Russia warns of a long-lasting recession; US raises odds of Russian debt default

Russia warns of a long-lasting recession; US raises odds of Russian debt default
Ukrainian workers remove dangerous parts from a building which was damaged in a shelling in Kharkiv, Ukraine, on 17 May 2022. (Photo: EPA-EFE / SERGEY KOZLOV)

Russia said its recession will last longer than previously thought, according to Tass, while the US raised the odds that President Vladimir Putin’s government will be pushed to default.

European officials expressed optimism that Turkish concerns at Sweden and Finland joining Nato can be resolved, but the Nordic leaders are increasingly pinning their hopes on US President Joe Biden, who will host the Swedish and Finnish leaders in Washington, DC, this week. 

The government in Kyiv said that it would seek a prisoner swap after more than 200 Ukrainian fighters exited the Mariupol steel plant bound for Russian territory. An operation to get more people out was ongoing on Tuesday.  

Key developments

Russia warns recession will last longer, Tass says

Russia is heading into a recession amid high commodity prices for the first time in recent memory, the Economy Ministry said, according to Tass, as sanctions squeeze the economy.

Gross domestic product will contract by 7.8% this year and 0.7% in 2023, according to the Economy Ministry. High energy prices will keep the cash flowing in, with the current account surplus seen reaching a record of $191-billion this year. The rouble’s recent rally is likely to reverse into declines later in the year, while incomes fall and unemployment rises.

The official forecast for the contraction remains milder than those seen by some economists who expect a decline of 12% or more, making this year the worst performance in a generation.

US readies arms aid for India 

The US is preparing a military aid package for India to deepen security ties and reduce the country’s dependence on Russian weapons, people familiar with the matter said. While the package under consideration would include foreign military financing of as much as $500-million dollars – not enough for fighter jets or naval ships – it would still be a significant symbol of support.  

Czech EU presidency to prioritise Ukraine bid 

Ukraine’s application to join the European Union will be a top priority for the Czech Republic when it takes over the bloc’s rotating presidency from July, Foreign Minister Jan Lipavsky said.

Lipavsky said in an interview that he was convinced Ukraine could beat back Russia because of the delivery of modern, Western-made heavy weapons that outclass the Soviet-era arms and older designs that Moscow is limited to producing because of technology sanctions.

Hungary outlines cost to ditch Russian oil  

Prime Minister Viktor Orban’s government told EU counterparts that it will cost at least $810-million to revamp Hungary’s oil industry, as Budapest continues to obstruct a block-wide ban on Russian crude.

Hungary said €550-million were needed to overhaul its refineries to comply with the ban, and another €220-million for a pipeline from Croatia, according to people familiar with EU discussions this week and documents seen by Bloomberg. Additional funds may be needed to adapt to a potential price spike resulting from a ban on Russian imports.

Putin: EU committing economic ‘suicide’  

Europe will face the highest energy prices in the world over the long term if it rejects Russian supplies, and this could have “irreversible consequences” for much of the continent’s industry, President Vladimir Putin said, adding that the EU is committing economic “suicide”.

Speaking at a meeting on the development of the oil industry on Tuesday, Putin said that energy inflation was due to Europe’s turn away from traditional energy in favour of alternative energy, as well as political measures taken in response to the conflict in Ukraine. “They are trying to blame energy inflation on us, give it our names, blame their systemic mistakes on us,” Putin said.

Biden to host leaders of Sweden, Finland 

US President Joe Biden will host Swedish Prime Minister Magdalena Andersson and Finnish Prime Minister Sauli Niinisto on Thursday to discuss the country’s applications to join Nato as well as support for Ukraine, the White House said.

News of the visit comes after Turkish President Recep Tayyip Erdogan said he would oppose the applications over what he said was a willingness by the Nordic nations to host Kurdish militants. The US will “strongly support these applications when they are formally presented in Brussels”, White House press secretary Karine Jean-Pierre said on Monday.

Read our QuickTake explainers:

Finnish legislators overwhelmingly back Nato entry

Finland’s Parliament signed off on plans to seek membership in Nato alongside Sweden, with 188 lawmakers in Helsinki backing the proposal to eight against.

The bill will be signed by the government as well as President Sauli Niinisto before the application can be delivered to Nato headquarters in Brussels. Sweden’s application requires no vote in Parliament and was signed by Foreign Minister Ann Linde earlier on Tuesday. Policymakers have said they wish to submit their letters together.

Operation to extract Mariupol fighters ongoing 

Deputy Defence Minister Hanna Malyar told a televised briefing that she can’t provide details and reiterated that it is impossible for Ukraine to unblock Mariupol using military force. The government knows how many people remain in the Azovstal works but won’t disclose the number. “We hope this rescue operation ends well,” she said.

Soldiers in Mariupol prevented Russia from moving 20,000 of its troops to capture Zaporizhzhia and encircle Ukrainian forces, Malyar said, adding that they “provided critically needed time to organise defence”. 

Ukraine-Russia peace talks suspended 

Negotiations are “paused” between Ukraine and Russia, said Mykhailo Podolyak, a member of the Ukrainian team. He cited among the reasons the fact that: “Russia doesn’t understand that the war is not going according to its schedule or plan. 

“We are not talking about the Ukrainian delegation exiting the negotiating process, we are talking only about expediency and specifics at this stage,” he said. “Political talks will continue as soon as there are some specifics.” 

