Aurelia Butler

Ukraine has long been known as Europe’s breadbasket. The country’s vast fertile plains of black soil made it, along with south-western Russia, one of the best places on the continent to grow wheat and other staple crops. Russia’s invasion of its neighbour — just ahead of the sowing season — risks extending the humanitarian catastrophe in Ukraine to the rest of the world. Staple food prices, as well as energy costs, have spiked, raising the prospect of pushing millions of people towards poverty and hunger. Commodity prices, more generally, increased at close to the fastest pace for over half a century last week. Sanctions on Russian financial institutions have led many traders to shy away from doing business with the country, even for energy. While there may be an exemption from the trade restrictions for oil and gas, insurers and dealers have decided that the risks, reputational or otherwise, of continuing to do business with the country are not worth the benefits. Oil prices rose to just shy of $120 a barrel on Thursday, the highest level since 2012, while wheat prices have risen around 50 per cent since the start of the invasion, close to record levels. More obscure commodities where Russian exports make up a large portion of global supply, such as neon gas — used in the production of semiconductors — and palladium, used in making catalytic converters for cars, are also likely to run short. That will raise consumer prices further in countries where living standards are already under pressure. Sanctions on Belarus, Russia’s main ally in the war, could exacerbate the squeeze: it is one of the world’s largest producers of potash, a component of fertiliser.According to futures markets the effect of the war on commodities is likely to persist, even if it eases slightly. Prices have risen for wheat deliveries in a couple of years, as well as immediately. That indicates traders believe there will be a reduction in supply for some time to come. A prolonged occupation of Ukraine and continued violence would, clearly, be bad for harvests, and damage may already have been done to potential yields.For richer countries the challenge will be ensuring that the most vulnerable are shielded from the higher costs. Some measure of national solidarity will be vital, as wealthier taxpayers must take some of the burden to ensure their compatriots do not go hungry and stay warm. Investing to reduce import dependency — whether of fuel or food — will take time. The EU must act to prevent a repeat of the beggar-thy-neighbour policies seen in the early stages of the coronavirus pandemic, as countries rushed to get hold of a limited international supply of personal protective equipment and other medical supplies. In poorer countries, especially those already facing financial stress from the coronavirus pandemic, higher food prices risk being devastating. Commodity exporters may get a dividend — although only if they do not rely on Belarusian potash — but importers that rely on buying essential food and fuel on international markets could struggle to get hold of the foreign currency they need. Much of Ukraine and Russia’s black soil plains are no longer solely Europe’s breadbasket but also an important source of supplies for Asia, Africa and the Middle East. Those trying to relieve famine-stricken parts of the world such as Yemen, Afghanistan and Ethiopia, will face an even more daunting task. When food prices rose in 2008 it helped to spark the Arab spring and, eventually, civil war in Syria. Russia’s invasion of Ukraine has sown the seeds of a crisis that will be felt well beyond European borders. More

Households are increasingly feeling the effects of inflation on their personal finances, leading some to spend their savings to cope with big rises in the costs of energy, food and fuel.Four-fifths (81 per cent) of adults quizzed in a regular official survey last month said their cost of living had risen over the month, up from 62 per cent of adults in November. The research, published on Friday by the Office for National Statistics, suggested inflation — which hit an annual 5.5 per cent in the January consumer prices index — is affecting people’s ability to pay for essentials. One in five (22 per cent) are spending their savings and 21 per cent of under-50s are borrowing more on credit cards or loans to manage their cost of living. The most common cost rises reported by those surveyed were in the price of food (92 per cent), gas and electricity bills (80 per cent) and the price of fuel (76 per cent). Energy bills are set to rise in April, when the regulatory price cap will jump by 54 per cent, pushing up the average bill to £1,971 a year. More than half (51 per cent) said they had reacted to price rises by cutting down their spending on non-essentials, while over one-third (37 per cent) said they were using less gas or electricity at home to save on costs.One in five said they were raiding their savings, rising to over one in four (27 per cent) for the under-30s age group. The ONS survey also asked its 4,500 respondents how they would cope with an unexpected but necessary bill of £850. Fewer than six out of 10 (59 per cent) said they would be able to pay it. Regular earnings went up by 3.6 per cent in the quarter to December 2021, implying a real-terms pay cut after accounting for higher inflation. The cost-of-living crisis triggered by inflation and the energy crunch is only set to worsen, according to forecasts by consultancy Capital Economics.

