The global impact of Putin’s war

This is an audio transcript of the FT News Briefing podcast episode: The global impact of Putin’s war

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, March 30th, and this is your FT News Briefing.

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Russia and Ukraine are working towards a peace agreement. We’ll hear what sceptics are saying. Barclays is paying a hefty price for a clerical error. Plus, Vladimir Putin’s war in Ukraine is rippling through the global economy. The FT’s Martin Wolf suggests how governments might respond.

Martin Wolf
They should target their fiscal support on the poorest. These are the people who are going to be worst hit by these massive rises in prices of energy and food.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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Moscow said it will dramatically scale back its military activities around Kyiv, Ukraine’s capital. Yesterday’s announcement by a top Russian military official came after the latest round of peace talks in Istanbul. The FT’s Ben Hall says Western countries are taking the announcement with a grain of salt.

Ben Hall
So I think what the Russians claim they were trying to do was to build trust around those talks and that this signal was intended to build confidence and build momentum behind these talks, I suppose. At the end of the day, there is a huge amount of scepticism about Russia’s game here with these talks. Are they really committed to finding a peaceful way out or an end to the fighting? Or are they just playing for time to allow them to regroup and to reorient their military and potentially to focus their fight on the east? So I think it’s very unclear exactly what the Russians have in mind.

Marc Filippino
So, Ben, just backing up a bit. What do we know about the peace talks between Russia and Ukraine?

Ben Hall
They’ve essentially agreed the broad kind of contours of a peace agreement, but much of the detail still needs to be worked out. Ukraine now seems to be prepared to accept neutrality, which would mean giving up on Nato membership, but in return for international defence guarantees, security guarantees, which would be guaranteed defence from leading powers plus a bunch of other countries like Turkey, Poland and Israel. The two sides also seem to have agreed that Ukraine should be allowed to join the EU and then certain things that are not in the peace agreement are also quite significant. There’s no talk of denazification, which is one of Russia’s big war aims or even demilitarisation of Ukraine, another big war aim. I think perhaps the biggest reason for scepticism about these talks, as well as the true Russian motivations, is this question of security guarantees, because it seems hard to imagine leading world powers offering that kind of guarantee to Ukraine if they weren’t prepared to give it in the context of Nato membership. And Ukraine doesn’t seem to have negotiated that kind of guarantee directly with those powers, so that is a potential big vulnerability in these talks.

Marc Filippino
Ben Hall is the FT’s Europe editor.

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Vladimir Putin’s war in Ukraine is having a profound impact on the global economy. The FT’s chief economics commentator, Martin Wolf, has been writing about this, and he joins me now to talk more about it. Hey, Martin.

Martin Wolf
Hi.

Marc Filippino
Can you describe what’s happening? You know, the big picture.

Martin Wolf
It’s quite a complicated story, and I think before we even think about it, we have to remember where we were before it started. In particular, we had, of course, been hit very badly by Covid-19. The world economy had a very deep recession in 2020 and then a very strong but very uneven recovery, uneven across countries. So then along comes this new shock. And lo and behold, it really disturbs commodity markets, particularly energy and food. So this is, has raised the price level further. So it’s for net food and net energy importers, both rich countries and a lot of poor ones, it’s a very bad hit. People would just be poorer. That’s going to make things even worse. So we can expect surging inflation and pretty significant reductions in output, not as significant as in 2020, but quite possibly longer lasting. This is a pretty big economic shock.

Marc Filippino
What are some of the things that governments and central banks can do to address this, Martin?

Martin Wolf
Well, central banks, unfortunately, I think are gonna make it worse, that’s the problem. They’re caught in essentially, what we used to think of back in the 70s, a stagflation. There is a negative shock to the world economy, which reduces output. So that’s the stagnation. And at the same time inflation has reached levels we haven’t seen since the 70s. In that situation, the central banks are really gonna be forced to tighten. Interest rates are going to rise. That’s going to almost certainly have a sizeable negative effect on equity markets and other asset markets, housing. Now, fortunately, in the developed world fiscal authorities can still spend, but they’re not gonna to want to do. It’s clear what they did in response to Covid-19. I think they feel a bit that they’ve sort of used up a lot of their ammunition. My recommendation has been that they should target their fiscal support on the poorest. These are the people who are going to be worst hit by these massive rises in prices of energy and food. But I think the truth at the end of this is a lot of people are gonna have losses in real incomes, which governments will not be able to offset. But the fiscal authorities look to me to have more room for manoeuvre than the monetary authorities.

Marc Filippino
Martin Wolf is the FT’s chief economics commentator. Thanks, Martin.

Martin Wolf
Pleasure.

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Marc Filippino
Yesterday, Barclays Bank said it’s gonna have to pay out at least £450mn, that’s nearly $600mn, for a catastrophic clerical error. The bank explained that back in 2019, it had exceeded the limit on the number of structured financial products it was allowed to sell in the US. The FT’s Alphaville editor Robin Wigglesworth said he first got wind of this a few weeks ago when Barclays suddenly stopped creating new shares in its popular exchange-traded notes, or ETNs.

Robin Wigglesworth
And suddenly out of the blue, without explaining why, Barclays basically said that we can’t create new shares in this. And they still trade like an ETF, like a traditional ETF on the stock exchange, so trading went kind of haywire in those. And we haven’t quite figured out what happened there and Barclays kind of stayed stum. And it seems that was, you know, when they first realised they, well frankly, screwed up quite badly.

Marc Filippino
Turns out Barclays had breached the limit for how many of these products it could issue by $15bn and has to buy back all the securities sold above this threshold at their original price, which it estimates is going to cost at about £450mn. There’s an internal probe and US regulators are looking into it, too.

Robin Wigglesworth
I imagine there will be recriminations flying. I mean, the SEC is also there and finding out what on earth happened. How could this go wrong? I mean, in the sort of annals of Wall Street’s screw-ups, this isn’t actually that bad.

Marc Filippino
Yeah, you end your piece by calling this a DB-level snafu. I have to assume that’s a poke at Deutsche Bank?

Robin Wigglesworth
Yes. You know, there are many fine people at work at Deutsche Bank, but I think recently Deutsche Bank and probably Credit Suisse have had a run at the DB crown for ethics screw-ups. I don’t think Barclays is nearly in DB or CS-level league tables when it comes to this. But you know.

Marc Filippino
And those two are just talking it out, saying, “Glad it wasn’t us this time.” (laughs)

Robin Wigglesworth
Yes, I think so. (laughs)

Marc Filippino
Robin Wigglesworth is the editor of Alphaville. Thanks so much, Robin.

Robin Wigglesworth
Thanks for having me, Marc. Great to be on.

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Marc Filippino
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This has been your daily FT News Briefing, make sure you check back tomorrow for the latest business news.

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