Brussels Playbook: Ruble ructions — Inflation
woes — Putin feels misled
BY SUZANNE
LYNCH AND JAKOB HANKE VELA
March 31,
2022 7:10 am
POLITICO
Brussels Playbook
By SUZANNE
LYNCH and JAKOB HANKE VELA
with ZOYA
SHEFTALOVICH
DRIVING THE
DAY: ENERGY WOES 4
D-DAY … OR
MAYBE NOT: Today was supposed to be the day Russia’s demands for payments in
rubles for gas kicked in. Russian President Vladimir Putin announced the
measure last week on the eve of the EU summit, with the Kremlin confirming it
would kick in at the end of the month. But Moscow has now walked back on that
threat.
Not so
fast: Asked if payments would have to be made in rubles as early as today,
Kremlin spokesman Dmitry Peskov on Wednesday said: “absolutely not.” Speaking
at a press conference in Moscow, he added: “Payments and delivery are a
time-consuming process. From a technological point of view, this is a more
prolonged process.”
Compromise
proposal: In a further development overnight, Putin suggested a compromise
during a phone call with German Chancellor Olaf Scholz, which would see Russia
continuing to accept euros — but only if they were paid to Gazprom, which has
so far escaped EU sanctions. The German government said Scholz didn’t agree to
Putin’s proposal, but asked for more details (here’s a write-up). Putin also
outlined the proposal to Italy’s Mario Draghi in a call Wednesday.
BERLIN’S
PREEMPTIVE MOVE: That follows a dramatic move earlier in the day by Berlin,
with the German government activating the first stage in an energy rationing
plan. In a press conference on Wednesday morning, German Economy and Climate
Minister Robert Habeck raised the warning for gas supplies to “early warning” —
the first of three alert levels.
**A message
from Reclaim Finance: Europe wants to lead the world on net zero. But the
Commission is trying to define gas as a “sustainable” investment, ignoring all
climate science. MEPs must stand up for science and reject the wrongful
classification of gas in the EU Taxonomy for Sustainable Activities. Find out
more here.**
What that
means: According to German law, this level means gas suppliers and networks
should prepare contingency plans to increase gas supply and lower demand —
which in later stages could lead to interventions such as turning off gas-fired
electric plants or asking companies to switch to oil. POLITICO’s Laurenz Gehrke
has more.
DID GERMANY
CALL RUSSIA’S BLUFF? The apparent change in tack by Moscow suggests Germany’s
move may have prompted Russia to back down. (Austria announced a similar
measure.)
RUSSIA’S
CALCULATION: It also raises questions about who stands to lose most from an
energy crisis. Russia holds huge leverage over Europe when it comes to gas
supply — but it also needs Europe as a major customer. Its proposal to switch
to rubles faces a myriad of issues. In the first instance, it breaches existing
contracts. It’s also unclear where foreign buyers would even source the Russian
currency.
And
speaking of Gazprom: European Commission antitrust officials raided Gazprom’s
offices in Germany on Wednesday as part of an ongoing probe into gas prices.
TURN DOWN
THE HEAT: During his press conference on Wednesday, Germany’s Habeck asked
people and companies to look at ways of cutting energy consumption. “Help us,
help Germany, help Ukraine by saving gas or energy altogether,” he said.
European Commissioner Margrethe Vestager echoed that call at a POLITICO Live
event, suggesting people make changes like taking shorter showers.
TURNING OFF
THE (RUSSIAN) HEAT: Meanwhile, Poland’s Prime Minister Mateusz Morawiecki
announced on Wednesday that Warsaw will end all imports of Russian energy by
the end of this year. POLITICO’s Zosia Wanat has more.
GREEN IN A
TIME OF WAR: But while Russia’s war on Ukraine may have jolted the EU into
realizing it must change its energy habits and get off fossil fuels, it’s
little comfort to the millions of Ukrainians who are being bombed out of their
own country and are pleading with Europe to stop funding Russia by buying its
energy. This article by POLITICO’s Karl Mathiesen and Zia Weise probes why
leaders are so scared of telling Europeans to put on a sweater to beat Putin.
EVERY EURO
IS COVERED IN UKRAINIAN BLOOD: The mayor of Kyiv, Vitali Klitschko captured the
views of many, as he warned on Wednesday that every euro sent to Russia is
covered in “Ukrainian people’s blood.” Addressing the European Committee of the
Regions by video link, the former heavyweight boxer lambasted European
countries for continuing to pay Russia for fossil fuel. “Every euro, every
cent” that goes to the Russian Federation is invested in the army and not the
Russian people, Klitschko said. POLITICO’s Camille Gijs has a write-up.
TEST FOR EU
COMMON STORAGE: Meanwhile, one of the EU’s main proposals to help wean Europe
off Russian energy will get its first test today, when Commission officials and
MEPs face off over the Commission’s proposal for mandatory energy storage at
the European Parliament’s energy committee this morning.
Reminder:
The Commission plans to mandate natural gas storage ahead of each winter as
well as coordinate joint purchases of non-Russian gas to fill up those
facilities. In a positive sign, the Benelux countries, Austria, Germany, France
and Switzerland signed a declaration in favor of joint storage on Wednesday.
ALSO
HAPPENING TODAY: Officials from the Organization of the Petroleum Exporting
Countries (OPEC) and Russia are due to meet, though no major policy change is
expected despite the current spike in prices and security of supply threats.
MORE
UKRAINE/RUSSIA 1
NO WHITE
SMOKE: Peace talks between Russian and Ukrainian officials have yet to yield
substantive results, despite Russian Foreign Minister Sergey Lavrov claiming
there had been “substantial progress” — an assertion disputed by the Ukrainian
side. Talks will resume on Friday online, according to the Ukrainians.
