Aurelia Butler

When Volodymyr Zelensky addressed the World Economic Forum via video link this week, he issued a heartfelt appeal to the west: use the assets seized from the Russian central bank and country’s oligarchs to fund the estimated $500bn cost of rebuilding Ukraine. “If the aggressor loses everything, then it deprives him of his motivation to start a war,” he said. “Values must matter when global markets are being destabilised.”Many western leaders seem to agree. Josep Borrell, the EU’s chief negotiator recently suggested there is “logic” in using Russian foreign exchange reserves to rebuild Ukraine. And Ursula von der Leyen, European Commission president, responded to Zelensky’s appeal in Davos by noting that Russia “should also make its contribution” to reconstruction. This makes for rousing political rhetoric. However, the dirty secret at this week’s WEF meeting is that these public appeals are causing private angst for many of the Davos corporate and financial elite, from the west and its allies.This is not because of a lack of sympathy for Ukraine’s plight; nor a failure to recognise that the postwar reconstruction bill will be vast. Instead, the issue is the lack of due process. While most think there is an overwhelming moral case to help Ukraine — and punish Russia’s aggression — freezing assets is quite a different matter from dispersing them. If either is done without a consistent and transparent framework, western governments will either face years of costly lawsuits or end up smashing apart the trust that underpins their political economies. As Zelenksy himself noted, “values” matter now, more than ever — particularly when markets are destabilised.“We have been told for decades that the west upholds the rule of law, and we invested in the west on that basis,” one leading non-western sovereign wealth investor observes. “Is that being ripped up now? What are we supposed to think?” Of course, many western observers — and Ukrainians — might argue this is now a second-order question, given the horrors of Russia’s invasion. But I think that those worrying about due process have a point. So, how should this be resolved? Leaders are scrambling for solutions. von der Leyen told the WEF this week “our lawyers are working intensively on finding possible ways of using frozen assets”. Separately, western lawyers sympathetic to Ukraine are studying existing legislative tools to see whether they can be repurposed to this end.One idea floating around is to use America’s extensive civil tort laws to enable Ukraine to claim for “damages” from oligarchs’ US assets. A variant of this might be attempted by plaintiffs in France and the Netherlands too, I am told. Another idea is to use arbitration processes linked to some little-known direct investment treaties signed between Russia and the Ukraine in the 1990s, which create a way to impose damages in cases of economic harm.Separately, the US administration could seek express legislative authority from congress for introduce new legislation enabling Russian currency assets to be seized. Or the US president might use the International Emergency Economic Powers Act of 1977 to redeploy assets in American banks, possibly drawing on precedents established in the 1980s in relation to Iran. One of the most interesting ideas of all has emanated from Kyiv, which has quietly drafted a memo calling for a new UN commission for “constitutional, legal, transparent and effective” blocking and seizing of assets belonging to those connected with armed aggression. While the current war in Ukraine is being cited as the pilot project, the idea — or hope — is to create a global framework to be used in other conflicts too. The good news is that this shows Kyiv’s recognition of the need for due process. Some Ukrainian business figures are thinking the same way: Rinat Akhmetov, the Ukrainian billionaire, said this week that he would sue Moscow for “appropriate reimbursement for all costs and lost revenue” from the destruction of his assets in Mariupol, such as the Azovstal steel plant.The even better news is that Ukraine’s ideas are likely to be welcomed. “The underlying concept of having an international framework covering sanctions could potentially lead to an improvement over the current rather ad hoc imposition of sanctions,” says one western lawyer, who has seen the draft memo. But the bad news is that Russia’s veto in the security council will make it hard to establish a UN commission. The idea of deploying the 1977 US emergency powers act is legally controversial, and passing any American legislation swiftly is likely to be difficult. Unless the concept of due process and property rights is overturned, Russian assets will probably remain frozen for many years or endless legal battles will ensue.None of these prospects are remotely appealing. But the latter two are arguably the least bad. Unless, of course, von der Leyen can now find a legal process or, better still, the UN embraces Ukraine’s sensible ideas. Either way, the one certainty is that lawyers will soon be reaping fat fees. Therein lies the reality of kinetic and economic war in the 21st century. [email protected]  More