“The rise in energy prices that has resulted from the war in Ukraine means inflation will be higher for longer, spiking at over 8 per cent in April,” said Andrew Wishart, an economist at Capital Economics, on Thursday. The consultancy suggested inflation would fall back to 5 per cent by December 2022, compared with 4.4 per cent in its previous forecast. Savings made under lockdown, when pandemic restrictions limited the opportunities for spending on leisure activities, travel and restaurants, meant more people had extra cash as prices soared. But Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said this was “not a long-term solution”. “If you eat away at your emergency savings safety net instead of significantly cutting your costs, then months down the line you’ll be left with exactly the same problem in making ends meet, but having destroyed your emergency savings so you’re far less financially resilient,” she said.The high proportion of respondents under the age of 50 saying they had turned to borrowing to make ends meet was a further worry. Coles said: “It’s never a good idea to borrow to pay the bills. It feels like an easy solution, but you’re actually adding to the problem, because next month you’ll still have the same impossible bills, but you’ll have debts and interest to cover too.” More

Wheat prices have hit record highs on intensifying concerns of a supply shortage because of the war in Ukraine, raising the spectre of soaring global food inflation.Ukraine and Russia account for about 30 per cent of the world’s traded wheat and still have crops from last year to ship. “There is no end in sight to the upswing because 30 per cent of the world’s wheat exports have been cut off from the global market,” said Carsten Fritsch, analyst at Commerzbank.Wheat traded in Chicago, the international benchmark, has jumped more than 50 per cent since Russia invaded Ukraine. Prices rose to as high as $13.40 a bushel on Friday, while European milling wheat in Paris hit a record of €406 per tonne.Food and agricultural experts have warned of increasing food insecurity in poorer countries, many of which are already suffering from high hunger levels because of the coronavirus pandemic. Food inflation is also expected to rise. In January, average food inflation around the world hit 7.8 per cent, the highest level in seven years, according to the IMF.The big price increases were already curtailing the ability of grain-importing countries to purchase wheat. Turkey, a leading buyer of Russian wheat, was forced to reduce its volumes for an international tender from its original targets.Demand was also shifting to alternative grains, said Commerzbank, leading to a significant rise in corn over the past few days. Corn traded in Chicago has risen almost 10 per cent since the Russian invasion.Russia’s war in Ukraine had disrupted global grain and energy markets, which would push up food prices with poorer food-importing countries experiencing the most serious consequences, said Caitlin Welsh at US think-tank Center for Strategic and International Studies.“Russia’s war on Ukraine has the potential to exacerbate food insecurity around the world,” she said.

Grain exports have been halted by a lack of transportation because of port closures, while paying Russia has become more complex due to sanctions imposed by the west. Leading agricultural traders, including Archer Daniels Midland and Bunge, which buy and sell grains around the world, have closed their operations in Ukraine. Analysts and traders are concerned about the planting of this year’s spring crop, including wheat, corn and barley. The winter wheat planted during the European autumn may not be harvested in the summer.In addition to grain prices, farmers around the world are likely to feel the impact of rising costs as Russia and Belarus are the leading fertiliser producers. The Russian Industry and Trade Ministry recommended that fertiliser producers temporarily halt exports, according to Interfax. “Both potash and phosphate are still some way off the record prices hit in 2008, but that record may well be tested over the coming weeks,” said Chris Lawson, head of fertilisers at consultancy CRU.Brazil’s agriculture minister Tereza Cristina said this week the country, which is the fourth-largest consumer of fertilisers, had sufficient stocks until the start of the next harvest in October. She plans to visit Canada this month in order to negotiate more potash supplies. The South American nation imports around 80 per cent of its fertilisers. Russia is the biggest source, providing around one-quarter. More