Russia
continues bombing: Despite pledges to reduce military operations in the north
of the country, the Ukrainian military said Russia had made no mass-scale
withdrawal, with bombs continuing to fall on the northern cities of Kyiv and
Chernihiv. The Pentagon said there was evidence of Russian troops regrouping
rather than leaving the north. “Kyiv is still very much under threat,” a
Pentagon spokesman said.
No trust:
In a video posted overnight, Ukrainian President Volodymyr Zelenskyy noted “a
build-up of Russian forces for new strikes on the Donbas,” in Ukraine’s east,
adding that Kyiv is “preparing for that.” He said: “We do not believe anyone,
we do not trust any beautiful words … we will fight for every meter of our
land, for every one of our people.”
MEANWHILE,
PUTIN FEELS MISLED: The White House said it has intelligence showing that Putin
believes he has been misled by his advisers. “We believe that Putin is being
misinformed by his advisers about how badly the Russian military is performing
and how the Russian economy is being crippled by sanctions, because his senior
advisers are too afraid to tell him the truth,” White House Director of
Communications Kate Bedingfield told journalists. Jeremy Fleming, the director
of Britain’s intelligence agency GCHQ, painted a similar picture in a speech in
Australia overnight (our colleague Alex Wickham has a full rundown of the
speech in London Playbook this morning — make sure you’re subscribed).
LAVROV IN
CHINA: Russian Foreign Minister Sergey Lavrov traveled to China and met with
his counterpart Wang Yi on Wednesday. Wang, according to Chinese state media,
told Lavrov that “China is willing to work with Russia.” On the subject of
Ukraine, he praised what he called Russia’s efforts in “preventing large-scale
humanitarian crises.”
What this
means for Friday’s EU-China summit: Lavrov’s trip came ahead of tomorrow’s
EU-China summit. Now, China watchers are asking: To what extent has Europe
learned from its mistakes with Putin? And will it start pushing back harder
against Beijing? POLITICO’s Stuart Lau has the essential walk-up.
ZELENSKYY’S
DIARY TODAY: The Ukrainian president continues to bring his message directly to
Western countries’ elected representatives. This morning he will speak to the
Australian parliament, followed by an address this afternoon to Belgian
lawmakers (here’s your primer).
Meanwhile,
in Hungary: Moscow-friendly Prime Minister Viktor Orbán has been on the
receiving end of some tough words from Zelenskyy, as Hungarians head to the
polls on Sunday. But despite Orbán’s coziness with Putin, he leads the field.
POLITICO’s Lili Bayer has the story.
SPOT THE
DIFFERENCE: Ukraine’s Foreign Minister Dmytro Kuleba used a phone call with EU
foreign policy chief Josep Borrell on Wednesday to call for more sanctions on
Russia. But the two had very different messages after the conversation on
Twitter. While Kuleba said the “5th EU package must come as soon as possible
and be as tough as possible,” Borrell made no mention of further sanctions.
Similarly, he said the EU would “maintain” rather than “elevate” pressure on
Russia, as called for by Kuleba.
KAZAKHSTAN’S
TRADE OFFER: Firms under pressure to move their business from Moscow want “to
be somewhere in the neighborhood, and we would like to be that neighbor,” Timur
Suleimenov, first deputy chief of staff to the Kazakh president, told
POLITICO’s Sarah Anne Aarup and America Hernandez in an interview. Suleimenov
stressed that Kazakhstan was not offering a way to work around international
sanctions, but rather to help companies legitimately sell goods like sneakers
and T-shirts to Russians.
SLOVAKIA
BOOTS RUSSIANS: Up to 35 Russian diplomats have been asked to leave Slovakia,
following a decision of the foreign ministry. More here from the Slovak
Spectator.
REFUGEES
RETURN: While the number of refugees leaving Ukraine since the war started has
reached 4 million, according to the latest United Nations figures, POLITICO’s
Una Hajdari reports thousands of Ukrainian refugees are heading home, even as
Russia continues to wage war.
Now read
this: The Continent’s response to those fleeing Ukraine should be the rule —
not the exception, argues Bashar Deeb in this opinion piece for POLITICO.
ICYMI:
TRUMP ASKS PUTIN FOR HELP: Former U.S. President Donald Trump in an interview
called on Putin to release dirt on Joe Biden’s son Hunter.
Lucky
escape: EU politicians and diplomats are counting their blessings that Russia’s
attack on Ukraine did not happen under Trump, who openly questioned America’s
commitment to NATO.
IN OTHER
NEWS
PRICE SURGE
ACROSS EUROPE: Two of Europe’s largest economies — Germany and Spain — posted
runaway inflation numbers on Wednesday, underlining the economic challenges
facing the EU. Spain posted a record 9.8 percent rise in March — the fastest
pace since 1985 — up from 7.6 percent in February. Prime Minister Pedro Sánchez
told the Spanish Congress shortly after the figures were announced that most of
the price rises were explained by an increase in energy costs and unprocessed
foods — both linked to Russia’s war. Germany’s inflation rate jumped to 7.3
percent in March, much higher than analysts’ expectations.
ECB chief’s
concern: Christine Lagarde struck an uncharacteristically downbeat note,
warning on Wednesday that Europe was “entering a difficult phase.” The European
Central Bank has generally taken a more sanguine view of the economic outlook
than many private forecasters, though Chief Economist Philip Lane did warn in
an interview with POLITICO earlier this week that “quite significant and
substantial” drops in recent sentiment indices were a “major concern” for ECB
policymakers.
More to
come: Policymakers are braced for more bad news on Friday, when flash estimate
inflation figures for the eurozone for March are published.
Biden could
step in: U.S. President Joe Biden is considering releasing a million barrels of
oil a day from American reserves for several months to ease the pressure on
energy prices, Bloomberg reports.
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