Apr 10, 2022 20:00:00

The collapse of the Russian economy could lead to the next global economic crisis, like a 'domino effect'

In terms of GDP, Greece's economy is a

little larger than Japan's Saitama prefecture, but the 2010 Greek economic crisis , when Greece was on the verge of default, became a crisis throughout Europe and eventually a global financial problem. Has developed. Economists explain what could happen if Russia, which has a much larger economy than Greece, collapses due to sanctions against the invasion of Ukraine from February 2022.

Could the Ukraine invasion spark a global financial crisis?
https://theconversation.com/could-the-ukraine-invasion-spark-a-global-financial-crisis-178340

In response to Russia's invasion of Ukraine, Western countries have frozen the assets of Russian companies and oligarchs , shut them out of the international payment system ' SWIFT ', and prepared foreign currency reserves of about 630 billion dollars (about 77 trillion yen) owned by the Central Bank of Russia. It has issued various economic sanctions such as freezing.

In response to these moves, several rating agencies have decided or will soon lower the credit rating of government bonds issued by the Russian government to 'junk'. Downgrading Russia's rating to junk reflects the perception that Russia is more likely to default, according to Nacil Amine, who teaches economics and finance at Cardiff Metropolitan University in Wales. It is said that it is a thing. As if to support this, the Institute of International Finance has indicated that Russia is 'extremely likely' to be the default.

If Russia defaults, the first to be swayed is its

exposure to Russia, that is, financial institutions around the world that hold loans to Russia. European banks have the greatest impact, with banks in France and Austria holding about $ 25 billion in unpaid debt to Russia, according to Bank for International Settlements (BIS) statistics, Italy. Bank of Italy is said to have about 17.5 billion dollars (about 2 trillion yen). There is also a risk of default not only in Russia, but also in Ukraine, where the Russian attack has hit the whole country hard.

When Russia defaults and the bank's debt that lends money to Russia becomes uncollectible, the bank's solvency is jeopardized. If banks become reluctant to lend to each other due to this, the liquidity crisis that occurred at the time of the global financial crisis , that is, the problem of contraction of bank transactions due to credit instability, may be caused. It is being considered.

Given the total assets held by banks around the world, the amount of exposure to Russia and Ukraine is negligible, so even if both countries default, the direct damage to banks in each country is not significant. It has been. Even so, the total loss to banks in Europe, the United States and Japan is estimated to be 150 billion dollars (about 18.6 trillion yen), so the impact is unavoidable. In addition, banks such as Switzerland, Cyprus, and the United Kingdom underwrite a large amount of Russian Oligarch's deposits to hold assets overseas, so if sanctions prevent Russian funds from entering, the performance of such financial institutions will be affected. It can be very bad.

Not only banks, but companies in other industries related to Russia will be severely damaged by the war between Russia and Ukraine. This is because if sanctions break the economic ties between Russia and its own country, the assets they own in Russia and the transactions with Russian companies will also be lost.

For example, British oil companies Shell and BP have announced that they will sell their assets in Russia, and companies such as Glencore in Switzerland, which has a large stake in Russian oil companies, will also sell their assets. It is under consideration. However, if these assets are not reasonably priced and you have to let go of them in two bundles and three sentences, it will be a big pain.

And the most dangerous is the fall in stocks of companies damaged by the Russian war, panic selling, and the collapse of the world economy like a domino effect. One of the major factors in the aforementioned global financial crisis was the so-called Lehman shock , which was triggered by the bankruptcy of Lehman Brothers, an American investment company.

Finally, Aminu said, 'In short, the ripple effects of this war are enormous. In the near future, more problems will surface. The global economy will be affected by the new coronavirus infection. It has not yet recovered from the pandemic, has already been hit by significant inflation, a sharp rise in prices, and financial markets are in a very volatile state. Russia's invasion of Ukraine has spurred this exacerbation. That's why the financial world will be nervous about future developments. '