Thomas Laryea is an international law and policy expert at Orrick, Herrington & Sutcliffe. He specialises in advising governments and creditors on international finance matters. In this post, he explores the legal ramifications for international economic law following Russia’s invasion of Ukraine.The armed conflict between Russia and Ukraine has already had profound geopolitical repercussions, as well as tragic human costs. It is also highly complex for international economic law and the institutions that govern it. In particular, the IMF.Before we dive into the central issues, however, some context.After the collapse of the Soviet Union in 1991, the former republics of the bloc were broken up into their own states. law. A dissolution under international law would have been messy, not least because it would have meant that the Soviet Union’s assets and liabilities would have to be allocated among the new successor states. However, Russia insisted that it be treated as the continuing state. That meant Russia retained all its international assets (such as foreign exchange reserves) and liabilities (such as obligations on international debt contracts).This approach also meant Russia continued the Soviet Union’s membership and status in international organisations such as the UN Security Council. And the former Soviet Union republics became new states under international law.Now to today. What are the international economic law implications of Russia’s invasion of the Ukraine?The IMF, in a joint statement with the World Bank, signalled on Tuesday that it’s responding to Ukraine’s request for emergency financing, and is continuing to work on making an additional $2.2bn available for the nation before June’s end.But what would happen if Russia were to apply for IMF financing to cushion the blow from the sanctions? Russia’s invasion of Ukraine does not breach its obligations under the IMF’s Articles of Agreement: Russia remains a full member of the IMF member and remains eligible for financing from the Fund. Russia could therefore immediately draw on its circa $5bn “reserve tranche” in the IMF without any conditions. Beyond that, however, the geopolitical reality suggests that securing the IMF Executive Board votes to approve additional financing would be impossible.Economic sanctions and other restrictionsThe scale of the economic sanctions against Russia has been unprecedented, with Russia’s central bank, financial and banking system all targeted.The nature of the sanctions imposed on Russia could mean that those measures fall foul of the IMF treaty. For instance, as the measures restrict the availability, or use, of foreign exchange by private parties in international payments, this could constitute “exchange restrictions”, breaching the IMF treaty, unless approved by the IMF Executive Board. However, since 1952, the IMF has approved exchange restrictions that are imposed “solely for the preservation of national or international security”. I would expect that the exchange restrictions imposed against Russia would be approved on this basis. In order to cushion the rouble’s fall and conserve the country’s now-limited store of foreign exchange reserves, the Russian authorities have also imposed a series of measures, such a restricting Russian residents from using foreign exchange to service foreign debt. Those measures would also be in breach of Russia’s IMF obligations, unless the IMF Board approves it. A basis for IMF Board approval is that such measures are imposed temporarily, for balance of payments reasons and their effect is non-discriminatory across residents of other IMF member countries. Based on past precedents, Russia has a fair argument for IMF approval of at least some of the restrictions that it has imposed.The international legal effect of the restrictive measures that Moscow is imposing may be much broader than many international investors realise. The IMF treaty gives extraterritorial effect to some of the payment aspects of the economic sanctions against Russia and its central bank’s attempts to conserve its reserves. Article VIII, Section 2(b) of the IMF’s treaty renders a contract for payment in foreign exchange unenforceable, where such payment is “contrary to an exchange control regulation imposed consistently with the IMF’s [treaty].” Any exchange restrictions approved by the IMF, or any restrictions on capital movements (which the IMF treaty generally authorises IMF member countries to impose), are consistent with the IMF treaty for these purposes. What this means in practice is that, if a US-based holder of a Russian corporate bond does not receive payment because Russia has imposed an IMF-approved exchange restriction, that bondholder might not be able to enforce its claim for non-payment in any of the IMF’s 190 member countries. A quick word on sovereign bondsIn the run-up to Russia’s invasion of Ukraine, the prices of Ukraine’s sovereign bonds traded lower, and they might fall further in a prolonged conflict. A debt restructuring looms. Ironically, Russia is reported to remain a holder of its bonds even though it fought Ukraine in court during its bond restructuring in 2016. Some bond market participants have also begun to wonder whether a default event would be triggered if it ceased to become a member of the IMF if Russia took control of the country. This question conflates two distinct international law issues: (i) the recognition of a state and (ii) recognition of a government. If Russia were to take over the government in Ukraine, it’s likely that the international community would refuse to recognise that government and, in any case, Ukraine would still retain its statehood and, therefore, would continue as a member country of the IMF.Another issue is whether Russia will make its upcoming payments on its sovereign bonds, with the first hard currency payments due on March 16. With the payment system restrictions and the obvious incentives on Russia to conserve financial resources, a default seems likely.The quest for peace and security is the international priority at this juncture. Unfortunately, the economic fallout may be prolonged and the international economic law consequences may be felt for years to come. More

