Money makes the world go round

by Antonis D. Papagiannidis

In more ways than one, money makes the world go round.

As the after-shocks of international decisions – over the war in Ukraine and the imposition of sanctions – spread around economies, the medicine administered to avert more serious damage is by necessity economic. Actors like the ECB are once more rolling up their sleeves to attempt damage control. On the other side of things, business actors try to make the best of opportunities afforded to them by recent set-ups devised to circumvent sanctions, giving a tangible content to the dictum “let no crisis go untapped”.

Let’s start with the positive side of things which is already appearing: the ECB has part-unveiled its new post-EPP/Q.E. bond-buying instrument, to intervene if markets move aggressively towards less-hardy euro area economies. The re-investment of PEPP funds that are freed by the likes of Germany France or the Netherlands as their bonds held by the ECB mature (the pandemic PEPP treasure trove, gauged at the end of the easy-money era we have all lived through, stands at 1.7 trillion euros – not to be taken lightly by the markets…) should be enough to keep weaker economies like the Italian, Greek, Portuguese and Spanish ones free from  grave worries that the spreads of their sovereigns over Bunds might bring about a renewed debt crisis. The yields of Italian or Greek paper, which had gone ominously higher than the 4% ceiling promptly receded to 3.37% for Italy, 3.6% for Greece, around 2.5% for the Iberics.

A sigh of relief for such countries – and for their respective Governments, which supported American- and by European-decided sanctions at recent EU and NATO Summits, regardless the pressure felt by their economies at the hands of markets due to the side-effects of sanctions. Of course, as expected, the helping hand of the ECB entails some sort of conditionality: beneficiaries of the new, flexible instrument would have to comply with European Commission recommendations such as adopted in the course of the European Semester, especially regarding their fiscal stance; also, that they keep implementing the structural reforms provided for in their NGEU-financed Programmes.

Were one to translate this “no free lunch” clause of ECB largesse, one would see why Governments of the European South are already frowning at the thought of going to elections with such vigilant eyes over their shoulders. (For one, the Bank of Greece already alerted the Greek Government that income support measures legislated to face the energy crisis should be temporary, focused and limited. Also, that no signals be sent out that could be interpreted by the markets as heralding overall fiscal relaxation down the road).

Now for a swift visit to the other side of the globe: as US-devised, EU-imposed sanctions rattle an (ex) major player of the global economic system – Russia – , Ultra Tech Cement bought a load of Russian coal, for the equivalent of some 25.8 million US dollars. This might seem a minnow for international trade – but UTC happens to be the largest Indian cement company; its payment was made in yuan (172.6 million), that is in Chinese currency, notwithstanding the fact that there was no Chinese dimension to the coal transaction…

If further deals are clinched in such a manner, the circumvention of trade sanctions imposed to Russia would pale, when compared to the broader circumvention of the US dollar as the main pillar of international trade.

So, money makes indeed the world go round – but not always in predictable ways.