We mustn’t be wrong. The measures announced on Saturday evening by the United States, the European Commission and the main countries of the continent (in addition to Italy, France, Germany and Great Britain) are not just a retaliation for Russia’s attack on Ukraine. They are not just an attempt to hinder the business activities of the oligarchs or reduce the country’s growth rate in the hands of Vladimir Putin.
No, they are an act of war. A defensive warfare which responds to the most serious aggression against a state and the principles of freedom, democracy and self-determination never seen on European soil since the end of the Second World War.
Only if we keep this basic meaning in mind, we can understand what are the objectives to be achieved and the pitfalls to avoid.
Because this doesn’t have to be a repeat of World War II, not even financially.
Then the allied powers, Great Britain and the United States, declared a total embargo on Nazi Germany and the prohibition for banks and central banks of all countries to accept gold from it – since the Reichsmark was now untouchable – in exchange transactions for raw materials and foodstuffs. But even as he accepted Jewish refugees fleeing Italy and other countries, Switzerland continued to accept gold from Germany in exchange for raw materials, without asking where it came from: even gold plundered from the Jews themselves and from the subjugated countries. The war lasted longer for this.
The goal of sanctions decided on Saturday by Westerners to generate the opposite of this scenario. Russia today must be financially paralyzed, its banks turned into insolvency, the ruble sent in a spin that generates hyperinflation, public opinion and even the oligarchs and regime quarrels shifted to positions hostile to Putinwhich will be the ultimate culprit of the country’s impoverishment.
1. The paralysis of the Russian central bank
The most disruptive measures decided by the United States and its European allies concern the Russian central bank: it will no longer be able to use its substantial reserves in dollars and euros to bail out the commercial banks, which in fact from Monday 28 February will no longer be able to refinance (that is, repay by taking on new debts, in continuous rotation) their exposure in hard currency with short term deadlines.
Not only. The Russian central bank will not even be able to operate in the way it has desperately tried to practice in recent days, moreover without success: knocking on the doors of the great central banks of the planet, those of the hard currencies of the free world, to ask itself for operations of refinancing in dollars and euros. Thus significantly decreases the power of the main financial instrument with which Putin had prepared the war: the construction of sovereign reserves, thanks to the sale of gas and oil, estimated by Western governments at the equivalent of between 550 and 700 billion dollars.
2. The blow to commercial banks and the bank run in Russia
Instead, it increases the effectiveness of other sanctions on banksthe most important of the package launched: a number of Russian trading establishments are banned from accessing transactions in euros and dollars and therefore also the refinancing of their debts in euros and dollars.
Let’s look at the first two banks in the country, Sberbank and Vtb (both publicly controlled). The first has an exposure of 350 billion euros, the second equal to 214 billion euros (in aggregate, debts for about one third of the Russian gross product). Both on Friday collapsed on the stock market to the point of halving their capitalizationand the collapse will continue. In fact, those banks are cut off from world markets.
The prospect has already been sowing panic among Russian investors and savers for days, who have rushed to withdraw euros and dollars from the country’s main banks to the point of putting them in great difficulty. It is now impossible to obtain foreign currency from a Russian bank and it is difficult to obtain the same rubles for the moment. a real bank run is underway in Russia, a bank run. European banks in Moscow, on the other hand, are experiencing strong inflows of hard currency, as Russian savers take their assets to institutions they trust will not be sanctioned.
3. The ruble and hyperinflation
Meanwhile, the downgrading of Russian debt to junk by the S&P rating agency means that even those Moscow government bonds pledged as collateral by all Russian banks to obtain loans are worth less. From Monday the 28th, even Russian banks not sanctioned must therefore replenish the guarantees to maintain their positions: that is, they must bring more values, more bonds to guarantee their debts in the world in order not to be forced to repay everything immediately, or fail.
Moscow’s central bank reacts with the only tool it has left: printing rubles in abundance and replenishing ATMs and bank branches with those, to try to stop the bank run in Moscow and other big cities. But the excessive creation of a currency that is now untouchable abroad can only make its value fall even further, in a spin that will generate hyperinflation.
The ruble has already lost about 30 per cent on the euro and dollar in the early hours of Monday.
4. The three risks: gas retaliation, China, the Swiss leak
What are the risks?
The most immediate – on which Gazprom tried to reassure Europe on Sunday morning – is that Russia responds by blocking supplies of oil and especially gas to the Old Continent (the latter generate revenues of about 50 billion euros per year for them). For Italy it would certainly be a problem, because currently the country has a complete self-sufficiency of about 14 weeks without new Russian gas arrivals, which represent about 43% of the total imports of the raw material into the country.
For the increase in pumping from other suppliers (Algeria, Libya, Azerbaijan, Norway) e the reactivation of coal plants it should guarantee that the country can reach at least until July without very significant measures to reduce consumption.
The second risk that China will run to Russia’s aidbecoming its international lender of last resort, effectively submitting Putin on his own terms and launching an unprecedented challenge to the West.
A clash of historical proportions would emerge, all on the financial level, between the free world and the great dictatorships of the emerging world. But this will only be understood in the coming weeks.
It is also of fundamental importance that Switzerland does not play the same ambiguous game of World War IIbut align with the measures of Europe and the United States.
The first signs are encouraging: in the last few hours, Swiss banks have also received from their authorities a long list of Russian customers to be blocked from Monday. The networks of international finance gather around the oligarchs of the Putinian system throughout the free world.
Meanwhile the embargo on semiconductors, aircraft spare parts and industrial systems of oil and methane extraction (an industry, the latter, in which Italy is strong) aim at blocking Russia’s technological capacity in all strategic sectors in the medium and long term.