How well did you keep up with the news this week? Take our quiz.Russian forces have seized control of Europe’s biggest nuclear power plant, raising international alarm over Moscow’s warfare during another night of devastating shelling.World leaders condemned the assault on the Zaporizhzhia plant near the southern city of Enerhodar after a blaze broke out at what Ukrainian authorities called “an educational and training building” near the facility. Ukraine’s nuclear inspectorate said firefighters had brought the blaze under control by dawn and there were no casualties or unusual radiation levels reported but it was under the control of Russian forces.The attack evoked memories of the Chernobyl nuclear disaster in 1986 and the fire at the Fukushima nuclear power plant in Japan in 2011. Ukrainian President Volodymyr Zelensky contacted half a dozen world leaders in the early hours of Friday, accusing Russia of deliberately targeting the reactors.Russia’s defence ministry accused Ukrainian forces of staging a “monstrous provocation” at the Zaporizhzhia site.The incident came after another day of brutal bombardment of Ukraine’s urban centres, including a ruinous siege of the port city of Mariupol, whose population of almost half a million is lacking food, water and electricity.At least 22 people were killed in a missile strike on Chernihiv, a city in the north of Ukraine, and Kharkiv in the east remained under constant attack.As civilian casualty numbers mounted, Russian and Ukrainian delegations agreed yesterday to set up civilian evacuation routes out of the hardest-hit cities. However, the talks ended without a ceasefire agreement.Sanctions: The UK threatened to freeze more than £1bn worth of property owned by Russian billionaires and push for greater ownership transparency. France and Germany have detained superyachts belonging to Vladimir Putin’s close associates, while the White House has hit oligarchs and government officials with more sanctions, although it rejected bipartisan calls to ban Russian oil imports.Markets: European and Asian stock markets fell in response to the developments at Zaporizhzhia. In China, meanwhile, amateur investors are driving a rally in so-called “Sino-Russian trade concept stocks”.Financial services: Deutsche Bank is bracing for the loss of a quarter of its investment bank IT specialists as sanctions against Russia threaten to cut off its key software technology centres in Moscow and St Petersburg.Business: Professional services groups Accenture, McKinsey and Boston Consulting Group have joined the corporate exodus from Russia. Accenture yesterday axed its entire 2,300-person business in Russia.Supply chain: The war threatens to pile pressure on the chip manufacturing industry as rare gases critical to the production of semiconductors become scarce.Opinion: Russia cannot simultaneously open fire on democracies while also enjoying the fruits, writes Chrystia Freeland, deputy prime minister of Canada and a former Ukraine correspondent for the Financial Times.How to help: From fundraising to providing shelter, Europeans have moved to help those fleeing the conflict. How to Spend It rounds up five charities providing aid to Ukraine — and the fundraisers supporting them. Track troop movements on our regularly updated map of the conflict and follow our live blog for the latest developments.Five more stories in the news1. Sony and Honda plan EV tie-up to take on Tesla Two of the most storied names in Japanese business are teaming up to take on Tesla in the electric car market. They are expected to establish a new company later this year and sell their first cars in 2025. 2. Purdue and US states agree new settlement for opioid litigation Members of the Sackler family, who own Purdue Pharma, have agreed to increase their financial contribution to a settlement with US states over their role in the opioid crisis to $6bn.3. Argentina secures $45bn IMF debt deal Under the agreement, which comes just weeks before a deadline for repayments the country would struggle to make from fast-dwindling reserves, payments will begin in 2026 and end in 2034. However, the agreement must still be approved by Argentina’s congress and the IMF board.4. Billions required to prevent next pandemic, expert warns Governments must invest billions of dollars to prevent the next pandemic, according to the Coalition for Epidemic Preparedness Innovations, which is charged with preparing the world for emerging infectious diseases.5. Plans to revive European Super League attacked