More stories

  • in

    Treasury Secretary Yellen Looks to Get Global Tax Deal Back on Track

    The Treasury secretary is traveling to Warsaw, Brussels and Bonn, Germany, this week at an uncertain time for the global economy.WARSAW — Treasury Secretary Janet L. Yellen arrived in Europe this week to join U.S. allies in confronting multiple threats to the world economy: Russia’s war in Ukraine, soaring inflation and food shortages.But one of Ms. Yellen’s first orders of business during a stop in Poland will be trying to get the global tax deal that she brokered last year back on track after months of fledgling deliberations about how to enact it. The two-pronged pact among more than 130 countries that was reached last October aimed to eliminate corporate tax havens by enacting a 15 percent global minimum tax. It would also shift taxing rights among countries so that corporations pay taxes based on where their goods and services are sold rather than where their headquarters are.Turning the agreement into a reality is proving to be a steep challenge.The European Union has already delayed its timeline for putting the tax changes in place by a year and progress has been halted over objections by Poland, which last month vetoed a plan to enact the new tax rate by the end of next year. Despite initially signing on to the deal, Poland has voiced reservations, including whether the minimum tax will actually prevent big tech companies from seeking out lower-tax jurisdictions. Polish officials have also expressed concern that the two parts of the tax agreement are moving ahead at different paces, as well as trepidation about the impact that raising its tax rate will have on its economy at a time when the country is absorbing waves of Ukrainian refugees.In meetings in Warsaw on Monday, Ms. Yellen pressed top Polish officials to let the process move ahead, making clear that the tax deal continues to be a priority of the United States. She is meeting with Poland’s prime minister, Mateusz Morawiecki, and the finance minister, Magdalena Rzeczkowska.According to the Treasury Department, Ms Yellen told Mr. Morawiecki that international tax reform and the global minimum tax would raise crucial revenues to benefit the citizens of both Poland and the United States.The meetings come at the beginning of a weeklong trip that also includes stops in Brussels and Bonn, Germany, which is hosting the Group of 7 finance ministers’ summit. Ms. Yellen will be focusing on coordinating sanctions against Russia with European allies and addressing growing concerns about how disruptions to energy and food supplies could affect the global economy.Poland’s finance minister, Magdalena Rzeczkowska, former head of the country’s tax agency. Her country has raised concerns over potential loopholes and the impact of the global tax plan.Radek Pietruszka/EPA, via ShutterstockThe tax agreement has been one of Ms. Yellen’s top priories as Treasury secretary. Gaining Poland’s support is critical because the European Union requires consensus among its member states to enact the tax changes.“I think the reality of turning a political commitment into binding domestic legislation is a lot more complex,” said Manal Corwin, a Treasury official in the Obama administration who now heads the Washington national tax practice at KPMG. “The E.U. has moved and gotten over most of the objections, but they still have Poland and it’s not clear whether they’re going to be able to get the last vote.”With President Emmanuel Macron of France heading the European Union’s rotating presidency until June, his administration was eager to get a deal implemented. But at a meeting of European finance ministers in early April, Poland became the sole holdout, saying there were no ironclad guarantees that big multinational companies wouldn’t still be able to take advantage of low-tax jurisdictions if the two parts of the agreement did not move ahead in tandem, undercutting the global effort to avoid a race to the bottom when it comes to corporate taxation.Poland’s stance was sharply criticized by European officials, particularly France, whose finance minister, Bruno Le Maire, suggested that Warsaw was instead holding up a final accord in retaliation for a Europe-wide political dispute. Poland has threatened to veto measures requiring unanimous E.U. votes because of an earlier decision by Brussels to block pandemic recovery funds for Poland.The European Union had refused to disburse billions in aid to Poland since late last year, citing separate concerns over Warsaw’s interference with the independence of its judicial system. Last week, on the eve of Ms. Yellen’s visit to Poland, the European Commission came up with an 11th-hour deal unlocking 36 billion euros in pandemic recovery funds for Poland, which pledged to meet certain milestones such as judiciary and economic reforms, in return for the money.Negotiators from around the world have been working for months to resolve technical details of the agreement, such as what kinds of income would be subject to the new taxes and how the deal would be enforced. Failure to finalize the agreement would likely mean the further proliferation of the digital services taxes that European countries have imposed on American technology giants, much to the dismay of those firms and the Biden administration, which has threatened to impose tariffs on nations that adopt their own levies.“It’s fluid, it’s moving, it’s a moving target,” Pascal Saint-Amans, the director of the center for tax policy and administration at the Organization for Economic Cooperation and Development, said of the negotiations at the D.C. Bar’s annual tax conference this month. “There is an extremely ambitious timeline.”Countries like Ireland, with a historically low corporate tax rate, have been wary of increasing their rates if others do not follow suit, so it has been important to ensure that there is a common understanding of the new tax rules to avoid opening the door to new loopholes.“The idea of having multiple countries put the same rules in place is a new concept in tax,” said Barbara Angus, the global tax policy leader at Ernst & Young and a former chief tax counsel on the House Ways and Means Committee. She added that it was important to have a multilateral forum so countries could agree on how to interpret and apply the levies.Yet, while Ms. Yellen is pushing foreign nations to adopt the tax agreement, it remains unclear whether the United States will be able to pass its own legislation to come into compliance.An earlier effort by House Democrats to adopt a tax plan that would satisfy terms of the agreement fell apart in the Senate, where Democrats continue to disagree over the scope and cost of a tax and spending bill that President Biden has proposed.Rep. Kevin Brady of Texas, the ranking member on the House Ways and Means Committee, has led Republican opposition to an international tax agreement, saying it makes the United States “less competitive.”Anna Moneymaker/Getty ImagesRepublicans in Congress have made clear that they are unlikely to support any agreement that the Biden administration has brokered and called on the Treasury Department to consult with them before trying to move ahead.“As it is, there’s very little chance of a global minimum tax agreement — there is already resistance to approval at the E.U., which should be the easiest part of these discussions, and it will only get harder going forward,” said Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee. “Meanwhile, here in the U.S., there’s little political support for an agreement that makes the U.S. less competitive and takes a big bite out of our tax base.”Ms. Yellen is expected to convey to her counterparts this week that the agreement is still a priority for the Biden administration and that she hopes that the United States can make the tax changes needed to comply with the agreement in a small spending package later this year, according to a person familiar with the negotiations. More

