time for the headlines out there. the talk radio effect democratic led senate kills republican debt ceiling crime for conduct it was an early prospal across as a u.s. default deadline looms. cultural conservative islamist overwhelm egypt's tahrir square the mounting surreal the war on in the wake of revolution spreading across the region israelis take the streets to protest social justice.

as the number of journalists in the u.s. decreases to other nations sector grows rapidly some are saying ultimately some of the trends will be democracy. coming up next to people about looks at russia's capabilities in the world's financial arena as additional for the money. for. following well from the on the money with the business of russia it is business i'm peter lavelle today we're talking about russia in a volatile old world. discuss this issue i'm joined by chris we are here in the studio with me is chief strategist i n g we also have yvonne checkout

of he is chief economist for russia and c.i.s. at renaissance capital and we have anatol you know a cough he is head of asset management at gazprom bank and andre whose minutes off he is c.i.s. russia strategist vice president c. investment research in our sis at citi bank ok chris i'm going to start out with you gentlemen let's all talk about the volatility in the world let's start with the eurozone. where is it going is there any end in sight and if there isn't in sight what's a outcome no i don't think that's what we're not expecting to see any you know short term solutions clearly this is a very extensive problem and it's going to require you know a substantial year or wait you know solution so i think you know obviously to the summer months we expect to see some perhaps some temporary stopgap measures but it's only been started that is for two years it's going to keep going like that i would think you know we are now at the point where there has to be something much

more radical we will need to see the banking system in europe for example provide provide it with some substantial trillion euro or backstop for example because that's the big threat to all of this is that if you do get a default and leave these countries there you start to run again because my default and second of all what do we do you think it's going it's your crisis actual deal with. it's a problem little get a little bit of that for a number of years probably and it will take a lot of time to solve itself i think the key issue in europe is that you have the political countries that have noncompetitive toll and therefore it's very difficult for them either. exchange rate to recover his competitiveness and that's the core of the problem i told you trying to go to you where do you think we're always going to go because it seems to be consensus here at least in the studio billion for it's going to be fixed it's going to take a hell of a long time a lot of money. oh i can only agree that in the short term there's not going to be that i was

a radical fix which will solve all the issues however i think. you know there is enough we'll to avoid. you know sit down and. i think strongly strongly believe that. there's not going to be default. in euros or even in peripheral countries because otherwise it's going to be really contributors and it will not be stopped you know from spreading from greece portugal ireland to wards spain italy and. later to germany because these guys when they're not having anybody to buy. their exports so it should be stopped at every for all of europe otherwise it's going to be really really ok i'm going to try and go to you and we just heard that there's political will i think there's more fear than anything else that's why they have to fix it before we talk about how it affects russia where you are do you think the euro is going to go. the

problem is on this face in the is quite fundamental and of course it cannot be solved in any future so that's why. you completions are trying to postpone the if wealth lucian of the program for as long as possible. so we will see some tomahawk measures taken pretty soon bot. of course one can not expect the fundamental problem of. one to policy. specific policy will be solved many times and ok chris let's go back to the studio here let's go to the u.s. double dip in the future before we go to us could i just add one last point to the euro zone i think that the political angle is very important here because it seems to me that you know violet you quite rightly say it's more more fear of a meltdown rather than political will i think the political aspect is important in

that we are seeing these major political differences in other words the voting public in countries like germany that are very solid and they're increasingly getting fed up what you know you pay for exactly and i think that's the issue so i think i wouldn't automatically dismiss therefore a some form of the before old i think that the german seemed to be gunning for some of you know the shared pain you know rather than have the german taxpayer pick it all up for example and i think it seems to me from listening to chancellor merkel is that she's in favor of some sort of a controls de force if there is such a living selected yeah voltaren if this is seems to be what they're pushing for extremely dangerous territory of course once you go down that road you don't know where it's going to go but it seems to me at least from the political side the solvent countries don't want to be picking up the tab all the time they want to share this and i think that's at the core of this issue right now that the euro what do you think it will be all about and what about of us us well i guess we all assumed the u.s. will strike some sort of a temporary deal to prevent you know before it on august. fourth. so that's what

