Latest news with #Bruegel
Business Insider
3 days ago
- Business
- Business Insider
Russia's high military recruitment bonuses are straining its economy
Russia's high recruitment bonuses to sustain its war effort in Ukraine are straining the country's economy, according to a recent report from the Institute for the Study of War. Costs have ballooned for the bonuses and the labor expansion in the defense industry, Last July, Putin signed a decree more than doubling the standard enlistment bonus from 195,000 rubles to 400,000 rubles — nearly five times the country's average monthly wage. The head count drive has placed the military in direct competition with civilian industries for labor, driving up wages and prices, particularly in services, while Russia continues to pour funds into its war effort. "Russia cannot indefinitely replace its forces at the current casualty rate without an involuntary reserve mobilization, which Russian President Vladimir Putin has shown great reluctance to order, nor can it sustain increasingly high payments to recruits, which the Russian economy cannot afford," wrote the ISW analysts. Russia has suffered over 950,000 injuries and deaths in the war, according to the Center for Strategic and International Studies in June. The ISW analysts warned that Moscow is "burning the candle at both ends" by loosening monetary policy to prop up growth and expanding wartime spending. The combination, they said, risks further destabilizing the economy. Russia's "unsustainably high" payments to soldiers are likely to erode consumer purchasing power, weaken the ruble over time, and deepen macroeconomic instability, the ISW analysts wrote. The cost of Russia's war-driven economic boom Putin's administration beat its recruitment goals last year, largely by offering lucrative bonuses. Some regional governments even offered bonuses on par with the US military's sign-on payments. That approach helped fuel short-term growth. Economists at Bruegel, a Brussels-based think tank, wrotethat military spending and bonus-driven consumption were key drivers of Russia's GDP growth in 2023 and 2024. As the economy shifted toward war, the defense sector and wartime consumption benefited most. But by mid-2023, the economy began overheating, prompting the central bank to raise interest rates repeatedly. "Still, with much lending occurring at subsidised rates and the military-industrial complex shielded by public procurement, the rate hikes primarily impacted non-war-related sectors," the Bruegel economists added. Even the military-industrial sector showed signs of stagnation by late 2024. "The economy had butted up against its supply-side constraints," they wrote. With the Bank of Russia directing credit to military-linked sectors, other parts of the economy are increasingly being squeezed. Meanwhile, structural weaknesses in Russia's war economy persist even if it has appeared to be resilient so far, thanks to the influx of war-related spending. "Russia has lost major export markets for its defence products, faces rising costs from sanctions evasion and suffers from weak labour and migration policies — all of which compound its structural challenges," the Bruegel economists wrote.
Al Jazeera
16-07-2025
- Business
- Al Jazeera
Could Trump's tariff threats force Putin into Ukraine peace deal?
United States President Donald Trump threatened to impose 'very severe tariffs' on Russia on Monday if a peace agreement to end the Ukraine war is not reached in the next 50 days. Trump has also unveiled a new agreement to supply Ukraine with more weapons. On the campaign trail ahead of last year's presidential election, Trump boasted that he would end the war in Ukraine within his first 24 hours in office. However, after at least six phone conversations between Trump and his Russian counterpart, President Vladimir Putin, as well as several meetings between US officials and officials from Russia and Ukraine, no ceasefire deal has been reached. In May, Putin refused to travel to Istanbul to meet with Ukrainian President Volodymyr Zelenskyy for peace talks. The two countries sent delegations instead, resulting in prisoner exchange agreements, only. So, will Trump's latest threat convince Russian President Vladimir Putin to change his stance on Ukraine? What did Trump say about Russia and Ukraine this week? At a meeting with NATO Secretary-General Mark Rutte in the Oval Office on Monday, Trump said he was 'disappointed' in Putin and that Ukraine would receive billions of dollars' worth of US weapons. 'We're going to make top-of-the-line weapons, and they'll be sent to NATO,' Trump said, adding that NATO would pay for them. He added that this would include the Patriot air defence missiles that Ukraine has sought urgently. 