Top football bosses have criticised an effort to revive the European Super League, as one of the breakaway contest’s leading advocates insisted he would continue to pursue a radical transformation of the world’s favourite sport.The days aheadUkraine talks Nato foreign ministers and their allies from the EU and G7 meet in Brussels today and are expected to discuss a possible no-fly zone over Ukraine. The UN Human Rights Council will vote on whether to establish a commission of inquiry for one year to investigate alleged human rights violations committed by Russian forces in Ukraine since 2014.US jobs report The world’s largest economy is forecast to have posted another solid month of job gains. Employers are predicted to have added 415,000 jobs in February, according to a consensus forecast compiled by Bloomberg, building on the 467,000 positions created in January. The unemployment rate is expected to fall to 3.9 per cent.2022 Paralympic Winter Games The Games will kick off in Beijing, where Russian and Belarusian athletes have been banned from competing by the International Paralympic Committee. Multiple national paralympic committees were “threatening not to compete” if the nations were included in the Games following Russia’s invasion of Ukraine. China’s National People’s Congress The annual plenary session begins tomorrow, with President Xi Jinping preparing to extend his period in office into a third term. But furore over Xi’s support for Russia and the collapse of his zero-Covid policy in Hong Kong threaten to overshadow the gathering.International Atomic Energy Agency chief in Tehran Rafael Mariano Grossi, the director-general, will meet senior Iranian officials to discuss remaining issues around reviving the Iran nuclear deal tomorrow. (Reuters)What else we’re reading Putin’s war on the liberal order Democratic values were already under threat around the world before the Russian invasion of Ukraine. Now we need to rekindle the spirit of 1989, writes Francis Fukuyama in an essay for the Financial Times.Books review: How did London and the US become safe havens for “dirty money”? These three books examine how the financial centres assumed the role of “butlers” for autocrats.Gillian Tett: War in Ukraine threatens the global financial system, writes the FT’s US editor at large.Borrowed money funded ‘Spac king’ share purchases Chamath Palihapitiya, the former Facebook executive and billionaire tech investor, borrowed money to finance landmark investments while emphasising the importance of Spac sponsors putting their own capital at risk. Here’s how the arrangements indicate he put less personal cash into his deals than had been thought.Hip-hop stars miss out in music catalogue gold rush You might have noticed headlines about musicians selling their life’s work for eye-popping sums of money. But rappers, despite being the backbone of the streaming revolution, are losing out to boomer rock musicians, writes Anna Nicolaou.Reader feedbackThis week we featured an item from our food and drinks team on the world’s leading independent coffee shops and asked for your suggestions. Koishu Kunii got in touch from Paris to recommend two of her favourite outlets in the French capital.“Weekday afternoon in the spring is the best time to visit and fully immerse yourself in coffee with a touch of Vitamin D,” she writes of Fringe, which was opened by former photographer Jeff Hargrove. Brouillon opened late last year and “offers fully alternative experience with consciousness, from cookies made with love and locally sourced produce to homemade kombucha”.Thanks for reading FirstFT and do email us with suggestions or feedback about this newsletter. We love hearing your thoughts. Have a good weekend and I will be back on Monday — Gordon. More

The US economy is forecast to have posted another solid month of job gains in what has become an “extremely tight” labour market, according to Federal Reserve chair Jay Powell.Employers in the world’s largest economy are estimated to have added 415,000 jobs in February, according to a consensus forecast compiled by Bloomberg. That will build on 467,000 positions created in January, and is expected to push the unemployment rate down to 3.9 per cent.The data, which will be released by the Bureau of Labor Statistics at 8.30am Eastern Time on Friday, is also set to show another sizeable jump in monthly wage growth.Average hourly earnings are expected to have ticked up another 0.5 per cent in February, a slight moderation from January’s 0.7 per cent monthly increase. Hourly earnings are forecast to be up 5.8 per cent over the past year. Wages have soared higher this year, especially for lower-income workers, as labour shortages across a broad swath of sectors have prompted businesses to offer better pay to fill a near-record number of vacant positions. US businesses reported 10.9mn unfulfilled positions at the end of last year. The number of job openings has soared compared with historical standards as the US workforce experiences near record turnover, with the number of Americans voluntarily quitting the workforce historically elevated.

