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Category: Media appearance

Will sanctions on Russia work?

In a recent TV interview I have given the Swiss channel Tele Z, I had a chance to discuss with my host Claudia Steinmann the implications of sanctions for the Russian and western economies. We also talked about whether or not China is going to benefit from the situation. In this post, I follow up on my interview and elaborate a little more on whether sanctions will work or not. In the next post, I plan to write a little more on how I see the role of China.

Will sanctions work, then? I think, it is important to answer that question at three levels: macroeconomic, political, military-strategic. And at the three levels the respective answer is “yes”, “it depends” and “probably not”. But then there is another level — bear with me….

  • Take the macroeconomic level first. Sanctions are already having a devastating effect on the Russian economy. The bulk of foreign currency reserves has been seized, the ruble has tumbled, domestic inflation is soaring, trade has collapsed, production come to a standstill in many parts of the economy. This is hurting the regime, but it is hurting the average Russian even more. While “oligarchs” have been targeted by the seizure of their overseas assets, the overall effect of the sanctions is clearly much smaller for oligarchs than for the average Russian household. Oligarchs are people with international networks and globally diversified asset portfolios, including access to countries that do not implement any sanctions (the yachts are starting to show up in Turkey already…). Such asset shifting is not really an option for the average Russian, though. Hence, if anything the West should work harder on actually implementing and extending the sanctions on the oligarchs. Actually seizing their assets would be a start, implementation in many countries (including Switzerland, Germany…) is patchy at best so far.
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Russia’s war in Ukraine, SWIFT sanctions and the Renminbi as an international currency

In a couple of interviews on Swiss Italian language radio RSI this weekend (here (from minute 18), here (from minute 8) and here), I argued that the SWIFT sanctions were the right thing to do and we already see their short-term impact in the form of a de-facto collapse of the Russian banking system: people are hoarding cash (credit cards have stopped working, they are ultimately based on the US infrastructure and the SWIFT payment systems) bringing the banking sector to crumble. And the firepower of the Russian central bank in terms of currency stabilization has been severely curtailed because its foreign-currency reserves (which of course are not sitting as dollar cash piles in its vaults but on foreign bank accounts) have effectively been seized. The effect has been a collapse of the rouble and will be high domestic inflation, coupled with the collapse of many small private firms which will no longer have access to bank credit.

Even though there is a risk that some of this will also spill over to western banks who are heavily exposed to Russia, I would argue that this can be dealt with. In fact, some political willingness to also accept some economic disruption in the west will be needed to make the sanctions develop their full impact.

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Radio debate on RSI taking stock of the economics of Mr. Trump

I had the privilege to be invited to a Radio debate on Radio della Svizzera Italiana with former IMF director Carlo Cottarelli to discuss the economic consequences of Mr. Trump’s (first?) administration. Listen to the debate (in Italian) here.

Here is the Upshot of my argument:

For the first three years of his mandate, Trump presided over a goldilocks economy which largely was not of his own making, even though he created a strawfire with an ill-timed and unbalanced fiscal reform that favors the rich and limited fiscal space. The economic consequences of his denial of the COVID challenge will pose the greatest threat to his re-election.

Regarding his America-first agenda, his promise to bring back jobs in the classical manufacturing sector remains largely unfulfilled. His unilateralism alienated European allies and led to a trade war with China which is ill-targeted in its focus on traditional trade in goods. More recently the focus has shifted to a strategic rivalry with China in high technology and the internet as well as to issues regarding IP protection and the level playing field in foreign direct investment. Here he has a point and this is a key issue that will stick around under future administrations, be they republican or democrat.

Future administrations will have to deal with built-in injustices of the tax system that have been reinforced by Trump’s reform. The focus here will not necessarily have to be on fiscal consolidation — the US can afford to borrow and , provided it is doing well economically, it can outgrow even very high levels of public debt — but on tackling economic inequality.

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