say thirty pm saturday evening here in moscow my name is kevin irwin and these are all top stories about see another planned result of the us that crisis has fallen apart in the senate i would choose days deadline closing legislators look about fast under the point of full. assessment from the gathered for the annual march in the study of but it's once again caused outrage among activists who say turning a blind eye to such meetings can lead to more tragedies similar to what happened in

the way. that israel is bracing itself for the biggest protest rallies seen there in years the anti-government demonstrations in the country are drawing comparisons will be out of spring uprisings. coming up next people about looks at russia's capabilities in the world's financial rainer in the late edition of on the money it's just that. easy. hello in welcome to on the money with the business of russia it used business i'm people of today we're talking about russia in a volatile old world. to discuss this issue i'm joined by chris we for 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 anatoly norcross he is head of asset management at gazprom bank and andre who is near the source he is c.i.s. russia strategist and vice president citi investment research in our city at citi bank ok chris i'm going to start out with you gentlemen that'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 would say oh. no i don't think there's we were 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 euro weight. solution so i think you know obviously to the summer months we expect to see some perhaps some temporary stopgap measures. 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 like 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 and we're going to default in a second even when we do you think it's going this year a crisis actual degree with. it's a problem that will get that little thought out 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 are noncompetitive at all and therefore it's very difficult for them into. exchange rate to recover this competitiveness and that's the core of the problem. i told you trying to go to you where do you think the euro is going to go because it seems to be consensus here at least in the studio it's going to be fixed it's going to take a hell of a long time in a lot of money. well i can only agree that in the short term this is not going to be. some radical fix which will solve all the issues however i think.

you know there was enough. to avoid. you know meltdown and. i strongly strongly believe that. there's not going to be default. in eurozone even in the peripheral countries because otherwise it's going to be really contagious and it will not be stopped you know from spreading from greece portugal and 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 every four or europe otherwise it's going to be really really ugly ok under if i go to you and we just heard it was political well i mean there's just more fear than anything else that's why they have to fix it before we talk about how it affects russia what do you where do you think the euro is going to go. the problem

is on its face in the it's quite fundamental and of course it cannot be solved in any future so that's why. you completions are trying to put. this well solution of the problem for as long as possible. so we will see some somewhat measures taken pretty soon bot. of course one can expect to be from one of the earth. unified one to the policy and. the specific critical point of all this all the time something 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 on the eurozone i think that's a political angle is very important here because it seems to me that you know while as 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 and you know you pay for exactly and i think that's the issue so i think i wouldn't automatically dismiss therefore some form of it before i think the german seemed to be gunning for some of 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 selective yeah voltaren that is if this 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 and solvent countries don't want to be picking up the tab all the time we want to share it and i think that's at the core of this issue right now you know what is going to be on of it what about of us us well i guess we all assumed that the u.s. will strike some sort of a temporary deal to prevent you know the fault in august august before. so that's

what the market is assuming and i guess the noise coming from us suggests 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 deficit. 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 rio. flavor of the month on what do you think about the u.s. 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 that this may be the case but i think that still believe that the probability of a policy mistake in the united states is much less than according to the policies policy 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 puts us in a very nice contrast to the lehman situation i think there was an appetite rather than to say you know it's good to have a big investment bank fail and and something which happened but i don't think this

is the case right now and probably this is the good news that united states and italy and i'm going to you on that one where do you think that 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 do you think the u.s. economy is going. well we don't expect you know this any. surprises on the positive side you know some 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 the with the budget deficit will be reduced just a question of how much and as we all heard if it was not would be not enough you know to keep the economy going it would be what if he's in three and it's not going

to go into the ninety's or a little bit later but he's trying to play. are you most optimistic on the u.s. economy is going to tell us well i'm more political disagreement than on the eurozone economy because the u.s. . and its fundamental i mean. they could all be solved in a binary where you. were on this wasn't the fault or not the fault but it's a matter of how but well how much money will be printed it took all of it or. how much tax. can be raised in the future so in the sensibility fundamental than that if you was an 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 affecting russia and how will it affect russia it will right now russia has been affected because investors globally are just risk averse you know nobody's 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 so far so that uncertainty is affecting russia and 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 really. want to only. you know rose if you look 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 kind of context because we are so so exposed to the global economy and that long term you know is obviously the big player 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 differ a go into some you know a double dipper 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 a certain part of the program or what do you think about this i mean how is russia fairing through all of this volatility because we can we're on we'll talk about what happened in two thousand and eight but you know is russia a better bet in some ways i mean is a flight to quality in some ways i think russia is more 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 it was much less before before the crisis russia was was in a much better fiscal position they had more money to to to push to 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 which they could be affected of course there are a number of ways in which actually russia 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 less flexible exchange rate before and they have a much less share much smaller share of short term extension or that's a crisis and i think this is also one of the positives in russia shouldn't we experience a major storm struck so literally 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 of course much less well noble because so many lessons have been learned in two thousand and eight now the policymakers are equipped with all these refinancing mechanisms you know the banks you know can be easily refinanced and much less dependent on the boring stuff from the international lenders and also the reason 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're much less vulnerable and we're under a lot you know from the teeth out of chaos when you go to unbelieve or we would go under what do you think about the russian more or less vulnerable than it was to in two thousand me real quickly before we got 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 so off the crisis. or more vulnerable because of this issue of higher budget grouping on price 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 volatility state with r.t. .

