“Both sides have bet on the collapse of the other”

BarcelonaUncertainty remains the main element in any analysis of the war in Ukraine and its economic consequences. The conflict is long-term and will depend above all on how it evolves militarily, despite the attempts of both sides to bend the other economically.

These are the conclusions of the titled colloquium The financial consequences of the war in Ukraine, the central event of the annual conference of the European Finance Association (EFA) held this Thursday in Iese and moderated by the center’s professor Xavier Vives. “Both sides have bet on the collapse of the other,” summed up Harold James, a historian at Princeton University in the US. According to James, on the one hand, Western countries have applied sanctions on the Russian economy with the aim that Vladimir Putin’s government “cannot sustain the war” and, at the same time, “damage the legitimacy” of the regime to force – a fall on an internal scale. On the other hand, Russia is playing with the inflation caused by the rising cost of energy and with possible gas supply cuts to hit both the unity of the euro zone and the traditional alliance between the United States and Europe.

James emphasized that the sanctions make “the future quite dark” for Russia if it is forced to sustain the war in the long term. In the same line, Nicolas Véron, co-founder of the think tank European Bruegel, has added that the actions of the central banks against Russia were “incredibly well coordinated” between different states and “have no precedents”, so that they have meant the international cornering of the Russian central bank.

However, Europe’s vulnerability remains, especially in the energy field. “The existential crisis for Europe is that it had forgotten that energy is an important issue,” said Lucrezia Reichlin, professor at the London Business School. In addition, sanctions on Russian commercial banking have so far been “much slower” than on the central bank, Véron added, although he believes they will eventually lead to “the decoupling of Russia from the European Union” on a large scale. financial

However, the impact of the sanctions on the Russian economy has been the technical bankruptcy of the Russian state of its external debt, a prominent fact but which has had a “limited” impact, analyzed Elena Carletti, professor of finance at the Bocconi University of Milan.

Banking soundness in the EU

In this sense, despite the covid, the financial sector has entered the crisis derived from the war “much stronger” than in 2008, in the words of Carletti. The Italian economist recalled that European banking capital levels are double what they were when Lehman Brothers collapsed, with liquidity ratios 70% higher than the minimum established by the international criteria set out in the Basel agreements. In addition, the proportion of loans at risk of default has fallen to very low levels.

“Market risk, volatility and the wide variation in raw material prices have been manageable for the time being,” said Carletti. However, he has identified three problems: the risk of further cyberattacks on the sector from Russia, the difficulty of implementing sanctions because they come from many different governments, and the sector’s business in Russia, although he sees the sector “far from suffering bankruptcies” of entities due to war or business with Moscow.


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