the market is assuming and i guess the noises coming from us suggest that is the case but again we're looking at a stopgap measure we're looking at some sort of a temporary solution i think you know this whole issue of debt and deficits and trying to balance growth with stimulus is likely to be the backdrop in the u.s. and therefore globally right up to the election seems to be the year. flavor of the month on what do you think about these was actually because you know a temporary agreement looks like it's in the works here but that doesn't solve the fundamental problems the united states has with debt this may be the case but i think that still believe that the probability of reporting mistake in the united states is much less than the poor due to the policies mistake in europe i don't think that at this stage of the game there is an appetite in united states for making such an error and actually it's very interesting because put us in a very nice contrast and then in a situation i think there was an appetite back in there and say you know it's good to have a big investment banks fail and pay and something to happen but i don't think this

is the case right now and probably this is the good news that united states. going to you are now and where do you think the u.s. is going and its economy and we look at volatility in the world because you know we're looking at the chinese are watching very carefully we don't want to see any kind of major breakdown in the in the u.s. budgetary system nor does anyone else in the world where you think the u.s. economy is going. well we don't expect you know as any. surprises on the positive side to you know sign unexpected jump in the employment or the growth but. we think it's going to be pretty nice you know economy is going to expand moderately and jobs will grow and you know that the budget deficit will be reduced just the question to how much. as we all heard if it was not would be not enough you know to keep the economy going it would be

what if it is in three and a let's talk about you know ninety two a little bit later by this point give play if i'm going to under you are you most optimistic on the u.s. economy is going to tell us. more peaceful u.s. economy than on eurozone economy because of the problems. conflicts fundamental i mean. they cannot be sold in the boy in the room where you. were discussing default or not default but it's a matter of how much money will be printed to call that or. how much tax that. can be raised in the future so in a sense they're less fundamental than that if you was ok gentlemen let's go let's turn this to russia chris how it's all that we've mentioned in this program so far of affecting russia and how will it affect russia it will right now russia's been affected because investors globally are just risk averse you know be taking any

major bets they're watching the big picture in europe in the u.s. and that means that they're generally very quiet in countries like russia let's face it peripheral countries russia continues to be viewed as something as a derivative trade in the global economy saw so that uncertainty is affecting russia it's it's we've seen volatility in the stock market market of course reflecting the news flow but in general there's not a great deal of investment activity in. in russia for now it has to be said you know thank god for libya. but. i didn't really. want twenty. you know relatively looks fiscally and in terms of its budgets it looks very good but it's still you know the backdrop obviously it's still viewed as a as a risk economy in the global context because we are so so exposed to the global economy and that long term you know is obviously the big is the big story for russia if if the u.s. or europe doesn't get it right if they make a major mistake and we dare for a go into some you know a double dip or

a big slowdown and global economy and of course russia is going to be whacked just as much as they will talk about oil in the second part of the program or so what do you think about this i mean how is russia faring through all of this volatility because we can we're only talking about what happened in two thousand and eight but you know is russia a better bet in some ways i mean it is a flight to quality. in some ways i think russia is. more vulnerable now than before and i would like to go back to the fiscal issue that chris mentioned as everybody knows that oil price that is needed to balance the budget right now it's a hundred and twenty five dollars and it was much less before before the crisis russia was was in a much better fiscal positions they had more money to to to pursue aggressive countercyclical fiscal policy if now we experience a major shock to all prices i think the where we thought of the right of the russian authorities it is much less so this could be an avenue where which they could be affected of course there are a number of ways. actually it actually is less probably probably going to be less

vulnerable for example they have a much more flexible exchange rate policy than before flexible exchange little more flexible exchange rate and they're less flexible exchange rate before and they have a much less share much smaller share of short term extension or debts before a crisis and i think this is also going to be positive for russia should we experience some major startups in italy what do you think about is russia more vulnerable now than it was before the start of the crisis in two thousand and eight . oh and of course much less vulnerable because so many lessons have been learned in two thousand and eight now the policymakers are equipped with all these refinancing mechanisms and you know the banks you know can be easily refinanced and much less dependent on the warnings from the international lenders and all surgeries are why am i. there is much less hot money from international investors right now in russia and there is no virtually no

leverage in the stock market so. it would i would i would i would say that we are with much less vulnerable and we're under a lot you know from the top came when you go to the not everybody would. do you think about russia more or less vulnerable than it was to in two thousand it will quickly before we go to the uk i think that is less vulnerable than it was before the crisis because the duration of the work was increased and i think the corporates have food on the list and some of the cross swords made are more vulnerable because of this issue of the higher budget because the whole process and ok gentlemen i'm going to jump in here we'll go to a short break and after that break we'll continue our discussion on russia in global politics but he stayed with our team.

