, annual US inflation rose to 7.9% in February, the highest rate since 1981. Surging gas prices are largely to blame but are unlikely to stop climbing anytime soon. The US Federal Reserve will likely announce interest rate hikes to combat inflation as early as next week.
BJP wins big in Indian state elections
On Thursday, India’s ruling BJP party won four out of five state elections, including Uttar Pradesh, the country’s most populous state and a bellwether for national elections. Yogi Adityanath, a highly divisive former priest who’s as adored by his Hindu nationalist fans as reviled by Muslims, became the first Uttar Pradesh chief minister re-elected since 1985. The BJP’s strong showing is a big boost for PM Narendra Modi, who remains popular but last year came under fire for his botched handling of the pandemic and weeks-long protests by angry farmers. Modi won’t face voters until 2024, but having his party in control of key states will improve his re-election odds. Meanwhile, the other big election winner was the AAP, an anti-corruption upstart party that crushed it in Punjab. This state is India’s “grain bowl” and a longtime bastion of the Gandhi family’s Congress Party, which dominated Indian politics for decades but is now a shadow of its former self. Will the opposition rally behind the AAP to take on the PM in 2024?
Who is Italy’s new prime minister, Mario Draghi?
Only in Italy could a mild-mannered technocrat be widely popular for just being, well, competent. But that's exactly how Mario Draghi (nicknamed Super Mario) has been received since he agreed to lead the country at a moment of political turmoil this February. Why is Draghi so popular and why is he poised to be a leader of not just Italy but Europe as a whole? Ian Bremmer poses those questions to another former Italian prime minister, Enrico Letta, on GZERO World.
Watch the episode: Italy in Europe's spotlight: insights from former PM Enrico Letta