While US President Joe Biden cheered the 6.5mn jobs created by the US at his State of the Union address this week, the number of Americans employed or looking for a job remains roughly 1 per cent below pre-pandemic levels. Friday’s report is expected to show the labour force participation rate plateaued in February at 62.2 per cent.The heftier compensation and improved benefits offered by US businesses to lure back workers has coalesced in what Powell said on Thursday was a “great labour market for workers, especially workers at the lower quartile of earnings who are getting the biggest wage increases”.In testimony to US lawmakers this week, Powell said labour market strength alongside very elevated inflation justifies the US central bank proceeding with its plans to raise interest rates this month, despite the prospects of slower growth stemming from Russia’s invasion of Ukraine. Powell said it is too early to know the exact economic ramifications of the conflict, but suggested inflation, which is now running at the fastest pace in four decades, could push even higher given the recent run-up in oil prices to multiyear highs. “Commodity prices have moved up significantly, energy prices in particular. That’s going to work its way through our US economy,” he told members of the Senate banking committee. “We’re going to see upward pressure on inflation, at least for awhile. We don’t know how long that will be sustained for.”Powell said he supports a quarter-point interest rate increase as the first step in a “series” of adjustments this year, with the Fed potentially considering raising rates by larger increments at one or more meetings if price pressures stay elevated. More

Good morning. Allied foreign ministers are meeting both at the Nato headquarters and at the European Council today to assess the sanctions imposed against Russia and to discuss their implementation and potential further measures down the line. The gatherings come after another brutal day of attacks on Ukrainian cities and Vladimir Putin vowing to continue the assault until he wins the war. With the number of Ukrainian refugees abroad now having passed the 1mn mark, we’ll also explore a request from several EU lawmakers for the European Central Bank to open a swap line for the Ukrainian currency, to help people fleeing to EU countries convert their savings into euros. Digesting sanctionsThe EU’s sanctions conveyor belt has slowed in the past 24 hours as member states begin to take stock of what they have implemented, writes Sam Fleming in Brussels.Since Wednesday last week, the EU has pushed through sanctions on dozens of individuals, including Vladimir Putin and some of his closest oligarch allies, as well as on seven Russian banks, the country’s air transport sector, the high-tech industry and sovereign debt. In arguably the most dramatic move of all, it has frozen the assets of Russia’s central bank. It has also hit Belarus’s key raw materials exports, closing loopholes on existing potash sanctions and blacklisting senior military personnel.These actions have been closely co-ordinated with moves by G7 allies — although there are clear differences, including with the UK, which despite its rhetoric has been less aggressive in hitting top oligarchs so far. The question, as foreign ministers gather today for talks with Antony Blinken, US secretary of state, among others, is how rapidly to drive towards fresh measures, and it is here that member states divide.Some argue for a breather, as capitals assess the damage to Russia’s economy and to their own business sectors. They also want to turn more attention to enforcing the expansive new sanctions regime and, in particular, tracing oligarchs’ assets. Other challenges include implementing the EU ban on Kremlin-controlled media outlets Russia Today and Sputnik, which one diplomat said was particularly difficult.“We have been moving at warp speed and partners may need some time to align with packages that are constantly moving,” said a senior EU official. “Let’s let the sanctions bite, and keep the unity.”Other member states, among them Baltic countries and some former eastern bloc nations such as Poland, are eager to do more — and quickly. Ideas put forward include increasing the number of Russian banks cut out of the Swift messaging network — a move that the countries heavily reliant on Russian gas exports are distinctly wary of.Member states have also discussed a shipping ban similar to the one already imposed by the UK. Many want to impose sanctions on the family members of some individuals already on the EU blacklist, as the US has done, to better enforce asset freezes. Lithuania has suggested 25 more individuals to hit. Siegfried Muresan, a Romanian MEP, has called on the European Commission to “restrict the access of Russian companies to all public procurement in the EU”, according to a letter seen by Europe Express. According to the commission’s database, Russian companies have won more than 20 public contracts in Bulgaria, the Czech Republic, France, Germany, Hungary, the Netherlands and Poland in a single year to the tune of more than €150mn, including in strategic infrastructure projects such as railways.Capitals are also discussing measures to prevent oligarchs from hiding their assets in trusts. And the commission is in dialogue with the European Central Bank over rules to make it harder to dodge sanctions via the use of cyber-currencies.Alongside this, perhaps the highest-stakes debate is over whether to target the Russian oil and gas sectors with