'We have one country that has 17 Patriots getting ready to be shipped … We're going to work a deal where the 17 will go, or a big portion of the 17 will go to the war site,' Trump said. Trump said if Putin fails to sign a peace deal with Ukraine within 50 days of Monday this week, he will impose 'very severe' trade tariffs on Russia, as well as secondary tariffs on other countries. 'We're going to be doing secondary tariffs,' Trump said. 'If we don't have a deal in 50 days, it's very simple, and they'll be at 100 percent.' Since the start of the Ukraine war, the US and its allies have imposed at least 21,692 separate sanctions on Russian individuals, media organisations and institutions, targeting sectors including the military, energy, aviation, shipbuilding and telecommunications. While the trade relationship between US and Russia might be relatively marginal, 'secondary tariffs' – first threatened by Trump in March but not implemented – would affect countries such as India and China purchasing Russian oil. In 2024, Russian oil made up 35 percent of India's total crude imports and 19 percent of China's oil imports. Turkiye also relies heavily on Russian oil, sourcing up to 58 percent of its refined petroleum imports from Russia in 2023. Some Western countries could also be hit by secondary tariffs. In 2024, European countries spent more than $700m on Russian uranium products, according to an analysis by the Brussels-based think tank Bruegel, which used data from the European Union's statistical office, Eurostat. How has Russia responded to Trump's latest threats? Putin has not responded personally. However, Kremlin spokesperson Dmitry Peskov told reporters on Tuesday: 'The US president's statements are very serious. Some of them are addressed personally to President Putin. We certainly need time to analyse what was said in Washington.' Peskov stated, however, that decisions made in Washington and other NATO countries were 'perceived by the Ukrainian side not as a signal for peace, but as a signal to continue the war'. Dmitry Medvedev, former Russian president and current deputy chair of Russia's Security Council, wrote in an X post on Tuesday that Russia did not care about Trump's 'theatrical ultimatum'. Trump issued a theatrical ultimatum to the world shuddered, expecting the consequences. Belligerent Europe was disappointed. Russia didn't care. — Dmitry Medvedev (@MedvedevRussiaE) July 15, 2025 Sergei Ryabkov, a senior Russian diplomat, said on Tuesday: 'We first and foremost note that any attempts to make demands – especially ultimatums – are unacceptable for us,' Russia's TASS news agency reported. The Russian stock market appeared untroubled by Trump's threat, rising 2.7 percent on Monday, according to the Moscow Stock Exchange. The Russian rouble initially lost value against the US dollar but then recovered after Trump threatened new tariffs on Russia. According to data from financial analysis group LSEG, the rouble was just 0.2 percent weaker at the end of the day, trading at 78.10 to the US dollar after weakening to 78.75 earlier in the day. The rouble gained 0.9 percent to 10.87 against the Chinese yuan, the most traded foreign currency in Russia. This was after it had weakened by more than 1 percent on Friday. Will US weapons help Ukraine significantly? Marina Miron, a postdoctoral researcher at the defence studies department at King's College London, told Al Jazeera that the Patriot missile systems that Trump has pledged to sell to Ukraine are long-range air defences best suited for shooting down ballistic missiles such as Russia's Iskander M. 'But Ukraine will need short- to medium-range systems as well as multiple rocket launchers in order to defend itself. So it's more of a political move for Trump rather than anything else,' Miron said. She added that the significance of these weapons depends on several factors, including whether Ukraine will get 17 systems as allegedly promised, and where the systems would be placed. How has Trump changed his stance on aiding Ukraine? A month into his presidential term, Trump posted on his Truth Social platform, blaming Zelenskyy for continuing the war with Russia and saying the Ukrainian president 'talked the United States of America into spending $350 Billion Dollars, to go into a War that couldn't be won, that never had to start'. The US has sent Ukraine about $134bn in aid so far – not $350bn – according to the Kiel Institute for the World Economy. Trump's MAGA (Make America Great Again) base has also been critical of US funding for Ukraine. In early July, the Trump administration announced a decision to 'pause' arms deliveries to Kyiv, but reversed this a week later. When Trump announced the reversal on July 8, his supporters voiced criticism. Derrick Evans, one of Trump's supporters who was among the throng which stormed the US Capitol on January 6, 2021, and who was later arrested but then pardoned by Trump in January this year, wrote on X: 'I did not vote for this.' Conservative social media duo Keith and Kevin Hodge posted on X: 'Who in the hell is telling Trump that we need to send more weapons to Ukraine?' Trump appears to be attempting to address these criticisms by saying that instead of supplying weapons to Ukraine, he will sell them to NATO. Furthermore, Miron said, the US is not losing anything by selling weapons, since NATO will be paying for them. 