When the chancellor of the exchequer sat down after what wasn’t apparently an emergency Budget, announcing what wasn’t called a windfall tax, the top item on the Treasury website was still about his Spring Statement two months ago.That’s fitting. It was obvious then that Rishi Sunak would need to offer more help, with energy prices set to push typical bills to £2,800 this autumn, more than double the regulatory price cap a year before.Much of the time since has been spent explaining why what the UK government announced on Thursday was a bad idea. Sunak repeatedly said a windfall tax on oil and gas profits from the North Sea, while “superficially appealing”, would hurt investment. Instead, the government has created what it terms a new energy profits levy, adding complexity to address worries that this was “unconservative”. It aims to raise £5bn from oil and gas producers. There may be decent ways to gather taxes on genuine windfall gains, but this isn’t it.Sunak has a poor record with policy complexity. Who remembers the convoluted and contentious successor scheme to furlough announced in 2020, which never became a reality because another Covid-19 wave required an extension of the original? See also Thursday’s statement. Out goes February’s energy bills rebate, which expressly was not a loan and offered households £200 off their energy bills to be repaid over five years. Instead, the support will be bigger and simpler, with a universal £400 off household bills and significant help in direct welfare payments to low-income households, pensioners and the disabled. The £15bn package rightly aims support at those that most need it: three-quarters will go to what the Treasury defines as households in vulnerable circumstances.The oil and gas sector got the complexity instead. It is perfectly possible to argue that, actually, tax on North Sea oil and gas had been at quite low levels historically. At 40 per cent, including the 10 percentage point supplementary charge, it was double the standard rate of corporation tax. But within the past decade, the tax rate on fields approved before 1993 has been double that again.It’s also possible that, as Stuart Adam from the Institute for Fiscal Studies argues, North Sea oil and gas is slightly different from other windfall tax candidates. You can’t pack up your oil rig and move it elsewhere. The fact that the supplementary charge has gone up and down over time — it was cut in 2015 after the oil price plummeted — suggests that an element of this should be baked into a cyclical industry’s thinking.But the government didn’t make that case. Instead, it created a 25 per cent levy, with upfront investment incentives (beyond what’s already on offer in the supplementary charge) to circumvent criticisms it had itself been making of the idea. The levy — unlike Labour’s “blunt” proposal, said Sunak — seemed to have been drummed up to show fiscal responsibility, despite raising perhaps £5bn against spending of £15bn, and dressed up to encourage more investment, which it probably won’t.Near-term investment has always been a bit of red herring. As BP’s chief executive Bernard Looney said, a windfall tax wouldn’t change plans, which are already agreed and committed. Similarly, an industry that works on long-lead times probably won’t drag forward much spending to take advantage of a short-term doubling in tax-relief.

The question was whether the government could tax the extraordinary gains being made by the oil and gas companies, without damping their longer-term inclination to invest in renewable energy and green infrastructure that the UK (and every other country) desperately needs. Meanwhile, the Treasury has just started work on a longer-term plan to boost ailing business investment across the economy, after its two-year super deduction fell slightly flat. The Office for Budget Responsibility in March halved its estimate for the investment brought forward under the policy.The problem with windfall taxes has always been how you convince people this is a one-off (and it hasn’t been in oil and gas at least) that is targeted on a very particular set of gains. It’s hard to maintain that pretence, given the government’s talk about hitting electricity generators, another sector where huge investment is needed in the energy transition.It seems the only reason that didn’t come on Thursday was that the task of prising apart the genuinely excess profits in a sector that hedges pricing and operates on a bewildering array of contracts was a task too obviously fraught even for [email protected]@helentbiz More

Nagy said the bank sector will have to contribute 300 billion forints per year on top of existing taxes, while energy firms mostly MOL will have to pay 300 billion forints, bearing the brunt of the burden.($1 = 366.07 forints) More