  • in

    States Turn to Tax Cuts as Inflation Stays Hot

    WASHINGTON — In Kansas, the Democratic governor has been pushing to slash the state’s grocery sales tax. Last month, New Mexico lawmakers provided $1,000 tax rebates to households hobbled by high gas prices. Legislatures in Iowa, Indiana and Idaho have all cut state income taxes this year.A combination of flush state budget coffers and rapid inflation has lawmakers across the country looking for ways to ease the pain of rising prices, with nearly three dozen states enacting or considering some form of tax relief, according to the Tax Foundation, a right-leaning think tank.The efforts are blurring typical party lines when it comes to tax policy. In many cases, Democrats are joining Republicans in supporting permanently lower taxes or temporary cuts, including for high earners.But while the policies are aimed at helping Americans weather the fastest pace of inflation in 40 years, economists warn that, paradoxically, cutting taxes could exacerbate the very problem lawmakers are trying to address. By putting more money in people’s pockets, policymakers risk further stimulating already rampant consumer demand, pushing prices higher nationally.Jason Furman, an economist at Harvard University who was an economic adviser under the Obama administration, said that the United States economy was producing at full capacity right now and that any additional spending power would only drive up demand and prices. But when it comes to cutting taxes, he acknowledged, the incentives for states do not always appear to be aligned with what is best for the national economy.“I think all these tax cuts in states are adding to inflation,” Mr. Furman said. “The problem is, from any governor’s perspective, a lot of the inflation it is adding is nationwide and a lot of the benefits of the tax cuts are to the states.”States are awash in cash after a faster-than-expected economic rebound in 2021 and a $350 billion infusion of stimulus funds that Congress allocated to states and cities last year. While the Biden administration has restricted states from using relief money to directly subsidize tax cuts, many governments have been able to find budgetary workarounds to do just that without violating the rules.Last week, Gov. Ron DeSantis of Florida signed a $1.2 billion tax cut that was made possible by budget surpluses. The state’s coffers were bolstered by $8.8 billion in federal pandemic relief money. Mr. DeSantis, a Republican, hailed the tax cuts as the largest in the state’s history.“Florida’s economy has consistently outpaced the nation, but we are still fighting against inflationary policies imposed on us by the Biden administration,” he said.Adding to the urgency is the political calendar: Many governors and state legislators face elections in November, and voters have made clear they are concerned about rising prices for gas, food and rent.“It’s very difficult for policymakers to see the inflationary pressures that taxpayers are burdened by right now while sitting on significant cash reserves without some desire to return that,” said Jared Walczak, vice president of state projects with the Center for State Tax Policy at the Tax Foundation. “The challenge for policymakers is that simply cutting checks to taxpayers can feed the inflationary environment rather than offsetting it.”The tax cuts are coming in a variety of forms and sizes. According to the Tax Foundation, which has been tracking proposals this year, some would be phased in, some would be permanent and others would be temporary “holidays.”Next month, New York will suspend some of its state gas taxes through the end of the year, a move that Gov. Kathy Hochul, a Democrat, said would save families and businesses an estimated $585 million.In Pennsylvania, Gov. Tom Wolf, a Democrat, has called for gradually lowering the state’s corporate tax rate to 5 percent from 10 percent — taking a decidedly different stance from many of his political peers in Congress, who have called for raising corporate taxes. Mr. Wolf said in April that the proposal was intended to make Pennsylvania more business friendly.States are acting on a fresh appetite for tax cuts as inflation is running at a 40-year high.OK McCausland for The New York TimesMr. Furman pointed to the budget surpluses as evidence that the $1.9 trillion pandemic relief package handed too much money to local governments. “The problem was there was just too much money for states and localities.”A new report from the Tax Policy Center, a left-leaning think tank, said total state revenues rose by about 17.6 percent last year. State rainy day funds — money that is set aside to cover unexpected costs — have reached “new record levels,” according to the National Association of State Budget Officers.Yet those rosy budget balances may not last if the economy slows, as expected. The Federal Reserve has begun raising interest rates in an attempt to cool economic growth, and there are growing concerns about the potential for another recession. Stocks fell for another session on Monday, with the S&P 500 down 3.2 percent, as investors fretted about a slowdown in global growth, high inflation and other economic woes.Cutting taxes too deeply now could put states on weaker financial footing.The Tax Policy Center said its state tax revenue forecasts for the rest of this year and next year were “alarmingly weak” as states enacted tax cuts and spending plans. Fitch, the credit rating agency, said recently that immediate and permanent tax cuts could be risky in light of evolving economic conditions.“Substantial tax policy changes can negatively affect revenues and lead to long-term structural budget challenges, especially when enacted all at once in an uncertain economic environment,” Fitch said.The state tax cuts are taking place as the Biden administration struggles to respond to rising prices. So far, the White House has resisted calls for a gas tax holiday, though Jen Psaki, the White House press secretary, said in April that President Biden was open to the idea. The administration has responded by primarily trying to ease supply chain logjams that have created shortages of goods and cracking down on price gouging, but taming inflation falls largely to the Fed.The White House declined to assess the merits of states’ cutting taxes but pointed to the administration’s measures to expand fuel supplies and proposals for strengthening supply chains and lowering health and child care costs as evidence that Mr. Biden was taking inflation seriously.“President Biden is taking aggressive action to lower costs for American families and address inflation,” Emilie Simons, a White House spokeswoman, said.The degree to which state tax relief fuels inflation depends in large part on how quickly the moves go into effect.Gov. Laura Kelly backed a bill last month that would phase out the 6.5 percent grocery sales tax in Kansas, lowering it next January and bringing it to zero by 2025. Republicans in the state pushed for the gradual reduction despite calls from Democrats to cut the tax to zero by July.Understand the 2022 Midterm ElectionsCard 1 of 6Why are these midterms so important? More