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which graced. the song from silence to. start on t.v. dot com. welcome back on the money i'm peter a little today we're talking about russia and volatility but first let's have an overview of russia in the global economy. the two thousand and eight mile down so global investors these are russia they're in the government billions into the community and economic support there is but russia had built up prior to that has been since largely rebuilt there is a reserve that has been built up. currently we have more than one hundred twenty

billion dollars. in the world funds. that those resources can be used to further attenuate any crisis that comes russian's way furthermore there are more than five hundred billion dollars tax reserves that russia has to try to deal with any volatility on the exchange rate front still however. it needs to be taken into account that these levels of reserves are lower than the ones that russia had before the first wave of the crisis in two thousand and eight in me two thousand and eleven key european players and old line is by the markets already pricing one in with a major impact for russia. likely to be through financial markets china's first g.d.p. growth was two stronger than expected after repeated trade finds and it means through

these measures to reduce inflation that lead interferes with lending into possible slump in commodity prices the u.s. debt ceiling has the potential to bring the global economy shattering hope by the moon likely commodity bearable is the antiquary to it has been a key factor inflating commodity prices including russian exports it into budget revenues and inflationary pressure still economists note that the skew of government outlays has increased significantly. on some one point. eight zero one the crisis team russia was part of the break even federal budget brick of a level below prices was wrong. with the crisis because russia continued social spending also because. of the crime with the comics. now west where the budget breaking out on the twenty dog which is much much higher and

a bit delicately balanced global economy used to rushing in to see volatility it has low levels and large reserves will be restructured. provide some economic stimulus but the margin for error in the global economy worsens isn't less than it was an economic decision makers need to be color that into the shot on the money cards. ok gentlemen we talk about russian policy in this in a in a volatile environment but let's talk about corporate russia chris how how much very learned through this crisis and in let's say we have more volatility that we have talked about a double dip the eurozone came corporate russia take that kind of blow well as a lot of people have actually said before the break russia is in a better debts. situation right now than was the case in late two thousand and eight so for me because it was because we learned lessons partly i suppose we

learned lessons and also you know the country and the global economy generally has been you know the other low or low growth or in crisis since since that period so there hasn't been the opportunity perhaps to grow as fast as was the case before that but i think in general you know talking to executives in russia's big companies you know they're all aware of you know how vulnerable they were in two thousand and eight and they're all determined to avoid making those mistakes again so i think lessons have been learned but we find out when we get into the next in the way through about actually i would agree i would agree with that as you mentioned before the level of short term that has been decreased and i think it would be very helpful if we experienced some out of difficulties of course the central bank before a crisis helped many of these corporates to page ok i want to show you all of the government was very important to that point of time but again a lot of short term debt was repaid so obviously from the perspective at least the confidence of the credit. let's say we get some major volatility and something of

the magnitude of two thousand eight thousand and nine is the russian state in a position to bail out corporates and their debt issues because that's what they did this the last time in the position to do it again if it's necessary. well. the question is only in the balance. of the. foreign exchange law for a change and emanated loans versus within a minute of loans i think the corporate the corporate switched more to the rule to the ruble borings and the. rates like right come what they did right now and they keep going down so now it is the major russian corporation can bore you know for five years you know the rates of six point five percent in rubles which is which is perfect it's actually lower than inflation so i think that's that's a good economics and i'm not sure you know they need to be bailed out. by the