Russian Deputy Foreign Minister Andrey Rudenko said that talks were not currently going on in any form after Kyiv essentially withdrew from the process, according to Interfax.




German minister reassures Sweden, Finland on security 

“We will do everything to minimise the duration of such a transition phase,” Foreign Minister Annalena Baerbock told reporters when asked if Germany, too, would guarantee Finnish and Swedish security before they become full members of Nato. 

“Should this phase nevertheless last longer – it will surely not just be one day – then we all together will provide adequate security.”

Gasum declines to pay Gazprom in roubles 

Finland’s Gasum said it won’t switch to rouble payments required by Russia’s Gazprom, and it would take the companies’ long-term gas supply contract into arbitration.

Read more: EU drafts plan for buying Russian gas without breaking sanctions

There’s an increased risk that gas flows from Russia into Finland might be halted, the company said. Separately, the EU said that gas companies would violate sanctions if they open bank accounts in roubles to buy Russian gas, but can still purchase the fuel if they follow the bloc’s guidance.

Finnish president sure of Nato membership 

Finnish President Sauli Niinisto said he’s certain his country and Sweden will be able to set aside their differences with Turkey. 

“The statements from Turkey have in the last days rapidly shifted character and become harder, but I’m sure that we, through constructive talks, will solve this situation,” Niinisto said in Parliament in Stockholm during a state visit to Sweden. 

Speaking in Parliament in Helsinki, Finnish Prime Minister Sanna Marin called for all involved to “remain calm and constructive,,” saying “hurdles and difficulties” could be cleared together.

Russian missiles strike railway near Poland 

The area near the International Peacekeeping and Security Centre at Yavoriv in the Lviv region of western Ukraine close to the Polish border came under Russian missile attack, regional governor Maksym Kozytskyi said on Telegram.

The Yavoriv training facility, which had been used regularly by Nato before the invasion, suffered massive damage in March when Russian missiles killed at least 35 people. Missile attacks in the Lviv region have intensified in the past two days after almost a week without air-raid alerts.

Germany may back EU guarantees for reconstruction 

Germany is open to discussing a broad set of measures to help Ukraine rebuild once Russia ends its war, including offering EU guarantees for financing, according to government officials.

Read more: Germany ready to consider EU guarantees to fund Ukraine rebuild

At a Cabinet meeting last week, Chancellor Olaf Scholz’s coalition agreed that Berlin would play a constructive role in debates on how to channel billions of euros to Ukraine, one of the officials said. Sending direct national payments is another option. The subject will be high on the agenda when Group of Seven finance ministers meet in Bonn this week.

Finance Minister Christian Lindner said in an interview with four European newspapers published on Tuesday that Germany remains open to seizing the Russian central bank’s reserves abroad to finance the reconstruction, saying “we are already discussing it in the G7 and the EU and there are proposals on the table”. 




Russians top Turkish home-buyers’ ranking 

Russians topped Turkey’s ranking of foreign home-buyers for the first time, the latest sign of the country’s appeal for capital fleeing sanctions over the invasion of Ukraine.

Read more: Russians follow oligarchs’ path to Turkey with home sales record

Turkey hasn’t joined the US and EU in imposing sanctions on Moscow, creating opportunities for Turkish companies to fill the gap left by Western firms exiting Russia.

Eurozone region reports stronger growth 

The Eurozone economy grew more than initially estimated at the start of the year as the region moved past a wave of Covid-19 infections and defied headwinds from the early days of the war in Ukraine.

Read more: Euro-area economy grew more than estimated at start of year

The data highlight Europe’s underlying strength as consumers emerge from the pandemic with pent-up demand and large amounts of savings, allowing them to better withstand the pressures created by Russia’s invasion. Even so, the conflict has added to cost-of-living concerns by stoking energy prices and feeding already record inflation.  

Yellen wants Ukraine Marshall Plan 

US Treasury Secretary Janet Yellen issued a call for large-scale economic assistance to Ukraine, warning that the amounts of help pledged to date won’t even meet short-term needs as the nation struggles with the devastation wrought by Russia’s invasion.

Read more: Yellen calls for Marshall Plan for Ukraine to meet massive need

“Eventually, Ukraine will need massive support and private investment for reconstruction and recovery, akin to the task of rebuilding in Europe after 1945,” Yellen said in a speech in Brussels. “What’s clear is that the bilateral and multilateral support announced so far will not be sufficient to address Ukraine’s needs, even in the short term.”

Ukraine wants prisoner swap for Mariupol fighters 

Deputy Prime Minister Iryna Vereshchuk said Ukraine will push to swap more than 50 severely wounded soldiers evacuated from the Azovstal steel plant in Mariupol for Russian prisoners once their condition stabilises.  

More than 200 other Ukrainian fighters have also left the plant via a humanitarian corridor to a Russia-occupied area, and they too may be part of a future exchange of prisoners, a senior Ukrainian official said on Monday. Vereshchuk said a “humanitarian operation” to get people out of Mariupol was continuing.

EU sees solution for Turkey’s Nato concerns 

Several EU defence ministers said they expect that Nato will quickly resolve any outstanding issues with Turkey over the accession of Sweden and Finland.

“I am convinced that in the next days the situation will go in a good direction and Turkey will agree that they can join,” Luxembourg’s Francois Bausch told reporters in Brussels before talks with EU counterparts. DM


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