  • in

    Disney, Built on Fairy Tales and Fantasy, Confronts the Real World

    The entertainment behemoth spent decades avoiding even the whiff of controversy. But it has increasingly been drawn into the partisan political fray.Since its founding in 1923, Disney has stood alone in Hollywood in one fundamental way: Its family-friendly movies, television shows and theme park rides, at least in theory, have always been aimed at everybody, with potential political and cultural pitfalls zealously avoided.The Disney brand is about wishing on stars and finding true love and living happily ever after. In case the fairy tale castles are too subtle, Disney theme parks outright promise an escape from reality with welcome signs that read, “Here you leave today and enter the world of yesterday, tomorrow and fantasy.”Lately, however, real world ugliness has been creeping into the Magic Kingdom. In this hyperpartisan moment, both sides of the political divide have been pounding on Disney, endangering one of the world’s best-known brands — one that, for many, symbolizes America itself — as it tries to navigate a rapidly changing entertainment industry.In some cases, Disney has willingly waded into cultural issues. Last summer, to applause from progressives and snarls from the far right, Disney decided to make loudspeaker announcements at its theme parks gender neutral, removing “ladies and gentlemen, boys and girls” in favor of “dreamers of all ages.” But the entertainment giant has also found itself dragged into the fray, as with the recent imbroglio over a new Florida law that among many things restricts classroom instruction through third grade on sexual orientation and gender identity and has been labeled by opponents as “Don’t Say Gay.”At first, Disney tried not to take a side on the legislation, at least publicly, which prompted an employee revolt. Disney then aggressively denounced the bill — only to find itself in the cross hairs of Fox News hosts and Florida’s governor, Ron DeSantis, who sent a fund-raising email to supporters saying that “Woke Disney” had “lost any moral authority to tell you what to do.” Florida lawmakers began threatening to revoke a 55-year-old law that enables Walt Disney World to essentially function as its own municipal government. (Disney had already been at odds with the governor on pandemic issues like a vaccine mandate for employees.)In trying to offend no one, Disney had seemingly lost everyone.Disney employees and supporters, at a park in Burbank, Calif., last month, protested Disney’s reaction to a new law in Florida.J. Emilio Flores for The New York Times“The mission for the Disney brand has always been really clear: Do nothing that might upset or confuse the family audience,” said Martin Kaplan, the Norman Lear professor of entertainment, media and society at the University of Southern California and a former Walt Disney Studios executive. “Fun for all. Nothing objectionable. Let’s all be transformed by the magic wand. But we are so divided today, so revved up, that even Disney is having a hard time bringing us together.”Avoiding socially divisive topics, of course, in itself reflects a certain worldview. The Walt Disney Company’s namesake founder, after all, was an anti-union conservative. Main Street U.S.A. patriotism is on prominent display at Disney’s theme parks. The traditional Christmas story is told each December at Disney World in Florida and Disneyland in California with Candlelight Processional events, Bible verses and all.It took the company until 2009 to introduce a Black princess.But in recent years, there has been a noticeable change. Robert A. Iger, who served as chief executive from 2005 to 2020, pushed the world’s largest entertainment company to emphasize diverse casting and storytelling. As he said at Disney’s 2017 shareholder meeting, referring to inclusion and equality: “We can take those values, which we deem important societally, and actually change people’s behavior — get people to be more accepting of the multiple differences and cultures and races and all other facets of our lives and our people.”In essence, entertainment as advocacy.Mr. Iger was the one who pushed forward the global blockbuster “Black Panther,” which had an almost entirely Black cast and a powerful Afrocentric story line. Under his tenure, Disney refocused the “Star Wars” franchise around female characters. A parade of animated movies (“Moana,” “Coco,” “Raya and the Last Dragon,” “Soul,” “Encanto”) showcased a wide variety of races, cultures and ethnicities.Read More on the Walt Disney CompanyDisney World: Celebrations for the theme park’s 50th anniversary are underway. The company hopes they will help with its pandemic recovery.‘Don’t Say Gay’ Bill: Amid employee walkouts and official statements, Disney has become entangled in a battle over the Florida legislation.Streaming: As it faces pressure to keep its streaming business growing, the company announced a cheaper, ad-supported version of Disney+.A Documentary: A movie directed by the granddaughter of one of the Disney founders offered a harsh portrait of pay inequality at the company.The result, for the most part, has been one hit after another. But a swath of Disney’s audience has pushed back.Robert A. Iger, center, Disney’s chief executive from 2005 to 2020, pushed the company to emphasize diverse casting and storytelling.Gareth Cattermole/Getty Images“Eternals,” a $200 million Disney-Marvel movie, was “review bombed” in the fall because it depicted a gay superhero kissing his husband, with online trolls flooding the Internet Movie Database with hundreds of homophobic one-star reviews. In January, Disney was accused by the actor Peter Dinklage and others of trafficking in stereotypes by moving forward with a live-action “Snow White” movie — until it was revealed that the company planned to replace the seven dwarfs with digitally created “magical creatures,” which, in turn, prompted complaints by others about the “erasure” of people with dwarfism.Disney executives tend to dismiss such incidents as tempests in teapots: trending today, replaced by a new complaint tomorrow. But even moderate online storms can be a distraction inside the company. Meetings are held about how and whether to respond; fretful talent partners must be reassured.As Disney prepared to introduce its streaming service in 2019, it began an extensive review of its film library. As part of the initiative, called Stories Matter, Disney added disclaimers to content that the company determined included “negative depictions or mistreatment of people or cultures.” Examples included episodes of “The Muppet Show” from the 1970s and the 1941 version of “Dumbo.”