sanctions. Some member states in central and eastern Europe are in favour, while prominent legislators in the US, including Nancy Pelosi, House Speaker, have advocated a block on Russian oil. The White House ruled it out yesterday. Germany has made it clear that it takes a dim view of the idea. While the EU’s second sanctions package hit the Russian oil refining sector, it left exports of crude and natural gas alone — something Italy also strongly advocated. And the Swift regime launched this week was carefully designed to avoid interrupting European payments for Russian fossil fuels by leaving Sberbank and Gazprombank connected to the network. The bloc gets 40 per cent of its gas and 10 per cent of its oil from Russia. Officials who advocate hitting Russia’s natural resources sector harder argue it is the best way to cripple its economy and Putin’s war machine. But for many EU capitals the damage this would do to their own economies makes it a step too far — at least for now. Chart du jour: Refugee protectionThe number of refugees pouring out of Ukraine to flee the fighting doubled this week, with 1mn arriving in other countries since Russia invaded. EU interior ministers who gathered in Brussels yesterday agreed to grant Ukrainian refugees a special status allowing them to stay and work in the bloc for up to three years. The exception was Hungary, which said it would apply existing asylum rules instead. (More here)Looking for a swap lineThe European Central Bank has been asked by politicians to open an emergency liquidity line with Ukraine that allows its central bank and the war-torn country’s citizens to exchange their hryvnia currency into euros, writes Martin Arnold in Frankfurt.The request puts the ECB in a difficult position, as Christine Lagarde, its president, has expressed her “horror” at Russia’s invasion of Ukraine and expressed her desire to “show solidarity” with its citizens, but officials are dubious it can justify opening a swap line with Kyiv.A group of 22 members of the European parliament said in a letter to Lagarde: “We are deeply concerned by the numerous reports on the difficulty of Ukrainian refugees to convert the Ukrainian hryvnia into other currencies once they arrive on the territory of the EU.”The Polish central bank has offered a swap line to its Ukrainian counterpart, but the MEPs said “this is not the case for all countries that host refugees”. “As Ukrainians are fleeing the war, it is common for them to travel with cash resources, as we know from the media reports on long ATM lines, and they are now unable to convert and use those vital resources,” they said.The Ukraine central bank last month suspended foreign exchange trades and banned banks from issuing cash in foreign currencies. Some commercial banks in other European countries accept Ukrainian bank cards in their cash machines, but many do not. The ECB has not received a formal request for a liquidity line from the Ukraine central bank, according to a person briefed on the matter. Officials think it may be difficult for the ECB to justify such a move, even if a request was made, because of the riskiness of hryvnia-based assets and fears that it would set a precedent for helping war-torn countries.“The ECB can take measures whether or not it is formally in their mandate,” Alin Mituta, a Romanian MEP who signed the letter, told the Financial Times. If the ECB did take such a step, it would prompt other central banks to follow suit, including those in Romania, Poland, Hungary, Slovakia and the Czech Republic, he said.The ECB has swap lines with 16 countries outside the eurozone, including the US, Japan, China, Canada, Switzerland, the UK and Sweden, which provides them with euros in exchange for assets in their currencies to boost liquidity in financial markets.Other central banks can request a repurchase facility with the ECB, under the EUREP facility it launched in 2020 to provide liquidity in euros to a wider group of undisclosed central banks. The ECB declined to comment beyond saying that it would reply to the MEPs’ letter.

Should the ECB open an emergency liquidity line with Ukraine? Click here to take the poll. What to watch today EU foreign affairs council meets in Brussels, including counterparts from the US, UK, Canada and UkraineNato foreign ministers hold an emergency meeting, including with non-Nato partners Finland and SwedenSmart readsNo good (gas) options: Natural gas is Russia’s most potent economic leverage despite the EU’s efforts to reduce its dependency. Moscow’s ability to exploit that reliance could be exacerbated by wide disparities among member states’ needs, writes Bruegel in this policy paper. Hard decisions lie ahead, including for Germany to reopen lignite mines or the Netherlands to expand gas exploitation at the earthquake-prone Groningen field. EU half-awakening: The EU’s recent leaps on common defence and sanctions against Russia are significant and have upended the bloc’s relationship with Moscow, with a phase of protracted “cold” confrontation coming up. However, the Centre for European Reform lays out why there are several reasons to be wary about claims of a “geopolitical awakening”.War on liberal order: Francis Fukuyama writes on how liberalism was in trouble even before Vladimir Putin’s attack on Ukraine and why it will still have an uphill battle globally even if he loses the war. “But the world will have learnt what the value of a liberal world order is, and that it will not survive unless people struggle for it and show each other mutual support. The Ukrainians, more than any other people, have shown what true bravery is, and that the spirit of 1989 remains alive in their corner of the world. For the rest of us, it has been slumbering and is being reawakened,” Fukuyama writes in this piece for FT Weekend. More