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first and only unofficial nature preserve. the region. should close up on the party. welcome back to on the money hiring people 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 now down so global investors desert russia given the government to billions into liquidity and economic support the reserves but russia has tried to that has been says largely rebuilt there is always or of that has been built up. currently we have more than one hundred and twenty billion dollars in the world funds. that those resources can be used to further attenuate

any questions that comes welshness way furthermore there are more than five hundred billion dollars tax reserves that russia has to try to deal with any volatility in 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 and two thousand and eight in two thousand and eleven key european players will default mind this by the markets already priced in one with a major impact for russia no peace in the financial markets china's first child g.d.p. growth was still stronger than expected after really a trade heist and it really threw the measures to reduce inflation there and it interferes then. in commodity prices the u.s.

debt ceiling has the potential to bring the global economy to shoulder in whole by the more likely commodity bearable is the answer q.e. two it has been. a key factor inflating community prices including russian exports it into budget revenues and inflationary pressure still economists note that this scheme of government outlays has increased significantly. on some one point. zero one the crisis scheme. was a break even federal budget breaking a level below process was around six ago. i was a crisis because russia continued social spending also because. now we're breaking the under clinton got about which is much much higher and the delicate balance. used to rushing in to see if you would see it as low level.

and last reserves with the infrastructure that provides the economic stimulus but the margin in the global economy worsens is less than it was and it was the decision makers eat together that if you want to my heart's. ok gentlemen talk to russian policy in this in the in a volatile environment let's talk about corporate russia chris how how much they've learned through this crisis and in the trade we have more volatility that we've talked about a double to the euro zone can corporate russia kind of blow well as a lot of people have said before the break corporate russia is in a better debt situation right now than was the case in late two thousand and eight so from a consumer because he learned lessons were partly i suppose the learned lessons and also you know the country and the global economy generally has been you know either love or law 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 could talking to executives in russia's become police you know their. well 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 room in the way you think about that 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 experience some other difficulties of course. essential done before a crisis helps me of the true patriot act ok i'm going to show you all you got it was very important in that point of time i get a lot of short term gain that was repaid so obviously from that perspective at least the corporates are going to get a better share price. let's say if 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 are in a position to do it again if it's necessary. well. the question is only in the balance. of the. foreign exchange law change and i mean a good loans versus in a loans i think the corporate corporate switched more to the rouble to the ruble borings and the. rates are quite accommodative right now and they keep going down so now it is the major russian corporation can borrow you know for five years you know the rates of six point five percent in rubles which is just 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 the refinancing because the banks can't take not only the

british corporate bonds to the central bank to refinance or to banks that will also take the corporate loans that in the in the form they were under reagan so it's very very flexible now in the rights of mechanisms you know you can still provide. lending to the corporates and the key question is will not be the no no business can be construed by was out financing it was a. normal rate. for any good for any business if you're in business and expect to pay back all your loans at some point then just better not start it so basically that the question was learned so that in the state of the banking system the shuttle bay has to be in a position to maintain this normal level of boric switch and i agree with all the previous speakers their level is you know more on that when you think about that is really is corporate russia in a strong position now if there's an external shock or we have more of our own all

italy. oh yeah i would agree the little bit much less need to be all corporates. past something that happens externally. and still government has for a resort exceeded people the amount of salt it put off for russian federation and what the problem is that in case of major external shock and on it will have different problems that are problems with the budget. but if it happens the government needs to focus more on our fiscal side than on our corporate side of ok chris let's go back to an issue you brought up earlier and it was all thank god for libya but i'm quoting here ok. but that's you know russia still has a commodity driven economy to a large extent they're trying to change it to me trying to change it for a while but you know if we get some kind of external shock i mean well prices go down another commodity prices go down how is corporate russia and the russian state

really what's their strategy that is absolutely the key question in the whole you know some investment story for russian for the next few years as you see currently very commodity dependent means very vulnerable there for what happens in the rest of the world. the other government has been talking in identifying you know whole series of reforms that need to be made across the whole is kind enough is it enough come on you've been here a long time well 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 what we're all waiting for and i think 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 it'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's certainly an argument to be made that if the price of oil were to go down to something let's say one hundred

now and then not something dramatic would say down to one hundred but that provides you know some financial stability but a lot more momentum and a lot more impetus for the reform program because you have. good ahmed in 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 and a lot of that would have to come from foreign investors if we have a double dip 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 a substantially different game for the government after the next election and i really think about that i mean you know when we look at the. price of oil and other commodities here do you think that the government is going in the right making the right move moves and making the right sounds because like chris i've been here a long time and we've heard about diversify diversify cation away from petroleum

but you know it's a very slow process that is that is true but i think that is one fundamental difference from a market and perspective fright now russia is already running a fiscal deficit i think in three or four years of time rationals not turning a current account deficit therefore into four years' time rational fell we will face a classic tween deficit problem this means that this twin deficit and external side on the fiscal side have to be financed somehow and the only way for us to be able to finance this truck for an investment i think the government maybe for the first time in a very long period of time understands that so they understand that they have to make some improvements in the overall business environment in order to be able to finance this deficit and i think that i think russia has never lifted such a thing 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 get more serious about it because of the prospects of facing tween deficits in the future and i tell you what

do you think about that. this is a very good point it brings up about double deficits or is the state prepared for this. well it's hard to get you know prepared for those on one side you need massive investments in infrastructure and you need basically to not only help in a economy as that happened in two thousand and eight thousand and nine when when state was helping out the corporate sector the private sector to sustain the crisis but you really need to get the investment started you know the internal investment started. you know on a massive scale much and want much bigger than we ever seen before. so that's that's a key thing and that's the micro can i make my issues microeconomics is not the macro it's very hard for that if i can try the government can try but it just it takes time but what we see and what we just very glad to see that that you know

it's. you know the canonical t.v. speaking out you know you know we get caught a cold case gentlemen we all run out of time here and i'm out point there i want to thank all my guests here in the studio and they're pulling something for viewers for watching us on the money see you next time and space with our team. for the full we've got. the biggest issues get an invoice face to face with the news makers. it's.