“These stereotypes were wrong then and are wrong now,” the disclaimers read.The Stories Matter team privately flagged other characters as potentially problematic, with the findings distributed to senior Disney leaders, according to two current Disney executives, who spoke on the condition of anonymity to discuss confidential information. Ursula, the villainous sea witch from “The Little Mermaid” (1989), was one. Her dark color palette (lavender skin, black legs) could be viewed through a racial lens, the Stories Matter team cautioned; she is also a “queer coded” character, with mannerisms inspired in part by those of a real-life drag queen.Tinker Bell was marked for caution because she is “body conscious” and jealous of Peter Pan’s attention, according to the executives, while Captain Hook could expose Disney to accusations of discrimination or prejudice against individuals with disabilities because he is a villain.At least some people inside Disney are concerned that such sensitivities go too far. One of the executives worried that looking at artistic creations through a “politically correct filter” could chill creativity.Disney declined to comment for this article.All of this comes at a perilous time for Disney, which is racing to remake itself as a streaming titan as technology giants like Amazon and Apple move deeper into the entertainment business and traditional cable networks like Disney-owned ESPN slowly wither. Disney is also coping with a disruptive changing of the guard, with Mr. Iger stepping down as executive chairman in December.Mr. Iger occasionally spoke out on hot-button political issues during his time as chief executive. His successor, Bob Chapek, decided (with backing from the Disney board) to avoid weighing in on state political battles. Disney lobbyists would continue to work behind the scenes, however, as they did with the Florida legislation.Bob Chapek, Disney’s chief executive, was met with employee protests and then a right-wing backlash after he avoided publicly weighing in on the new Florida law.Chris Pizzello/Invision, via Associated Press“Our diverse stories are our corporate statements — and they are more powerful than any tweet or lobbying effort,” Mr. Chapek wrote in an email to Disney employees on March 7. “I firmly believe that our ability to tell such stories — and have them received with open eyes, ears and hearts — would be diminished if our company were to become a political football in any debate.”In the case of Florida, the approach backfired, first with employee protests and a walkout and then with a right-wing backlash. The Fox News host Tucker Carlson said Disney had “a sexual agenda for 6-year-olds” and was “creepy as hell.” Tweets with the #boycottDisney hashtag accumulated millions of impressions between March 28 and April 3, according to ListenFirst, an analytics firm.Disney executives have long held the position that boycotts have a minimal impact on the company’s business, if any. Disney is such a behemoth (it generates roughly $70 billion in annual revenue) that avoiding its products is almost impossible.But the same vast reach that makes Disney hard to boycott also makes it an increasingly visible part of the country’s cultural debates. Hardly a month goes by without some kind of dust-up, usually with sexual identity and gender as the prompt.On “Muppet Babies” last summer, Gonzo wore a princess gown to a party, defying Miss Piggy’s request that boys dress as knights.Disney ChannelLast summer, “Muppet Babies,” a Disney Junior series for children ages 3 to 8, gently explored gender identity. Gonzo donned a gown, defying a directive from Miss Piggy “that the girls come as princesses and the boys come as knights.” Out magazine wrote that the episode “just sent a powerful message of love and acceptance to gender-variant kids everywhere!” And a far-right pundit blasted Disney for “pushing the trans agenda” on children, starting an online brush fire.Around the same time, some L.G.B.T.Q. advocates were criticizing Disney over “Loki,” a Disney+ superhero show. In the third episode of “Loki,” the title character briefly acknowledged for the first time onscreen what comic fans had long known: He is bisexual. But the blink-and-you-missed-it handling of the information angered some prominent members of the L.G.B.T.Q. community. “It’s, like, one word,” Russell T. Davies, a British screenwriter (“Queer as Folk”), said during a panel discussion at the time. “It’s a ridiculous, craven, feeble gesture.”The Disney+ show “Loki,” starring Tom Hiddleston, was criticized for the way it handled the title character’s brief acknowledgement that he is bisexual.Marvel/Disney+The fighting will undoubtedly continue: The Disney-Pixar film “Lightyear,” set for release in June, depicts a loving lesbian couple, while “Thor: Love and Thunder,” arriving in July, will showcase a major L.G.B.T.Q. character.Last month, when Disney held its most-recent shareholder meeting, Mr. Chapek was put on the spot by shareholders from the political left and right.One person called Disney to task for contributions to legislators who have championed bills that restrict voting and reproductive rights. Mr. Chapek said that Disney gave money to “both sides of the aisle” and that it was reassessing its donation policies. (He subsequently paused all contributions in Florida.) Another representative for a shareholder advocacy group then took the microphone and noted that “Disney from its very inception has always represented a safe haven for children,” before veering into homophobic and transphobic comments and asking Mr. Chapek to “ditch the politicization and gender ideology.”In response, Mr. Chapek noted the contrasting shareholder concerns. “I think all the participants on today’s call can see how difficult it is to try to thread the needle between the extreme polarization of political viewpoints,” he said.“What we want Disney to be is a place where people can come together,” he continued. “My opinion is that, when someone walks down Main Street and comes in the gates of our parks, they put their differences aside and look at what they have as a shared belief — a shared belief of Disney magic, hopes, dreams and imagination.” More

