thirty pm saturday evening. these are all top stories about another plan to resolve the u.s. debt crisis is falling apart in the senate with tuesday's deadline closing legislators were about. to fold. gathered for their annual march in the stone but it's once again caused outrage among activists who say turning a blind eye to such meetings could lead to more tragedies similar to what happened in norway. at israel's bracing itself for the biggest protests seen the years the anti-government demonstrations in the country and drawing comparisons with the arab

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 is just ahead. i. mean welcome to on the money with the business of russia it used business i'm peter lavelle today we're talking about russia in a volatile world. i discuss this issue i'm joined by chris we for here in the studio with me is chief strategist at i n g we also have yvonne he is chief economist for russia and c.i.s. at renaissance capital and we have anatoly miller cough he is head of asset

management at gazprom bank and andre who is not so if he is c.i.s. russia strategist and vice president citi investment research and analysis 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 and so i would say 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 euro wide. solution so i think you know obviously to the summer months we expect to see some perhaps some temporary stopgap measures nobody has. been started that is for two years it's going to keep going like that i would think that 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 in any of these countries that you start to run and we're going to default on a second even what do we do you think it's going this year a crisis actual degree with cleese i think it's it's a problem that will get put there to protect for a 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 peripheral countries that are noncompetitive at all and therefore it's very difficult for them enough. exchange rate to recover this competitiveness and that's the core of the problem and told me if i can 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 that if it's going to be fixed it's going to take a hell of a long time and 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 is enough wheel to avoid. you know meltdown and.

i think 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 will now will not have anybody to buy. their exports so it should be stopped at every for all of europe otherwise it's going to be really really ugly ok on that if i can 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 what do you where do you think the euro is going to go well the problem here is on its face in. these quite fundamental and of course it cannot be sold in any future so that's why. european politicians are trying to

put. the final solution of the problem for as long as possible. so we will see some some with talk measures so they can pretty soon bot. of course want to expect that the fundamental problem of. one of the policy. congress pacific fiscal policy will be solved any time soon ok chris let's go back to the studio here and 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 the 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 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 some form of a default i think that the german seemed to be gunning for some of you know to share the 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 default if there is some elected yeah faltering 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 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 is going to be all about what about of us us well i guess we all assume that the that the u.s. will strike some sort of a temporary deal to prevent the default in august. so that's what the market is assuming and i guess that the noises coming from the 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. flavor of the month 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 the people going to the policy stake 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 back then to say you know it's good to have a big investment banks fail and and and something actually happened but i don't think this is the case right now and probably this is the good news that united states and italy if i can go to you on that one 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 they 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 notice 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 jobs will grow and you know there will be the budget deficit will be reduced just the question to how much and as we all heard if it was not would be not enough you know to keep the economy going there would be quite a if using three and a let's talk about now in the ninety's a little bit later but is find good point if i got it under you are you as optimistic on the u.s. economy is going to tell us well i'm. going to succumb and then i'm. going to

because you're going for almost. fundamental i mean. they are going to be sold in the binary way. they will discuss in default or not default but it's a matter of how it will how much money will be printed to cover that or. how much tax. can be raised in the future so in a sense they're less fundamental than that with your 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 affecting russia and how will it affect russia well right now russia's been effective because investors globally are just risk adverse you know nobody's taking any major bets they're watching the big picture in europe and 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 and it's it's we're seeing volatility in the stock market or the market of course reflecting the news flow but in general there's not a great deal of investment activity in russia for now it has to be said you know thank god for libya. you can say that i did. that one twenty russia 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 into global context because we are so so exposed to the global economy and that long term you know is obviously the big picture 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 go into some you know a double dipper or a big slowdown and global economy then 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 what do you think about this i mean how is russia fairing through all of this volatility

because we can later on we'll talk about what happened in two thousand and eight but you know. a better bet in some ways 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 fiscally sure that chris mentioned as everybody knows that oil price that is needed to balance the budget right now it's at one hundred and twenty five dollars it was much too. before before the crisis russia was was in a much better fiscal positions they had more money to do to put a aggressive counter cyclical fiscal policy if now we experienced a major shock to all prices i think the where we thought of the russian authorities is much less so disk would be an avenue where which they could be affected of course there are a number of ways you need to actually rush is less probably going to be 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 the less flexible exchange rate before and they have

a much less share much smaller share of short term external debt than before the crisis and i think this is also going to be positive in russia should do we experience a major external shocks in italy what do you think about that is russia more vulnerable now than it was before the start of the crisis in two thousand. oh of course much less vulnerable because so many lessons have been learned in two thousand and eight and 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 boring stuff from the international lenders and also the reason why in my house is that 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. i would i would i would say that the way it went much less vulnerable and we'll

learn a lot you know from the two thousand and want to go to i'm sorry if are we going to do i would do you think about that russia more or less vulnerable than it was to in two thousand and eight real quickly before we got to the uk i think that corporate russia is less vulnerable than it was before the crisis because the duration of that was increased and the corporates for learned the lessons of the cross and bought. more vulnerable because of this issue of ohio budget because oprah's and ok gentlemen i'm going to jump in here we go to a short break and after about a break we'll continue our discussion on russia and global volatility state with our team.

