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Monday, March 24, 2014

The Battle of Londongrad? What does the data actually say?

On Friday afternoon Open Europe released a new flash analysis looking at the links between the City and Russia.

Much has been written on this issue – see NYT, FT and Economist for background.

While there is anecdotal evidence in these articles about City links to Russia, they fail to delve deeper into the data and, importantly, lack any context as to what Russian business means to a city and financial services sector the size of London.

The summary of the piece argues:
“Claims that the City of London would suffer major losses in case of financial sanctions against Russia are overblown. While it is true that there are some sizeable Russian investments in London, and it is home to a disproportionate number of Russian oligarchs, these are far from critical to a global financial centre such as London. The stock of Russian international investments in London is sizeable at £27bn, but it only accounts for 0.5% of total European international assets invested in London.”

“For all the talk of the large number of financial services provided to Russia, these only amount to 1% of total UK exports of financial services, business services and insurance. This would suggest that accusations that the UK Government is blocking tougher sanctions over fear of losses to the City don’t match the facts.”
“Sanctions related to financial or capital markets, for example severing access to credit for state-owned enterprises or Russian banks, might be an effective strategy to exert more pressure on Russia (given its reliance on external financing). Such move would be far more damaging to Russia than the City of London – though it may involve some losses for the latter. This should not, and does not seem to be, a big concern for the UK government. In any case, if things get to this stage, other EU countries may suffer far greater losses than the UK through wider economic sanctions hitting, for example, gas supplies and exports.”
There are plenty of factors to consider when looking at sanctions. While the City is one of them, in the scheme of the broader European links to Russia it does not seem huge (compared to some economies complete energy reliance). Furthermore, given the size of the City as a global financial centre the links to Russia seem to fall far short of the critical billing they seem to have been given.

3 comments:

Jesper said...

Sanctions without sanctioning anyone?

This story isn't that old:
http://www.reuters.com/article/2014/01/17/us-hsbc-moneylaundering-exclusive-idUSBREA0G1KQ20140117

Bonuses were paid out, promotions were had and when found out then nobody got punished. Will the behaviour continue? Of course.

Will the unethical discriminate against Russians? Nope, one of the few good things they do is not care about ethnicity.

Anonymous said...

So the EU starts warmongering and the UK helps pay for it in the form of air support, monies for the Ukraine bailout lost revenue for its financial services industry in London.

And all at a time when the whole of Europe is teetering on the verge of a depression.

Great job politicians - Well done.

SC

Rik said...

Seems like the money is where it will hurt for the Russians. Putin seems to be a bit short.

Expect however something in return that will hurt Europe. Likely its economy. Putin is well aware that Europe simply doesnot have the stomach for economic repurcussions. Looks simply he can sing this one out longer than Europe does.

Energy sanctions are a non discussion. Look at the price increases it would cause. Simply would mean a recession. Look at predictions for oil prices and its relation with GDP in that respect. These kind of rises simply kills the EU economies.
Breughel thing is putting Holland in for a huge rise simply isnot going to happen (look at Dutch media on the problems they have with the locals).
Whre they get the renewables from and paid for is another. Simply 2/3 of the EU is de facto broke. And fitting it in the present system will get increasingly difficult. non-24/7 energy in a 24/7 system basically.

This has mainly by the Ukrainian nutcases and the West face savers been driven so far that Putin likely will use it to finish his job now.
Put so much pressure on former sovietstates that Russian minorities are properly treated because they are afraid of big Mama Russia. And the West clearly do know his red lines. Which are of a non-Obama nature.
Basically same he did with the oligarchs and the oil before. Finish the job and subsequently normalise again.

This will end up as a huge neative PR event for guys like Cameron and the EU with their own voters.

@OE Amounts simply look way too low. Likely (my best guess)is that an awful lot is hidden in indirect flows. It nearly always is in there.