  • in

    Yellen Says Aim Is ‘Maximum Pain’ for Russia Without Hurting U.S.

    WASHINGTON — Treasury Secretary Janet L. Yellen said on Wednesday that the United States would continue taking steps to cut Russia off from the global financial system in response to its invasion of Ukraine and argued that the sanctions already imposed had taken a severe toll on the Russian economy.She addressed the House Financial Services Committee as the United States rolled out a new array of sanctions on Russian banks and state-owned enterprises and on the adult children of President Vladimir V. Putin. The White House also announced a ban on Americans making new investments in Russia no matter where those investors are based.“Our goal from the outset has been to impose maximum pain on Russia, while to the best of our ability shielding the United States and our partners from undue economic harm,” Ms. Yellen told lawmakers.The measures introduced on Wednesday included “full blocking” sanctions against Sberbank, the largest financial institution in Russia, and Alfa Bank, one of the country’s largest privately owned banks.Sberbank is the main artery in the Russian financial system and holds over a third of the country’s financial assets. In February, the Treasury announced limited sanctions against Sberbank, but Wednesday’s sanctions, a senior Biden administration official said, will effectively freeze relations between the bank and the U.S. financial system.The administration also announced sanctions against two adult daughters of Mr. Putin: Katerina Tikhonova and Maria Putina, who has been living under an assumed name, Maria Vorontsova. Others connected to Russian officials with close ties to Mr. Putin will also face sanctions, including the wife and daughter of Russia’s foreign minister, Sergey Lavrov, and members of Russia’s security council, including former Prime Minister Dmitri Medvedev. The official said those people would be effectively cut off from the U.S. banking system and any assets held in the United States.President Biden said on Wednesday that the new sanctions would deal another blow to the Russian economy.“The sense of brutality and inhumanity, left for all the world to see unapologetically,” Mr. Biden said, describing Russia’s actions as war crimes. “Responsible nations have to come together to hold these perpetrators accountable, and together with our allies and our partners we’re going to keep raising the economic costs and ratchet up the pain for Putin and further increase Russia’s economic isolation.”Experts suggested that the latest round of sanctions were unlikely to compel Mr. Putin to change course. Hundreds of American businesses have pulled out of Russia in recent weeks, making new investments unlikely.“The asset freezes on the additional banks aren’t nothing, but this isn’t the most significant tranche we’ve seen to date,” said Daniel Tannebaum, a partner at Oliver Wyman who advises banks on sanctions.Other American agencies are joining the effort to exert pressure on Russia.In a news conference on Wednesday, officials from the Justice Department and the F.B.I. also announced a series of actions and criminal charges against Russians, including the takedown of a Russian marketplace on the dark web and a botnet, or a network of hijacked devices infected with malware, that is controlled by the country’s military intelligence agency.Justice Department officials also celebrated the seizing of the Tango, a superyacht owned by the Russian oligarch Viktor F. Vekselberg, and charged a Russian banker, Konstantin Malofeev, with conspiring to violate U.S. sanctions. Mr. Malofeev is one of Russia’s most influential magnates and among the most prominent conservatives in the country’s Kremlin-allied elite. (The indictment renders his surname as Malofeyev.)At the hearing, Ms. Yellen told lawmakers that she believed Russia should be further isolated from the geopolitical system, including being shut out of international gatherings such as the Group of 20 meetings this year, and should be denounced at this month’s meetings of the International Monetary Fund and the World Bank. She added that the United States might not participate in some G20 meetings that are being held in Indonesia this year if Russians attended.Ms. Yellen, whose department has been developing many of the punitive economic measures, rebutted criticism that the penalties leveled so far had not been effective, in part because there are some exceptions to allow Russia to sell energy.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

  • in

    Amid Sanctions, Putin Reminds the World of His Own Economic Weapons

    The Russian leader has stabilized the ruble and kept Europe’s leaders guessing by threatening to cut off energy. But he has left the country financially isolated.LONDON — In the five weeks since Russia invaded Ukraine, the United States, the European Union and their allies began an economic counteroffensive that has cut off Russia’s access to hundreds of billions of dollars of its own money and halted a large chunk of its international commerce. More than 1,000 companies, organizations and individuals, including members of President Vladimir V. Putin’s inner circle, have been sanctioned and relegated to a financial limbo.But Mr. Putin reminded the world this past week that he has economic weapons of his own that he could use to inflict some pain or fend off attacks.Through a series of aggressive measures taken by the Russian government and its central bank, the ruble, which had lost nearly half of its value, clawed its way back to near where it was before the invasion.And then there was the threat to stop the flow of gas from Russia to Europe — which was set off by Mr. Putin’s demand that 48 “unfriendly countries” violate their own sanctions and pay for natural gas in rubles. It sent leaders in the capitals of Germany, Italy and other allied nations scrambling and showcased in the most visible way since the war began how much they need Russian energy to power their economies.It was that dependency that caused the United States and Europe to exempt fuel purchases from the stringent sanctions they imposed on Russia at the start of the war. The European Union gets 40 percent of its gas and a quarter of its oil from Russia. A cutoff from one day to the next, Chancellor Olaf Scholz of Germany warned this past week, would plunge “our country and the whole of Europe into a recession.”President Vladimir V. Putin has taken steps to insulate Russia’s economy from the impact of sanctions and to prop up the ruble.Pool photo by Mikhail KlimentyevFor the time being, it appears that the prospect of an imminent stoppage of gas has been averted. But Mr. Putin’s sudden demand for rubles helped prompt Germany and Austria to prepare their citizens for what might come. They took the first official steps toward rationing, with Berlin starting the “early warning” phase of planning for a natural gas emergency.Although President Biden has announced plans to release 180 million barrels of oil from the U.S. reserve supply over the next six months and diverted more liquefied natural gas to Europe, that still would not be enough to replace all of what Russia supplies. Russian oil exports normally represent more than one of every 10 barrels the world consumes.Europe’s ongoing energy purchases send as much as $850 million each day into Russia’s coffers, according to Bruegel, an economics institute in Brussels. That money helps Russia to fund its war efforts and blunts the impact of sanctions. Because of soaring energy prices, gas export revenues from Gazprom, the Russian energy giant, injected $9.3 billion into the country’s economy in March alone, according an estimate by Oxford Economics, a global advisory firm.“The lesson for the West is that the effectiveness of financial sanctions can only go so far absent trade sanctions,” the firm said in a research briefing.Mr. Putin’s feints and jabs — at one point this past week he promised to stop and continue gas deliveries in the same statement — have also kept European leaders off-balance as they try to divine his strategy and motivations.The war has prompted democracies to move away from relying on Russian exports. They’ve proposed cutting natural gas deliveries by two-thirds before next winter and to end them altogether by 2027. Those goals may be overly ambitious, experts say.In any case, the transition to other suppliers and eventually to more renewable energy sources will be expensive and painful. On the whole, Europeans may be poorer and colder at least for a few years because of spiraling prices and dampened economic activity caused by energy shortages.And unlike in Russia, governments in these countries have to answer to voters.“Putin has already demonstrated he’s willing to sacrifice civilians — his and Ukrainians — to score a win,” said Meg Jacobs, a historian at Princeton University. For European democracies, turning down thermostats, reducing speed limits and driving less is a choice, she said. “It only works with mass cooperation.”A liquefied natural gas facility in Italy. President Biden has diverted more gas to Europe, but that will still not be enough to replace what Russia supplies.Clara Vannucci for The New York TimesBut leverage, like gas, is a limited resource. And Mr. Putin’s willingness to use it now means that he will have less of it in the future. It will not be an easy transition for Russia either. Most analysts believe that Europe’s aggressive moves to reduce its reliance on Russian energy will have far-reaching consequences, however.“They are done with Russian gas,” David L. Goldwyn, who served as a State Department special envoy on energy in the Obama administration, said of Europe. “I think even if this war would end, and even if you had a new government in Russia, I think there’s no going back.”The European Commission president, Ursula von der Leyen, said as much when she announced the new energy plan last month: “We simply cannot rely on a supplier who explicitly threatens us.”Security concerns aren’t the only development that has undermined Russia’s standing as a long-term energy supplier. What seemed surprising to economists, lawyers and policymakers about Mr. Putin’s demand to be paid in rubles was that it would have violated sacrosanct negotiated contracts and revealed Russia’s willingness to be an unreliable business partner.As he has tried to wield his energy clout externally, Mr. Putin has taken steps to insulate Russia’s economy from the impact of sanctions and to prop up the ruble. Few things can undermine a country as systemically as an abruptly weakened currency.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