nikkei in the case of the external shock of course you know they're much better prepared to go for their refinancing because the banks can't save not only by the corporate bonds to the central banks refinance or the banks can also take the corporate debt loads but even in the form they were underwritten so it's very very flexible now in lots of mechanisms. you know you can still provide. the lending to the corporates and the key question is we all know the nope no business can be construed why was. there was a. normal rate of boring for any kit for any business if you're in business and expect to pay back all your loans at some point then just better not started so basically that got the question was learned so that the state of the banking system the central bank has to be in a position to maintain this normal level of warnings which and i agree with all the previous speakers the level is you know normal and that when you think about that

easy it is corporate russia i only strong position now if there's an external shock we have more of our own volatility. but yeah i would agree that there will be much less need a lot of corporates if something happens externally. steel government has formed a sort of seeding the total amount of time of the floor of the russian federation and what the problem is that in case of major external shock we go out and we'll have different problems with our problems with the budget or if it happens. needs to focus more on our fiscal side than on our corporate side ok chris let's go back to an issue that you brought up earlier neighbors or will move thank god for libya i'm quoting you ok. but that's you know russia still has a commodity driven economy to a large extent they're trying to change it and trying to change it for

a while but you know if we get some kind of external shock meanwhile prices go down another commodity prices go down how is corporate russia and the russian state what's their strategy that is absolutely the key question in the whole you know some investment story for russia for the next few years as you say currently very commodity dependent means very vulnerable there for what happens in the rest of the world. the government has been talking in identifying you know whole series of reforms that need to be made cross the whole is kind of is it enough come on you've been here a long time but what we actually want to see is progress on the reforms i mean you know providing lists of what needs to be done is fine we can all do that but we're all waiting for a living what investors are waiting for is some progress some action on those reforms to actually see that it has been implemented and i think that's you know on the one hand you could say if the price of oil were to go up to one fifty one sixty then you know we go back to the sort of complacency and slow progress we had before

you know i think there is certainly an argument to be made that if the price of oil were to go down to something that's a hundred and that something dramatic would sit around one hundred. but that provides you know some financial stability but a lot more momentum and a lot more impetus to the reform program because you have to get on with the key issue for russia looking over the next few years is that even one twenty one twenty five dollar oil is not going to prevent a significant slowdown in russia's economic growth the only way that can be prevent this is with a substantial increase in investment in a lot of that would have to come from foreign investors if we have a double dip global recession it will be much more difficult to attract that it means the government will have to try harder to make russia even more attractive so i think it's substantially different game for the government after the next election and really think about that i mean you know when we look at. the price of oil and other commodities here do you think the government is going in the right

making the right move moves and making the right sounds because i've been here a long time and we've heard about diversifying reciprocation away from petroleum but you know it's a very slow process that is that is true but i think there is one fundamental difference from our economic perspective right now russians already running a fiscal deficit i think in three four years of time russia will start running a current account deficit before in three or four years time russia will fail or we will face a classic between deficit trouble and you sneeze at this twin deficit on external side on the fiscal side has to be financed somehow and the only way for us to be able to finance this is to attract foreign investment i think the government maybe for the first time in a very long period of understands that so they understand it they have to make some improvements in the overall business environment in order to be able to finance this deficit and i think that again russia has never lifted such to deficit and it will be a totally different paradigm for them and this is the only way for them to finance the deficit we have to improve the overall business environment we have to.

decrease corruption all these reforms i think that there will be more serious about it because of the prospects of peace and tween deficits in the future. what do you think about that. this is a very good point given brings up about double deficits or is the state prepared for this. well it's hard to get you know prepared for this on one side you need massive investments in infrastructure and you need basically to not only help you know economy as that top on the in two thousand eighty thousand and nine when state was helping out the corporate structure of the private sector its you sustain that crisis but you really need to get the investment started you know the internal investment started. you know on the massive scale much when much bigger than we ever seen before. so that's not sick you think and that's going to make. an iyonix it's not a macro it's very hard for me if i can try to go on can try but it just it takes

time but what we see and what we're just very glad to see that you know it's. you know the economic activity speaking up you know you know we get a call a cascade gentlemen we all run out of time here ok i'm not point there i want to thank all my guests here in the studio and outplaying some thanks for viewers for watching us on the money see you next time the state party. will do the. big splash in the world of business what turns events science into i can see products it's going to understand. he's got the fall of russian leaders to ease your betters abroad and there's a big breakthrough for. sunlight on steel once a month later here on the. cover.