'There are not enough systems being provided to make a substantial difference,' she said. Could Trump's latest threats force Putin to change his policy? While Putin has repeatedly voiced his determination to achieve his war aims, he has not specifically stated what they are. Broadly, he has sought territorial gains within Ukraine and has opposed Ukraine's membership in NATO – these have not changed and are unlikely to do so, according to observers. 'If you were to describe Russia's approach, it's 'keep calm and carry on,'' Miron said, referring to the fact that most Russian officials have not responded to Trump's threat. 'So they are not going for this informational trap,' she said. Has Putin changed his stance at all since Russia invaded Ukraine? Miron said Putin has expanded his goals since Ukraine's major cross-border incursion to the Kursk region in August last year. Ukraine's push into Kursk, which took the Kremlin by surprise, marked the most significant Ukrainian attack inside Russian territory since the war began. In May this year, Russian troops were tasked with establishing a buffer zone stretching up to 10km (6 miles) into Ukraine's Dnipropetrovsk Oblast, according to Ukraine's military intelligence chief Kyrylo Budanov, in an interview with Bloomberg published on July 11. 'I have already said that a decision was made to create the necessary security buffer zone along the border. Our armed forces are currently solving this problem. Enemy firing points are being actively suppressed, the work is under way,' Putin said back then. While Putin did not provide much detail about what the buffer zones would entail, Russian General Viktor Sobolev said they would allow Russia to push Ukraine's long-range missiles out of striking range, Ukrainian media reported.
Yahoo
15-07-2025
- Business
- Yahoo
Which European economy stands to suffer the most from US tariffs?
Germany and Ireland are standing out as the two most exposed EU economies threatened by higher US tariffs, as Brussels works towards a trade deal with Washington, amid reports that pharmaceutical tariffs could be as high as 200%. When US President Donald Trump imposed a new 25% tariff on auto imports and car parts in April, Germany was identified as the EU country with the most to lose. Brussels-based think tank Bruegel's estimation at the time was that tariffs could cost 0.4% of the country's GDP in the long term. While awaiting a new EU-US trade deal, other details emerge that could put Ireland, Denmark, and Belgium, as well as other countries, in the crosshairs should Washington target the pharmaceutical sector next. The overall impact on the European economy will depend on the actual tariff rate the US settles on and the EU's response, but the blow will not be spread evenly. According to Bruegel, the EU economy is facing significant but manageable macroeconomic consequences. They estimated in a report in April that, regarding the possible scenarios, the damage could be approximately 0.3% of the EU's GDP, depending on the outcome of the negotiations. This compares to the 1.1% real GDP growth expected in the bloc in 2025, by the European Commission's Spring Forecast. Trade with the US is significant. In 2024, the United States was the largest partner for EU exports of goods, making up 20.6% of all EU goods exports outside the bloc. Pharmaceuticals account for 15% of the EU's goods exports to the US. They are followed by the auto sector. Until there is more clarification on potential US tariffs on the pharma sector's products, 'the auto sector seems to be the most vulnerable to US tariffs as there doesn't seem to be any major exemptions planned,' said Savary. The industry has been slapped with a 25% tariff in April. 'Tariffs alone could shave around 8% off total EU trade volumes over the next five years,' said Rory Fennessy, Senior Economist at Oxford Economics, in a recent report. Countries with the highest value in goods exports to the US, facing the biggest threat to their economies, include Germany, Ireland, Italy, France and the Netherlands. The German economy relies heavily on exports, boosted by the country's motor vehicle sector. Nearly one-quarter (22.7%) of the total German exports are heading to the US. 