  • in

    Russia-Ukraine War Is Reshaping How Europe Spends

    Romania is buying iodine pills. Ireland enacted special incentives for its farmers to till essential crops. And military spending is rising across the continent.Nicolae Ciuca spent a lifetime on the battlefield before being voted in as prime minister of Romania four months ago. Yet even he did not imagine the need to spend millions of dollars for emergency production of iodine pills to help block radiation poisoning in case of a nuclear blast, or to raise military spending by 25 percent in a single year.“We never thought we’d need to go back to the Cold War and consider potassium iodine again,” Mr. Ciuca, a retired general, said through a translator at Victoria Palace, the government’s headquarters in Bucharest. “We never expected this kind of war in the 21st century.”Across the European Union and Britain, Russia’s invasion of Ukraine is reshaping spending priorities and forcing governments to prepare for threats thought to have been long buried — from a flood of European refugees to the possible use of chemical, biological and even nuclear weapons by a Russian leader who may feel backed into a corner.The result is a sudden reshuffling of budgets as military spending, essentials like agriculture and energy, and humanitarian assistance are shoved to the front of the line, with other pressing needs like education and social services likely to be downgraded.The most significant shift is in military spending. Germany’s turnabout is the most dramatic, with Chancellor Olaf Scholz’s promise to raise spending above 2 percent of the country’s economic output, a level not reached in more than three decades. The pledge included an immediate injection of 100 billion euros — $113 billion — into the country’s notoriously threadbare armed forces. As Mr. Scholz put it in his speech last month: “We need planes that fly, ships that sail and soldiers who are optimally equipped.”The commitment is a watershed moment for a country that has sought to leave behind an aggressive military stance that contributed to two devastating world wars.“We never thought we’d need to go back to the Cold War and consider potassium iodine again,” said Nicolae Ciuca, prime minister of Romania.Cristian Movila for The New York TimesA wartime mind-set has also spread to sectors aside from defense. With prices soaring for oil, animal feed and fertilizer, Ireland introduced a “wartime tillage” program last week to amp up grain production, and created a National Fodder and Food Security Committee to manage threats to the food supply.Farmers will be paid up to €400 for every additional 100-acre block that is planted with a cereal crop like barley, oats or wheat. Planting additional protein crops like peas and beans will earn a €300 subsidy.“The illegal invasion in Ukraine has put our supply chains under enormous pressure,” Charlie McConalogue, the agriculture minister, said in announcing the $13.2 million package. Russia is the world’s largest supplier of wheat and with Ukraine accounts for nearly a quarter of total global exports.Spain has been running down its supplies of corn, sunflower oil and some other produce that also come from Russia and Ukraine. “We’ve got stock available, but we need to make purchases in third countries,” Luis Planas, the agriculture minister, told a parliamentary committee.Mr. Planas has asked the European Commission to ease some rules on Latin American farm imports, like genetically modified corn for animal feed from Argentina, to offset the lack of supply.Extraordinarily high energy prices have also put intense pressure on governments to cut excise taxes or approve subsidies to ease the burden on families that can’t afford to heat every room in their home or fill their car’s gas tank.Ireland reduced gasoline taxes, and approved an energy credit and a lump-sum payment for lower-income households. Germany announced tax breaks and a $330-per-person energy subsidy, which will end up costing the treasury $17.5 billion.Ireland introduced a “wartime tillage” program last week to increase grain production.Niall Carson – PA Images, via Getty ImagesIn Spain, the government agreed last week to defray the cost of gasoline in response to several days of strikes by truckers and fishermen, which left supermarkets without fresh supplies of some of their most basic items.And in Britain, a cut in fuel taxes and support for poorer households will cost $3.2 billion.The outlook is a change from October, when Rishi Sunak, Britain’s chancellor of the Exchequer, announced a budget for what he called an “economy fit for a new age of optimism,” with large increases in education, health and job training.In his latest update to Parliament, Mr. Sunak warned that “we should be prepared for the economy and public finances to worsen potentially significantly,” as the country faces the biggest drop in living standards it has ever seen.The energy tax relief was welcomed by the public, but the reduced revenues put even more pressure on governments that are already managing record high debt levels.“The problem is that some countries have quite a big chunk of legacy debt — in Italy and France, it’s over 100 percent of gross domestic product,” said Lucrezia Reichlin, an economics professor at the London Business School, referring to the huge amounts spent to respond to the pandemic. “That is something which is very much new for the economic governance of the union.” European Union rules, which were temporarily suspended in 2020 because of the coronavirus, limit government debt to 60 percent of a country’s economic output.And the demands on budgets are only increasing. European Union leaders said this month that the bill for new defense and energy spending could run as high as $2.2 trillion.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

