By Michael Every of Rabobank
Train of Thought
Although US 10-year yields are already playing dangerously close to the psychological 2% level, nobody is going to get excited about any economic data until Thursday’s US CPI report. As such, attention can still be focused on the Ukraine crisis. In particular, a steady train of diplomacy against a backdrop of Russian naval vessels entering the Bosporus en route to the Black Sea, and Russian trucks right next to the Ukraine border.
French President Macron returned from his six-hour meeting with President Putin around the world’s largest table (“Pass the salt, please.” …2 minutes later…”Thanks. Pass the pepper, please.”) with a promise that sounded a lot like “Je suis revenu d'Russie avec la paix pour notre époque”.
Details remain unclear, but Macron did not tell reporters “Finlandization” of Ukraine was an option on the vast table, as the New York Times reported. However, he did refer to the fact that Finland made/makes its own choice not to join NATO (to avoid Russian wrath). Macron plugged the Minsk accords, which mean Russian-occupied Donbas gaining autonomy within Ukraine. Yet critics say this could mean the region being able to veto Kyiv actions, which is worse than Finlandization, i.e., not having your own foreign or defence policy. The @kyivindependent suggests President Zelenskiy did not buy what was being sold around a much smaller table when he met Macron afterwards.
Meanwhile, the EU may be struggling to stay united despite a façade of unity: German Chancellor Scholz, President Macron, and President Duda of Poland all stood together in Berlin, but Scholz emphasized we “must prevent a war in Europe”; Macron, that we need “new security and stability”; and Duda that we “will leave no-one behind.” On the united EU/Berlin front, we just published a report underlining the existential pressures the Ukraine metacrisis is placing on Germany: “Ich Bin Ein Berliner”? As a bonus, it also features donuts.
As we wait for US CPI Thursday and to see what will happen geopolitically, allow me to relay a personal anecdote.
I worked in Moscow in the mid-1990s, for the experience not the salary, having been mis-sold it by a close friend who promised me ”Champagne, grilled prawns, and jazz clubs”. He was right about the Soviet champagne at least. Deep in winter, I was told to open a new branch in Rostov-on-Don, and on a Saturday morning I and an assistant, Sasha, were put into a second-class train compartment for the long journey.
Our two huge cabin companions started drinking immediately. We declined, waited a few hours, and went to the restaurant to pass the time. There were only two other customers. One heard my accent, and asked where I was from. When I told him I was British, he shouted: “I am Georgian! St. George!!” The other customer cried he was from Abkhazia. A scuffle broke out. I left as one was pinning the other to the floor with his knee, as the bored waitress looked on.
Back in our cabin, the two Russians were snoring like walruses. Sasha and I tried and failed to read, and then to get some sleep. This was going to be a painful night, I thought. And how right I was.
At 1am the train stopped and we heard voices saying “Passport!” Puzzled, I asked Sasha why this was happening when we were travelling from Moscow, in Russia, to Rostov-on-Don, in Russia. He went pale, saying “They booked train via Ukraine! They forgot you only have single-entry Russian visa!”
In came the border guards. Out came my passport. Off the train we were taken.
Given I did not have a Ukrainian visa, we spent the night in a Kharkiv detention centre, where the facilities were ‘limited’. A large uniformed man interrogated me. He couldn’t read English and was puzzled by my passport, particularly that the expiration date was “02” (2002). “There is no year zero-two!”, he declared victoriously, as if this proved I was a spy. Hours later, he finally relented and put us, dishevelled, back on the train to Moscow. We got on and fell asleep.
45 minutes later the train stopped. We heard voices saying “Passport!” We had re-entered Russia, and I did not have a valid visa to do so.
This time we were taken off the train to a Russian detention centre, where the facilities were ‘limited’, but better than in Kharkiv. A large uniformed man interrogated me. He couldn’t read English and was puzzled by my passport, particularly that the expiration date was “02” (2002). “There is no year zero-two!”, he declared victoriously, as if this proved I was a spy.
Frankly, I had dark sleep-deprived visions of living on trains shuttling back and forth between Russian and Ukrainian detention centres: there were already rumours flying around of people who were trapped like that in the former USSR. I remember planning to ask Sasha to go to the British embassy and send someone to try to find me.
Sasha decided to plead instead, explaining the simple mistake that had been made by Moscow staff who had forgotten there were now barriers in the way of what used to be one country. Hours later, the uniformed Russian finally relented and put us, exhausted, back on the train to Moscow.
I still want to thank both that man and his Ukrainian counterpart in Kharkiv for not forcing me into what would have been a ‘The Terminal’-style crisis. I hope they are both still doing well in the year 2022 despite all the fighting that has happened since in that area. Obviously, here’s hoping that the current Russia-Ukraine crisis can find a happy ending too.
Yet I must also add that markets, without a deep regional/geopolitical ground game, fail to see how large the current tail risks are, as we stressed in our new Germany report and ‘The Ukraine Metacrisis’ note that preceded it. Indeed, a friend in the industry told me yesterday that they were just asked by someone in their sales team to help update their slide-deck to encompass all the permutations possibly flowing on from what is now happening, having previously not included the subject at all. I told them to send one new slide saying:
“Сегодня концерта не будет”.