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welcome back to on the money i'm peter 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 does their dresher live in the government to billions into liquidity and economic support the reserves but russia had built up prior to that has been says largely rebuilt there is a reserve that has been built up and currently we have more than one hundred twenty billion dollars in the world funds the those resources can be used to further attenuate any crisis that comes rushing this way furthermore there are there are more than five hundred billion dollars in

a fax 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 in two thousand and eight immediate two thousand and eleven key european players are stupid and will default line this by the markets are already pricing one in with a major impact for russia likely to be through financial markets china's first child g.d.p. growth was still stronger than expected after repeated trade heights and it ministers of measures to reduce inflation that lead into fears of a hard landing into possible flump in commodity prices the us debt ceiling impasse has the potential to bring the global economy to shoulder in whole by the more likely commodity variable is the and to q e two it has been. a key factor inflating

commodity prices including russian exports it into budget revenues and inflationary pressure still economists note that this scheme of government outlays has increased significantly so have to understand one point. when the crisis came russia's bodges breakeven federal budget brick of a level below prices was around six to go up and there was a crisis because russia continued social spending also because. of the client with the slowdown now west where the budget break and the under twenty got about which is much much higher and the delicately balanced global economy is still rushing in to see all that you would see it as low level. and large reserves but the infrastructure that provides the economic stimulus but the margin for error in the global economy worsens isn't less than it was an economic decision makers need to

figure that into the shop and the money markets. ok gentlemen we've talked about russian policy in this in the in a volatile environment but let's talk about corporate russia chris how how much be learned through this crisis and we have this more volatility that we have talked about a double dip the eurozone can corporate russia take that kind of blow well there's a lot of people who have actually 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 because they were because they learned lessons or it's hard to you're supposed to learn lessons and also you know the country and global economy generally has been you know either low or lower 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 big companies you

know there. 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 when we 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 out of difficulties of course the central time before a crisis helps many of this corporates to page ok i want to go through all of the government was very important at that point of time again a lot of short term that was repaid so obviously from that perspective at least the confidence in the getting the better shape right. that's let's say we get some major volatility and something of the magnitude of two thousand and eight two 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 emanated loans versus denominated loans i think the corporate corporate switched more to the rouble to the rouble borings and the than the rates are quite accommodated right now and they keep going down so now you do 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. but in the 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 take not only deal with the corporate bonds to the central bank to refinance or the banks can also take the

corporate debt loads that in in the form they were under reagan so it's very very flexible now and lots of mechanisms how you know you can still provide fine lending to the corporates and the key question as we all know they know no business can be construed by was out financing there was a normal rate of boring for any 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 the question was learned so that the state of the banking system the shuttle back has to be in a position to maintain this normal level of boring switch and i agree was all of the previous speakers their level is normal on that what do you think about that is really is corporate russia in a strong position now if there's an external shock or we have more volatility. yeah i would agree that they'll be my choice need corporates if something

happens externally. and still government has formed reserves exceeded the total amount of external that for russian federation. the problem is that in case of major external shock the government will have different problems i.e. problems with the budget. but if it happens the government 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 and it was all ok thank god for libya i'm quoting here ok. but that's you know russia still has a commodity driven economy to a large extent that is they're trying to change them 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 are they 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 other government has been talking and identifying you know a 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's you know on the one hand you could say you know 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 there's certainly an argument to be made that if the price of oil were to go down to something that's a hundred now and then that something dramatic would say down to one hundred. that provides some financial stability but a lot more momentum and a lot more impetus to the reform program because you have to get armored and 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 what do you think about that i mean you know we when you 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 diversifying reciprocation away from petroleum but you know it's a very slow process that is that is still what i think that is one fundamental difference from our economic perspective right now russia is already running a fiscal deficit i think and do for yourself time rationals that are turning

a current account deficit therefore in three or four years time that actual felt will face a classic tween deficit problem just means that these twin deficits on external side on the fiscal side have 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 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 again russia has never lifted such 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 because of the prospects of facing tween deficits in the future and i tell you what do you think about these 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 this 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 two thousand and nine when the state was helping out the corporate sector or 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 the massive scale much on much bigger than we ever seen before. so that's that's a key thing and that's the micro comic. microeconomics is not a macro it's very hard for the can try the government can try but it just it takes time but what we see and what we just are very glad to see it out that you know it's. you know the economic activity speaking up you know you know we get to call it a gentleman we'll all run out of time here i hope i'm not point there i want to thank

all my guests here in the studio and out doing some thanks for viewers for watching us on the money see you next time and stayed with our team. for the full so we've got. the biggest issues good voice things to face with the news makers.

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