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Friday, December 9, 2016

The ruble will help the withdrawal of Britain from the EU


The situation on the currency market, as always, exposed to many external and internal factors. Most of them have recently been favorable for the ruble. And what is good ruble is good for ordinary Russians.


photo: Natalia Muslinkina

In the global currency markets the situation is close to panic. All expect what the end is scheduled for June 23 referendum in the UK about leaving the EU, the so-called Brexit. The situation is complicated by the fact that recent polls show the superiority of the supporters of European integration, eurosceptics on the level of statistical error. In other words, the result of the plebiscite is not defined, which gives nervousness to the markets.

Last week British Finance Minister George Osborne said that the country’s withdrawal from the EU will lead to the loss budget of 30 billion pounds, or more than $42 billion These losses will place a heavy burden on the shoulders of the taxpayers, because they will have to offset by tax increases, primarily income and excise taxes on alcohol and gasoline. While Her Majesty’s government to balance the budget will be forced to cut spending on security, education and health. “Leaving the EU would mean less money. Billions less. It is a losing situation for British families, and we don’t have to risk”, – quotes the words of Osborne The Guardian.

The trade balance between Britain and continental Europe is as follows: Britain imports from the continent mainly products and exports of services with high added value: financial, legal, auditing, accounting, architectural projects, etc. In case of withdrawal from the EU the export of British services will be hampered, and imports will remain almost in full, subject to the General WTO rules.

We can say that the victory of the eurosceptics will lead to a sharp fall of the pound against the Euro, and both currencies relative to the dollar. Assessing the possible fall of the pound against the Euro range from 10% to 20%, which says, for example, Soros. His opinion is worth listening at least because he in 1992 was able to capitalize on the fall of the pound more than $1 billion.

In addition, the exit of Britain from the EU to the world markets would mean a flight from risky assets into “safe haven”. You can expect the declining stock markets, a slowdown in the global economy. The last factor can lead to a drop in oil prices, and thus affect the Russian ruble. To grow in case the US dollar, the Japanese yen and the Swiss franc.

However, it is important to understand that simultaneous cataclysm in such a scenario will not happen. The victory of the eurosceptics does not mean that the next day after the results of the referendum the UK would be in front of the closed doors of the European family. Such a decision will only start the negotiations for the divorce, which, according to conservative estimates, can last at least a few years.

To information background Bretix last week joined in prosperous Switzerland. Thus, on 15 June, the upper house of the Swiss Parliament – the Council of States, voted by 27 votes to 13 for the decision to withdraw the application for accession to the EU, which was filed in 1992. Earlier in this decision and voted in the lower house of Parliament, the national Council.

However, the decision of the Parliament of the country only strengthen the de jure results of the referendum held in December 2015 on which of 50.5% of Swiss voters voted against the European integration. Parliamentarians certainly had the mandate of the voters for that decision. According to recent polls, over the past year the number of supporters of the country’s membership in the EU has decreased from 21% to 16%.

The last straw, apparently, was the expectation of a referendum on British exit from the EU, which by its very fact emphasizes the presence of centrifugal forces in the region. Not the last role is obviously played and the crisis with refugees pouring into Europe. The choice of the Swiss are very pragmatic – to help the other EU countries they don’t need, and become donors don’t want to.

And now, amid the growing systemic problems of the EU economy the ECB President Mario Dragi speaks about global challenges faced by monetary authorities around the world. He urged politicians to help the European regulator in the Eurozone’s recovery by speeding up reforms and not braking them for political reasons. But today, the level of systemic problems in the EU economy is growing like a snowball. The ECB continues to lend to the financial system of the Eurozone is actually free money and penalize those market participants who store the money as dead cargo on accounts in the Central Bank, not investing them.

And from June 22 to kick off a new round of issuing super-long loans from the ECB for a period of three to five years. These transactions are unlimited and bear interest rates will remain zero. In addition, the ECB will continue the program of printing money, has already become the largest in the history of the Euro area. From the printing press continues each month will reach 80 billion euros until mid-2017. From June 8 this money will be used not only for the purchase of government bonds, but also to buy banks ‘ corporate debt securities. From March 2015, when the printing press in Europe was launched, the ECB has already managed to “print” 800 billion euros. By next year, the issue volume will reach 1.7 trillion euros.

What this story can mean for the person who decides what to keep their savings? On the few days that remain before the referendum, it is better to give preference to the US dollar as the safest currency, given that you can buy the Swiss franc or Japanese yen to Russian reality is more complicated. The referendum, if Britain decides to stay in the European family, a basket of currencies is to expand at the expense of the Euro and the ruble on the basis of the principle of diversification.

At the confluence of at least a few positive factors and the absence of sudden external shocks (e.g. a sharp drop in oil prices, the ruble to the dollar in June will continue to strengthen. The reference to the end of the month is at the level of 63.9 rubles to the dollar. The European currency, the ruble, most likely, a little less, to 73 rubles per Euro. Maybe much stronger in the case of a strong impact of a possible exit of the United Kingdom from the EU.

Needless to say, savings in any case it is advisable to keep no wallet, and Bank deposits, while the most affordable rates, which can offer large and reliable banks. To strive for the highest possible interest rates from a little-known banks should not, as in the latter time of the CBR weekly denies license two or three similar organizations.

Vadim IOSUB, senior analyst at Alpari

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