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Thursday, July 24, 2014

The EU's possible new sanctions on Russia: What 'burden sharing'?

As we noted in our previous blog on the potential 'Stage 3' of EU sanctions on Russia, the options considered by the European Commission and the EEAS seem heavily focused on financial markets, raising the question of whether London would have to shoulder too much of the burden.

The document notes:
Between 2004 and 2012, a total of USD 48.4 billion was raised through IPOs in the EU by companies incorporated in Russia. Out of those, USD 16.4 billion was issued by state-owned financial institutions.

In 2013, 47% of the bonds issued by Russian public financial institutions were issued in the EU's financial markets (€7.5bn out of a total of €15.8bn).
However, what the memo does not say is that all those deals took place in London - as data from the London Stock Exchange show quite clearly.

As the graph above shows, VTB (twice) and Sberbank have raised $16.4bn from IPOs (and follow on issuance) in London. This seems to correspond (or even outstrip) the figure cited in the EU document. Furthermore, the total value of IPOs from Russian firms also comes from London, since it stands at $48.96bn (between 2004 and 2012).

The spread of debt securities seems a bit wider, and data are harder to find. However, it is a good bet that quite a few were issued or at least cross-listed in London.

Ultimately, this is not 'make-or-break' for London. The fees from debt and/or equity issuance and stock listings are a nice income, but not huge in terms of the City. We would expect the figure to be within the hundreds of millions maximum. It's also worth remembering that any sanctions are likely to be only forward looking so relating to new debt and equity issuance not existing stocks (although this is still up for grabs in the negotiations). 

Hence, as we asked in our previous blog, the real question is why is so much of the burden (even if it is not a massive one) falling on the UK? France and Germany might be talking tougher, but they do not quite seem to be following through with actions.

*(Update: We have seen an updated version of the document which has the exact $16.4bn figure, and so have updated it in the text above). 


Anonymous said...

The EU deliberately targets the Ukraine with trade deals and aid, starts a world crisis and then expects the UK to pay for it.

The EU has made a mess of everything that it touches and cannot even manage what it has now. Courting more basket case nations as part of its quest for empire is leading the continent towards unhappiness, poverty and now war.

Never in my name.


Anonymous said...

Bearing in mind the EU German driven under cover expansionism has destabilised a fragile and bankrupt Ukraine, we now have to cope with the unintended consequences, which will hurt all parties and bring on the prospect of war. Russian speaking people in the Ukraine should be given to opportunity of referendums as in the Crimea. I would support Putin in preference to the one size fits all sinking ship called the EU.

Average Englishman said...

EUSSR causes problem then blames everyone but itself and finally demands that the UK pays to deal with it. Parfait; c'est normal. Naturlich.

Jesper said...

The amazing thing about statistics is how easy it is to present them in a pleasing way :-)

This particular case could be about the amount of money involved or about the number of people involved.

Finance is always about big amounts of money and few people involved. So if the sanctions were to be about:
-lost taxes, well these kind of financial corporation don't pay much, if any corporation tax
-lost income for finance professionals, not sure if many people would care if a few hundred people (if that many) earned a little less commissions. The affected aren't exactly on minimum-wage ;-)

I'm not a fan of oligarchs or many of the finance professionals likely to be involved, still, they should not be punished without trials. Removing legal protection from the disliked might be popular but it sets a dangerous precedent.

I'd be more impressed if the principle were to be fought for than the current fight for a miniscule number of well off people dressed up in the flag. Especially since those people aren't much for solidarity with anyone but themselves.

MEB said...

Looks like this is leading up to a true EU solution where all the big countries get their own piece.
UK: finance
France: warships
Germany: gas?
Italy: ??

Anonymous said...

Why blame the EU for the crisis in the Ukraine? The Ukranians have a perfect right to decide their own future and if the wish to join the EU or even NATO then they are entitled to do so. No one is forcing them. The Ukraine is a sovereign independent country - not a vassal state belonging to Putin. Putin's attempt to reconstruct a Soviet empire will end in war - neither the West nor the EU threaten the territorial integrity of Russia. Putin cannot be allowed to murder anyone he dislikes or invade and destabilise any country he chooses.

Anonymous said...

Does anyone really believe the referendum in the Crimea was fair? The last population census in 2001 showed ethnic Russians at 58% ; Ukranians 24%: Tartars 12%. I doubt the latter 2 groups voted yes, so that means a majority vote of 58% - hardly convincing especially when the ballot did not permit anyone to vote to maintain the status quo and remain part of the Ukraine. It was a choice of re-unite with Russia or break away as an independent state. Putin lied about not using Russian special forces to take over the Crimea parliament and install a pro-Russian puppet PM. He has lied repeatedly about the direct involvement of Russians forces in eastern Ukraine and the supply of heavy weapons. But still the Left in the West prefer to believe Putin…amazing !

Denis Cooper said...

Before Anonymous asserts that "neither the West nor the EU threaten the territorial integrity of Russia" perhaps he should have a look at a map and see if he can find the Ural Mountains, as in Cameron's publicly stated idea that the EU should stretch from the Atlantic to the Urals.

Jesper said...

The biggest and costliest sanction against Russia would have been to let Ukraine be and let it drift towards Russia. The gas-subsidies and the financing of the Ukrainian deficit...

Sadly we're ruled by short-term 'thinkers'. I'm not impressed by them, nor of their arguments.

The uprising was against oligarchs and bad governance. Governance is the same and the oligarch has been replaced. The cost has been high, the benefits are non-existent.

Seriously, how much success has the EU had in improving governance anywhere? Why would it do better in Ukraine?

The ones who want to fight the separatists, please join the Ukrainian military.
The ones who want to subsidise the Ukrainian government, please donate your own money to the Ukrainian government.
Or shorter: Stop whining like Homer Simpson: "Can't someone else do it". Do it yourself.