  • in

    Why the U.S. Can’t Quickly Wean Europe From Russian Gas

    The Biden administration’s plan to send more natural gas to Europe will be hampered by the lack of export and import terminals.HOUSTON — President Biden announced Friday that the United States would send more natural gas to Europe to help it break its dependence on Russian energy. But that plan will largely be symbolic, at least in the short run, because the United States doesn’t have enough capacity to export more gas and Europe doesn’t have the capacity to import significantly more.In recent months, American exporters, with President Biden’s encouragement, have already maximized the output of terminals that turn natural gas into a liquid easily shipped on large tankers. And they have diverted shipments originally bound for Asia to Europe.But energy experts said that building enough terminals on both sides of the Atlantic to significantly expand U.S. exports of liquefied natural gas, or L.N.G., to Europe could take two to five years. That reality is likely to limit the scope of the natural gas supply announcement that Mr. Biden and the European Commission president, Ursula von der Leyen, announced on Friday.“In the near term there are really no good options, other than begging an Asian buyer or two to give up their L.N.G. tanker for Europe,” said Robert McNally, who was an energy adviser to former President George W. Bush. But he added that once sufficient gas terminals were built, the United States could become the “arsenal for energy” that helps Europe break its dependence on Russia. Friday’s agreement, which calls on the United States to help the European Union secure an additional 15 billion cubic meters of liquefied natural gas this year, could also undermine efforts by Mr. Biden and European officials to combat climate change. Once new export and import terminals are built, they will probably keep operating for several decades, perpetuating the use of a fossil fuel much longer than many environmentalists consider sustainable for the planet’s well-being.For now, however, climate concerns appear to be taking a back seat as U.S. and European leaders seek to punish President Vladimir V. Putin of Russia for invading Ukraine by depriving him of billions of dollars in energy sales.The United States has already increased energy exports to Europe substantially. So far this year, nearly three-quarters of U.S. L.N.G. has gone to Europe, up from 34 percent for all of 2021. As prices for natural gas have soared in Europe, American companies have done everything they can to send more gas there. The Biden administration has helped by getting buyers in Asian countries like Japan and South Korea to forgo L.N.G. shipments so they could be sent to Europe.The United States has plenty of natural gas, much of it in shale fields from Pennsylvania to the Southwest. Gas bubbles out of the ground with oil from the Permian Basin, which straddles Texas and New Mexico, and producers there are gradually increasing their output of both oil and gas after greatly reducing production in the first year of the pandemic, when energy prices collapsed.But the big problem with sending Europe more energy is that natural gas, unlike crude oil, cannot easily be put on oceangoing ships. The gas has to first be chilled in an expensive process at export terminals, mostly on the Gulf Coast. The liquid gas is then poured into specialized tankers. When the ships arrive at their destination, the process is run in reverse to convert L.N.G. back into gas.A large export or import terminal can cost more than $1 billion, and planning, obtaining permits and completing construction can take years. There are seven export terminals in the United States and 28 large-scale import terminals in Europe, which also gets L.N.G. from suppliers like Qatar and Egypt.Some European countries, including Germany, have until recently been uninterested in building L.N.G. terminals because it was far cheaper to import gas by pipeline from Russia. Germany is now reviving plans to build its first L.N.G. import terminal on its northern coast.A pier in Wilhelmshaven, Germany, the port where Uniper, a German energy company, wanted to build a liquified natural gas terminal before it was shelved. Now Germany is reviving plans to build it.The New York Times“Europe’s need for gas far exceeds what the system can supply,” said Nikos Tsafos, an energy analyst at the Center for Strategic and International Studies in Washington. “Diplomacy can only do so much.”In the longer term, however, energy experts say the United States could do a lot to help Europe. Along with the European Union, Washington could provide loan guarantees for U.S. export and European import terminals to reduce costs and accelerate construction. Governments could require international lending institutions like the World Bank and the European Investment Bank to make natural gas terminals, pipelines and processing facilities a priority. And they could ease regulations that gas producers, pipeline builders and terminal developers argue have made it more difficult or expensive to build gas infrastructure.Charif Souki, executive chairman of Tellurian, a U.S. gas producer that is planning to build an export terminal in Louisiana, said he hoped the Biden administration would streamline permitting and environmental reviews “to make sure things happen quickly without micromanaging everything.” He added that the government could encourage banks and investors, some of whom have recently avoided oil and gas projects in an effort to burnish their climate credentials, to lend to projects like his.“If all the major banks in the U.S. and major institutions like BlackRock and Blackstone feel comfortable investing in hydrocarbons, and they are not going to be criticized, we will develop $100 billion worth of infrastructure we need,” Mr. Souki said.A handful of export terminals are under construction in the United States and could increase exports by roughly a third by 2026. Roughly a dozen U.S. export terminal projects have been approved by the Federal Energy Regulatory Commission but can’t go ahead until they secure financing from investors and lenders.“That’s the bottleneck,” Mr. Tsafos said.Roughly 10 European import terminals are being built or are in the planning stages in Italy, Belgium, Poland, Germany, Cyprus and Greece, but most still don’t have their financing lined up.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

  • in

    Will War Make Europe’s Switch to Clean Energy Even Harder?