'Germany stands out as the major European economy likely to be hit hardest by US tariffs, and we expect GDP growth to slump in the second and third quarters," Andrew Hunter, Associate Director and Senior Economist at Moody's Ratings, said to Euronews Business. Hunter also added that smaller economies, including Austria and others in central and eastern Europe, 'which are heavily integrated into Germany's industrial supply chains, will also be hit hard'. According to Bruegel, after 2025, the long-term negative impact of the tariffs could be around 0.4% of the GDP in Germany, once 'the effect has fully built up and initial short-term effects dissipated,' said Niclas Frederic Poitiers, Research Fellow at Bruegel. 'For France, the average effect would be around 0.25% of GDP.' Related Lengthy trade wars could cut global investment by one-tenth, warn economists Trump the unifier? How Europe could benefit from Trump's policies Uncertainty could lead to lost investments and jobs across the entire 27-member bloc. Hunter said that, 'even for those countries where direct exposure to US exports is relatively limited, such as France or Spain, growth is still likely to be weighed down by global weakness and uncertainty. Regarding long-term impacts, Ireland stands out as one of the most affected countries, as more than half of its goods exports (53.7%) are directed towards the US market. A lot depends on whether the pharmaceutical sector will be hit with tariffs. If so, 'Ireland will be the EU economy most at risk from these tariffs,' said Mathieu Savary, chief strategist for our European Investment Strategy at BCA Research. The research-based pharmaceutical industry is a key asset of the European economy. It is one of Europe's top-performing high-technology sectors. It contributed €311 billion in gross value added (GVA) and 2.3 million jobs directly and indirectly to the European Union's economy in 2022, according to a recent study by PWC. And the US market is crucial to the European pharma sector. According to the European Federation of Pharmaceutical Industries and Associations, in 2021, North America accounted for 49.1% of world pharmaceutical sales compared with 23.4% for Europe. And more than one-third of EU pharma exports are going to the US. If the pharma sector is hit by a 25% tariff, as it is expected by Moody's in the coming months, 'most exposed would be a number of smaller European economies like Denmark, Belgium, Slovenia and Ireland, which are generally where we think the risks of recession in Europe are highest,' Hunter said. BCA Research's chief strategist added that in this case, 'Ireland is particularly exposed to this risk,' citing that exports to the US represent 18% of Ireland's GDP, and pharma exports represent nearly 55% of Irish exports. According to BCA, the impact 'could curtail 4% to 5% to growth over time'. Bruegel estimated that Ireland's cumulative real GDP loss could be 3% by 2028. The think tank also singled out the country as the most vulnerable regarding the impact of the US tariffs on employment. Regarding how vulnerable a country is to job losses in light of US tariffs, Bruegel said that Italy was the second most-exposed country, with a high exposure in transport equipment and a high level of exposed employment in fashion and car manufacturing. Italy would also have high exposure in pharmaceuticals. Trump said on Tuesday that pharmaceutical products imported to the US are facing a 200% tariff, without disclosing any further details. According to BCA's Savary, it is not likely, because 'that would massively increase the cost of healthcare for US consumers, which is already a major issue for voters.' He sees it as a 'strong message to foreign pharma companies to adjust their pricing down and invest into producing their drugs in the US.' Savary expects 'that FDIs into the US and drug prices reduction announcements will be the end result of these talks and threats'. 'The pressure is now on for drug companies to expand US production facilities so they are effectively on the doorstep of American customers,' said Dan Coatsworth, investment analyst at AJ Bell. Sign in to access your portfolio
Euractiv
15-07-2025
- Business
- Euractiv
Why the next EU budget could be doomed to failure