Speaking by video link to leaders of ex-Soviet states, Putin said Russia would keep working to find substitutes for foreign imports no longer available to it, even though this was not a “panacea for all ills”.Russia has become increasingly isolated from the West since invading Ukraine three months ago in what it calls a “special military operation”. Scores of companies have left the country for good and unprecedented Western sanctions have targeted its economy and businesses.”Representatives of our businesses face problems, of course, especially in the field of supply chains and transport. But nevertheless, everything can be adjusted, everything can be built in a new way,” Putin said in televised comments. “Not without losses at a certain stage, but it helps us in a way become stronger. In any case, we are definitely acquiring new competencies, we are starting to concentrate our economic, financial and administrative resources on breakthrough areas.”Putin said the exit of some foreign companies from the Russian market might be for the best.He acknowledged Russia’s need for access to foreign technology, adding: “We are not going to cut ourselves off from this – they want to squeeze us out a bit, but in the modern world this is simply unrealistic, impossible.”He did not elaborate on how Russia would find ways to maintain access to western components and software.Apparently referring to the United States, he said no “world gendarme” would succeed in using sanctions to weaken countries like Russia, China and many others that were pursuing what he called an independent policy. More

It announced the move, which followed two previous 300 basis point cuts which took the rate to 14%, at an extraordinary meeting. The bank has been gradually reversing an emergency rate hike to 20% in late February that was triggered by Russia’s Feb. 24 move to send tens of thousands of troops into Ukraine and the imposition of Western sanctions in response. Governor Elvira Nabiullina said inflationary risks were easing, but warned that the economy was entering a period of structural transformation and that banks needed additional capital support.Inflation expectations of households and businesses are falling, she told a banking conference in Moscow, helping to significantly lower inflationary risks.The rouble’s recent appreciation to multi-year highs has had a significant, if temporary, disinflationary impact, she said.The Russian currency has been supported this year by capital controls imposed in late February to cap financial stability risks and defend the economy against sweeping western sanctions.”Thanks to these factors, inflation is falling faster than we expected,” Nabiullina said. “This allows us to lower the key rate today without creating new pro-inflationary risks.””We allow for the possibility of further easing of the key rate at upcoming meetings.”RISKS ARE EASINGThe central bank said external conditions for the Russian economy are still challenging but financial stability risks have somewhat decreased, opening room for easing of some capital control measures.”The first months (since February) were a time for tactical decisions: we had to counteract the first sanctions shock,” Nabiullina said. “We managed to protect financial stability and not allow an inflation spiral to unfold.”But this, of course, absolutely does not mean that we can breathe easily.”The rouble’s performance has “given policymakers room to reverse emergency measures introduced since February”, Capital Economics analysts said in a note.”We suspect that the CBR won’t continue this pace of easing … A further easing of capital controls and additional rate cuts seem likely,” they said.The rouble extended intraday losses as Nabiullina spoke, sliding to 63.41 against the dollar, down 6.9% on the day.The central bank could cut its key rate further by 50-100 basis points at the next rate-setting meeting scheduled for June 10, said Dmitry Polevoy, head of investment at LockoInvest.Deputy Prime Minister Yuri Borisov said Russia needed cheap money and monetary policy that does not solely aim to curb inflation, hoping the central bank was embarking on a new trend.”I would have liked to have (the rate) at 6-8% today,” he said.INFLATION FORECASTNabiullina said the bank would adjust its 2022 inflation forecast, which previously stood at 18-23%, adding that inflation would slow to 5-7% in 2023 before reaching its 4% target in 2024.Inflation is hovering near its highest since early 2002, although May 20’s reading of 17.51% marked a decline from 17.69% a week earlier, reflecting a fall in consumer activity.High inflation dents living standards and has been one of the key concerns among Russians for years.On Wednesday, President Vladimir Putin ordered 10% rises in pensions and the minimum wage to cushion Russians from inflation.He denied the country’s economic problems were all linked to what Moscow calls its “special military operation” in Ukraine, which has prompted the West to impose unprecedented sanctions against Russian banks, companies, business leaders and figures close to the Kremlin. More