WASHINGTON (Reuters) – U.S. employers likely maintained a strong pace of hiring in February, pushing the labor market closer to maximum employment, but rising headwinds from geopolitical tensions could hurt business confidence and slow job growth in the months ahead.The Labor Department’s closely watched employment report on Friday is expected to show labor market conditions tightening further, with the unemployment rate resuming its downward trend and a shortage of workers continuing to drive up wages. Federal Reserve Chair Jerome Powell this week described the labor market as “extremely tight,” and told lawmakers that he would support a 25-basis-point interest rate increase at the U.S. central bank’s March 15-16 policy meeting and would be “prepared to move more aggressively” later if inflation does not abate as fast as expected.Oil prices have surged above $100 a barrel since Russia launched a war against Ukraine last Thursday, invoking a barrage of sanctions against Moscow by the United States and its allies.”The employment report will show the U.S. economy is healthy and continuing to move forward,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “But geopolitical problems will push inflation higher, and have created a tremendous amount of uncertainties that will put a damper on economic growth and jobs going forward.”The survey of establishments is likely to show that nonfarm payrolls increased by 400,000 jobs last month after rising by 467,000 in January, according to a Reuters poll of economists.That would leave employment 2.5 million jobs below its pre-pandemic level. Economists expect all the lost jobs will be recouped this year. February payrolls estimates range from as low as a 200,000 to as high as a 730,000 jobs gain.Payrolls increased strongly in January, despite a record 3.62 million people being absent from work in the middle of that month because of illness, when the nation was reeling from a winter wave of cases caused by the Omicron variant of COVID-19. Infections have since declined sharply. The Census Bureau’s Household Pulse Survey showed about 7.8 million people were not at work in early February because they were caring for someone or were sick with coronavirus symptoms, down 1 million from early January. The number of people on state unemployment benefits was the smallest in 52 years in mid-February. Also arguing for strong job gains, data from Homebase, a payroll scheduling and tracking company, showed substantial increases in the number of employees on the job as well as hours worked in mid-February. Shift work in February recorded its largest monthly gain since the spring of 2020, another survey from workforce management software company UKG showed. DOWNSIDE RISKSBut payrolls could come in below expectations after an Institute for Supply Management survey on Thursday showed a measure of services sector employment contracted in February for the first time since last June. The ISM reported earlier this week that manufacturing employment growth slowed last month.The Fed’s Beige Book report on Wednesday showed “widespread strong demand for workers remained hampered by equally widespread reports of worker scarcity.” There were a near record 10.9 million job openings at the end of December.”I’m biased more towards a softer payrolls number, but with a pretty good wage figure,” said James Knightley, chief international economist at ING in New York. “All the evidence does suggest that companies are trying to recruit staff and also retain staff as well because of these high turnover statistics.”Job gains last month were likely concentrated in the leisure and hospitality industry as well as retail and other sectors which were hardest hit by Omicron in January. Moderate gains in professional and business services employment are likely as the ISM survey showed businesses in this industry were “struggling to hire direct employees and non-employee labor.” The unemployment rate is forecast falling to 3.9% from 4.0% in January. Economists believe the labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, likely increased last month.With workers scarce, average hourly earnings are forecast rising 0.5% in February after increasing 0.7% in January. That would lift the year-on-year gain in wages to 5.8% from 5.7% in January. Wages were boosted in January as Omicron kept some lower hourly paid workers at home. Economists said February’s employment report would support a 25 basis points rate hike from the Fed this month. In the wake of January’s employment report and hot inflation readings, financial markets priced in a half percentage point hike. But that is now off the table amid worries about fallout from the Russia-Ukraine war. Economists expect as many as seven rate hikes this year.”Indeed, the current energy price shock creates a real bind for central bankers,” said Gregory Daco, chief economist at EY-Parthenon in New York. “Given the high-inflation environment, Fed policymakers will want to balance the risk of a ‘stagflationary’ shock and a shift to a higher inflation regime with the risk of normalizing policy too rapidly and precipitating the ongoing tightening of financial conditions.”The workweek, which was impacted by Omicron in January, is forecast increasing to 34.6 hours from 34.5 hours. More