Ursula von der Leyen recently said the EU's current long-term budget 'was designed for a world that no longer exists." Analysts, however, fear her Commission's post-2027 proposal, due on Wednesday, will be similarly unfit for purpose. The plan for the next Multiannual Financial Framework (MFF), which will run from 2028 to 2034, comes amid growing fears about the bloc's prosperity and security, with the US-China rivalry, Russia's military threat, and climate change all threatening to exacerbate major economic challenges, including low productivity, weak demand, and high energy prices. Brussels has said it will attempt to address these issues by, among other things, 'simplifying' the next MFF to make it easier for firms to apply for EU funds and making the budget more 'efficient' to free up more money for new strategic priorities, like defence. While analysts broadly support these measures, many argue that a radical increase in the MFF's size is also necessary to address Europe's investment needs and soften the impact of today's geopolitical volatility and enormous economic uncertainty. However, they also warn that the Commission, aware that the budget's size is the most politically explosive of multiple highly combustible MFF-related issues, is unlikely to propose a radical increase from the current total of €1.2 trillion, or just over 1% of the bloc's annual gross national income (GNI). The US, by comparison, spends around 23% of its GNI at the federal level. 'The Commission doesn't want to come up with a proposal that will be immediately dismissed,' said Zsolt Darvas, a senior fellow at Bruegel, a Brussels-based think-tank. 'So they might propose a slight increase, but certainly not what is needed.' In a recent analysis, Darvas and his colleagues estimated that, to plug the €800 billion investment gap identified by former European Central Bank President Mario Draghi, the EU's next budget should be nearly doubled to 2% of annual GNI. Such an increase is, however, overwhelmingly unlikely. Germany, the EU's biggest economy, has already ruled out higher contributions, while other large economies like France, Italy, and Spain are fiscally constrained by their own high national deficits. Moreover, attempts to bolster the budget through new 'own resources', or special EU revenue streams, are unlikely to raise significant amounts of money and are also likely to be opposed by EU countries wary of ceding additional power to Brussels. Where all EU countries stand on the next long-term EU budget 'The new budget should be 0.9% of GNI higher than the current budget,' Darvas said. 'This is desirable, but I'm afraid we won't see it.' Roughly 0.1 percentage point of this increase, Darvas noted, is necessary to pay back the €650 billion NextGenerationEU pandemic recovery programme – a one-off scheme to turbocharge the bloc's post-COVID-19 economy, financed through common EU debt. Repayments of the fund's principal and interest are set to begin in 2028 and are expected to account for 20% of the next MFF's annual budget expenditure, or €25-30 billion. The repayment means that an effective EU budget decrease is a scenario 'we are quite acutely facing', said Philipp Lausberg, a senior analyst at the European Policy Centre (EPC), another Brussels-based think-tank. 'Europe needs the financial capacity to be able to compete with the strategic investment power of the US and China,' said Lausberg. 'And for this, you need a bigger budget, but I'm afraid this won't happen.' Spending better – together Analysts, however, suggested that even without a significant increase in the MFF's size, the budget's myriad programmes can still be restructured and streamlined to effectively boost strategic investments in green, digital, and other technologies. 'It makes sense to spend a lot more together,' said Lucas Guttenberg, director of the Europe's Future programme at Bertelsmann Stiftung, a foundation based in Germany. 'But I don't think we now do that very well. I think we could do a lot better with the 1% we have.' Currently, the MFF is split into three roughly equal portions, in which €387 billion is devoted to agriculture (the so-called Common Agricultural Policy or CAP), €392 billion to regional development (Cohesion Policy), and the remaining third to everything else. Former US President Joe Biden's adage about budgets – 'Don't tell me what you value; show me your budget, and I'll tell you what you value' – suggests that the EU's current priorities are seriously awry, Guttenberg said. 'If you look at the budget at the moment, one-third is for farmers, one-third is for regions, and one-third is for the rest,' Guttenberg added. 'I don't think that's an accurate reflection of the EU's priorities.' On Wednesday, the Commission is expected to propose an alternative 'three pillar' scheme in which CAP and Cohesion funds are merged into country-specific 'national and regional partnerships," according to a draft regulation obtained by Euractiv. Under the proposal, payouts would be linked to national reforms and adherence to the rule of law.
CNBC
14-07-2025
- Business
- CNBC
EU in a difficult position with China amid U.S. tariff negotiations, says economist
Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis and senior fellow at Bruegel, discusses the impact of EU-U.S. tariff negotiations on EU-China relations ahead of the upcoming summit.