    At the Siemens Gamesa factory in Aalborg, Denmark, where the next generation of offshore wind turbines is being built, workers are on their hands and knees inside a shallow, canoe-shaped pod that stretches the length of a football field. It is a mold used to produce one half of a single propeller blade. Guided by laser markings, the crew is lining the sides with panels of balsa wood.The gargantuan blades offer a glimpse of the energy future that Europe is racing toward with sudden urgency. The invasion of Ukraine by Russia — the European Union’s largest supplier of natural gas and oil — has spurred governments to accelerate plans to reduce their dependence on climate-changing fossil fuels. Armed conflict has prompted policymaking pledges that the more distant threat of an uninhabitable planet has not.Smoothly managing Europe’s energy switch was always going to be difficult. Now, as economies stagger back from the second year of the pandemic, Russia’s attack on Ukraine grinds on and energy prices soar, the painful trade-offs have crystallized like never before.Moving investments away from oil, gas and coal to sustainable sources like wind and solar, limiting and taxing carbon emissions, and building a new energy infrastructure to transmit electricity are crucial to weaning Europe off fossil fuels. But they are all likely to raise costs during the transition, an extremely difficult pill for the public and politicians to swallow.The crisis that has inspired Europe to more quickly reach toward clean energy sources like wind and solar also risks pitching it backward by unwinding efforts to shut coal mines and stop drilling new oil and gas wells to replace Russian fuel and bring prices down.Workers at Siemens Gamesa preparing a mold used to produce one half of a single propeller blade.Carsten Snejbjerg for The New York TimesIn Germany, Europe’s largest economy, leaders are planning to have several coal-fired power plants that were recently taken off the grid placed in reserve, so that they could be quickly fired up if needed. After years of dithering about investing so much in the natural gas infrastructure, Germany is also accelerating plans to build its own terminals for receiving liquefied natural gas, another fossil fuel.“Security of our energy supply stands above everything else at the moment,” said Robert Habeck, the country’s economy minister and a Green party leader in the coalition government.Local officials are taking similar steps. Last week, the Munich government decided to extend the life of one of the city’s coal-fired power plants, scrapping plans to convert it to burn natural gas in spring 2023.And that’s in a country that has helped spearhead Europe’s efforts to shift to renewable energy.In Poland, which gets 70 percent of its energy from coal and has been at loggerheads with the European Union over the climate agenda, the sudden energy shortage is being used by critics as evidence that the push to shut mines was a mistake.A power plant in Poland run by CEZ Group, a Czech conglomerate of companies in the energy sector.Maciek Nabrdalik for The New York TimesDominik Kolorz, head of the Silesian region of Solidarity Trade Union, said through a translator that “the so-called E.U. climate policy” was leading to a “huge economic crisis” and “total energy dependence on the Russian Federation.”In many ways, Europe has been a leading laboratory for the decades-long transition. It started establishing taxes on carbon emissions more than 20 years ago. The European Union pioneered an emissions trading system, which capped the amount of greenhouse gases companies produced and created a marketplace where licenses for those emissions could be bought and sold. Polluting industries like steel were gradually pushed to clean up. Last year, members proposed a carbon tax on imports from carbon-producing sectors like steel and cement.And it has led the way in generating wind power, especially from ocean-based turbines. Siemens Gamesa Renewable Energy, for example, has been instrumental in planting rows of colossal whirligigs at sea that can generate enough green energy to light up cities.Europe, too, is on the verge of investing billions in hydrogen, potentially the multipurpose clean fuel of the future, which might be generated by wind turbines.At Siemens Gamesa in Brande, a prototype for an even larger wind turbine.Carsten Snejbjerg for The New York TimesWind turbines can potentially generate enough green energy to light up cities.Carsten Snejbjerg for The New York TimesSuch exhilarating innovation, though, sits next to despair-inducing obstacles.Even before the invasion of Ukraine, a tight natural gas market, exacerbated by Russia’s restraining of supplies, had pushed gas and electricity prices to record levels, leading to shutdowns of fertilizer plants and other factories because of high costs. Household energy bills are set to rise by about 50 percent in Britain and drivers across Europe faced shock at the pump.European countries, most notably Germany, had mapped out strategies that relied on increasing dependence on Russian gas and oil in the medium term. That is no longer an option.After the invasion, Olaf Scholz, the chancellor of Germany, halted approval of Nord Stream 2, an $11 billion gas pipeline under the Baltic Sea that directly links Russia to northeastern Germany.As Ursula von der Leyen, the European Commission president, said when she announced a plan on March 8 to make Europe independent of Russian fossil fuels: “We simply cannot rely on a supplier who explicitly threatens us.” The proposal calls for member nations to reduce Russian natural gas imports by two-thirds by next winter and to end them altogether by 2027 — a very tall order.This week, European Union leaders are again meeting to discuss the next phase of proposals, but deep divisions remain over how to manage the current price increases amid anxieties that Europe could face a double whammy of inflation and recession.On Monday, United Nations Secretary General António Guterres warned that intense focus on quickly replacing Russian oil could mean that major economies “neglect or kneecap policies to cut fossil fuel use.”A hydrogen test station near the Siemens Gamesa design center. Hydrogen produced with wind power could be a multipurpose clean fuel of the future.Carsten Snejbjerg for The New York TimesThere are other technological, financial, regulatory and political hurdles. The ability to cheaply generate, transport and store a clean replacement fuel like hydrogen to power trucks, cars and airplanes remains years away.And there is the need to find a better business model.Siemens Gamesa is the world’s leading maker of offshore wind turbines, a key vehicle for achieving climate targets. The company is also working on a giant turbine that would be dedicated solely to producing green hydrogen.Yet, at the company’s offshore design center in Brande, a two-hour drive from Aalborg, the conversations focus on worries as much as bright prospects. The company just replaced its chief executive because of poor financial performance.Industry executives say that despite the huge climate ambitions of many countries, Siemens Gamesa and its competitors are struggling to make a profit and keep the orders coming in fast enough to finance their factories. It doesn’t help that building plants is often a condition for breaking into new markets like the United States, where Siemens Gamesa agreed to erect a facility in Virginia.Morten Pilgaard Rasmussen of Siemens Gamesa says companies like his struggle to get projects approved swiftly.Carsten Snejbjerg for The New York TimesMorten Pilgaard Rasmussen, chief technology officer of the offshore wind unit at Siemens Gamesa, said that companies like his “are now forced to do investments based on the prosperous future that we are all waiting for.”The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More