Aurelia Butler

BRUSSELS (Reuters) – The European Union’s top court on Wednesday cleared the way to cut billions of euros of funds to Poland and Hungary, whose populist rulers the bloc accuses of violating democratic rights.There is no appeal against the ruling by the Luxembourg-based European Court of Justice, which dismissed challenges by Warsaw and Budapest against a new EU sanction that would halt funding to member countries which break European laws. “Today’s judgements confirm that we are on the right track,” said European Commission President Ursula von der Leyen, announcing the Brussels-based EU executive would decide how to act in the coming weeks. At stake are hundreds of billions of euros of funds, the EU’s internal cohesion, and its international standing. Hungary and Poland have long been big beneficiaries of EU funds, which the bloc has poured into the former communist countries to help develop their economies since they joined in 2004.The EU says that to receive those benefits, countries must uphold common European standards, which Warsaw and Budapest have flouted by imposing political control over the judiciary and media, and restricting civil rights.The disputes threaten to sow discord in the EU on its eastern flank, where it aims to project unity in response to Russia massing forces near Ukraine. The decision could also have immediate political impact, particularly in Hungary, where an April 3 national election is expected to be the tightest race for nationalist Prime Minister Viktor Orban since his landslide victory in 2010.Orban’s ruling Fidesz party said the ruling was “political revenge” against Hungary, meant to help the united opposition. Justice Minister Judit Varga said Brussels was abusing its powers against national member states.Polish Prime Minister Mateusz Morawiecki told a news conference that “Poland believes that centralisation, bureaucratic centralisation, federalisation… is a dangerous process.”DESTROYING EU FROM WITHINThe EU has already frozen pandemic recovery funds worth 36 billion euros ($41 billion) from Poland and 7 billion euros from Hungary. The so-called “conditionality mechanism” could now affect any part of the EU budget, worth 1.8 trillion euros ($2 trillion) for 2021-27. Poland, the biggest former Communist EU member with 38 million people, is eligible for more than 75 billion euros through 2027, including for climate, digitalisation and public health. Hungary has a population around a quarter the size but has received an even greater share of EU spending per capita. “Hungary and Poland have been rapidly backsliding on media freedom, independence of judges, the right to protest,” said Amnesty International. “Instead of trying to oppose EU funds being conditional on respect for the rule of law, they should respect people’s rights and clean up their act.”EU officials said the bloc might move on Hungary first, while political horse-trading would probably delay a decision to withhold funds at least until late this year.Poland and Hungary have threatened to retaliate by stalling other EU decisions that require unanimity, including on climate and energy, as well as foreign policy.Katalin Cseh, a liberal Hungarian EU lawmaker, said ignoring the erosion of the rule of law in Poland and Hungary would be comparable to the dark comedy film “Don’t Look Up”, in which politicians fail to stop an asteroid from destroying the earth.”If we are sitting tight and assessing, then Mr Orban and Mr Morawiecki would achieve their goal of destroying the Union from within,” she said.($1 = 0.8786 euros)(This version of the story corrects paragraph nine making clear Varga is justice minister of Hungary, not Poland) More

U.S. and European officials are finalising an extensive package of penalties if Russia invades Ukraine, plans for which Moscow has repeatedly dismissed.Such sanctions could target major Russian banks but do not include banning Russia from the SWIFT financial system, according to U.S. and European officials.Siluanov said sanctions against Russian banks would be “unpleasant” but the state will make sure that all deposits with banks, all transactions, including in foreign currencies, are secured. “They say we have a financial shield in the form of gold and forex reserves, budget surplus … low debt,” Siluanov told reporters.Siluanov said Russia will be able to switch to other financial systems in case if it is cut off from SWIFT. Possible restrictions on buying of Russian debt were “unpleasant but not fatal” for Russia, which had $635 billion in gold and forex reserves as of early February, Siluanov said.The minister said Russia had no plans to revise its 2022 borrowing plans and was considering testing foreign demand for Russian Eurobonds once the current situation calms down. More

LONDON (Reuters) – The risk of material credit rating pressures from the current tensions between Russia and Ukraine is low, Moody’s (NYSE:MCO) said on Wednesday, unless the situation continues for an extended period or escalates to other countries.Reliance on Russian oil, gas and coal means energy supply is likely to be the dominant channel through which Europe’s economies would be impacted by a conflict, Moody’s said, although some countries are also vulnerable to trade disruption and security risks, especially cyber attacks.”Our baseline view is that Russia-Ukraine tensions will stop short of an outright military conflict,” Moody’s said in a report on the broader impact of the crisis.”And the risk of material credit pressures emerging is low unless such a conflict were to carry on for an extended period or escalate into outright conflict beyond Ukraine”.It added that countries in the Baltics and central and eastern Europe were most exposed to the energy, trade and security strains, but that those risks were largely accounted for in their current credit ratings.If the situation worsened there could be problems though.Russia provides 38% of Europe’s natural gas, 26% of its crude oil and 46% of its solid fuels such as coal, Moody’s cited.Any move by Moscow to reduce those supplies to gain political leverage or in response to European sanctions would “have major implications”, especially as the European Union’s liquefied natural gas (LNG) terminal capacity, at best, only covers about a quarter of total demand.”Even a relatively short reduction in gas supply would likely lead to a further increase in energy prices, which have already soared,” the report said.An intensification of inflationary pressures could push the European Central Bank and other central banks to raise interest rates, slowing economies and potentially increasing debt levels.”The knock-on effects for tax revenue would also weigh on the public finances. Pressures would intensify if governments decided to introduce additional support measures like (energy cost) price caps or subsidies,” Moody’s added.The big risk, though, would be other former Eastern Bloc countries also become involved in conflict with Russia.”In a very unlikely and extreme scenario, an outbreak of armed conflict between Russia and Ukraine could spill over into EU countries neighbouring them,” Moody’s said, flagging Baltic states and Poland because of their geographical proximity and history of tense relations with Russia.”Although unlikely, in part because of the permanent presence of NATO troops in the most exposed EU countries, such a scenario could have far-reaching consequences for their credit profiles”. More

Indonesia is to host the meeting of G20 finance ministers and central bank governors on Thursday and Friday. Many participants, including Lindner, will only take part virtually due to the latest coronavirus wave.”The issue of international financial stability will of course play a major role at the G20 meeting,” Lindner told reporters in Berlin. “Inflation and the reactions to it are particularly challenging for many low-income countries.””The topic ‘global macro’ is also one of the priorities of the German G7 presidency,” he added. “It is therefore expected that this will also be reflected in Friday’s final communique.”Germany took over the rotating G7 presidency at the beginning of this year. More